15 Lessons From Over $100,000,000 in Multifamily Syndications
Since completing my first apartment syndication (raising money from private investors to purchase 100+ unit multifamily buildings) a little over threes ago, I’ve completed an additional six deals. Currently, my company controls over $100,000,000 in assets (1,438 units in total).
After completing each deal, I took inventory on the valuable lessons I learned and made sure that I applied any solutions or outcomes moving forward in order to ensure that each subsequent deal went smoother and was more efficient than the last.
In total, I have learned and applied 15 invaluable lessons to my syndication process that I can attribute to my continuing success.
Apartment Syndication Deal #1 and #2
From my first deal, which was a 168-unit in Cincinnati, OH, and my second deal, which was a 250-unit building in Houston, TX, I had my first two main takeaways:
Lesson #1 – Get the Property Management Company to Put Equity in the Deal
If you are not managing the property yourself, then have the local property management company you’ve hire put their own money into the deal. While this results in you having less equity in the deal, the advantage is that since the management company has their own skin in the game, it is human nature that there will be much more accountability and alignment of interests. This is something I didn’t do on my first deal (mistake), but did apply to the 250-unit deal in Houston.
When following this route, it is even more important that you’ve adequately vetted the property management company. If you aren’t completely comfortable, you’ll be stuck with them as both a manager AND a general partner – a double whammy.
Bonus Point: In return for equity, you can try to negotiate with the property management company for the lowering or elimination of certain fees, such as management fees, lease-up fees, and/or maintenance upcharges.
Bonus Point: On top of the property management company putting equity into the deal, if they also bring on other investors that adds another layer of accountability and alignment of interests.
Lesson #2 – Prime Private Money Investors Prior to Finding a Deal
It is true that if you have a good deal, money will find you. But, that doesn’t mean you should wait for the deal before starting the money-raising process. On my first deal, I raised over $1 million and did so after finding the deal. It was, shall I say, a character building experience. As a result, I don’t recommend that same approach to others.
Leading up to my second deal, I prepped the majority of my investors so that once I had a deal under contract, the money raising-process would flow more smoothly. I still brought on new investors after getting the deal under contract, but overall, the process is much more efficient when you prep investors beforehand.
Note: I don’t actually receive money before I have a deal. I only speak to investors about a hypothetical deal, or past deals, in order to gauge their interest level in investing.
Bonus Point: How do you prep investors before you have a deal?
- Schedule a meeting with investors
- Ask questions to learn their financial goals and how they evaluate success with their investments
- Talk to them about your business (What is your real estate background? What do you invest in? Why do you invest? What is multifamily syndication? Etc.)
- End the conversation with the following question: “If I find something that meets your financial goals, would you like me to share it with you?”
When I’ve asked this question at the end of investor conversations, I’ve never had anyone say no.
Moving forward, keep the interested investors (which should be all of them) updated as you look at properties. Then, when you find a property, they are already well aware of how your business operates and how multifamily syndication works. As a result, they are more inclined to invest.
Apartment Syndication Deal #3
My third syndication deal was a 155-unit apartment in Houston, TX, where I took away three more lessons:
Lesson #3 – Go farther faster by playing to your strengths
For my first syndication deal (168-units in Cincinnati, OH), I did it all:
I found the deal. I did the underwriting. I raised all the private money. I performed the due diligence. I hired all the team members and was the main point of contact moving forward. I closed the deal. I was the asset manager.
While it was a great learning experience, doing it all myself didn’t set the deal up for optimal success. Quite frankly, I am not an expert at many of those duties. For example, I am not a proficient underwriter. I am competent and know how to evaluate a deal and determine if it is good or not. However, I haven’t spent hundreds or thousands of hours focusing strictly on underwriting deals. Like most things, the more you do it, the better you get.
So on this deal, I learned that I needed to partner with someone who is phenomenal at underwriting large multifamily deals. Actually, I partnered with this person on my second deal – the 250-unit. This third deal only re-enforced the need to do it again moving forward because it will allow me to do what I’m good at and allow him to do what he’s good at. Again, we’re both capable of doing each other’s job, but we wouldn’t do as good of a job.
This allows the business to go farther faster because we are both focused solely on our crafts. Yes, there is overlap (I triple check all the underwriting and review it in detail), but it’s better for someone with lots of experience to be the primary underwriter.
Thought for you: What’s something you’re really good at? What’s something you’re not good at? Do more of the former and less of the latter because it’s likely that you enjoy doing what you’re good at, which is why you’re good at it, and vice versa.
