Throwback Thursday: Closed on 250-units in Houston, TX…2 Lessons Learned

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Over a year ago, I closed on my second multifamily syndication deal – a 250-unit building in Houston, TX. It was almost 50% more units that my first deal, which was 168-units. After completing these first two multifamily syndications, I was already learning valuable lessons that I still apply today.

 

The following are the two main takeaways from these first two deals:

 

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.

 

 

For anyone who wants to raise money and do multifamily syndication, I’m confident these two lessons I’ve learned will help you be successful.

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