Toughest Parts in Syndication And How to Make it Easier

When I interview my guest Kenny i ask him what was the toughest part when he started his journey in multifamily syndication. He said that a lot of it had to do with the third party management because that wasn’t in the house before. That was a lot of headaches because he didn’t like their accounting. He didn’t learn so much there. Because he has got an accounting background, accounting for him is a big deal.

"If you don’t know the numbers you’re looking at are true and accurate, then you can’t take a pulse on the property."

He does many deals that he has to be able to look and trust the income statement and the balance sheet for that matter on each of these deals. To that, different third-party management companies have their pros and cons. To me, that was the biggest headache for Kenny to deal with in the whole syndication process.

So when asked about his investment criteria, he said, a lot of this stuff on the market we’re looking at it and we’re underwriting it in the office, but it’s something that usually we’re pretty far off. We’re looking at properties, a lot of off-market deals that come to us first. There’s a deal in Tulsa that we’re looking at. It’s 200 something units. We’re looking at that. We look at the new stuff that’s on the market as well. It’s usually those properties that we don’t care to pay that price. A big deal to me is a metric that we’ve used a lot in the past when we bought a property where the median income is about equal to the price per door. That’s usually been a home run for us.

That’s not rocket science. There’s a website called City-Data.com. We’ve been using it for a long time. You can type in the ZIP code and find your address. It breaks it down even further than that ZIP code to all the demographics and supplies too much information. To Kenny, the biggest number to look at is that median income, because there was a deal that was brought to him in Shreveport. The median income was $26,000 a year. He said, “No, I’m going to run away from that one.” That’s way too low. He doesn't care if he have to buy it for $24,000 per door, it’s not worth it. He says, how are we going to collect rent at $26,000 median income? We’re looking for deals where whenever it’s a one-to-one ratio, it’s been a home run for us in the past. That tells me a few things. That tells me that the investor or the current owner is not running it efficiently. Otherwise, they would charge more rent or their expenses are too high. There’s something wrong with how they’re operating it.

He gives out his advice about the best way that helped to improve his business and for him that was having his investor portal. That’s going to streamline things well. All the investors seem to like it so far. They can log in and see their K-1s, see their documents all in one spot. It will also helped him with ACHs and everything like that once you get that setup. That was a big addition that he did. He is also making all of his PPM, subscription documents digital through Adobe then going through investor portal. It will be supposedly even easier with DocuSign in everything on the documents. One of the biggest contributions to his overall success is networking. That would be my biggest thing, he says. He pointed to that lunch he had with the seller by saying, “If you’ve got anything, let me know.” He gets up on stage and he speaks in a lot of events.

"Keep building the brand through networking." 

Lastly his advice for people when they are starting our is a question, “Do you want to be a passive or do you want to be a deal sponsor?” Those are two very different paths. If it’s passive, then network and find the deal sponsors that you like and that have done well, have a good track record. Ask for references, for people that have invested in their deals. Do that and do your homework. If they say deal sponsor, then I’d say how I got started was doing two passive deals because I knew I wanted to be a deal sponsor. He did that for a few reasons. One was to learn the ropes. One was a value play, one was a yield play. It depends on making sure your sponsors will work with you if you’re someone who wants to learn the ropes.

Read full blog here: https://lifebridgecapital.com/2019/05/ws222-closing-the-309-unit-deal-in-el-paso-with-kenny-wolfe/