Lesson #4 – Do something consistently on a large distribution channel
If you are a real estate investor, you’re in the sales and marketing business. Fix-and-flippers, wholesaler, multifamily syndication, etc. are all in the sales and marketing business. Perhaps passive buy-and-hold investors aren’t, but I’m sure there’s a creative way we could connect them to it.
Since were in this business, we must have a consistent daily presence in order to gain exposure and build credibility with our customers/clients/leads.
Some large distribution channels (with some ideas for each) are:
- BiggerPockets (official BP blogger, being an admin, posting, commenting, adding value, offering assistance, being insightful)
- Amazon.com (writing books and publishing them)
- iTunes (podcasting)
- YouTube (video blog, tips, interviews, make real estate music videos…?)
- Facebook (create a community around an in-person event you host and then open it up to a larger audience)
- Instagram (pictures of renovations before & after)
- Twitter (proactively answering real estate related questions)
Whatever you do, do it DAILY.
Do it consistently.
And do it on a large distribution channel.
Many people want the shiny object, the golden nugget, the Super Secret Plan that will let them retire on the beach in Tahiti. I think that’s ridiculous. We live in an instant-gratification culture. The truth is that to make a good living in real estate, you MUST be consistent with strategic, proven actions. That’s it.
Lesson #5 – There is major power in doing a recorded conference call when raising money
This is going to be a super simple lesson and you might even say “duh.” If you do, I don’t blame you, BUT it’s something I didn’t do on my first two multifamily syndications. I figured if you don’t do it either then it would help you out when raising money.
Here’s the tip: have a conference call with qualified investors to talk about your deal and record it!
When we were in the middle of raising money for this 155-unit apartment community, my business partner and I decided to have a conference call to present the deal to accredited investors. We did a similar call on our previous deal but we didn’t record it.
For this one, however, I recorded it. It was tremendously helpful with raising money for the deal, mainly for two reasons:
- Most accredited investors are busy making money, which is why they actually have money to invest in the first place. This helps them listen to the presentation on their schedule
- The questions being asked are from a group of people, which is beneficial to others who are listening but didn’t think of those questions
Here’s how I record the conference call:
- First, I make sure the attendees have the presentation prior to the call so that they can review it and come up with questions.
- Next, I used freeconferencecall.com (I have no affiliation with them) and simply set up the call.
- During the call, I have the attendees email me questions. That way, I know who is asking the questions, and I can follow up with them afterwards
- At the end of the call, we do a Q&A session, and my business partner or I answer all the questions that are asked.
As you’re raising money, I highly recommend this simple approach. I’ve personally seen a benefit, and I’m confident you will too!
Apartment Syndication Deal #4
My company’s fourth syndication deal was a 320-unit, which was the largest deal we’d closed.
Around the time I closed the 320-unit deal and still to this day, many people ask me how they can break into the multifamily syndication business (i.e. raising money and buying apartments with investors). So, I put a list together for anyone who wants to do bigger deals, but doesn’t know hoe to use their special talents (we all have them) to make it happen.
Here is a list of 6 ways to creatively get into the business:
- Find an off-market deal
- Conservatively underwrite deals
- Negotiate terms and get all legal documents in order
- Raise capital for deals and be the ongoing point person for capital sources
- Secure debt financing (if applicable)
- Do property management
Which of these areas appeal to you the most? Which do you want to do? How do you want to spend your time?
If you’re going to be a successful multifamily syndicator then you’ll need to choose your primary area of focus. If you try to do it all, then you’re doing your investors and yourself a disservice. Why?
We all have special talents. We are all wired differently and process information differently. The key is to have a business where you have team members doing what they love to do and what they are good at (surprise, they go hand-and-hand), while you are doing the same.
Yes, I have working knowledge of ALL 6 areas and I recommend you do too. But, you can break in the business by having a specific focus and being strategic about how you leverage that focus.
So, here you go, the 6 ways to break into the apartment syndication biz:
Lesson #6 – Find an Off-Market Deal
By finding an off-market deal, you can bring it to an experienced investor who can close on it.
But before you actually look for deals or bring one to an experienced investor, figure out WHOM you should bring it to and qualify them to ensure you’re not doing unnecessary work. Your time is valuable.
To qualify them make sure they:
- Have closed on similar properties that you’ll be looking for
- Are willing to structure the agreement in a way that meets your goals (more on this below)
- Are trustworthy and provide references – don’t enter into an agreement lightly. Any partnership has major implications because you’re bringing in investor money.
