Apartment-Multifamily Real Estate Syndication

Apartment syndication is a great way to invest your money, but doing so requires a lot of work and maybe even some expert guidance.

If you are new to investing, you probably have a lot of questions about real estate syndication. How do you get a project off the ground? How do you find the right people with whom to do business? What is the difference between active and passive investing, and which option is best for you?

Over the years, I have helped curious investors like yourself navigate the world of apartment syndication, and have done so successfully. That’s why I am confident I have the resources you need to thrive, and, as my clients have learned, since I left the world of advertising and immersed myself in real estate, my goal is to help you “do more good.” That means freeing up your time so you can use it as you wish.

Today, I am happy to share some of my real estate syndication insights with you for free through my comprehensive blog. Below, you will find many posts that can help you get started with apartment syndication, including where to find great apartment real estate, what it takes to stand apart from other syndicators, and how to close the deal on your first deal.

After reading these posts, you may want to schedule a planning session, which can teach you how to buy apartments and how to bring in investors; additionally, you can learn how to start investing with me, which would lead to plenty of passive investment opportunities, provided you are an accredited investor.

firing a property management company

How to Approach Firing a Property Management Company

The property management company is one of the most – if not the most – important member on your core apartment syndication team. They are the boots-on-the-ground who oversee property operations on a daily basis and execute the business plan. Therefore, the success or failure of a deal is highly dependent on the quality of the company managing the property.

Hiring a qualified, experience and credible property manager should be done prior to looking for and ultimately purchasing a deal. However, what happens if are acquiring a deal, the property management company is unable to execute efficiently?

Well, they may need to be let go and another property management company will need to take their place.

In this blog post, I will outline the three reasons why you would need to part ways with your property management company, the five things you need to address in order to ensure a smooth transition and how to approach the conversation when letting the old manager go.

 

When Should You Fire Your Property Management Company?

There are three main things your property management company could do that should start the firing process:

 

  1. Criminality or fraud

If you discover that your property management company has committed fraud or a criminal act, you should begin the firing process immediately.

 

  1. Lack of execution

Lack of execution is another reason why you would fire your property management company. However, before beginning the firing process, confirm that the lack of execution is due to the property management company and not some other factor. For example, a failure to meet rental premiums on renovated units, a lower than expect occupancy rate or a high loss-to-lease could be due to the current market conditions and not the property management company. Or poor unit renovations or deferred maintenance could be due to a poor vendor and not the property management company.

You don’t want to go through the trouble of firing your property management company if the problem will continue once a new management company is in place, so make sure you do your homework.

 

  1. Lack of communication

While this reason is subjective, you will know if your property management company is an ineffective communicator. Are they ill prepared for, don’t show up to, or have to constantly reschedule the weekly meetings? Do they take days to reply to your emails? Is it a struggle to get them on the phone? Do they communicate with you immediately when something goes wrong at the property? These are examples of a property management company that lacks communications and should be fired.

 

Unless the property management company has committed fraud or a criminal act, I recommend waiting at least one quarter before beginning the firing process. If after a quarter they still aren’t executing the business plan and/or lack communication, the first step of the firing process is to find a replacement property management company.

 

5 Things to Address to Ensure a Smooth Transition

Once you’ve made the decision to fire your property management company and found a replacement, there are 5 things you need to address in order to ensure the smoothest transition possible.

 

  1. Staffing

First, you need to decide if you are going to fire all of the existing onsite staff or if you will allow some of them to stay under the new management company. To determine who stays and who goes, have the new property management company interview and vet the current staff. After the interviews and vetting, they can decide who to keep and who to let go.

Keeping some of the existing staff can be very helpful with the transition, because they have previous experience of and inside knowledge on operating the property. But if the current staff isn’t performing, the property management company may need to bring on an entirely new staff.

 

  1. Financials

Your new property management company should proactively request all of the financial documents they need in order to take over the operations. This include the historical profit and loss statements, the current leases and rent roll and the chart of accounts (list of income and expense line items and the bad debt/delinquency).

 

  1. Renovations

The new property management company will also need a list of the units that have and haven’t been renovated. Additionally, they need to know the exact renovations that were done for each unit. This information needs to be as detailed as possible. The new property management company needs to know what units are completely renovated (and what the upgrades were), what units have been partially renovated (and what upgrades remain) and what units have not been renovated. That way, once they take over management, the can start right where the old management company left off.

 

  1. Vendors

The new property management company will need a list of all the vendors who work on the property, like the maintenance person, plumber, painter, appliance repair person, carpet person, drywall person, etc. Similar to the staff, continuing to work with the current vendors will help with the transition process.

 

  1. Service Contracts

The new property management company will also need a list of all the contractors who work on the property, like the pest control company, pool person, landscaper, security, etc. And, they will need the actual contracts as well.

 

Other Things to Think About

Firing a property management company isn’t easy and unforeseen difficulties will arise. So, in order to minimize these difficulties, I recommend the following.

First, use soft communication skills when explaining the reason why you are firing them. Don’t call them on the phone, say “you’re fired” and hang up. Instead, I recommend placing the blame for the firing on your passive investors. For example, I would say, “I am getting a lot of pressure from my investors to find a new company to manage the property so we are going to have to part ways.”

Next, read the contract between you and your property management company. Make sure you understand how much time in advance you need to notify the property management company before firing them.

Finally, have a representative from your new property management company address the 5 things I outlined above with the old property management company. You shouldn’t be doing them yourself. Also, have your new representative talk with a neutral party from the old property management company. They shouldn’t be talking to the president or the person who oversaw the property. A regional manager who isn’t emotionally involved with the property is the ideal go-between.

 

What about you? Comment below: Tell me about a time you had to part ways with a property management company and how you approached it.

 

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Seven Ways To Attract High-Quality Residents To Your Apartment Community

One of the main factors that will make or break your apartment budget is the quality of resident you attract. A high-quality resident is someone who pays rent on time, treats the unit and apartment community as if it were their own home and is courteous to the neighbors. High-quality residents not only make your life easier, they make you and your passive investors more money in the long run.

Sure, low-quality residents can help you increase your occupancy rate in the short-term. But they will negatively impact other important financial factors longer term. Low-quality residents lead to higher turnover costs, both due to more frequent turnovers and more expensive, lengthier turns. They also lead to more expenses associated with evictions, higher bad debt (i.e., uncollected debt after a resident moves out) and a higher amount of delinquent rent.

Therefore, the successful apartment syndicator or property manager will proactively implement procedures with the purpose of attracting the best-qualified residents in the area. This approach minimizes the number of low-quality leads and maximizes the higher-quality ones, which has a positive feedback effect: Attract high-quality residents to your apartment and they refer your apartment to others, which brings in more of the same caliber.

As a result of building a portfolio of over $400,000,000 in apartment communities, I have identified seven market strategies that attract these high-quality residents.

 

1. Maximize Internet Advertising

According to Zillow’s 2017 Consumer Housing Group Trends Report, online tools are the No. 1 way that renters are searching for their home (87%), followed by referrals from a friend, relative or neighbor (57%). Therefore, an online presence for your apartment community is a must. This starts with having a URL and website for the apartment community.

Next, all of your “for rent” units should be listed on a variety of online real estate and apartment listing services, with the most effective ones being Apartments.com, Craigslist, Realtor.com, Trulia and Apartmentfinder.com. You should also market your listings on social media, including Facebook, Twitter and Pinterest.

To optimize your rental listing, make sure it includes a clear and accurate description of the unit and the community, highlighting the major selling points. Invest the few hundred dollars into having professional pictures taken.

 

2. Hire Locators

A locator is an apartment rental agency that helps prospective residents find their ideal apartment community based on their specific needs. Therefore, locators can be great resources for finding high-quality residents.

To find apartment locators in your market, Google “apartment locators in (city name).” Then, reach out and offer them a commission of the first month’s rent for providing you with a converted lead. (50% commission is standard).

Once you’ve hired a locator, provide them with weekly email and phone call updates on your current unit availability.

 

3. Target Local Businesses And Employers

Use the current resident demographic data, which you should have collected on initial rental applications, and the surrounding job hubs to create a list of target businesses, employers and schools in the area. You can also add local tax preparation offices, bus stops and train stations to your list.

Print out and drop off flyers, business cards, price sheets, floorplans and site maps to your targets, always asking for permission first.

Additionally, you can send a small gift (e.g., a gift card, gift basket, wine, toolkit, etc.) to your current residents who are employed at the business on your target list. Thank them for their residency and ask if they are willing to refer the apartment community to their colleagues at work.

 

4. Build A Referral Program

As established, 57% of renters find a home through referrals. To capitalize on this, you should create a referral program and offer a fee to any current resident who refers someone to the apartment community. A fee of $300 paid 30 days after the execution of the new lease is standard.

To advertise the referral program, deliver notes to your residents’ doors and send out friendly emails with the details of the referral program on a monthly basis.

 

5. Financially Incentivize Your Leasing Staff

Most apartment owners or property management companies offer their leasing staff a small bonus for each new move-in, with $50 being the standard. In addition, you can set monthly move-in or occupancy goals and offer a larger bonus, like a $100 to $250 gift card, if they hit the specified target.

 

6. Hold Resident Appreciation Parties

To promote resident satisfaction and retention, host monthly resident appreciation parties. These can be as small as providing a small breakfast or wine night in a common area on a monthly basis. Another idea is to host timely or holiday-themed events, like a Valentine’s Day card-making event, holiday gift-wrapping party, back-to-school barbecue or a Halloween costume contest. Click here for 51 additional resident appreciation event ideas.

 

7. Encourage And Monitor Online Reviews

The online rating of your apartment community will probably be the first thing that a prospective resident will look at during their apartment search. Organic reviews are great, but you should also implement strategies to increase the number of reviews.

One strategy is to ask a resident for a review after fulfilling a maintenance request. Only use this strategy for minor maintenance requests that were addressed in a timely fashion. Another strategy is to have a laptop station set up during the monthly resident appreciation parties, which the residents can use to write a review before they leave.

 

All seven of these strategies have been proven to attract the highest quality residents to an apartment community and are beneficial to your bottom-line. Do not wait to come up with a marketing plan until after you close on an apartment deal. This is something that should be created prior to close so that you can account for the expenses in your underwriting.

 

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rental comparable analysis on phone

How to Perform Your Own Rental Comparable Analysis Over the Phone

The rental comparable analysis is the process of analyzing similar apartment communities in the general area to determine the market rents of the subject apartment community.

As an apartment investor or apartment syndicator, the three main times you will perform a rental comparable analysis is 1) during the underwriting process when initially analyzing a deal, 2) as a part of the market survey during the due diligence process and 3) on a recurring basis after closing on a deal.

Ideally, you’ve partnered with property management company who agrees to perform the rental comparable analysis during all three of the three stages – and most importantly, during the due diligence phase. However, there may be times when you will need to perform the analysis yourself. For example, if you find a deal before partnering with a property management company, if you only have a few days to submit an LOI or if you want to perform you own analysis for comparison purposes. Therefore, it is important that you have the ability to calculate the market rents on your own. And in this blog post, I will outline the process to do so without the use of fancy property management software. All you will need is an internet connection and a phone.

The first step of the rental comparable analysis is to find 5 to 10 apartment communities (i.e. rental comps) that are similar to the subject property. That means they were built around the same time, are in the same submarket and have the same level of interior upgrades and amenities. The best resource to find rental comps is on www.Apartments.com.

Once you’ve located the 5 to 10 rental comps, log the property address, year built, number of units and contact phone number. Then, pick up the phone and call the property. The purpose of the phone call is to collect data required to confirm that the rental comp is similar to the subject property, as well as to collect the rental data so that you can determine the market rents of the subject property. And in order to obtain this information, you will pose as a resident who is interested in renting a unit.

Here are the 6 main pieces of information to obtain:

 

1 – Rental Data

One of your main goals is to obtain the rental data for the rental comp. Sometimes, this information will be listed on the rental comp’s Apartments.com page. However, you still want to confirm that the information is accurate on the phone call.

If the rental comps has 1-bed and 2-bed units only:

  • First, ask “I am interested in renting a 2-bedroom unit. How much do those rent for?” to which they will respond with the rental amount. If they offer multiple 2-bed units, whether they are different floorplans or have different upgrades, they will provide you with a range of rents.
  • In order to obtain the 1-bed unit rents, say, “Oh. Your 2-bedroom rents are slightly outside of my price range. I was hoping for an extra bedroom but how much are the 1-bed unit rents?”

If the rental comp has 1-bed, 2-bed and 3-bed or more units:

  • Follow the same approach for the 1-bed and 2-bed apartments
  • Call back a few days later and ask for rents of the other unit sizes

At this point, you will have the rental data for all of the unit types offered at the rental comp.

