Moving further away from the Syndication process, Theo is now diving into different stories from himself, Joe, and different guests on the podcast. Today, we’re hearing about a deal that taught an investor a couple of valuable lessons (creating alignment of interest and raising money before or after the deal). Hearing their experience and learning from it, can save you from having to learn those same lessons the hard way (like this investor did). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome to the Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I am your host, Theo Hicks.
Each week we air two podcast and video episodes – every Wednesday and Thursday – that are typically a part of a larger series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these series we offer some sort of document, PowerPoint presentation template, Excel template, some sort of resource for you to download for free. All of these documents and Syndication School series can be found at SyndicationSchool.com. Of course, all of it is free to listen to and to download.
Moving forward, we’re most likely going to be focusing on standalone episodes. Series 1 through 21 went through the entire apartment syndication process from start to finish, from essentially having no experience and no education, to selling your first apartment syndication deal on the back-end of the business plan.
Moving forward, we’re going to focus on, again, standalone episodes that either go into more details on a specific step, so examples of how to find deals, how to raise capital, how to find team members… Or case studies on actual deals that were done by actual syndicators. We’ll keep the names anonymous, of course, on those case studies.
This episode is gonna be one of those. We’re gonna go over a case study of a deal, a 155-unit syndication deal in Texas, and specifically we’re going to go over the three takeaways that the syndicator learned from this particular deal.
I think – and I hope you think this as well – that these types of episodes are going to be very powerful, because these are not theoretical. These are people who’ve actually done a deal, they’ve gone through the entire syndication process, then they sat down and evaluated what they did good, what they did wrong, what they want to do better the next time, and then are sharing those lessons with people who haven’t done a deal before. Obviously, lessons that are pulled from actual experience are very important for those who want to replicate that individual’s success… So let us jump into this case study.
This is a 155-unit deal. It’s this investor’s third syndication deal. They had done two deals previously, so obviously they learned lessons from those deals as well… And we’ll go over those lessons in future Syndication School episodes. But first, a lesson from this 155-unit deal that this investor learned was that you will go further by playing to your strengths.
Again, this was this person’s third deal, but on their first deal they did all of it – they found the deal, they underwrote the deal, they performed due diligence on the deal, they closed on the deal, they asset-managed the deal, they put the team together, they secured financing for the deal, they sold the deal on the back-end. They did all of it. Every single role, every single duty that needs to be fulfilled in order to execute the business plan was done by one person. And of course, going through this is a great learning experience. There’s always some sort of silver lining, no matter how thin and how small… But doing everything by himself did not set him up for optimal success for this particular deal, or for the business in general.
In this particular example, this individual was not an expert at all of the duties that I just went over – finding the deal, underwriting the deal etc. One example would be underwriting. This person was not the best underwriter in the world; they knew how to underwrite, they knew what they needed to look at to underwrite, but they were not expert underwriters. They had not spent hundreds and thousands of hours underwriting deals, and like most things, the more you do it, the better you get at it, usually… So he identified the need to find an underwriter.
Now, taking a step back, there are a few different categories of the main GP team. We’re gonna break it down into the money-raiser, the asset manager, and the acquisitions manager. The acquisitions manager needs to be really good at math, really good at underwriting. The money-raiser needs to be really good at networking, and the asset manager needs to be really good at management.
Now, of course, you might be a person who’s really good at math, who’s really good at managing, and who’s really good at networking. Maybe you’re amazing at all three of those. Even if that’s the case, as this person learned, you’re not gonna set yourself up for optimal success if you’re doing all three of those. Sure, if you were spending 100% of your time on each of those tasks, you could do them amazingly… But you can’t focus 100% of your time on all three of those tasks. You can’t spend all day underwriting, because then you’re neglecting raising money. You can’t spend all day raising money, because you’re not out there finding deals. You can’t just be finding deals, because you’re not asset-managing your current deals.
So even if you are amazing at all of these things, you’re still going to want to find a partner, or at the very least find people to work with you as employees, that can cover some of these duties, so that you can focus on the one or two things that you are completely phenomenal at doing, and quite frankly enjoy doing the most.