Should you ask for a one-time fee or equity in the deal? Well, it’s nice to get a fee for finding a deal but don’t you want the long-term benefits of being in a deal? I would. So while you might need to get a fee on the first couple deals because, well, you need to eat and have shelter, the more you do it the more you should transition to being an equity partner for finding the deal. Don’t take a single-family home wholesaler’s approach. Rather, take a buy-and-hold investor’s approach because that is what ultimately sets you up for long-term financial freedom.
Practically speaking, if someone came to me with an off-market deal then I think it’s worth about $25k – $100k depending on some of the details (i.e. size, how good of a deal it really is, etc.).
Lesson #7 – Conservatively Underwrite Deals
By conservatively underwriting deals, you can get into the business by taking your talents to a group (or person) who is getting tons of deal flow and needs help underwriting deals. My business partner and I get a ton of deal flow so we brought on a couple MBA students at UCLA to help us with the initial underwriting. After they do the initial underwriting we then take it from there and complete the analysis. We pay them $10k once we close on a deal and then there’s long-term potential for them to be in on the deals as we grow our business.
So, if you’re a numbers nerd…ahem, numbers guy/gal then this is a way to break into the industry. I interviewed a 20-year-old who did this and helped close a $2.3M deal. I mean, come one, if a junior in college can do it then why not you??
Lesson #8 – Negotiate Terms and Get all Legal Documents in Order
Getting a law degree in another way to get into the business. If you’re not an attorney or don’t want to get a law degree then skip to the next lesson.
Seriously, this isn’t the most practical way into the business but if you already have a law degree then it might work. First off, the person responsible for the acquisition is likely the one who negotiates the terms so really all that’s left is legal documents. Paying the cost of legal on syndicated deals makes more financial sense than bringing an attorney in on the deal as a General Partner in most cases. However, perhaps you find a group that has grown to the point where it makes financial sense to have an in-house council. It’s likely even if you’re an attorney that you’ll need to combine this lesson with other things you bring to the table in order to make for an appealing partner.
Lesson #9 – Raise Capital for a Deal and Be the Ongoing Point Person for Capital Sources
By raising capital for a deal and being the asset manager, you can get into the business by partnering with someone who has a proven track record in the multifamily syndication business. You bring the money and they bring the deal. If you have a network of high net worth people AND they think of you as a savvy businessperson then this could be your ticket into the business.
Here are some points to guide you along the way:
- Identify partners that are already doing deals and have a successful track record
- Get an idea of how much you would make on a past deal of theirs if you raised XYZ amount of money – this gives you some benchmarks for how much you’ll make on future deals when you bring in the money
- Make sure the partner has money in the deal – otherwise, what do they have to lose if you bring in your money and your investor money and the deal flops? Always have alignment of interests
Remember: if you’re raising money for other people’s deals, you must be on the General Partnership (GP) side. If you are not on the GP side and you are raising money then that’s against the law unless you have a Securities License. Be careful here. Make sure you’re on the GP side if you’re raising money for a deal.
Lesson #10 – Secure Debt Financing
Being a mortgage broker and securing the debt financing is another way to get into the business. If you aren’t a mortgage broker or don’t want to be one then skip to the next lesson.
Even if you are a mortgage broker, similar to lesson #8, you’ll most likely get paid a fee (i.e. commission) instead of being brought on the GP side. That being said, I know of some groups that comprise of mortgage brokers and they get in the deals by putting in their brokerage fee as the equity in the deal.
Lesson #11 – Do Property Management
Become a property manager. As a property manager you have lots of ways of breaking into the business. Here are some:
- Networking with local, aspiring investors who want to do deals but don’t have the track record. You can bring your team’s track record of turning deals around and they bring the money for the deal. You have a lot of leverage here because without you or someone like you they couldn’t get approved for debt financing (and likely won’t be able to raise the equity)
- Work with an experienced group and tell them you’ll exchange your property management fees for being in on their next deal. This could help them sell in the deal to their investors because it shows alignment of interests. You have less leverage than the above scenario but still provide a lot of value.
You could even combine a couple methods and raise money for the deal while also trading your property mgmt. fees for being in the deal. The more money you raise the more equity you get in the deal.
Or, you could raise money for the deal and get equity but not trade in your property mgmt. fees even though you’re managing the deal. Basically you can slice it a lot of different ways. It’s only limited by your creativity and ability to add value to the deal. Ultimately your ownership should be proportionate to the value you add to the deal.