 

2 – Upgrades

One of the most important factors in the rental comparable analysis are the unit upgrades. You want to make sure that the units at the rental comp are of the similar type and quality at the subject property.

When gathering the rental data, ask, “have you performed any unit upgrades recently?” The upgrades to the kitchen and bathrooms, in particular, must match the upgrades at the subject property in order to qualify as a rental comp.

Additionally, ask “have you performed any property-wide upgrades recently?” The quality of the common areas must also match those at the subject property as well.

At this point, you will know the upgrades for all of the unit types offered at the rental comp, as well as any property-wide upgrades.

 

3 – Amenities Package

Another factor that must match between the rental comp and the subject property are the amenities offered to the residents. Because, like the level of unit and property upgrades, the type of amenities offered will dictate the rental rates demanded.

Ask, “something that will heavily weigh into my decision to rent are the amenities offered. What are the individual unit and property amenities?”

Examples of unit amenities are the type of flooring, washer and dryer hookup or actual washer and dryers in unit, storage availability (i.e. closet space), pet-friendliness, patios/balconies, fenced in yards, etc.

Examples of property amenities are fitness center, clubhouse, pool, online rent payment, online maintenance request, type of parking, common area, utilities included in the rent, etc.

Then, for all of these amenities, ask “are there additional monthly fees for any of the amenities you listed?”

At this point, you will know if type and quality of amenities offered match those of the subject community.

 

4 – Rent Specials

Next, you want to know the types of concessions offered. Concessions are the credits given to offset rent, application fees, move-in fees and any other revenue line items, which are generally given to residents at move-in.

Ask “do you currently offer any rent or move-in specials?” Examples are security deposit specials, rental discounts for signing longer leases, referral programs, etc.

Concessions are generally offered to boost occupancy rates. So, understanding the types of concessions offered at your competitors will give you an idea of the types of concessions you will need to offer at the subject property. Additionally, if they are offering a lot of concessions, that implies that either the demand is low or the rental rates are too high.

 

5 – Demand

Understanding the rent specials offered will give you an idea of the demand at the property (which will give you an idea of the demand at your subject property).

For additional demand information, ask “I am relocating to the are in the next couple of months. Do you have any available units are is there a waiting list?” If they have a waiting list, that implies that the rental rates may be too low, and vice versa.

 

6 – Customer Service

At the conclusion of the phone call, take a few minutes to take notes on the level of customer service you received. If you own the subject property or end up closing on the subject property, the person you spoke with will be your competition!

 

Determining the Market Rents

At the conclusion of the phone call, you will have confirmed or disproved that the property is a rental comp, keeping in mind that the upgrades and amenities do not need to be an exact match – just similar. Also, the rental comps should be similar to your stabilized subject property. That is, for value-add apartment syndications, the unit upgrades should match the post-renovation upgrades and not the current level of upgrades.

Repeat this process for all 5 to 10 rental comps.

After all of the phone calls, the apartments that aren’t similar to the subject property can be eliminated. For the ones that are, determine the rent per square foot for each of the unit types in order to determine an average rent per square foot for each unit type in the overall market. Then, you can determine the market rent of the units at the subject property using this average rent per square foot and the square footage of the subject property’s various unit types. For example, if the average market rent per square foot for 1-bed units is $1.09 and the 1-bed unit at the subject property is 900 square feet, then the market rent is $981.

 

Conclusion

This was a general outline for how to approach performing the rental comparable analysis over the phone. It is not an exact step-by-step guide to be followed verbatim. Instead, it should be used as a guide for what questions to ask to obtain the information you need to gain a better understanding of the market and the market rental rates.

Also, the results of this rental comparable analysis should be used in tandem with a more detailed analysis performed by your property management company. This analysis can be used as a starting point for the market rental rates but should not be the sole basis for purchasing a deal.

Finally, if you are just starting out, I recommend doing a few practice calls on non-rental comps to get a feel for the flow of the conversation.

 

What about you? Comment below: How do you perform a rental comparable analysis for apartment communities?

 

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What is Possible in 9 Years as a Real Estate Investor?

“To whom it may concern” is how my letter started out.

It was 9 years ago and I had finally, after 10 long months of looking for my first investment property, found a deal. It was a 4-bed, 2-bath single family residence in Duncanville, Texas. The purchase price was $76,000. The rent was $1,050. The property didn’t really need any repairs. The puppy was going to cash flow and I was going to get my first investment property. Heck yeah!

Well…that was until the lender had their say. Apparently, in 2009, a bunch of lenders were feeling the burn of loose or nonexistent underwriting guidelines from years prior and were looking to correct those mistakes. Good for them. They should. But, it was bad for me at the time because they were asking me why on earth would I want to buy an investment property if I didn’t *gasp* own my primary residence?

Pretty simple, actually. I lived in NYC. Places cost too much. After all, I started out making $30,000 as a junior project manager so how the heck could I have afforded to buy a NYC apt?!

So, on September 25, 2009 I wrote a letter to the lender and told them the situation. Here it is:

 

To whom it may concern,

I am a resident of New York City and am looking to purchase an investment property in Duncanville, Texas. I have lived in New York City since June 2005 but am originally from Texas. I went to elementary, middle and high school in the DFW area and graduated from Texas Tech University with a degree in Advertising.

My mom, brother, sister, dad, niece and nephew all still live in the DFW area and I visit them as often as I can and usually spend Christmas in DFW. My family, particularly my sister and dad both of the whom have professional real estate experience, has been instrumental in helping me identify the income-producing property I currently have under contract and am looking to close on. Additionally, I already have had conversations with XYZ Property Management (edited this part because the management company was TERRIBLE – that’s another story) office in Duncanville and am planning on utilizing them to manage the property.

Although I’m not sure when, I do plan on eventually moving back to Texas and specifically to the DFW area. Under normal circumstances, I would own my primary residence; however, I live and work in Manhattan where the cost of real estate is prohibitive.

If you would like any further information, please call me directly at XXX.XXX.XXXX.

Thanks,

Joe Fairless

 

Fortunately, it worked! They approved me for the loan and I was the proud owner of this, ahem, beauty!

 

 

I still have this house today. Speaking of today, I just got done signing the loan guarantor docs on a 400+ unit apartment building worth over $30M that my company is closing on tomorrow. It will put our portfolio at 4,169 units and worth over $350,000,000.

I have documented most of the lessons learned after I close each project and you can read the lessons learned here:

 

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

Closed on 155-units in Houston, TX…3 Lessons Learned

6 Ways to Creatively Get into the Multifamily Syndication Business

Investor Analysis After Closing on a 296-unit Apartment…2 Lessons Learned

Closed on a 200+ Unit Multifamily Syndication…1 Simple Lesson

I Just Reached Over $100,000,000 in Apartment Communities…Lesson Learned

How to Find Deals in a Hot Market

How to Find Private Money Regardless of Where You Live

 

The purpose of this is to simply say that whatever you’re looking to do in real estate, it is possible. I went from making a $30,000 salary with $20,000 in student loans after college to being a multi-millionaire.

If you have big, audacious goals then good for you. It’s possible. Others before you have accomplished it (or something similar) so you can too. It’s possible.

 

Here are 9 beliefs that I’ve lived by through my 9-year journey:

  1. Nothing in life has meaning until I decide to give it meaning.
  2. Challenges are a gift. Life happens for me, not to me.
  3. Help enough people get what they want and I’ll get everything I want.
  4. Richest people in the world build networks. Everyone else looks for work.
  5. The secret to living is giving.
  6. Work harder on yourself than you do your job.
  7. Best way to get out of a funk is to move and be grateful.
  8. Have perspective by remembering that I will die.
  9. Be proud of who I am when nobody is looking.

 

Here are 9 habits that have helped me be consistent with my progress:

  1. Immediately think of one thing I’m grateful for when I wake up.
  2. Drink a liter of water with a scoop of wheatgrass in the morning
  3. Do cardio and weights (not just cardio)
  4. Volunteer at least once a month
  5. Think about life in terms of # of experiences remaining, not years remaining
  6. Journal my thoughts, feelings and whatever else comes in my head daily
  7. Always have a vision board prominently displayed everywhere (wall in office, phone, computer background)
  8. B.R. (always be readin’)
  9. Be incredibly responsive to my clients and my investors. And even more responsive to my wife!

 

What about you? Comment below: Do you have any beliefs or habits that have helped you achieve success? If so, what are they? Would love to learn about them so I can see about incorporating into my life/routine as well.

 

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resident appreciation parties

51 Resident Appreciation Event Ideas to Retain High-Qualify Residents

In the blog post “How to Become an Award-Winning 5-Star Apartment Syndicator,” I explained how an apartment syndicator won two back-to-back Rental Owner of the Year awards by hosting frequent resident appreciation events. In this blog post, I want to expand upon this strategy by providing a list of 30 more resident appreciation event ideas.

Resident appreciation parties have massive benefits, with the foremost benefit being the fostering of an inclusive community. Hosting resident appreciation parties offer residents the chance to engage with in the community. They get to know their neighbors, as well as the management staff, forming relationships that are deeper than merely being acquittances. And as a result, residents will likely to stay longer, treat the apartment community with more respect, be more courteous to their neighbors and the staff and pay their rent on-time.

Hosting resident appreciation parties also motivates the residents to leave reviews (which is important for the reputation of the apartment community) and recommend the community to their friends and colleagues.

Overall, hosting resident appreciation parties will result in higher occupancy, less turnover, lower bad debt, better and more leads and higher quality residents, which means a higher net operating income.

They type of resident appreciation party to host depends on the resident-demographic. In other words, the type of event hosted at an A-class luxury apartment will usually differ from the event hosted at a C-class property in a working-class neighborhood. So, use common sense when brainstorming party ideas.

That being said, here is a list of 51 more resident appreciation party ideas:

 

Valentine’s Day Event Ideas

  1. Valentine’s Day Card Making Event: Set up a card making station in the clubhouse.
  2. Speed Dating Event: For the single residents only!

 

Mother’s Day Event Ideas

  1. Flowers for Mom: Free flower pots in the clubhouse for residents to give to their moms.
  2. Mother’s Day Card Making: Set up a card making station in the clubhouse.
  3. Gift Wrapping Station: Set up a gift-wrapping station in the clubhouse.

 

Fourth of July Event Ideas

  1. BBQ: Pool party with hot dogs, burgers, chips and drinks.
  2. Fireworks: Most likely firework viewing, unless you want to do your own fireworks (depending on the local laws).

 

Halloween Event Ideas

  1. Costume Competition: Host a costume party and have everyone vote on the best costume, with the winner receiving a Halloween themed gift.
  2. Pumpkin Carving Party: Host a pumpkin carving event and have everyone vote on the best Jack-o-Lantern with the winner receiving a Halloween themed gift.
  3. Caramel Apple Bar: Set up a caramel apple making station in the clubhouse.
  4. Trick-or-treating: Door-to-door trick-or-treating.

 

Christmas Event Ideas

  1. Gingerbread House Competition: Host a gingerbread house making competition and have everyone vote on the best house with the winner receiving a Christmas themed gift.
  2. Pictures with Santa: Have someone dress up as Santa and take pictures with the children.
  3. Cookie Frosting: Set up a cookie frosting station in the clubhouse.
  4. Cookies and Hot Cocoa Party: Host a party where you offer cookies and hot cocoa.
  5. Ugly Sweater Party: Everyone dresses up in their ugliest sweater and offer refreshments in the clubhouse
  6. Movie night: Watch It’s a Wonderful Life, A Christmas Story or your favorite Christmas movie.
  7. White Elephant: Host a gift exchange party in the clubhouse.

 

Free Food Ideas

  1. Breakfast-On-The-Go: Purchase portable breakfast foods (burritos are the best) and juice and give them to the residents while they drive through the gate on their way to work. You could also pack brown bag breakfasts or lunches for the kids, or hand out bagels or muffins instead.
  2. Sip-N-Sweet Mondays/Fridays: Set up a coffee and donut station in your clubhouse.
  3. Wine Tasting: set up a wine tasting station with cheeses in your clubhouse.
  4. Take and Bake Pizza Parties: Set up a pizza making station in the clubhouse. Residents can come in, make a custom pizza and take it home to cook.
  5. Pops(icles) by the Pool: Hand out popsicles on a hot day at the pool.
  6. Snow Cones in the Shade: Hand out snow cones on a hot day at the pool.
  7. Sundae Sunday: Set up an ice cream sundae making station in the clubhouse.
  8. Taco Tuesday: Set up a taco making station in the clubhouse.
  9. Pancakes and Pajamas: Offer pancakes on a Saturday or Sunday morning to residents who show up to the clubhouse in their pajamas.

