All Forum Posts by: David Thompson

Aaron,

Lot of good advice above.  Syndication is about talking and dealing with investors, lenders, etc and having credibility is key and more difficult when you don't have it but it can be built.  You are pooling other people's money (limited partners) and you and your partner's (w/more experience) will be the general partner.  You need to have a good market, good deal and experienced team behind you.  If you have capital, then go find partners with experience to build that credibility faster and minimize mistakes. If you don't have capital, lend your time to help those that have that experience and perhaps help them with a variety of tasks including raising capital, finding deals, etc.

Places to learn and network:

1) BP (of course), books on syndication from practitioners, networking at MF meetup groups to start then branch into areas you are interested that will increase your chances of learning and networking w/the right groups...etc.

2) Legal / courses and conferences on syndication, MF investing, etc.  Many do's and don't that you need to understand at federal / state level.  You are now dealing w/SEC regulations and you want to do things right from the beginning.  

3) Start building a list of who you know that may be interested in what you are doing and may have the resources to invest with you, mentor you, provide services for your business, partner w/you, etc.  As you network, grow that list and setup 1x1s to see where you may add value to them and where that person may add value to you.

4) Develop a thought leadership platform to grow your credibility @Jillian Sidoti highlights a few ideas but it's really endless.  As you learn and develop, you can and will want to share more w/others, this increases your credibility and attracts folks who want to learn and participate perhaps with you.  Website, blogs, podcasts, forum participation, newsletters, special report articles, eBook, instructional videos, speaker, start a MF meetup, etc.

Bottomline, think about your business (less transactional) and more about building a strong foundation of contacts, knowledge, capital, ideas to create your future as you want it to be.

In reviewing deals, I see investors attracted to the 8-10% yields and 16 - 20% IRR and like @Brian Burke these deals are in the strongest markets / submarkets; underwritten conservatively with experienced sponsors.  Preferred return of 8% meaning the limited partner is getting the first 8% of distributions / capital event payout before general partner is paid.  This is post fees and often does not show refinances or supplemental loan opportunities after renovations are complete typically end of year two.  Most target close to a 50% return of capital if that path is pursued (refi/sup loan) and a hold period of 5 years on average though could be a sale in yr3 - yr7 depending on market conditions.  Splits in the 70/30 (LP/GP) are very common w/experienced syndicates.

@Tamiel Kenney nails it.  Valuation methodology is completely different for MF (5 units or greater) vs SF and scale is a close complement as @Ivan Barratt notes. You want control, syndicate your own MF apartment and if value add (you will be able to a large degree have the ball in your court on increasing the NOI and increasing the value based on the increased income) if you chosen wisely. With SF, not so, based on comparable sales and if flat in your area, where is that value going to come from ? It's conceivable in a flat market to make solid valuation increases on income properties by your own ingenuity. Couple blogs on ideas to increase revenue and decrease expenses on an apartment to create that increased value.

https://www.biggerpockets.com/blogs/9145/54408-28-...

https://www.biggerpockets.com/blogs/9145/54632-28-...

Kyle,

That is certainly a way to go for the newbie. You need to ascertain what you are bringing to the table.  Helping an experienced syndicate in some capacity would be a good way to leverage their credibility / experiences when you are talking w/lenders and investors as you mention so you can then do this on your own some day.  Finding a deal and raising capital are two most common ways amongst other roles you should be exposing yourself to is most common in supporting the syndicate.  

However, most experienced syndicates either have a full time analyst, strong broker relationships, etc to bringing them a deal so you would most likely be looking at bringing them an off market deal.  The deal split would probably not be too favorable for you to start but that's not the point, the goal is to work with experienced people, learn and later you can negotiate better terms.  My mentor, business partner and good friend @Joe Fairless put together a list of 6 ways to enter the MF game which I think is a great overview of avenues to get there.

https://www.biggerpockets.com/forums/223/topics/31...

Hi Casey,

I hope you have visited Uncle Bears in Mesa....that would make me happy as part owner.  Re: syndications make you queasy, why is that?  Like anything, there are trusted operators that have a ton of experience, can get you scale, forced appreciation with value add focus and into geographies that are hard to do living in one location.