Bonus Lesson – Some Other Ways:
- If you’re a broker thenput in your commission to be part of the deal. On my first multifamily deal (a 168-unit) the brokers on the deal put in their commission of $317,500 to become owners with us in the deal. It was a win-win because my group had to bring less money to the closing table and they got to re-invest their commission into something that had major upside.
- If you have experience in multifamilyinvesting but don’t want to deal with the headaches of finding deals then you could do asset management for other investors.
- You could also just do your own deal and all aspects of that deal (i.e. find it, get money for it, get financing for it, get right management partners, do asset management) similar to what I did on my first deal (168 unit).
Apartment Syndication Deal #5
My company’s fifth syndication was a 296-unit, which was our fourth purchase in a 12-month period. For this deal, I had two major discoveries.
When I conducted my post-deal analysis, I looked at the investors who invested. Most specifically, I looked at if they were new or returning investors, as well as how much each (new vs. returning) investor contributed to the total money raise.
Here were the findings on this deal:
- 69% were new investors
- 31% were returning investors
However, the interesting thing I found was that the percentage of capital contributed to total money raise was almost split 50/50 between new and returning investors.
- % contribution to total raise for new investors: 49.6%
- % contribution to total raise for existing investors: 50.4%
So, here are a couple takeaways for anyone in the biz of raising money for their projects
Lesson #12 – How to Keep Investors Coming Back
New investors likely won’t invest as much per person as returning investors. On this deal 31% of my returning investors invested 50% of the total equity raise. However, after the 1st deal, the new investors were no longer new investors! So as long as you deliver and/or exceed expectations, it’s likely the amount invested will increase over time.
Lesson #13 – Top Investor Lead Generation Sources
Always have 3 ways to bring in new investors. Then convert them to returning investors. My 3 largest lead generation sources for new investors are:
1. Referrals from current network
I don’t ask for referrals from my current investors or clients, but I do get them. One suggestion is to provide your investors (or potential investors if you don’t have them yet) with content that they can and want to share with their friends. For example, I wrote a book (Best Real Estate Investing Advice Ever: Volume 1) and mailed out TWO copies to each of my investors. I wrote a personal note to the investor on one of the books and told them the other book is for a friend of theirs that they’d like to give it to.
2. My podcast – Best Real Estate Investing Advice Ever Show
My podcast is the world’s longest running daily real estate podcast. The daily show has provided me with a consistent presence via iTunes and Google searches. Most importantly, it helps people get to know me even though we’re not having a one-on-one conversation.
Since joining BiggerPockets, I’ve posted over 2,500 times and have been rewarded 10x over via the new friendships and relationships I have formed
Apartment Syndication Deal #6
The six syndication deal my company close on was a 200+ unit in Richardson, TX, which is a submarket of Dallas. After adding 200+ units to our portfolio, my company broker the 1,000-unit mark!
As for this deal, the lesson I learned is simple. But before I mention it, let me tell you a quick story…
I had lunch with someone who asked me to meet with him. He was interested in raising money for their fix and flips and was wondering how to go about raising money. He asked me a bunch of questions about where to find investors, what type of paperwork is needed, how to structure the investor conversations, etc., and I gave him answers to all the questions he asked.
He told me at the beginning of our meeting that he also wanted to see what I needed. And, true to his word, at the end of the conversation he asked me, “What can I do to help you out?”
I tend to get that question a fair amount of times so I have three things I tell most people.
- I told him that he could buy my book (all profits are donated to Junior Achievement),
- Listen to my podcast and write a review on iTunes
- And/or be on the lookout for off-market deals that are 150+ units
I appreciated him asking and was curious which one he’d pick and/or what he would say/do.
He said he loves listening to books and he would get the audio version of my book after he finishes up with two or three other books he’s currently listening to.
I then had to leave so we parted ways.
Question: How good did he do at adding value to my life?
Answer: To Be Determined.
I sincerely applaud his effort and intention but there was no execution that I could see.
Is there a different approach that really impresses the person who you’re attempting to add value to?
It’s slightly different but has dramatically different results.
Even though he’s in the middle of listening to two to three audio books, instead of saying “I’ll get to it after I’m done with the other books,” I would say, “I’m going to buy your book and will have it purchased by the time you get in your car in the parking lot!” BOOM.
Or, even better, “Joe, hold on one second. I’m ordering your book right now. That way I can write a review by the end of the month.”
Holy cow. What a difference that would’ve made from a perception standpoint. Is he spending the same amount of money and time regardless of which approach he takes?
Is there a big ole difference between the perceived value that each of the approaches provides?
THAT leads me to the lesson I learned that was reinforced on this 217-unit deal.