 

Parties for the Children

  1. Back to School party: Host a pool party for the kids on the weekend before school starts.
  2. Froyo Friday: Set up a frozen yogurt station in the clubhouse.
  3. Egg hunt: Host an egg hunt on Easter Sunday.
  4. Back to School Bingo Bash: Winners get free school supplies.
  5. Teddy bear picnic: Picnic for the kids with their favorite stuffed animal.
  6. Game night: Have the kids bring their favorite games to the clubhouse for a game night.
  7. Legos and Eggos: Serve waffles and offer Legos for the kids.
  8. Water Balloon War: Dodgeball, but with water balloons.
  9. Astronomy Night: Invite astronomers from a nearby observatory or university, asking them to bring along a telescope, and invite the kids to gaze at the night sky.
  10. Arts and Crafts: Set up craft making or finger-painting stations in the clubhouse.
  11. Chalk Party: Provide children with sidewalk chalk to write on the parking lot or sidewalks, have a hopscotch competition with prizes.
  12. Superhero Party: kids dress up as their favorite superheroes.
  13. Princess Party: kids dress up as their favorite princesses and have a small fashion show.
  14. Pajama party: Kids come to the clubhouse dressed up in their pajamas with their sleeping bags. Offer popcorn and smores, and have a movie or game night.
  15. Cupcake decorating: Set up a cupcake decorating station in the clubhouse.

 

Competitions with Prizes

  1. Trivia Night: Host a trivia night in your clubhouse with prizes.
  2. Game Night: Host a game night in your clubhouse with prizes.
  3. Chili cook off: Host a chili-making competition. Offer prizes (and maybe even a trophy) for the annual winner.
  4. Poker night: Host a Texas Hold’Em tournament.

 

Other Event or Party Ideas

  1. Clean Out Your Closet: Host a community-wide closet cleaning event, collecting gently used clothing from residents. Enter the participants names into a raffle and give away a gift card to a clothing store.
  2. Yard Sale: Host a yard sale in the parking lot by the clubhouse. Residents can sell stuff and buy stuff from other residents.
  3. Pool Party: Host a pool party with a DJ.
  4. Fitness classes: Host fitness classes, like Zumba, aerobics, pilates or yoga, in your fitness center or at a nearby gym. Other fitness ideas are a run club, hiking club, or bike club.
  5. Nacho Average Tailgate: Set up a nacho making station in the clubhouse on gamedays.

 

For more event ideas, a great resource is www.apartmentlife.org.

 

What about you? Comment below: Have you hosted a resident appreciation event at your apartment community that isn’t on this list?

 

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how passive investors make money

How Do Passive Investors Make Money in Apartment Syndications?

Passive investing is one of the best ways to receive the benefits of owning a large apartment building without the time commitment, funding the entire project or obtaining the expertise require to create and execute a business plan.

A passive investor might not see the same returns as an active investor who is finding, qualifying and closing on an apartment building use their own capital and overseeing the business plan through its successful completion. But compared to other passive investment vehicles, like stocks, bonds or REITs, apartment syndications cannot be beat (assuming the passive investor has found the right general partnership and qualified their team).

The returns offered to the limited partner (i.e. the passive investors) vary from general partner to general partner. Before making the commitment to invest, the limited partners (referred to as the LP hereafter) should understand the general partner’s (referred to as the GP hereafter) partnership structure, which includes the type of investment structure and how the returns are distributed.

Typically, a passive investor is either an equity investor or a debt investor in an apartment syndication. In this blog post, I will outline these two investment structures and the types of return structures for each.

 

Equity Investor

Of the two main types of investment structures, being an equity investor is the most profitable, because they participate in the upside of the deal. However, they typically will not receive their initial equity investment until the sale of the apartment.

The equity investor is offered an ongoing return, as well as a portion of the profits at sale. Generally, after the operating expenses and debt service are paid, the a portion of the remaining cash flow is distributed to the LP. For some partnership structures, the GP will take an asset management fee before distributing returns to the LPs. I do not like this approach since it decreases the alignment of interest because the GP receives payment before the LP. So, my company puts our asset management fee in second position to the LP returns (which means we don’t get an asset management fee until we’ve paid the LP).

The most common ongoing return is called a preferred return. The preferred return ranges from 2% to 12% annually based on the experience of the GP and their team, the risk factors of the project and the investment strategy. The less experience and the more risk, the higher the returns. In regards to the preferred returns associated with the three main apartment syndication investment strategies, the GP will offer the highest percentage for distressed apartments and the lowest percentage for turnkey apartments, with value-add apartments falling somewhere in-between.

For example, on a highly distressed apartment deal, the GP may offer a 12% preferred return. However, since the deal will likely have a lower or no return during the stabilization period, the preferred return would accrue and be paid out to the LP in one lumpsum. For turnkey apartments, the preferred return will fall towards the lower end of the range because, since the apartment is already stabilized and minimal value can be added, there is less risk. For value-add apartments, the typical preferred return that is offered to the LP is 8%.

Conversely, the GP may not offer a preferred return but a profit split instead. For example, 70% of the cash flow is distributed to the LP and the remaining 30% to the LP. However, I do not like this structure for the same reason why I don’t like putting the asset management fee ahead the LP returns – a reduction in alignment of interest. Therefore, the GP will usually offer a preferred return and the remaining cash flow is split between the LP and GP.

This remaining profit split can range from 90/10 (i.e. 90% to the LP, 10% to the GP) to 50/50. A common variation on the profit split will include hurdles, using return factors like the internal rate of return (referred to as IRR hereafter) or cash-on-cash return. For example, the LP is offered an 8% preferred return and the remaining profits are split 70/30. But, once the LP receives a 13% IRR, the profit split drops to 50/50.

The equity investor also participates in the upside of the deal, which means they are offered a portion of the sales proceeds.

The most common equity structure for value-add apartment deals is an 8% preferred return with a 50/50 LP/GP profit split. The next most common equity structure is an 8% preferred return with a 70/30 LP/GP profit split until the LP IRR passes a certain threshold (10% to 20% is the standard range), at which point the remaining profits are split 50/50.

 

Debt Investor

Of the two main types of investment structures, being a debt investor is the least profitable. However, the lower profitability comes with a lower risk. Once the GP pays operating expenses and debt service, the remaining cash flow must go to distributing the fixed interest rate to the debt investor. However, unlike the preferred return offered an equity investor, if the GP is unable to pay the fixed interest rate (assuming they are still able to cover the operating expenses and debt service), the debt investor can take control of the property. Hence, less risk.

Unlike the equity investor, the debt investor doesn’t participate in the upside of the deal. Instead, they are offered a fixed interest rate until the GP is able to return 100% of their investment.

Similar to the preferred return, the interest rate that is offered to a debt investor is based on the GP’s experience, the risk factors associated with the project and investment strategy. However, since there is an overall reduced risk involved with being a debt investor, the interest rate is typically lower than what the preferred return would be for a similar project.

Another difference between equity and debt investors is that debt investors will typically receive their capital back before the apartment is sold, which generally occurs after a refinance or securing a supplemental loan. A supplemental loan is a financing option that is secured on top of the existing financing on the property that is typically available 12-months after closing the initial loan.

 

What’s a Better Passive Investment?

Like any investment, the best partnership structure is based on the passive investor’s goals. For those looking for a low-risk investment vehicle to park their money for a few years while receiving a fixed return that beats inflation, then becoming a debt investor may be more appealing. For those looking for an investment vehicle that offers a higher ongoing return (although not guaranteed) and the potential for a large lumpsum profit at sale, then being an equity investor may be more appealing. And of course, diversifying between the two structures is also an option!

 

Want to learn more about passively investing in apartment syndications? Visit the Best Ever Passive Investor Resources page, the only comprehensive resource available to passive investor.

 

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How to Become an Award-Winning 5-Star Apartment Syndicator

How does an apartment syndicator earn back-to-back “Rental Owner of the Year” awards and obtain a 5-star Facebook review rating for their apartment portfolio?

 

The answer: foster a community.

 

You foster a community by implement marketing strategies that will create an atmosphere in which people want to live. A place where residents are engaged in the community. Where neighbors know each, respect each other and like each other.

 

The creation of this type of community is best accomplished by giving back to the residents.

 

At least this is the approach of Bruce Peterson, an apartment syndicator with a portfolio of over 800 units. By following this strategy, Bruce has won local and national apartment owner rewards and has achieved a 4.9 out of 5 star rating on Facebook. In our recent conversation on my podcast, he explained his exact marketing approach, which included these two creative and unique strategies.

 

Strategy #1 – Raffles

 

First, Bruce consistently hosts raffles and drawings at his apartment communities. However, these are more than just putting the names of everyone at the community in a hat and randomly picking a winner. Because where’s the engagement in that?

 

Instead, Bruce creates engaging activities in which residents are required to complete a task in order to be entered into the drawing.

 

For example, he hosts a food drive every November and a toy drive every December. Residents who drop-off an item and like the property Facebook page will be entered into a drawing. The winner will receive a turkey dinner!

 

Another funny, yet effective example is a Garden Gnome Competition. Bruce purchases a garden gnome, gives it a name and hides it on the property grounds. Residents will then search for the gnome. If they find the gnome, take a selfie, post the selfie to their Facebook timeline and tag/mention the property Facebook page, they will be entered into a drawing. The winner receives a gift card (although, I recommend that if you replicate this strategy, you give them the gnome too!)

 

Strategy #2 – Demographic-Specific Events

 

Second is to host demographic-specific events with the focus on adding value and/or fulfilling a need of your residents.

 

For example, after purchasing a new dog washing station at one of his properties, Bruce hosted a “Yappy Hour.” Residents could bring in their dogs for a free wash, as well as receive a token that could be used for another free wash in the future and are entered into a drawing to win gifts like doggy beds, treats, toys and food/water bowls.

 

And speaking of the children, one of the most creative events Bruce hosts at another one of his properties is a “Free School Supply Giveaway” event. They reach out to the local elementary and middle schools, get the school supply lists for each grade and purchase school supplies for all of the children at the property. Then, they bring all of the school supplies into a vacant unit and purchase pizzas to giveaway. Each family comes in, grabs a piece of pizza and picks up a backpack full of their required school supplies for the year. Bruce said he’s never seen kids with bigger smiles on their faces! And he also said that this event was the main reason why he’s won “Rental Owner of the Year” awards for two years running.

 

Other events Bruce hosts at his apartment communities are:

 

  • Cinco de Mayo: a party with a piñata, a band and an ice cream truck
  • Annual Halloween costume party
  • Breakfast at the Gate: a drive-through at the gate where residents are given free breakfast tacos and juice on their way to work
  • Sip-N-Sweet Friday: offer free donut and coffee in the clubhouse Friday mornings
  • Fiesta Party: a party with a DJ, face painter, food truck and – of course – a raffle.

 

For both of these marketing strategies, Bruce and his team are constantly taking pictures and videos and posting them to the respective property Facebook pages. I would recommend visiting Bruce’s website and look at the social media pages for his properties to see his company’s social media strategy.

 

Conclusion

 

By participating in these types of activities, events and raffles, the residents are engaged and having fun, which motivates them to not only like and leave reviews on the social media page, but talk about the apartment community with their friends and colleagues.

 

From a financial perspective, this strategy will help you retain current residents and attract more leads, which directly impacts your bottom-line.

 

What about you? Comment below: What types of events do you host in order to foster a community at your properties?

 

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glossary of apartment terms

Glossary of Apartment Syndication Terms

A glossary of terms and definitions, listed in alphabetical order, used in apartment syndications for aspiring apartment syndicators and passive investors to study in order learn the industry terminology.

Navigations: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

 

Absorption Rate: The rate at which available rentable units are leased in a specific real estate market during a given time period.

Accredited Investor: A person that can invest in apartment syndications by satisfying one of the requirements regarding income or net worth. The current requirements to qualify are an annual income of $200,000, or $300,000 for joint income, for the last two years with the expectation of earning the same or higher, or a net worth exceeding $1 million either individually or jointly with a spouse.

Acquisition Fee: The upfront fee paid by the new buying partnership to the general partner for finding, evaluating, financing and closing the investment.

Active Investing: The finding, qualifying and closing on an apartment building using one’s own capital and overseeing the business plan through its successful execution.

Amortization: The paying off of a mortgage loan over time by making fixed payments of principal and interest.

Apartment Syndication: A temporary professional financial services alliance formed for the purpose of handling a large apartment transaction that would be hard or impossible for the entities involved to handle individually, which allows companies to pool their resources and share risks and returns. In regards to apartments, a syndication is typically a partnership between general partners (i.e. the syndicator) and limited partners (i.e. the passive investors) to acquire, manage and sell an apartment community while sharing in the profits.