You seem to be managing your properties and doing fine w/it.  Keep doing that if you like.  Maybe pull out some equity as @JD Martin mentions but instead of putting it all into one property, take another look at diversifying your risks into some passive investments that will create cash flow.  Diversification could come in taking a limited partner role in value add MF apts, self storage and mobile home parks as examples.  You get niche, sponsor and geographic diversification....better blending a portfolio into some of the more promising sectors, good risk adjusted track records and promising future trends.

You mention risk, but selling everything and putting it all into one property seems like a far riskier strategy and having a hybrid approach to investing is an interesting way to look at things.  Very few of us out there control everything we are investing in anyway and my experiences with folks is that over time, the hassle of all that control (your time, administrative paperwork, hassles) can weigh on you.  A few blogs on the topic below you may find helpful.

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/59865-div...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Hi Ken,

@Mike Dymski mentioned one solid data point.  Worth repeating, during the last recession, MF mortgage delinquency rate was 1% (take out speculative markets like Vegas, Phoenix and Miami, and it was almost nil) according to my friend@Paul Moore who did some great research when putting together his excellent book on MF investing.  SF homes were running about 4-5% in contrast.  

Here's some practical experiences.  We had a property mgt company in Houston that had 10 + value add B/C properties when oil fell from $100 barrel to $50 barrel (a significant local economic shock due to its dependency on oil related jobs) and their occupancy stayed steady at 92% and even tailed up a bit to 93% during that timeframe while class A fell from 95% to mid 80s. The service jobs in staid industries that make up the demographic tends to hold up better than the $100K oil jobs that went fleeing and favor class A apts.

Secondly, I had an investor recently who wanted to know what the average occupancy was in Richardson, TX (a Dallas suburb) at the worst point in the last recession, where we were acquiring one of our four apartments there.  Worst year was 2009 at 85%. We compared that with the sensitivity analysis on our deal where we could still be making a positive return at 81% and B/E was going to be 75%. That was a comforting data point to share with him.

I find it's best to take a holistic approach to capital raising if you are developing a long term business.  This will involve creating value and information for others.  I find education and sharing time with others helping them learn about the opportunities in general (ie. why I like apartment investing and maybe sharing a closed deal) to start.  I to this day never think about it as marketing and sales.  Makes no sense to me that way.  Educate, share and when folks are ready they will know, then lead them to the next step to get into the investment.  Once in, communicating frequently on the progress, ensuring they understand what's happening along the way, helping them with administrative things that might come up all will lead to building that long term trusting relationship. 

As you do more deals, you'll find your return investors and referrals will provide the bulk of your funding for new deals while building a thought leadership platform will help you in meeting new investors who are interested in getting into this area. Thought leadership and creating content can come is a variety of way including website, videos, podcasts, newsletters, blogs, books, special reports.  Additionally, focus your efforts in efficient ways to meet folks in natural paths you are already in or create new paths that interest you.  These paths might be family, friends, co-workers to start....then moving to MF meetups, kids sports, hobbies, clubs; investing conferences; real estate investing sites like BP, etc.  Like golf, great, join the club and mix it in there.  Hate golf, don't join just to meet other investors because it will show and its forced. Don't have a local MF meetup group in your area, start one.  You name it, just enjoy the natural paths you create so it seems relaxed and have fun with it.  

This is not another job, if it is, then this might not be right for you. Share ideas, meet folks, have fun and if you have something attractive which you do (MF investing).....then your passion will take over as you know this is the right thing and folks will see it in you.  You attract wealth, you don't chase it.  I've been fortunate to be around some great people to be able to raise $13m in about 18 mos over 8 deals.  I continue to learn and share as much as I can about this business. It's a great business.  Stay the course.  Couple blogs of interest.

https://www.biggerpockets.com/blogs/9145/53037-1m-...

https://www.biggerpockets.com/blogs/9145/61278-wor...