Lesson #14 – Immediately Add Value
When you have an opportunity to connect with someone, it’s important you IMMEDIATELY add value to his or her life. It takes the SAME amount of time but generates DRAMATICALLY different results compared to if you wait.
The 217-unit deal was a syndicated deal. However, it was only with one investor. I met that investor because he reached out to me after hearing me on someone else’s podcast. I was able to get on that other person’s podcast because when we met, I immediately referred him to people who I thought could help him get more business.
It’s simple. But lessons don’t need to be complicated in order to be effective.
Please note: I am NOT calling out the person I met with. I applaud him for asking what he can do to add value and saying he’ll do it. I’m simply saying there is ANOTHER LEVEL to go in order to be outstanding. And that level is to IMMEDIATELY add the value in order to stand out.
Tim Ferriss said on his podcast, “Be unique before trying to be incrementally better.” That’s exactly the lesson here. People simply don’t follow through with what they say most of the time. Therefore, instead of saying you’ll do something later, just do it then. You’ll be unique and the results can lead to BIG things.
Apartment Syndication Deal #7
The seventh and most recent syndication deal was a 200-unit in Dallas, TX. That purchase put my company at over $100,000,000 in assets under management (1,438 units). And per usual, I conducted a post-purchase analysis to uncover any lessons or takeaways.
I realized that there’s a way to communicate with investors about deals that really resonates. I boiled it down so I could use it during my investor communications moving forward, and so that others can use it during their deals when they are raising private money.
But first, I need to provide some backstory.
What’s your favorite book? Mine is Crucial Conversations. The book explains how to navigate conversations when opinions vary and when the stakes are high. The main solution discussed is to come up with a mutual purpose, and then, build up from there.
What about your favorite book? And what is the central theme? After looking at my bookshelf, I realized most of my favorite non-fiction books have one or, at most, three central themes. Then, the author uses the rest of the book to simply elaborate or add additional context to those themes.
- Four Hour Work Week by Tim Ferriss: optimize your time by creating a system for things that you currently do manually
- Investing for Dummies by Eric Tyson: stocks, start-ups and real estate are the three main ways to invest. Pick which path you want to take
- Blink by Malcolm Gladwell: you can make informed decisions in a blink of an eye because of what Gladwell calls “thin-slicing”
So, what does this mean for us as real estate investors? It means that if we can boil down our main talking points into central themes, then we can communicate more effectively and get more transactions closed.
Lesson #15 – Three Talking Points when Communicating a Deal to Investors
I’ve identified three themes to talk about ANY deal. They are:
Then, I focus on the top 1 to 2 selling points for each of those categories.
Here is how I applied this during my last deal I closed – the 200-unit in Dallas:
- DFW is home to 25 Fortune 500 headquarters and has been a top growth market in the country for years
- My company currently controls over $70,000,000 in apartment communities in Dallas
- Off-market deal being purchased at 26% below the sales comps
- Projection the same rent premiums on upgraded units that the current owner is achieving
By organizing your conversation talking points with investors into these three themes, it addresses all the relevant aspects of the deal. Of course you’re going to need to elaborate on each of them, but at least you’re making sure you’re covering all your bases and leading with the most important selling points on the deal.
This strategy helped me close on this past deal and I’ll continue to use it moving forward. How you get a lot of value from using it as well!
For further details on this strategy, listen to JF857: How to Communicate Succinctly through Complex Deals and In General #followalongfriday
In total, I’ve completed seven multifamily syndication deals in a little over 3 years. Currently, I control six different buildings with a value of over $100,000,000. From these deal, I’ve learned 15 invaluable lessons:
- Lesson #1 – Get the Property Management Company to Put Equity in the Deal
- Lesson #2 – Prime Private Money Investors Prior to Finding a Deal
- Lesson #3 – Go farther faster by playing to your strengths
- Lesson #4 – Do something consistently on a large distribution channel
- Lesson #5 – There is major power in doing a recorded conference call when raising money
- Lesson #6 – Find an Off-Market Deal
- Lesson #7 – Conservatively Underwrite Deals
- Lesson #8 – Negotiate Terms and Get all Legal Documents in Order
- Lesson #9 – Raise Capital for a Deal and Be the Ongoing Point Person for Capital Sources
- Lesson #10 – Secure Debt Financing
- Lesson #11 – Do Property Management
- Lesson #12 – How to Keep Investors Coming Back
- Lesson #13 – Top Investor Lead Generation Sources
- Lesson #14 – Immediately Add Value
- Lesson #15 – Three Talking Points when Communicating a Deal to Investors
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