Appraisal: A report created by a certified appraiser that specifies the market value of a property. The value is based on cost, sales comparable and income approach.

Appreciation: An increase in the value of an asset over time. The two main types of appreciation that are relevant to apartment syndications are natural appreciation and forced appreciation. Natural appreciation occurs when the market cap rate naturally decreases over time, which isn’t always a given. Forced appreciation occurs when the net operating income is increased by either increasing the revenue or decreasing the expenses. Force appreciation typically occurs by adding value to the apartment through renovations and/or operational improvements.

Asset Management Fee: An ongoing annual fee from the property operations paid to the general partner for property oversight.

 

B

 

Bad Debt: The amount of uncollected money owed by a tenant after move-out.

Breakeven Occupancy: The occupancy rate required to cover all of the expenses of a property.

Bridge Loan: A mortgage loan used until a borrower secures permanent financing. Bridge loans are short-term (six months to three years with the option to purchase an additional six months to two years), generally having higher interest rates and are almost exclusively interest only. Also referred to as interim financing, gap financing or swing loans. The loan is ideal for repositioning an apartment community that doesn’t qualify for permanent financing.

C

 

Capital Expenditures (CapEx): The funds used by a company to acquire, upgrade and maintain a property. Also referred to as CapEx. An expense is considered CapEx when it improves the useful life of a property and is capitalized – spreading the cost of the expenditure over the useful life of the asset. CapEx included both interior and exterior renovations.

Capitalization Rate (Cap Rate): The rate of return based on the income that the property is expected to generate. Also referred to as the cap rate. The cap rate is calculated by dividing the net operating income by the current market value of a property.

Cash Flow: The revenue remaining after paying all expenses. Cash flow is calculated by subtracting the operating expense and debt service from the collected revenue.

Cash-on-Cash Return: The rate of return based on the cash flow and the equity investment. Also referred to as CoC return. Coc return is calculated by dividing the cash flow by the initial equity investment.

Closing Costs: The expenses, over and above the purchase price of the property, that buyers and sellers normally incur to complete a real estate transaction. These costs include origination fees, application fees, recording fees, attorney fees, underwriting fees, due diligence fees and credit search fees.

Concessions: The credits given to offset rent, application fees, move-in fees and any other cost incurred by the tenant, which are generally given at move-in to entice tenants into signing a lease.

Cost Approach: A method of calculating a property’s value based on the cost to replace (or rebuild) the property from scratch. Also referred to as the replacement approach.

D

 

Debt Service: The annual mortgage amount paid to the lender, which includes principal and interest. Principal is the original sum lent to a borrower and the interest rate is the charge for the privilege of borrowing the principal amount.

Debt Service Coverage Ratio (DSCR): The ratio that is a measure of the cash flow available to pay the debt obligation. Also referred to as the DSCR. The DSCR is calculated by dividing the net operating income by the total debt service. A DSCR of 1.0 means that there is enough net operating income to cover 100% of the debt service. Ideally, the DSCR is 1.25 or higher. A property with a DSCR too close to 1.0 is vulnerable, and a minor decline in revenue or minor increase in expenses would result in the inability to service the debt.

Depreciation: A decrease or loss in value due to wear, age or other cause.

Distressed Property: A non-stabilized apartment community, which means the economic occupancy rate is below 85% and likely much lower due to poor operations, tenant problems, outdated interiors, exteriors or amenities, mismanagement and/or deferred maintenance.

Distributions: The limited partner’s portion of the profits, which are sent on a monthly, quarterly or annual basis, at refinance and/or at sale.

Due Diligence: The process of confirming that a property is as represented by the seller and is not subject to environmental or other problems. For apartment syndications, the general partner will perform due diligence to confirm their underwriting assumptions and business plan.

E

 

Earnest Money: A payment by the buyers that is a portion of the purchase price to indicate to the seller their intention and ability to carry out sales contract.

Economic Occupancy Rate: The rate of paying tenants based on the total possible revenue and the actual revenue collected. The economic occupancy is calculated by dividing the actual revenue collected by the gross potential income.

Effective Gross Income (EGI): The true positive cash flow. Also referred to as EGI. EGI is calculated by subtracting the revenue lost due to vacancy, loss-to-lease, concessions, employee units, model units and bad debt from the gross potential income.

Employee Unit: An apartment unit rented to an employee at a discount or for free.

Equity Investment: The upfront costs for purchasing a property. For apartment syndications, these costs include the down payment for the mortgage loan, closing costs, financing fees, operating account funding and the fees paid to the general partnership for putting the deal together. Also referred to as the initial cash outlay or the down payment.

Equity Multiple (EM): The rate of return based on the total net profit and the equity investment. Also referred to as EM The EM is calculated by dividing the sum of the total net profit (cash flow plus sales proceeds) and the equity investment by the equity investment.

Exit Strategy: The general partner’s plan of action for selling the apartment community at the conclusion of the business plan.

F

 

Financing Fees: The one-time, upfront fees charged by the lender for providing the debt service. Also referred to as finance charges.

G

 

General Partner (GP): An owner of a partnership who has unlimited liability. A general partner is usually a managing partner and is active in the day-to-day operations of the business. In apartment syndications, the general partner is also referred to as the sponsor or syndicator and is responsible for managing the entire apartment project.

Gross Potential Income: The hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates plus all other income.

Gross Potential Rent (GPR): The hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates. Also referred to as GPR.

Gross Rent Multiplier (GRM): The number of years it would take for a property to pay for itself based on the gross potential rent. Also referred to as the GRM. The GRM is calculated by dividing the purchase price by the annual gross potential rent.

Guaranty Fee: A fee paid to a loan guarantor at closing for signing for and guaranteeing the loan.

H

 

Holding Period: The amount of time the general partner plans on owning the apartment from purchase to sale.

I

 

Income Approach: A method of calculating an apartment’s value based on the capitalization rate and the net operating income (value = net operating income / capitalization rate).

Interest Rate: The amount charged by a lender to a borrower for the use of their funds.

Interest-Only Payment: The monthly payment for a mortgage loan where the lender only requires the borrower to only pay the interest on the principal.

Internal Rate of Return (IRR): The rate needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal paydown on the mortgage loan) to equal the equity investment. Also referred to as IRR.

J

K

L

 

Lease: A formal legal contract between a landlord and a tenant for occupying an apartment unit for a specified time and at a specified price with specified terms.

Letter of Intent (LOI): A non-binding agreement created by a buyer with their proposed purchase terms. Also referred to as the LOI.

Limited Partner (LP): A partner whose liability is limited to the extent of their share of ownership. Also referred to as the LP. In apartment syndications, the LP is the passive investor who funds a portion of the equity investment.

London Interbank Offered Rate (LIBOR): A benchmark rate that some of the world’s leading banks charge each other for short-term loans. Also referred to as LIBOR. The LIBOR serves as the first step to calculating interest rates on various loans, including commercial loans, throughout the world.

Loan-to-Cost Ratio (LTC): The ratio of the value of the total project costs (loan amount + capital expenditure costs) divided by the apartment’s appraised value.

Loan-to-Value Ratio (LTV): The ratio of the value of the loan amount divided by the apartment’s appraised value.

Loss-to-Lease (LtL): The revenue lost based on the market rent and the actual rent. Also referred to as LtL. The LtL is calculated by dividing the gross potential rent minus the actual rent collected by the gross potential rent.

M

 

Market Rent: The rent amount a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for tenancy, which is based on the rent charged at similar apartment communities in the area. The market rent is typically calculated by conducting a rent comparable analysis.

Metropolitan Statistical Area (MSA): A geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. Also referred to as the MSA. MSAs are determined by the United States Office of Management and Budget (OMB).

Model Unit: A representative apartment unit used as a sales tool to show prospective tenants how the actual unit will appear once occupied.

Mortgage: A legal contract by which an apartment is pledged as security for repayment of a loan until the debt is repaid in full.

N

 

Net Operating Income (NOI): All the revenue from the property minus the operating expenses. Also referred to as the NOI.

O

 

Operating Account Funding: A reserves fund, over and above the purchase price of an apartment, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments or higher than expected capital expenditures. The operating account funding is typically created by raising extra capital from the limited partners.

Operating Agreement: A document that outlines the responsibilities and ownership percentages for the general and limited partners in an apartment syndication.

Operating Expenses: The costs of running and maintaining the property and its grounds. For apartment syndications, the operating expense are usually broken into the following categories: payroll, maintenance and repairs, contract services, make ready, advertising/marketing, administrative, utilities, management fees, taxes, insurance and reserves.

P

 

Passive Investing: Placing one’s capital into an apartment syndication that is managed in its entirety by a general partner.

Permanent Agency Loan: A long-term mortgage loan secured from Fannie Mae or Freddie Mac. Typical loan terms lengths are 3, 5, 7, 10, 12 or more years amortized over up to 30 years.

Physical Occupancy Rate: The rate of occupied units. The physical occupancy rate is calculated by dividing the total number of occupied units by the total number of units at the property.

Preferred Return: The threshold return that limited partners are offered prior to the general partners receiving payment.

Prepayment Penalty: A clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain period.

Price Per Unit: The cost per unit of purchasing a property. The price per unit is calculated by dividing the purchase price of the property by the total number of units.

Private Placement Memorandum (PPM): A document that outlines the terms of the investment and the primary risk factors involved with making the investment. Also referred to as the PPM. The PPM typically has four main sections: the introductions (a brief summary of the offering), basic disclosures (general partner information, asset description and risk factors), the legal agreement and the subscription agreement.

Pro-forma: The projected budget with itemized line items for the revenue and expenses for the next 12 months and five years.

Profit and Loss Statement (T-12): A document or spreadsheet containing detailed information about the revenue and expenses of a property over the last 12 months. Also referred to as a trailing 12-month profit and loss statement or a T-12.

Property and Neighborhood Classes: A ranking system of A, B, C or D assigned to a property and a neighborhood based on a variety of factors. For property classes, these factors include date of construction, condition of the property and amenities offered. For neighborhood classes, these factors include demographics, median income and median home values, crime rates and school district rankings.

Property Management Fee: An ongoing monthly fee paid to the property management company for managing the day-to-day operations of the property.

 

Q

R

 

Ration Utility Billing System (RUBS): A method of calculating a tenant’s utility usage based on occupancy, unit square footage or a combination of both. Once calculated, the amount is billed back to the tenant.

Recourse: The right of the lender to go after personal assets above and beyond the collateral if the borrower defaults on the loan.

Refinance: The replacing of an existing debt obligation with another debt obligation with different terms.

Refinancing Fee: A fee paid to the general partner for the work required to refinance an apartment.

Rent Comparable Analysis (Rent Comps): The process of analyzing the rental rates of similar properties in the area to determine the market rents of the units at the subject property.

Rent Premium: The increase in rent demanded after performing renovations to the interior and/or exterior of an apartment community.

Rent Roll: A document or spreadsheet containing detailed information on each of the units at the apartment community, including the unit number, unit type, square footage, tenant name, market rent, actual rent, deposit amount, move-in date, lease-start and lease-end date and the tenant balance.

S

 

Sales Comparison Approach: A method of calculating an apartment’s value based on similar apartments recently sold.

Sales Proceeds: the profit collected at the sale of the apartment community.

Sophisticated Investor: A person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

Subject Property: The apartment the general partner intends on purchasing.

Submarket: A geographic subdivision of a market.

Subscription Agreement: A document that is a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price, and a promise by the limited partner to pay that price.

T

U

 

Underwriting: The process of financially evaluating an apartment community to determine the projected returns and an offer price.

V

 

Vacancy Loss: The amount of revenue lost due to unoccupied units.

Vacancy Rate: The rate of unoccupied units. The vacancy rate is calculated by dividing the total number of unoccupied units by the total number of units.

Value-Add Property: A stabilized apartment community with an economic occupancy above 85% and has an opportunity to be improved by adding value, which means making improvements to the operations and the physical property through exterior and interior renovations in order to increase the income and/or decrease the expenses.

W

X

Y

 

Yield Maintenance: A penalty paid by the borrower on a loan is the principal is paid off early.

Z

 

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apartment investing offer

How the General Partner Submits an Offer on an Apartment Deal

Generally, the general partner (referred to as GP hereafter) in an apartment syndication has certain investment criteria to determine which deals to submit offers on. This criteria could be as sophisticated as requiring a projected internal rate of return and cash-on-cash return above a certain threshold, which is what my company does, or as basic as a cash flow per door.

 

Regardless of their investment criteria, an experienced GP will perform underwriting on tens, if not hundreds, of deals before finding one that qualifies for an offer. And once they do, there is a four-step process for submitting an offer.

 

Understanding this process is obviously important for those striving to syndicate their own apartment deals in the future. But it is important for those passively investing in apartment syndications to understand as well. If they are entrusting the GP with their hard-earned capital, they should know how the offer price and terms are calculated.