This investor decided to partner up with someone who had these underwriting skills – as well as other skills – on the second deal. Then on this third deal example it reinforced the need to do this again moving forward, to continue to partner up with this individual… Because, as I mentioned, it allowed him to do what he was good at, and allowed his partner to do what they were good at. Even though they could both do each other’s roles, they decided to split them based off of who was better at which one, and they were able to do a much better job by focusing on one thing and another thing, than one person focusing on both things at the same time.
This allows your business to go a lot further, faster – because that’s the lesson here. Go further by playing to your strengths… Because you’re focused solely on what you are good at. Of course, there’s gonna be overlap between the two roles. This person who had a partner who underwrote also checked the underwriting, reviewed it, and then his business partner also was — if he had someone that could raise money, then they would refer those people to him. But it’s better to have someone who has a lot of experience working on the, for example, underwriting, or working on the asset management, than someone who’s kind of good at it, but is much better at something else.
So the overall summary here is figure out what you’re good at and what you enjoy doing, and if it’s everything – if you say “Oh, I’m good at everything” – then figure out what you’re the best at of those everythings. Focus on that, and then find a business partner or some sort of employee to do the other things that you’re either not as good at, or you don’t want to actually do.
A business partner is probably a little bit better, just because they’re less likely to leave, and they are going to most likely be more experienced than someone who wants to actually work for you. So that’s number one – go further by playing to your strengths.
Number two is do something consistently on a large distribution channel. If you’re a real estate investor, then broadly speaking, you’re in the sales and marketing business. If you’re a fix and flipper, if you’re a wholesaler, if you’re a multifamily syndicator, if you’re a real estate agent, you’re in the sales and marketing business. Maybe buy and hold investors aren’t… But they are, because they’re trying to find deals or trying to close on deals, or trying to find tenants, things like that. So they’re still in the sales and marketing business.
So since you’re in the sales and marketing business, then you need to have some sort of daily, consistent presence online in order to gain exposure and credibility with any of your customers, your clients, or leads… Because that’s what salespeople do – they’re always out there; if you’re in direct sales, you’re actually out there, knocking on doors, getting your face in front of the customer. If you’re in online sales, you’re constantly creating ads to get your advertisements in front of the customers.
So since you’re in sales and marketing, you need to get you, your business, your brand, in front of potential customers. Again, the specific customer depends on whatever investment strategy you’re doing. So if you’re a wholesaler, then it’s fix and flippers or buy and hold investors. If you’re a multifamily syndicator, then it’s investors. If you’re a rental investor, then it’s tenants. If you’re a real estate agent, then it’s people who are looking to sell or buy homes. One way to do this is to tap into a large distribution channel with your content.
We’ve talked about in series number seven the power of the apartment syndication branch. We’re not gonna go into how to actually create this content, what content to create; we’re just gonna say create a thought leadership platform. If you wanna know what a thought leadership platform is, check out series number seven, where we went into extreme detail on all the different types of thought leadership platforms, why it’s important, and how to set yourself up for success.
But one of the steps of this was to tap into a large in-place distribution channel with your thought leadership platform. For example, Bigger Pockets. Bigger Pockets has millions and millions of active real estate investors, so rather than starting from scratch, starting your own blog or your own forum, why don’t you go and post to Bigger Pockets to get your face out there. Amazon.com – you can self-publish your own book and get your name out there. You can do podcasting on iTunes. You can do video blogs, tips or interviews on YouTube. You can create a community on Facebook, or post content on Facebook. You can post content on Instagram, you can post content on Twitter.
Overall, the idea is to find some sort of distribution channel that’s already massive, that’s already used by your potential clients, and rather than starting from scratch, just use that to post your content to. And whatever content you decide to create, whatever distribution channel you decide to tap into, you’re doing this every single day. If you’re doing something like Instagram or Twitter, maybe multiple times per day, and you’re doing it consistently, and you’re doing it on this large distribution channel, of course.
