3 Stages of Multifamily Investment

Hi, this is Devin Elder, and in this video I want to talk about three stages of multi-family investment. This is particular to a syndication. A syndication is where a group of folks are pooling capital to go out and buy a property. It might be a five million dollar purchase price on an apartment complex, let's just say a 100 unit apartment complex, and it might be a million dollars that need to be raised to go put into that deal. This is within the context of a syndication.

The three stages I have here are, one is limited partner, two is our general partnership, and three is as a sponsor, and I'll define those one by one here.

First is as a limited partner. A limited partner in a typical multi-family syndication has, of all the roles and responsibilities out there, has one role and that is essentially to write the check. Invest in the deal, it might be a $50,000.00 minimum, or a $100,000.00 minimum or maybe lower than $50,000.00, every sponsor or deal can be different, but you're basically investing with a sponsor on a deal you like and participating in those returns, right?

Typically, you might see a deal that returns seven to 10% cash on cash return, and then some upside on the back end at a sale or a refi, plus some tax advantages, so investing as a limited partner in a deal or past investor is the easiest way to get started, it's the quickest way to get started, and it's the lowest barrier to entry. It doesn't require any specialized knowledge, other than just evaluating the deal and the sponsor and understanding that you like that deal and that sponsor.

That is the lowest barrier to entry, and a great way to start, and the reason I want to make this video is I've seen this all play out, time and time, and time again with people's progression through real estate in multi-family investing.

The second stage is as a general partner. This could be where you partner up with a sponsor that you know, like, and trust and you come on to the general partnership and you maybe help raise some capital for that deal, so if it was a million dollar capital raise, you might help raise $500,000.00 and the sponsor's going to raise %500,000.00 and now you're getting on as a general partner in the deal and you may have some other duties to perform, as part of that general partnership, but it's kind of a step up and a good mid-step between being a limited partner and actually being a full blown sponsor.

You can also participate as a key principle and get your name on there. You might be getting non-recourse lending from Freddy Mac or Fannie May, and if you're going to be a real estate investor in multi-family, you want to get that. You want to get your card punched for being on a key principle on a deal with Freddie or Fannie because that's going to look favorable in the future as you go to be a sponsor.

Third step here is as a sponsor, this is the person running the deal. Finding it, negotiating it, putting the team together as far as the broker, and the property management company, maybe construction management. All those pieces putting together projections for investors, raising the capital, I mean that's all the stuff that the sponsor does, and that's kind of the third and final step here to basically running your own deal.

Typically, you're not going to start as a sponsor overnight. There's going to be some kind of a learning curve there for sure to get into that, but this is a progression that I've seen work again and again and again for folks, because obviously the multi-family investing space, there's a lot to learn. You've got to build your network, you've got to build your knowledge base, and your credibility, and all those types of things. This is a great way to go from say like a W2 employee, to maybe in three to five years, retiring from that W2 job through real estate investing. This is how you could do it.

Now, other folks with higher net worth, they might stay as a limited partner forever, you know. That's one of my goals, is in a number of years when I'm not going to be the guy running around doing these deals, I just want to put my capital to work with another sponsor that I like, and let them run the deal and I just got my mailbox money.

I am a limited partner in certain deals now, but as I get older and as I have more capital to deploy, I'd like to kind of revert back to step one where I'm just, hey, I'm just a limited partner, send me my checks, but if you're looking to progress through the multi-family investment space, this is a kind of a tried and true formula to walk through it and each step along the way is going to get you new knowledge, new connections, new capabilities, all those kind of things that we like to see as we grow through our investing careers.

Hopefully that helps at a high level, give you that path of progress from say, W2 employee, to owning apartments and doing it full-time. Hope that helps, take care.