 

1. Pre-Offer Conversation

 

Before completing the underwriting process and submitting an offer, the GP will likely need to reach out to the listing real estate broker and their property management company.

 

If questions arise during the course of the underwriting process, the GP will need to get the answers from the listing broker before submitting an offer. For example, there might be a discrepancy between the rent roll and the offering memorandum in regards to the number of units renovated by the current owner. Or the properties used by the listing broker for the rental comparable analysis are too dissimilar to the subject property. Or the GP needs more information on the exterior capital expenditures completed by the current owner over the past few years. The GP should leave no stone unturned before determining an offer price.

 

Similarly, the GP should review the underwriting with the property management company who will manage the deal after acquisition in order to confirm the assumptions there were made.

 

Additionally, the GP should visit the property in-person. Ideally, the GP visits the property with their property management company and, if they plan on performing renovations after acquisition, a general contractor. Together, they should look at the condition of the big ticket exterior items, like the roofs, siding, parking lots, clubhouse, amenities (i.e. pool, fitness center, playground, etc.), landscaping and signage. They should interview the onsite property management company to understand the historical operations of the property. They should tour a handful of units, preferably the “best” and “worst” unit. Then, they should leave the property and drive a 2-mile radius around the property, making note of nearby retail centers, restaurants, employment hubs and other apartment communities. Lastly, they should visit these other apartment communities to gain an understanding of the local competition.

 

Based on the feedback from the real estate broker and property management company, and the in-person visit, the GP should update or revise any underwriting assumptions in preparation for submitting an offer. At this point, the GP will have better assumptions than those that were made by simply reviewing the rent roll and profit and loss statement. But, if they are awarded the deal, the GP will conduct more detailed due diligence in order to finalize their assumptions.

 

2. Determine an Offer Price

 

During the underwriting and pre-conversation phase, the GP will usually have an idea of the price at which the owner is wanting to sell. Sometimes, the sales price is explicitly stated but this is usually only the case for smaller apartment deals. For deals with 50 to 100 or more units, the listed purchase price will likely say “to be determined by the market.” If that is the case, the GP can usually get a ballpark number from the listing real estate broker or the owner. If not, then they may use the current market cap rate  and the current net operating income to get an estimated sales price.

 

However, the sale price the owner desires is fairly irrelevant when determining an offer price. Experienced GPs will set an offer price that results in projected returns that meet their investment criteria. For example, my company will set an offer price that results in, at minimum, a 8% cash-on-cash return and a 16% 5-year internal rate of return to the limited partners.

 

If the GP’s offer price differs greatly from the listed, stated or estimated sales price, it may be due to an error on the GP’s side or due to the seller making too aggressive of assumptions. If it is the latter, the GP can either walk away from the deal or submit their offer along with an explanation for why the offer is much lower than what the seller desires.

 

In addition to determining an offer price, the GP should also have a conversation with their lender or mortgage broker to obtain estimated loan terms to include in their offer.

 

3. Submit an LOI

 

At this point, if the results of the underwriting meet their investment criteria, the GP will submit an offer in the form of a letter of intent (referred to as LOI hereafter). The LOI should be prepared by the GP’s real estate attorney.

 

The LOI is not legally binding. Its purpose is to show the GP’s intent to purchase the apartment at the stated price and terms, which includes the purchase price, down payment amount, earnest deposit and the due diligence timeline.

 

For the earnest deposit, 1% of the purchase price is standard and goes hard (i.e. is non-refundable) once the inspection period is completed (30 to 45 days). However, if the GP is in a competitive offer situation, the earnest deposit terms can deviate from the norm, whether it is a higher deposit amount and/or a shorter time frame before it goes hard (with the most competitive offers having the earnest deposit go hard day 1). For example, on a recent deal, my company had a $200,000 earnest deposit go hard day 1.

 

The GP can have a conversation with their real estate broker about what they are seeing in the current market for earnest deposit and its terms. Or, the GP can base the earnest deposit amount and terms on their previous acquisitions in the same submarket.

 

After submitting the LOI, the GP may be invited to a best and final call with the sellers. This is when the sellers ask for the interested investors’ best and final offer. Then, the investors with the most competitive offers will be invited to a call with the sellers, which is basically an interview so that the seller can determine if the investor is capable of closing on the deal.

 

4. Submit a Formal Offer

 

If the sellers accept and sign the GP’s letter of intent or they are awarded the deal after the best and final round, the GP will submit a formal offer in the form of a purchase sales agreement. Similar to the LOI, this sales agreement should be prepared by the GP’s real estate attorney. The purchase sales agreement is a detailed contract that outlines all of the terms of the sale.

 

Funding the upfront costs

 

In addition to the earnest deposit, other fees paid prior to closing are the upfront bank fees. Since the earnest deposit is due soon after closing, the GP needs to know where these funds will come from prior to putting the property under contract. The GP may front these costs and reimburse themselves at the close. Another option is for the GP ask an investor to fund the earnest deposit and upfront bank fees and create a promissory note so that the GP is responsible for paying the investor back if they lose the money (which happens if the contract is cancelled after the earnest deposit goes hard). Or, the GP could partner with someone on their team that has those funds. Ideally, the party who funds the earnest deposit will fund the other upfront banks fees as well.

 

In terms of how much upfront cash is needed, a good estimate is 2.5% of the purchase price (1% for the earnest deposit and 1.5% for the bank fees). For example, a $10 million purchase price would require an estimated $3.5 million in equity (25% down payment, GP fees, closing costs and cash reserves) at close. Of that $3.5 million, the GP would need approximately $250,000 in cash to cover the earnest deposit and upfront bank fees to get the deal to the closing table.

 

To learn more about the apartment syndication process from the perspective of a passive investor, visit my passive investor resources page here.

 

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apartment syndication taxes

The Five Tax Factors When Passively Investing in Apartment Syndications

In addition to the capital preservation and cash flow benefits, one of the main reasons that passive investors seek to invest in real estate opportunities, and apartment syndications in particular, is because of the tax benefits.

 

When a passive investor invests in a value-add apartment syndication, they will generally receive a profit from annual cash flow and the profit at sale. Being a profit, this money is taxable. However, for apartment syndications, there are five pieces of tax information that the syndicator and the passive investor need to understand in order to determine the tax advantages of investing. These are 1) the depreciation benefits, 2) accelerated depreciation via cost segregation, 3) depreciation recapture, 4) bonus depreciation and 5) capital gains tax at sale.

 

DISCLAIMER: THIS IS FOR YOUR INFORMATION ONLY. SINCE I AM NOT A TAX ADVISORY FIRM, I REFER ALL GENERAL TAX-RELATED REAL ESTATE QUESTIONS FROM PASSIVE INVESTORS BACK TO THEIR ACCOUNTANTS. HOWEVER, I WILL SAY THAT INVESTORS OFTEN SEEK REAL ESTATE OPPORTUNITIES TO INVEST IN DUE TO THE TAX ADVANTAGES THAT MAY COME FROM DEBT WRITE OFF AND LOSS DUE TO DEPRECIATION. BUT I DON’T INCLUDE ANY ASSUMPTIONS ABOUT THESE TAX ADVANTAGES IN OUR PROJECTIONS.

 

1 – Depreciation

 

Depreciation is the amount that can be deducted from income each year as the depreciable items at the apartment community age. The IRS classifies each depreciable item according to its useful life, which is the number of years of useful life of the item. The business can deduct the full cost of the item over that period.

 

The most common form of depreciation is straight-line depreciation, which allows the deduction of equal amounts each year. The annual deduction is the cost of the item divided by its useful life. The IRS considers the useful life of real estate to be 27.5 years. So, the annual depreciation on an apartment building worth $1,000,000 (excluding the land value) is $1,000,000 / 27.5 years = $36,363,64 per year.

 

Generally, the depreciation amount is such that a passive investor won’t pay taxes on their monthly, quarterly or annual distributions during the hold period. They will, however, have to pay taxes on the sales proceeds.

 

2 – Cost Segregation

 

Cost segregations is a strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring income taxes. A cost segregation study performed by a cost segregation engineering firm dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27.5 years, the useful life of a residential building. The primary goal of a cost segregation study is to identify all property-related costs that can be depreciated over 5, 7 and 15 years

 

For example, my company performed a cost segregation on our portfolio for 2017. On one of the properties, we showed loss from depreciation of greater than 412% than we would have seen with the straight-line depreciation using the 27.5 year useful life figure.

 

To perform a cost segregation, the syndicator will need to hire a cost segregation specialist. This can cost anywhere between $10,000 and $100,000 depending on the size of the apartments.

 

3 – Depreciation Recapture

 

Depreciation recapture is the gain received from sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is “recaptured” by reporting it as income.

 

For example, consider an apartment that was purchased for $1,000,000 and has an annual depreciation of $35,000. After 11 years, the owner decides to sell the property for $1,300,000. The adjusted cost basis then is $1,000,000 – ($35,000 x 11) = $615,000. The realized gain on the sale will be $1,300,000 – $615,000 = $685,000. Capital gain on the property can be calculated as $685,000 – ($35,000 x 11) = $300,000, and the depreciation recapture gain is $35,000 x 11 = $385,000.

 

Let’s assume a 15% capital gains tax and that the owner falls in the 28% income tax bracket. The total amount of tax that the taxpayer will owe on the sale of this rental property is (0.15 x $300,000) + (0.28 x $385,000) = $45,000 + $107,800 = $152,800. The depreciation recapture amount is $107,800 and the capital gains amount is $45,000.

 

4 – Bonus Depreciation

 

One of the major changes with the Tax Cuts and Jobs Act of 2017 was the bonus depreciation provision, where business can take 100% bonus depreciation on a qualified property purchased after September 27th, 2017. Click here for more information on the qualifications and benefits of the change in bonus appreciation.

 

5 – Capital Gains

 

When the asset it sold and the partnership is terminated, initial equity and profits are distributed to the passive investors. The IRS classifies the profit portion as long-term capital gain.

 

Under the new 2018 tax law, the capital gains tax bracket breakdown is as follows:

 

Taxable income (individual or joint)

  • $0 to $77,220: 0% capital gains tax
  • $77,221 to $479,000: 15% capital gains tax
  • More than $479,000: 20% capital gains tax

 

Annual Tax Statements

 

At the beginning of the following year, the syndicator will have their CPA create Schedule K-1 tax reports for each passive investor. The K-1 is a tax document that includes all of the pertinent tax information that the passive investor will use to fill out their tax forms.

 

DISCLAIMER: THIS IS FOR YOUR INFORMATION ONLY. SINCE I AM NOT A TAX ADVISORY FIRM, I REFER ALL GENERAL TAX-RELATED REAL ESTATE QUESTIONS FROM PASSIVE INVESTORS BACK TO THEIR ACCOUNTANTS. HOWEVER, I WILL SAY THAT INVESTORS OFTEN SEEK REAL ESTATE OPPORTUNITIES TO INVEST IN DUE TO THE TAX ADVANTAGES THAT MAY COME FROM DEBT WRITE OFF AND LOSS DUE TO DEPRECIATION. BUT I DON’T INCLUDE ANY ASSUMPTIONS ABOUT THESE TAX ADVANTAGES IN OUR PROJECTIONS.

 

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Secure Passive Investor Commitments

5 Step Process for Securing Passive Investor Commitments for Apartment Syndications

There are three main steps to take an apartment deal from contract to close. First, the apartment syndicator performs detailed due diligence to confirm or update the underwriting assumptions. Next, the apartment syndicator secures a loan to finance the deal. Lastly, and the focus of this blog post, the apartment syndicator secures financial commitments from passive investors in order to fund the deal.

 

For apartment syndications, and the value-add investment strategy in particular, the syndicator will get a loan to cover the majority of the project costs. Generally, the costs that are not covered by the loan are the down payment for the loan (which is 20% to 30% of the purchase price or the purchase price plus renovations, depending on the loan), general partnership fees charged by the syndicator, financing fees (which are approximately 1.75% of the purchase price), closing costs (which are approximately 1% of the purchase price) and an operating account fund (which is approximately 1% to 3% of the purchase price).

 

In total, a syndicator should expect to require 30% to 40% of the total project costs in order to close on the deal. These remaining costs come from a combination of the general partners (i.e. the syndication team) and the limited partners (i.e. passive investors), with the majority generally coming from the limited partners.

 

The purpose of this blog post is to outline the 5-step process for securing financial commitments from passive investors after an apartment deal is under contract in order to cover this 30% to 40% of the project costs and close on the deal.

