What are lp in syndications looking for?

Question

I am interested in learning more on expectations of a lp in a passive multi family syndication?

Chris Seveney · Answer

SFR vs. MFR are two very big different animals and I would have concerns.

Don Konipol · Answer

While it’s still possible to “bootstrap” a syndication as a sponsor, it is much more likely to cost a fair amount upfront.  Here’s an estimate of “startup” costs

1. Legal Reg D compliance - $15,000 +

2. Professional website - $5.000

3. Investor interface software - $10,000 +

4. Online marketing / promotion - $10,000 +

5. Earnest money for proposed purchase.  -  $25,000

6. Loan application, appraisal, title report, etc. for proposed purchase - $15,000

7. Working capital - $25,000

Minimum initial capital BEFORE first dollar of syndication money raised - $105,000

Todd Dexheimer · Answer

There are a lot of things that LP's should be looking for, but in my experience, most LP's don't follow what they should look for, but instead only focus on deals with the "biggest" stated returns. Unfortunately, a lot of those deals end up with the lowest returns.

LP's should be focusing on finding GP's and deals that meet their investing goals. If you want investments that provide good cash flow, are conservative, and provide long-tem value, then don't go with the deal that has fake cash flow (tons of syndications do this), floating rate/bridge debt, and are short term holds.

Evan Polaski · Answer

@Chris HowellAs for what I am looking for as an LP is someone I know, like and trust.  This can come from many different directions, but most commonly it is people that you have a personal relationship with and/or a referral from a close friend that I trust, especially when you are starting out, and even then it is still hard because you need to not just have these friends, but they also have to have some liquidity to invest.

And to address your other question about track record in SFR vs MF, to some extent you are correct on the assessing deals.  But, having met people that have done this, and a lot is in how you market it.

BUT, in my experiences, and I know a few contractors that have a fair number of rentals, the issue in this transition comes from experience running teams.  When you become a syndicator, you are running a company, not a bunch of properties.  Managing people and communication are two major skill sets needed to be successful.

So, while the 20 yrs of single family can be helpful, I would be more apt to invest as an LP if you told me you have a lot of great success in SFRs, but more so that you run a 40 employee GC business, with salaried admins, project managers, estimators, accountants, etc.

Mike Dymski · Answer

Most people with 20+ years of in place systems and high margins would not want to take on the hassle or split profits and share their business with investors.

Chris Seveney · Answer

@Chris Howell I look for experienced sponsors who know how to evaluate risk reward. I would take 9% all day long with an experienced sponsors over 15% projected with someone inexperienced

Ronald Rohde · Answer

It depends. New construction won't have cashflow. Stabilized acquisition absolutely needs year 1-2 major distributions.

Chris Seveney · Answer

I recommend going over to passive pockets and checking that out as there will be a ton of info there. also reddit and facebook groups that cover this topic

Chris Howell · Answer

Thanks for the response and insight i see where you are coming from on team management. I believe we might be comparing different  sized assets the properties i would start on need a team of about 5 people (manager, maintenance team, accountant, me as manager and GC and  investor knowing how to do due diligence and rehab costs and my lawyer and my trusted subs ive used for years.  I think you are talking very large projects need huge teams  where I am talking mid sized value add deals that are to big for mom and pop type investors on their own but that are to small for big syndications to mess with  because it doesnt move the needle for them.Where i am probably  off is in how I’m thinking about bringing in outside capital. Instead of a GP/LP structure, maybe these types of deals are better suited to joint ventures with just a few partners. Still, the GP/LP setup is interesting to me, and I’m working through how it might apply in this space.

Thanks again for the perspective.

What are lp in syndications looking for?

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