Hi Joseph,

Thanks for your comments and here's my feedback:  

3) When will I get my original investment back and what is the holding period? 

Your Comment:  We typically return our investors their investment after 2-3 years via a Cash Out Refinance. We try not to sell any of our assets. I know several other syndicators who are this way and think investors should target this approach vs seling to save on taxes. You address it in comment 13, but don't mention that all proceeds from this new supplemental or new debt is tax free. 

My Comment: Yes, the plan is to get some of the investor equity back earlier through either a supplemental loan or refinance. If we have a great fixed loan in place, why refi it, we'll go the supplemental loan route and accomplish a similar objective of holding onto the property while getting more equity back to investor earlier. Yes, you are correct, that is a tax free event. That also increases IRR and CoC returns but again, we'd rather be conservative so we don't show the boosted returns in our main marketing deck. Under promising and over delivering we feel is a good philosophy. Most value add syndicators will optimize the property value (complete renovations in 2-3 yrs) then look to sell the asset w/the plan of utilizing a 1031 exchange to go find another value add property. The goal is to create massive value in those early years, after that, you are pretty much subject to the market rent growth of say 3%. We feel as investors too, that we are better served finding another great property and repeat. Of course, if market conditions are soft, we would hold on and wait for a better exit time while continuing to pay our investors the preferred return or better.
 

7) When will I get paid? 

Your comment:  We also do monthly direct deposit, though I am finding we are a rarity. Most syndicators I know are on a quarterly distro. It is easier for quarterly so you may see that more often as an investor.

My comment:  Investors love monthly distributions and in coincides well w/our monthly quick update on the projects progress. It's simple, direct deposit is preferred and highly encouraged.  We find our property mgt company actually prefers monthly.  However, you are correct, most distribute quarterly.

8) How will you communicate with me? 

Your comment.  We also provide a weekly report.

My comment. That seems excessive.  Most syndicators do quarterly.  We like monthly and feedback from our investors is that is about the right cadence.  Not enough happens in one week to clog up folks' emails and with over 10 projects going on and many investors in multiple investments I think that would just be noise they don't need and not an efficient use of our team's time.  

10) What is the process / timeline? 

Your comment.  Just a comment on 60 day first distro. We typically see first distro going out at 90-120 days. We find 60 days is too short of a period to really know whats what.

My comment.  We've bought a proven asset that is well over 90% occupied (typically 95% occupied) and has been making well over $1M - $2M in income on the T-12.  With this strategy and hitting the ground running we want min 30d of operations and we payout the following month.  When we started in this business, yes, we were doing quarterly distributions.  Since we moved to monthly we are in that 30-60 day range of ops before paying out and seems to work fine for us.  Agree, most syndicates will likely be on a quarterly cycle.

17) What happens if we have a hardship and want to get out before we sell the property? 

Your comment:  Most LP agreements have a process for selling shares. The shares are first presented to the members to buy back and then if nobody wants them, they are offered to individuals outside the llc, but ultimately need to be approved by members. Takes 60-90 days to process but at the end of it, they get there money back plus any appreciation. Since this is a sale, they are responsible for capital gains tax. 

My comment:  I can appreciate that.  I will say the spirit is there.  I would say in general that the syndicators I've been exposed to if they are good, have their investors interests at heart and realize we want long term relationships with our investor base.  Life events happen, we get it and I would envision if something isn't spelled out in the PPM exactly how this mechanism works that a "best efforts" approach would be applied for a win/win scenario for the current investors and existing investor.

I talked to my business partner who had two large apartment communities in Houston and fortunately he came out unscathed.  The upside, he's pre-leased at 100% for one of them already.  Imagine the rebuilding process and out of area workers coming in to support and housing them will create a pent up demand for apartments especially if you have a B/C property.

Hi Joseph,

Good timing and hope you and your properties (if in Houston) were not impacted.  I posted a blog this morning on 25 FAQs I get when talking MF w/investors.  Also adding one on why I like investing in large apartments.  Welcome to BP and appreciate your topic raiser and sharing of ideas.

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/53820-why...