 

1 – Investment Package

 

From the syndicator’s perspective, one of the first steps towards securing commitments from passive investors is creating an investment package. Before closing on the deal, the syndicator underwrote the property, conducted a rental comparable analysis, visited the property in-person and negotiated a purchase price. During this time, they become extremely familiar with the property and the surrounding area. The purpose of the investment package is to take all of this knowledge gained by the syndicator from initially qualifying the deal and consolidating it into a digestible form so that the passive investors can review the deal and make an educated investment decision.

 

The form of and the information included in an investment package will vary from syndicator to syndicator, depending on their experience and the business plan. At the very least, the investment package will include the main highlights of the deal that are relevant to the passive investor. These highlights include the purchase price, the projected returns for the project and to the passive investors, an explanation of the business plan including the exit strategy, and the partnership structure. However, ideally the investment package includes much more about the underlying assumptions behind these investment highlights.

 

For example, my company creates an investment summary package which includes the following sections:

 

  • Executive Summary: a summary of the information that is relevant to the passive investor, which is expanded upon in later sections. This includes things like purchase price, return projections and the business plan
  • Investment Highlights: an explanation on why this apartment deal is a solid investment. This includes things like our value-add business plan, the debt terms, the exit strategy and anything unique to the specific deal or market
  • Property Overview: an overview of the property details. This include things like the community amenities, unit features, a property description, the unit mix and floorplans, and a site map
  • Financial Analysis: shows the underlying analysis and assumptions of the return projections. This includes things like the offering summary, debt summary, projected returns to the investor and the detailed proforma
  • Market Overview: an overview of the submarket and market in which the apartment deal is located. This includes things like job growth, demographic data, nearby transportation of developments and the rental and sales comparables that were used to calculate the projected rents

 

Mostly everything that a passive investor needs to know in order to make an educated investment decision should be included in the investment package.

 

2 – Passive Investors Notified about New Deal

 

Once the investment package is created, which could take anywhere from a few days to a week, the next step is for the syndicator to notify their investor database about their deal.

 

I highly recommend that a syndicator gets verbal commitments from passive investors and creates an investor database prior to looking for deal (here are over 20 blog posts on how to find passive investors). In fact, understanding how much money they can raise will determine the size of deal a syndicator should pursue. For example, understanding the they will require approximately 30% to 40% of the project costs to close, a syndicator with $1 million in verbal commitments can look for apartment deals in the $2.5 to 3.3 million range.

 

For my company, once we put a deal under contract and creates the investment package, we notify our passive investors about the new opportunity via email. In this email, we include the top two to three highlights of the deal, include a link to the investment package and invite them to a conference call where we will go over the deal in more detail. We set up the conference call using www.FreeConferenceCall.com and include the date and call-in information in this email.

 

3 – New Investment Offering Call

 

A few days to a few weeks after sending the notification email, my company hosts a new investment offering conference call. Here is a blog post I wrote that outlines my 7-step approach to preparing and conducting a successful new investment offering call. Read this post for more details, but the 7-step approach is:

 

  1. Get in the right mindset
  2. Determine your main focus
  3. Introduce yourself and your team
  4. Provide an overview of the deal, the market and the team
  5. Go into more detail on the deal, the market and the team
  6. Questions and answers session
  7. Conclude the call and send the recording to the investors

 

This is my company’s approach, but it will vary from syndicator to syndicator. Some syndicators will structure their presentations differently. Some syndicators may host a video webinar. Others might just send the investment package and/or a recording to their investors.

 

4 – Secure Commitments

 

After the new investment offering presentation, however the syndicator decided to approach it, the next step is to secure financial commitments from the passive investors.

 

If you are a passive investor, if the deal aligns with your investment goals, you can verbally commit to investing in the deal. How you make your commitment will vary for syndicator to syndicator. For my company, we ask our passive investors to send us an email with their commitments and we hold their spot until they review and sign the required documentation, which I will outline in the next section.

 

If you are an apartment syndicator, this process will vary depending on your experience level. When you are first starting out, you will need to be more proactive when securing commitments. A good strategy is to send emails to your investor database every week or two, inviting them to invest in the deal and providing them a new piece of positive information. You don’t want to send them an email that only asks them to invest. You want to provide a new piece of positive information like a due diligence report came back clean, a new development that was recently announced down the street, the rental comparable report came back and the rents are higher than what you projected, etc. Then, as you gain more experience and credibility from passive investors, they will come to you. Your goal should be to have 100% of the funding 30 days before closing. And once the deal is fully funded, don’t turn away interested investors. Instead, tell them that the deal is fully funded but that you will put them on a waiting list.

 

5 – Complete Required Documentation

 

The last step is for the passive investors to make their investments official by reviewing and signing the required documentation. There are five main documents that the syndicator needs to prepare (with the help of their real estate and securities attorney) and the passive investors need to sign in order to make the investments official.

 

  1. Private Placement Memorandum (PPM)

 

The PPM is a legal document that highlights all the legal disclaimers for how the passive investor could lose their money in the deal.

 

Generally, a PPM will include two major components. One is the introduction, which includes a summary of the offering, description of the asset being purchased, minimum and maximum investment amounts, key risks involved in the offering and a disclosure on how the general partners are paid. The other section covers basic disclosures, which includes general partner information, offering description and a list of all the risks associated with the offering.

 

The PPM should be prepared by a securities attorney for each apartment deal.

 

  1. Operating Agreement

 

For each apartment deal, my company forms a new limited liability company (LLC). My company is a general partner (GP). Our investors will purchase shares in that LLC and become a limited partner (LP). However, every syndicator should speak with a real estate attorney to determine which approach is best for them.

 

The operating agreement outlines the responsibilities and ownership percentages for the GP and LP.

 

The operating agreement should be prepared by a real estate attorney for each apartment deal.

 

  1. Subscription Agreement

 

Simply put, the subscription agreement is a promise by the LLC to sell a specified number of shares to passive investors at a specified price, and a promise by the passive investors to pay that price. For example, a passive investor that is investing $50,000 would purchase 50,000 shares of the LLC at $1 per share.

 

Like the operating agreement, the subscription agreement should be prepared by a real estate attorney for each deal.

 

  1. Accredited Investor Qualifier Form

 

The accredited investor form required is based on whether the offering is 506(b) vs. 506(c). Most likely, the general partner is either selling private securities to the limited partners under Rule 506(b) or 506(c). One key difference is that 506(c) allows for general solicitation or advertising of the deal to the public, while 506(b) offerings do not. But the other difference is the type of person who can invest in each offering type. For the 506(b), there can be up to 35 unaccredited but sophisticated investors, while 506(c) is strictly for accredited investors only. That being said, a syndicator should have a conversation with a securities attorney to see which offering is the best fit for them.

 

If the general partners are doing a 506(c) offering, they must verify the accredited investor status of each passive investor, which requires the review of tax returns or bank statements, verification of net worth or written confirmation from a broker, attorney or certified account. The accredited investor qualifications are a net worth exceeding $1,000,000 excluding a personal residence or an individual annual income exceeding $200,000 in the last two years or a joint income with a spouse exceeding $300,000.

 

If the general partners are doing a 506(b), they are not required to verify the accredited investors status – the passive investor can self-verify that they are accredited or sophisticated. In addition, for the 506(b) offering, to prove that the general partners didn’t solicit the offering, they must be able to demonstrate that they had a relationship with the passive investor before their knowledge of the investment opportunity, which is determined by the duration and extent of the relationship.

 

This form should also be prepared by a securities attorney, but only on one occasion (unless the accredited investor qualifications change).

 

  1. ACH Application

 

Lastly is the ACH application. This document is optional but recommended. It will allow the passive investor to receive their distributions via direct deposit into a bank of their choice.

 

Once a passive investor has committed to investing in a deal, the general partners should them these five documents to make the partnership official.

 

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securing financing on apartments

How a Syndicator Secures Financing for an Apartment Deal

Once a syndicator puts an apartment deal under contract, concurrent with the due diligence process is the process of securing financing. Generally, debt is a part of the apartment syndicator’s business plan because of the benefits that arise from leverage. Rather than purchasing the apartment community with all cash, they obtain a loan for upwards of 80% of the value while benefiting from 100% ownership.

However, not all debt and financing are the same. The type of debt and financing an apartment syndicator puts on the asset is highly dependent on the business plan. Also, different types of financing bring different levels of risks. Therefore, as a passive investor or an apartment syndicator, it is important to understand 1) the different types of debt and 2) the different types of financing. In doing so, you will be able to identify which combination of debt and financing is in your best interests based on the business plan.

 

Two Types of Debt: Recourse and Nonrecourse

Before diving into the two main types of loans, it is important to first distinguish the two types of debt – recourse and nonrecourse. According to the IRS, with recourse debt, the borrower is personally liable while all other debt is considered nonrecourse. In other words, recourse debt allows the lender to collect what is owed for the debt even after they’ve taken the collateral (which in this case is the apartment building). Lenders have the right to garnish wages or levy accounts in order to collect what is owed.

On the other hand, with nonrecourse debt, the lender cannot pursue anything other than the collateral. But, there are exceptions. In the cases of gross negligence or fraud, the lender is allowed to collect what is owed above and beyond the collateral.

Apartment syndicators almost universally prefer nonrecourse debt while lenders almost universally prefer recourse debt. But, while nonrecourse is advantageous to the borrower for the reasons stated above, it generally comes with a higher interest rate and are only given to individuals or businesses with a strong financial history and credit.

 

Two Types of Financing: Permanent and Bridge Loan

Generally, an apartment syndicator will secure one of two types of loans: a permanent agency loan or a bridge loan.

A permanent agency loan is secured from Fannie Mae or Freddie Mac and are longer-term compared to bridge loans. Typically loan term lengths are 5, 7 or 10 years amortized over 20 to 30 years. For example, with a 5-year loan amortized over 25 years, the syndicator would make payments for 5 years at an amount based on a loan being paid off over 25 years. At the end of the loan term, the syndicator will either have to pay off the remaining principal, refinance into a new loan or sell the asset.

The permanent agency loan is an LTV (loan-to-value) loan at 75% to 80%, which means the lender will provide funding for 75% to 80% of the value of the apartment and the syndicator provides the remaining 20% to 25%.

Generally, permanent agency loans are nonrecourse. However, value-add or distressed investors likely won’t be able to have the renovation costs included in the loan. Additionally, depending on the physical condition and operations, the asset may not qualify for permanent financing.

Compared to bridge loans, the interest rate is lower, and you may be able to get a few years of interest-only payments. Also, since these loans are longer-term in nature, they are less risky. The permanent loan is a set it and forget it loan where you won’t have to worry about a balloon payment or refinancing before the end of your business plan.

The other most common type of loan is the bridge loan. A bridge loan is a short-term loan that is used until the borrower secures long-term financing or sells the property. This loan is ideal for repositioning an apartment, like with the value-add or distressed apartment strategy.

Typically bridge loans have a term of 6 months to 3 years with the option to purchase an extension of a year or two. They are almost exclusively interest-only. For example, with a 2-year bridge loan, the investor would make interest-only payments for two years, at which point the investor must pay off the loan, refinancing, purchase an extension or sell the property.

The bridge loan is an LTC (loan-to-cost) loan at 75% to 80%, which means the lender will provide funding for 75% to 80% of the total project cost (purchase price + renovation costs) and the syndicator provides the remaining 20% to 25%.

Generally, bridge loans are nonrecourse to the borrower and have a faster closing process. Also, since they are interest-only, the monthly debt service is lower. However, the disadvantages are that they are riskier than permanent loans because they are shorter term in nature. Before the end of the term, which will likely occur before the end of the business plan, the syndicator must refinance or sell. And if the market is such that permanent financing isn’t available or if the business plan didn’t go according to plan, the syndicator is in trouble.

When securing financing, the most important thing is that the length of the loan exceeds the projected hold period, which is law number two of the Three Immutable Laws of Real Estate Investing. In doing so, as long as the syndicator follows the other two laws (buy for cash flow and have adequate cash reserves), the business plan is maintainable during a down turn. This law will usually be covered with the permanent loan. However, if the syndicator secures a bridge loan that will come due in the middle of the business plan, they better have a plan in place well ahead of time, whether that’s an early refinance or purchasing an extension.

 

Overall, the type of debt and financing a syndicator secures is based on their business plan. Bridge loans can be great for value-add investors, as long as they buy right, plan ahead and have an experienced team in place. And permanent financing is great because it is less risky and is a set it and forget it type of loan.

But regardless of the business plan, the syndicator should always have a conversation with a lending professional before securing financing for a deal.

 

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18 Creative Ways to Market Apartment Rental Listings

One of the 11 responsibilities an apartment syndicator has as the asset manager of an apartment community is maintaining and maximizing the economic occupancy. For value-add investors, this involves renovating the units and upgrading the community amenities in order to increase the rents, thus increasing the cash flow and returns.