Many people want the shiny object, the golden nugget, the top-secret plan that will let them create massive levels of wealth, and retire on a beach… Anyone who’s reached any level of success knows that that’s not true; there is no secret, special pill you can take that will make you a successful investor. It’s all about the daily grind. It’s about doing things consistently, every single day.
The reason why I say this is because for the thought leadership platform these things take a long time to pick up momentum, to gain a lot of followers, a lot of viewers, a lot of conversions.
I was interviewing someone a few months ago who said that when you are doing a thought leadership platform you need to have a multi-year plan. You want to look at it in terms of multiple years, and not a few months, not a few weeks. Don’t expect to have a million views on your blog in a few months or a few weeks. Expect to have maybe 1,000 views by the end of the first year, and then double that by the end of two years, and then let the snowball effect help you take off, and launch, and get even more viewers to your content. Again, you need to do it every day, and don’t expect any sort of instant results.
The third lesson from this deal is that there is major power in doing a recorded conference call when raising money. If you wanna learn more about this strategy in particular, that’s series number 18, “How to secure commitments from your passive investors”, where we went over in extreme details – I believe it was 3-4 30-minute episodes that focused specifically on this conference call. But this is something that you might be saying “Well, obviously I should record my conference call”, but for this person, they did not do that for their first two deals. They just did the conference call, and figured that the people that were serious about investing would attend the conference call, and that they would just invest their money in the deal, the fund would fill up, and he’d be able to close on the deal. He figured that he didn’t really need to do it, and that it wouldn’t help him raise money… But the tip that he learned on his third deal was “Have a conference call with the qualified investors, and then record that.”
So when he was in the middle of raising money for this 155-unit deal, they decided to have a conference call, and unlike the similar calls that they’d done, they decided to record that call. It was very helpful in raising capital for that deal, for two reasons. Number one is that most people in general are busy, but people who are high net worth individuals are most likely even more busy – with personal life, with business, with making money – and that’s why they’re actually being a passive investor in the first place; they don’t have time to do active investing themselves, so they need to have something that is a pre-built system that is essentially hassle-free, that doesn’t take up a lot of their time.
So the expectation in your should be that “They might not be able to make my conference call. If they’re out there doing other things and that’s not allowing them to invest themselves, then what makes me think that they’re gonna be available for a three-hour conference call on this particular day of the week?” So if you record it, it lets them listen to it on their own schedule.
And then secondly, the questions that are being asked are from a group of other investors, which is beneficial to others who are listening but didn’t ask those questions. That basically means that if they weren’t there, and they have questions about the deal that aren’t covered in the investment summary package that they’ll see – because if there’s no recording, then all they’re gonna see is either your initial email or the investment package – they can get answers to questions that maybe they have, that they didn’t have the opportunity to ask, but someone else who’s similar to them asked that question; they listened to the Q&A section on the conference call and had that question asked.
So specifically how to record the call – listen to series 18 on how to secure commitments from your passive investors to learn the logistics of this call. The whole point of this was to say why it’s a powerful way to help you raise more money, and that is 1) it allows people to listen to and learn about the deal on their own schedule, and 2) it allows them to hear the answers to questions that they themselves might have, that aren’t covered in the actual investment summary. Either something that you as the syndicator brought up, or something that another passive investor who is interested in the deal brought up.
Again, the three lessons on this 155-unit case study were 1) You go further by playing to your strengths, 2) Do something consistently on a large distribution channel (for more details on that, series seven), 3) There is major power in doing a recorded conference call on raising money. More information on that on series 18.
Again, this is a standalone episode, so that concludes this series, in a sense. Thank you for listening. I recommend checking out the other Syndication School series we’ve done so far, especially if you’re new. If you’re new, make sure you start at series 1 and work your way through the 21 series that focus on the main body of the syndication process, from start to finish. Make sure you download the free documents that we have available as well, and make sure you keep coming back to listen to these episodes again every Wednesday and Thursday. All of those things can be found at SyndicationSchoo.com.
Thank you for listening, and I will talk to you soon.