All Forum Posts by: Jay Chang

@Scott Kimberly Like what Greg and Sam stated, every syndication is different.

Typically the return is structured based on a percentage split and a preferred return. 

Let's use the following example.

70%/30% split with 8% return for $5 mil project.

Assuming 75% LTV, the required equity is $1.25 mil.

8% return means that the investors who contributed to the $1.25 pool of equity can expect an 8% annual return. If this return is not satisfied, then this 8% carries through the next year like an unpaid debt. If the return for a specific year exceeds 8%, then the additional money is split 70% to the investor and 30% to the sponsor. As you can see, a sponsor can invest $0 and still get cash distribution if the payback exceeds the 8% return; however, this is not recommended because most investors want the sponsors to invest their own money as well. 

Hope this helps. Feel free to reach out to me if you have more questions.

@Aqeelah M. My suggestion is to connect with an experienced investor/syndicator and understand what his/her criteria are, then start looking for deals that fit the criteria. Once you find a good deal, put a investment summary together and send it over to the investor. If the investor likes the deal that you brought, then in return he will most likely make you one of the general partners, which will provide you the opportunity to gain more experience. Happy to chat more if you have more questions.

I am part of ULI, and a lot of experienced real estate developers I met that have been through 2-3 market cycles are cautioning the risks of development. Here are couple reasons:

1. We are heading toward the peak of a market cycle. Although the current home mortgages are much more conservative compared to those made prior to 2008, unicorn companies and personal debt are highly leveraged. If these bubbles burst, then they can cause a financial meltdown and heavily impact the housing market.
2. As you mentioned, development is a lengthy process and uses short term construction loans. If a meltdown does occur, then there is a good chance that your bank will stop funding your project midway. A renovation project or BRRRR, on the other hand, will be able to survive the downturn with its existing cash flow.

Although a ground-up development typically offers higher IRR, you must consider the higher risk that accompanies it. One thing to mitigate risk is to have very wealthy investor(s) backing your deal. If the debt goes south, then you can still continue funding the project with 100% equity to avoid liquidation.

I hope this helps!!

Depreciation will also help you with tax deductions on your monthly cash flow. I would try to leverage as much as possible to boost the equity return, if the DCR allows. 25% down is pretty much the most leverage you will ever get, so you are on the right track. It's 3 years late, but I hope someone finds this helpful

Lots of good advice from this post 

https://www.biggerpockets.com/forums/432/topics/56...

Something I learned is searching for realty companies on the chamber of commerce. Try some cold calling and see what the broker's expertise is before revealing what you are looking for. If the broker only does office properties, and you are looking for multifamily properties, then you are probably wasting your time. I heard from multiple investors to stick with a few good brokers, having too many becomes rather counterproductive.

Good luck!

Perhaps try extending your network in the local area and see if there are other investors looking for partners. I am part of the ULI in LA, and this organization is really good for connecting with local real estate developers/investors. There is a chance that they may be investing out of state. You can also meet arch, eng, and other consultants through this organization.

Good Luck,