 

However, no matter how beautiful the newly upgraded apartment community is, the syndicator still needs to implement a marketing strategy in order to fill the units with high-quality residents. Ideally, the syndicator hires a property management company that already applies the best marketing practices. But it is still their responsibility to oversee the management company and make sure the marketing strategy is being implemented properly.

 

Therefore, whether you are an apartment syndicator or a passive investor in syndications, it is helpful to understand the main ways to effectively market rental listings to attract the desired resident – one who pays rent on time and is courteous to their neighbors – and increase overall economic occupancy.

 

Here is a list of 18 creative ways to market an apartment rental listing to accomplish the above stated goals:

 

  1. Create a landing page, either standalone or as a part of your website, that captures the information of potential residents
  2. Create a direct mailing campaign and send it out to people living in similar buildings, inviting them to move into yours by offering some sort of concession (i.e. reduced rent for the first month, reduced security deposit, waive the application fee, etc.) and highlighting the major selling point of your community compared to theirs (i.e. direct garage access, new fitness center, BBQ pit, etc.). This strategy could anger local owners, so if you decide to do this, don’t expect to be popular and expect others to do it to your residents
  3. Contact the Human Resources departments at all the major employers in the area, letting them know that you own an apartment in the area and asking if they can direct new hires to your community
  4. Create a resident referral program where you offer current residents a flat fee ($300 is standard) if they refer someone that signs a lease
  5. Set up an open house and invite members of the local community to attend. Having a model unit and offering refreshments is helpful
  6. Offer special pricing to soldiers, police and first responders, like 50% off the first month’s rent
  7. Design a “for lease” banner and put it near the entry of your property, or near an area that has high foot or car traffic
  8. Design and place flyers at local establishments that are frequented by your resident demographic, like laundry mats, hair salons, nail salons, gyms, coffee shops, etc.
  9. Purchase advertisements in the local newspaper
  10. Post “for rent” listings to Craigslist, Zillow, Realtor.com, Apartments.com and other free online rental listing services
  11. Partner with a real estate broker or agent and advertise your apartment community on the MLS
  12. Create a Facebook advertisement, which allows you to select criteria to hyper-target your preferred resident
  13. Create a Facebook page for your apartment community, posting weekly content to generate a following and posting your rental listings
  14. Pay close attention to the nearby landmarks to cater to that audience, like colleges, military bases, large corporations, etc.
  15. Provide good old-fashioned customer service. Be responsive and timely with requests and questions. If doesn’t matter if you are a marketing wizard and get hundreds of responses to your rental listings if you don’t pick up the phone or respond quickly to emails, politely answer their questions and get them one step closer to viewing the property and signing the lease
  16. Call all residents who have previously notified you that they plan on leave at the end of their lease, asking them about their reason for leaving to see if it is something that can be addressed
  17. Send marketing material or gift baskets to businesses and employers surrounding your community
  18. Follow-up with old leads that are older than 90 days

 

Some of the strategies are free and just require effort on the part of the syndicator and/or property management company. Others will require an upfront investment or result in a short-term reduction in income. Therefore, it is important that the syndication team understands the marketing strategy prior to closing on the deal so that they account for these expenses in the underwriting.

 

What about you? Comment below: What strategies do you implement to fill vacancies at your rental properties?

 

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thee laws of investing

The Three Immutable Laws of Real Estate Investing

Ask a room full of active real estate investors what they think is the most important factor that makes for a successful investment and a significant portion will respond with “it’s all about location, location, location.” The market in which you invest is one of the most impactful decisions you will make.

 

Or is it…?

 

Real estate investors have made money in every market across the country, and more recently the world, at every point in time since the first person purchased a piece of real estate for investment purposes. So, how can two investors investing in the same market see totally different results, with one thriving and one failing?

 

The answer is quite simply: the actual market means nothing if the investor cannot execute on the business plan properly.

 

This doesn’t mean that you can blindly invest in any real estate market. To maximize your chances of success, you should always evaluate a market before investing. However, from my experience scaling from a handful of single family rentals to controlling over $300 million in apartments, and from interviewing thousands of active, successful real estate professionals on my podcast, I identified a pattern.

 

I discovered that there are three laws that, when followed, result in a real estate investors ability to thrive in any market at any time in the market cycle. These Three Immutable Laws of Real Estate Investing are 1) don’t buy for appreciation, 2) don’t over-leverage and 3) don’t get forced to sell.

 

Law #1 – Don’t Buy For Appreciation

 

The first of these three laws is don’t buy for appreciation. And in particular, natural appreciation. Natural appreciation is completely out of your control because it fluctuates up and down based on the overall real estate market and economy. Whereas forced appreciation is the bread and butter of value-add investors. Forced appreciation involves making improvements to the asset that either decreases expenses or increases income, which in turn, increases the overall property value.

 

Many investors, past and present, buy for natural appreciation, and it is a gamble. Eventually, they all get burned – unless they’re extremely lucky. Buying for natural appreciation is like thinking you’ll get rich at the casino by playing roulette and only betting on black. Yeah, maybe you can double up a few times, but sooner or later the ball lands on red or – even worse – green, and you lose it all.

 

That’s why you should never buy for natural appreciation. Instead, buy for cash flow. Because when you buy for cash flow (and as long as you have a large supply of renters), you don’t care what the market is doing. In fact, if the market takes a dip, the demand for rentals will likely increase!

 

Law #2 – Don’t Over-Leverage

 

The second law is don’t over-leverage. Although, leverage is one of the main benefits of investing in real estate. Let’s say you have $100,000 to invest. If you decide to invest all of that money into a stock, you would control $100,000 worth of that stock (you can leverage a stock by investing in options contracts, but there is significantly more risk). On the other hand, if you wanted to invest all of that money in real estate, you could spend $100,000 on a down payment at 80% loan-to-value and control $500,000 worth of real estate. That’s the power of leverage.

 

But there’s also a catch. The less money put into a deal – or more specifically, the less equity you have in a deal – the more over-leveraged you are. Consequently, the higher your mortgage payments will be. In a hot market, over-leveraging may seem like a brilliant idea, but what happens when property value or rental rates start to drop? Well, if you purchase a property with less than 20% equity at close and the market drops by 5%, 10% or 20% (which has happened in the past) by the end of your business plan, you will lose a decent chunk of change at sale – if you even survive long enough to make it to that point.

 

Of course, if you never want to sell and bought a property that cash flows, then it doesn’t matter. However, if you are a value-add or distressed apartment syndicator, you make a large amount of money when we sell, so this needs to be factored in.

 

My advice? Have 20% equity in an apartment deal at minimum. You shouldn’t run into this problem if you are getting a commercial loan from a bank, as they will typically require at least 30% down. However, if you are pursuing a creative financing strategy, you may have the opportunity to purchase an apartment for significantly less than 20% down. Don’t be tempted. Similarly, a bridge loan (a short-term loan usually used to cover the purchase price and renovation costs before securing permanent longer-term financing) may offer a higher loan-to-value ratio. In these cases, have 20% of the total cost (purchase price plus renovations) in the deal.

 

Having 20% equity in a deal isn’t a requirement but failing to do so will expose you and your investors to more risk. Although doing so, in tandem with committing to not buy for natural appreciation, will allow you to continue covering your mortgage payments or avoid having negative equity in the event of a downturn.

 

Law #3 – Don’t Get Forced to Sell

 

The final law is don’t get forced to sell. When you are forced to sell, you will always lose money or won’t be able to maximize your returns.

 

The main reason investors are forced to sell or return properties to the bank is when they speculated and bought for appreciation, or they were caught up in a hot market and were over-leveraged.

 

You could also be forced to sell if you do not have the funds to cover an unexpected expense that occurs during operations. To mitigate this risk, I recommend having an operating budget of at least $250 per unit per year in reserves.

 

Another reason you would be forced to sell is if you have a balloon payment on your loan. A balloon payment is standard for commercial real estate loans. The problem investors have is when they have a balloon payment come due during a down turn in the market and don’t have enough equity in the deal to refinance to cover that payment.

 

A way to mitigate this risk – in addition to not buying for appreciation and not over-leveraging –  is to be aware of when your balloon payment is due and plan years ahead of time for what type of exit strategy you are going to pursue. Some common exit strategies are:

 

  • Selling the property
  • Refinancing into another loan

 

By sticking to these Three Immutable Laws of Real Estate Investing, don’t buy for appreciation, don’t over-leverage and don’t get forced to sell, your investment portfolio will not just survive, but thrive in any real estate market and in any economic condition.

 

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due diligence on apartment

The Ultimate Guide to Performing Due Diligence on an Apartment Building

After putting a deal under contract, the due diligence process for an apartment building is much more involved and complicated in comparison to that of a single-family residence or smaller multifamily building. For the due diligence process on an SFR or smaller multifamily building, the lender will likely only require an inspection report and an appraisal report in order to provide you with financing. And then for your own knowledge, you’ll perform your own financial audit, comparing the leases and rent rolls with the historical financials to make sure the rental rates are in alignment.

 

When you scale up to hundreds of units, the increase in the number of potential risk points is such that the lender will require additional reports prior to financing the deal and you will want to obtain additional reports before deciding to move forward with the deal.

 

For the apartment community due diligence process, you’ll want to obtain and analyze the results of these 10 reports:

 

  1. Financial Document Audit
  2. Internal Property Condition Assessment
  3. Market Survey
  4. Lease Audit
  5. Unit Walk
  6. Site Survey
  7. Property Condition Assessment
  8. Environmental Site Assessment
  9. Appraisal
  10. Green Report

 

In this ultimate guide, I will outline the contents of each report, how to obtain them, the approximate cost of each (for apartment communities 100 units or more) and how to analyze the results.

 

1 – Financial Document Audit

 

The financial document audit is an analysis that compares the apartment’s historical operations to your budgeted income and expense figures you set when underwriting the deal.

 

For the audit, a consultant will collect detailed historical financial reports from the sellers, including the last one to three years of income and expense data, bank statements and rent rolls. The output of the analysis is a detailed spreadsheet of the asset’s historical income, operating expenses, non-operating expenses and net cash flow which are compared to the budgeted figures you provided.

 

The summary will take on a form that is similar to a pro forma, with the income and expenses broken down into each individual line item for an easy comparison on your end. They will also provide you with an executive summary document, which will outline how to interpret the audit, what data was used to create the audit spreadsheet and an explanation of any figures that deviate from your budget.

 

To obtain this document, you will need to hire a commercial real estate consulting firm that specializes in creating financial document audits. An approximate cost for this report is $6,000.

 

When you initially underwrote the deal, you set the income and expense assumptions based on how you and your team will operate the property once you’ve taken over. These assumptions came from a combination of the trailing 12 months of income and expense data and the current rent roll provided by the seller and the standard market cost per unit per year rates for the expenses.

 

Once you receive the results of the financial audit report, you want to go through each income and expense line item and compare them to the assumptions in your underwriting model. Ideally, the consultant that performed the audit already compared the results to your provided budget, made adjustments based on their expertise and any inputs you provided and commented on any discrepancies.

 

If any discrepancies were found or if the consultant recommended any adjustments, discuss them with your property management company to see if you need to update your budget. If you and your management company come to the conclusion that the budget needs to change, make the necessary adjustments to your underwriting model.

 

2 – Internal Property Condition (PCA) Assessment

 

The internal property condition assessment (PCA) is a detailed inspection report that outlines the overall condition of the apartment community.

 

A licensed contractor will inspect the property from top to bottom. Based on the inspection, the contractor will prepare a report with recommendations, preliminary costs and priorities for immediate repairs, recommended repairs and continued replacements, along with accompanying pictures of the interiors, exteriors and the items needing repair.

 

Being an internal report, you will be responsible for hiring a licensed commercial contractor to perform the assessment. An approximate cost for this assessment is $2,500.

 

During the underwriting process, you created a renovation/upgrade plan for the interior and exterior of the apartment community, which included the estimated costs. Once you receive the internal PCA, compare the results to your initial renovation budget.

 

The results of the internal PCA are preliminary costs, not exact costs. However, they will most likely be more accurate than the assumptions you made during the underwriting process. Therefore, if there are discrepancies between the contractor’s estimated renovation costs and your renovation budget, update the underwriting model to reflect the results of the internal PCA.

 

Hopefully, your initial renovation assumptions were fairly accurate. And ideally, if you made very conservative renovation cost assumptions, you discover that you over-budgeted and can reduce the costs in your underwriting model.

 

3 – Market Survey

 

The market survey is a more formal and comprehensive rental comparison analysis than the one you performed during the underwriting phase.

