3 Reasons Why I Invest in Other People’s Apartment Syndication Deals
Obviously, I’m not just passive. Since I also a GP, I take a very active role in the business plan. But I have passive dollars as a limited partner in these deals. By a long margin, the majority of my personal money is allocated to investing in deals I am a GP on.
That said, I invest in other people’s deals as well. In fact, as of this writing, I have $818,500 invested in 14 deals solely as an LP.
And I do it for three reasons.
1. Makes Me a Better GP on My Deals
First, by investing as an LP in other people’s deals, it makes me a better GP on my deals. As an LP I see first-hand how other GPs organize and execute their deals. Some of the things I am exposed to are:
Initial email announcing the deal – How do they write the email? How is it designed? What does it say? What doesn’t it say? What is their call to action?
The signup process for investing – Do they use an investor portal? If not, what do they use? AdobeSign? DocuSign? Something else?
Deal structure – What is their profit split? What fees do they charge? What type of financing do they secure? What information is included in their investment package? What are their underwriting assumptions?
Deal presentation to investors – I do not attend the new deal presentation. But if I did, I would learn how the deal is presented and what presentation service they use (conference call or webinar, live or recorded). The reason why I don’t attend the presentation is because I prefer to read the information and base my investment decision on that. Plus, I don’t receive investment opportunities from anyone that I wouldn’t invest with because I’ve already screened the operator. Once a new deal hits my email inbox, since I have already vetted the operator, I only vet the deal.
Ongoing communications – Do they send monthly updates, quarterly updates, or sporadic updates? I have invested with one operator whose communication was sporadic and the deal didn’t perform as well as my other passive investments. I won’t be investing with them again – lesson learned though! If they are sending monthly or quarterly updates, what are they including in those updates? What financial reports do they proactively send?
Distributions – Do they send monthly distributions, quarterly distributions, or some other distribution schedule? Do they send the distributions via check in the mail or do they offer direct deposit? I hate getting checks. I prefer direct deposits because it’s easier to track and doesn’t require an extra time commitment. Do I get paid when they say I will? For example, some GPs do quarterly distributions but the investors don’t actually see the money for a month or two due to processing.
What happens when things don’t go according to plan – Do they go dark? Do they clearly communicate the problem and the steps they are taking toward the solution? Investors want to be told succinctly and in a straight-forward manner what is going on at the property. They want consistent updates. If communication slows down when challenges or issues arise, that is a red flag and is something I’ve experienced with one of my passive investments.
2. Test Drive Other Markets
The second reason I invest in other company’s deals is because it lets me test drive other markets. The deals I am a GP on are concentrated in the South and Southeast (here is the process we use to select target investment markets). However, should I want to see how other markets are performing for other operators, this is a great opportunity to get in a deal or two in a market I’m curious about to see any challenges other operators have. This helps me gain first-hand knowledge about some additional considerations about new markets.
3. Strengthen Relationships with Influencers
Third, by investing with other GPs I am strengthening my relationship with influential people in the industry who are also putting together deals. I live in a world of abundance. And by investing with other GPs, it allows me to help them grow their business while staying in touch with them in a relevant way since I am now one of their LPs.
Other Takeaways From Investing in Other GP’s Deals
Here are some specific observations I have made as a result of investing in other GPs deals:
- One operator sent out a deal. I said I’d invest. Then after a month or so they sent a follow-up email saying they are pulling out of the deal. It was a thorough explanation about why they pulled out of the deal and it made a lot of sense. The result of the experience gave me even more confidence in them as a GP.
- Some passive investors I have a personal relationship with have said they prefer higher preferred returns and don’t care as much about the upside in the deal. I saw an offering from one GP that offered a 10% preferred return for Class A investors, and a 7% preferred return for Class B investors. Class A had virtually no upside but Class B got the upside at a 70/30 split (LP/GP). After seeing that, and talking to other GPs about it, I tested out this structure on a deal I was a GP on and it was very well received.
- One group I invest with does interviews with experts like SD-IRA custodians, property managers, etc. and shares the webinar recordings exclusively with their LPs. I obviously know a thing or two about doing interviews but I don’t have an exclusive interview series just for accredited investors. It’s something I’m going to implement.
- Another operator mailed me the legal documents which I’d actually preferred not happen. I personally want everything digital and if I want to print something out I’ll do it myself.
- An operator mailed me a gift with their logo on it. I think this is a miss. I think that accredited investors don’t need or want another mug, thermos, pen, etc. We have the money to buy one ourselves. I think gifts for accredited investors should be much more thoughtful and personalized. I’m working with my team to create a program for investors that provides thoughtful gifts on special occasions. Perhaps I’ll write about that once we have it implemented.
To summarize, I invest the majority of my own money into deals I am a GP on. However, I find it valuable to invest my own money into other people’s deals because it educates me on ways to improve as a GP, lets me test drive other markets and strengthens relationships with influential people in the industry. The net result is my investors have a better experience with because I am constantly learning from others and using those lessons to optimize their experiences.
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.