 

For the market survey, your property management company will locate direct competitors of the apartment community. Then, they will compare your apartment community to each of the direct competitors over various factors to determine the market rents on an overall and a unit type basis. A few key points on the market survey analysis is to make sure that your property management company uses apartment communities that are upgraded to a similar degree as how your apartment community will be post renovations and not in its current condition, that are in similar neighborhoods and that were built within a similar time period.

 

When initial underwriting the deal, you set your renovated rental assumptions based on a combination of performing your own rental comparable analysis and, if the sellers had initiated an upgrade program, proven rental rates. Compare the results of the market survey to your initial renovated rent assumptions. If there are any discrepancies, update your underwriting model to reflect the results of the market survey.

 

4 – Lease Audit

 

The lease audit is the process of examining the individual leases at the apartment community.

 

Your property management company will collect all of the leases of the current residents at the apartment community and perform an audit. They will analyze each lease, recording the rents, security deposits, concessions and terms. Then, they will compare the information gathered from the leases to the rent roll provided by the owner, recording any discrepancies.

 

Unless the current property management company was extremely incompetent, the discrepancies should be minor, if there are any at all, and it should affect your financial model.

 

5 – Unit Walk

 

A question my apartment syndication clients ask a lot is “when I am performing due diligence, do I need to walk every single unit?” The answer is a resounding yes! And that is the purpose of the unit walk report. It is the inspection of each individual unit at the apartment community.

 

During the unit walk, your property management company will inspect each individual unit. The purpose of the unit walk is to determine the current condition of each unit.  So, while conducting the unit walk, they will take notes on things like the condition of the rooms, the type and condition of appliances, the presence or absence of washer/dryer hookups, the conditions of the light fixtures, missing GFCI outlets, and anything else that stands out as a potential maintenance or resident issue.

 

Once you receive the unit walk report, compare the results to your interior renovation assumptions to determine the accuracy of your interior business plan.

 

Do the number of units that require interior upgrades match your business plan? Is there unexpected deferred maintenance that wasn’t accounted for in your budget? Are there a high number of residents who will need to be evicted once you’ve taken over the operations?

 

Using that data, you can create a more detailed, unit-by-unit interior renovation plan and calculate a more accurate budget. Make any adjustments to your interior renovation assumption on your financial model.

 

Most likely, your property manager will perform the market survey, lease audit and unit walk report, and they will usually do it for free. However, ask the property manager how much they will charge you for these three reports if you do not close on the deal. And if you have to hire a 3rd party to create these three reports, the cost is approximately $4,000.

 

6 – Site Survey

 

A site survey shows the boundaries of the property, indicating the lot size. It also includes a written description of the property. The report resembles a map.

 

There are a lot of third party services that can conduct a site survey. A quick Google search of “site survey + (city name) will do the trick. I recommend reaching out to multiple companies to get a handful of bids for your project. The approximate cost for the site survey is $6,000.

 

The site survey report will list any boundary, easement, utility and zoning issues for the apartment community. Generally, if a problem is found during the site survey, the bank will not provide a loan on the property. So, if something does come up, your options are limited and should be addressed on a case-by-case basis. If the problem can’t be resolved, you will have to cancel the contract.

 

7 – Property Condition Assessment

 

The property condition assessment is the same as the internal property condition assessment, except this one is created by a third party selected by the lender. The cost is approximately $2,000.

 

Analyze this reports the same way that you analyzed the internal PCA. Then, compare and contrast the results of the two PCAs. Maybe the lender’s contractor caught something that your contractor did not, and vice versa.

 

8 – Environmental Site Survey

 

The environmental site assessment is an inspection that identifies potential or existing environmental contamination liabilities. It will address the underlying land, as well as any physical improvements to the property, and will offer conclusions or recommendations for further investigations of an issue is found.

 

The environmental site assessment is also performed by a 3rd party vendor selected by your lender. The approximate cost is $2,500.

 

Similar to the site survey, if the vendor identifies an environmental problem, the lender will not provide a loan for the property. Again, these issues should be addressed on a case-by-case basis.

 

9 – Appraisal

 

The appraisal determines the as-is value of the apartment community.

 

An appraiser will inspect the property, and then calculate the as-is value of the apartment community. The two appraisal methods that will be used to determine the value of the property are the sales comparison approach (i.e. comparing the subject property to similar properties that were recently sold) and the income capitalization approach (i.e. using the net operating income and the market cap rate).

 

The appraisal report is created by an appraiser selected by your lender. The cost is approximately $5,000.

 

Once you receive the appraisal, you should compare the appraised value to the contract purchase price. The lender will base their financing on the appraised value, not the contract price. Therefore, if the appraisal comes back at a value higher than the contract price, fantastic! That’s essentially free equity. However, if the appraised value is lower than the contract price, you will have to either make up the difference by raising additional capital or renegotiate the purchase price with the seller.

 

10 – Green Report

 

The Green report is an optional assessment that evaluates potential energy and water conservation measures for the apartment community. The report will include a list of all measures found, along with the associated cost savings and initial investment.

 

The report is created by a 3rd party vendor selected by your lender. The approximate cost is $3,500.

 

The green report, which is the only document that won’t disqualify a deal, will outline all of the potential energy and water conservation opportunities. It will list all of the opportunities that were identified, the estimated initial investment to implement, the associated cost savings and the return on investment. Deciding which opportunities to move forward with should be based on the payback period and the projected hold period of the property.

 

For example, following energy efficient opportunities were identified at an apartment project my company had assessed:

 

  • Dual pane windows
  • Wall insulation and leakage sealing
  • Roof insulation
  • Programmable thermostats
  • Low-flow showerheads and toilets
  • Interior and exterior LED lighting
  • Energy Star rated refrigerators and dishwasher

 

After analyzing the investment amount and cost savings, the opportunities we implemented, and the associated savings and payback periods were:

 

  • Low-flow showerheads: 1-year payback, $16,827 annual savings
  • Exterior LED lighting: 14.4-year payback, $3,236 annual savings
  • Pool cover: 1.5-year payback, $409 annual savings

 

The reasoning behind the low-flow showerheads and pool cover was that we planned on holding the property for 5-years, so once we paid back the initial investment amount, it was pure profit. We ended up losing money on the exterior LED lighting project. However, we installed these lights to increase resident safety.

 

You will find that the green report will list ALL opportunities, even if the payback period is absurdly long. If we implemented all the opportunities identified in the example above, the overall payback period would have been 91.9 years, with the longest payback period being 165 years for the Energy Star rated dishwashers. Unless we decided to hold onto a building until we died or unit they’ve discovered an immortality serum, we will stick to the opportunities that either result in a payback period lower than our projected hold time or address a resident safety concern.

 

How to Pay for the Due Diligence Reports

 

Usually, the costs of the due diligence reports will not be due until closing. So, when underwriting the deal, make sure you are taking these costs into account when determining how much equity you need to raise.

 

Other times, you will need to pay for a due diligence report upfront. If this is the case, you can do one of two things. You can come out-of-pocket and reimburse yourself at close. Or, you can take a loan from a third-party (maybe one of your passive investors) and reimburse the initial loan amount with interest at close.

 

Review the Results of Your New Underwriting Model

 

Based on the financial document audit, market survey report, lease audit report and green program report, you either confirmed or updated your income assumptions. Based on the financial document audit, you either confirmed or updated your expense assumptions. Based on the two property condition assessments and the unit walk report, you either confirmed or updated your renovation budget assumptions. Based on the appraisal report, you either confirmed the accuracy of the purchase price or determined that you have the property under contract at price that is below or above the as-is value. And based on the site survey and environmental survey, you determined if there is anything that disqualifies the deal entirely.

 

Once you have received the results of all 10 due diligence documents and made the necessary adjustments to your underwriting model, you need to re-review your return projections. If you had to make drastic changes to the income, expenses or renovation budgets in the negative direction, then the new return projections will be reduced. In some cases, the return projections will be reduced to such a degree that the deal no longer meets the return goals of you and your investors. Also, if an issue came up during the site survey or the environmental site assessment, which is rare, it will need to be resolved prior to closing. If the seller is unwilling or unable to address these issues, your lender will not provide financing on the property, which means you will have to cancel the contract.

 

If the updated return projections fall below your investor’s return goals, adjust the purchase price in your underwriting model until the projected returns meet your investor’s goals again. Then, explain to your real estate broker that you want to renegotiated the purchase price and state the reasons for doing so.

 

If the seller will not accept the new contract terms, don’t be afraid to walk away from the deal. At the end of the day, it is your job to please your investors, which means providing them with their desired return goals.

 

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4 Ways an Apartment Syndicator Can Win Over an Experience Broker

Real estate brokers can be a great resources for finding on-market and off-market real estate deals. However, do not expect a real estate broker to automatically put you near the top of their go-to client list, especially if you haven’t completed your first syndication deal.

 

After finding a real estate broker, one of the biggest challenges you are going to face is proving that you are the real deal. From the real estate broker’s perspective, there is a lot of uncertainty. They’ll be thinking, “if I begin working with them, are they really going to pull the trigger on a deal?”

 

Therefore, in regards to your relationship with a real estate broker, your main focus needs to be proving that you are a serious, credible apartment syndicator who is capable of closing on a deal.

 

Don’t just take my word for it. Thomas “T” Furlow, who is a commercial real estate investor who has specialized in apartments for years, agrees. Experience real estate brokers won’t take a newbie investor at their word. They must prove, through action, that they are serious. In our recent conversation, he offered four tactics a newbie apartment syndication can implement in order to win over the trust of an experienced real estate broker.

 

1 – Consulting Fee

 

One tactic is to offer the real estate broker a consulting fee. To show that you are serious and that you respect their time, offer to pay them an hourly fee ($150 to $200 per hour), even if you don’t find a qualified deal. In return, you can use them as a consultant, including asking them questions, sending them potential deals to review, having them run rental or sales comp reports and – ideally – having them send you prospective off-market deals.

 

2 – Visit Their Recent Sales

 

Another tactic is to get in your car and drive to the real estate broker’s recent apartment sales. Ask them to send you a list of their most recent 10 apartment sales and visit those properties in person.

 

After visiting the 10 properties, follow-up with the real estate broker, telling them which properties meet your investment criteria and why. In doing so, you are not only portraying yourself as a serious investor but are also giving the real estate broker an idea of what type of apartment you are interested in acquiring.

 

3 – How Will You Fund Your Deals?

 

The third tactic is to provide the real estate broker with information on how you will fund a potential deal. Since we are apartment syndicators, we are raising money from accredited investors. Explain how many people have expressed interest or have verbally committed to investing. Tell them about the strategies you are implementing to find potential private money investors

 

Since you will likely be securing a loan, tell them about the mortgage brokers you’ve spoken with.

 

Anything else related to the funding of the deal should be communicated to the real estate broker to qualify yourself as a credible investor who has the financial capabilities to close a deal.

 

4 – Constant Follow-Up

 

Lastly, and most importantly, constantly follow-up. Whenever you perform a task that brings you closer to completing a deal, notify the real estate broker. A simple email will suffice.

 

For example, if you have a conversation with a lender, provide the real estate broker with their contact information and the outcome of the meeting (i.e. “I met with XYZ Lending. I told them about my business plan and they told me that I will qualify for a loan.”).

 

Once you’ve found a qualified property management company, send the real estate broker their biography.

 

Before sending out a direct mailing campaign, as well as when you start receiving phone calls from interested sellers, notify the real estate broker.

 

However, only follow-up with information that is relevant to completing an apartment deal. The real estate broker probably won’t care much about what you had for breakfast.

 

 

Overall, proving your seriousness to the real estate broker is about communicating your effort towards and commitment to finding and closing on an apartment deal. To accomplish this, you can offer a consulting fee, visit their recent sales, communicate how you will fund a potential deal and constantly follow-up with relevant information.

 

How about you? Comment below: What tactics have you implemented to win over a real estate broker?

 

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27 Ways to Add Value to Apartment Communities

Of the three main apartment syndication strategies, two (value-add and distressed) involve making improvements to the physical property or the operations in order to increase the revenue or decrease the expenses, resulting in an increase in the value of the apartment.

 

Regardless of whether you decide to pursue the active or passive apartment investing route, understanding the various ways to “add value” is a must.

 

As an active apartment syndicator, it is your job to identify the value add opportunities in a prospective deal in order to create a business plan that maximizes the projected returns for your passive investors.

 

As a passive investor, you need to be capable of analyzing a distressed or value-add syndicator’s business plan in order to determine if the opportunities identified are conducive with the property type, market, resident demographic, etc. and if they will result in an increase in revenue and/or decrease in expenses.

 

Five syndicators looking at the same apartment deal will create five different value-add business plans. Therefore, the ability to identity value add opportunities has a direct impact on not only the return projections but also the syndicator’s ability to even acquire the property in the first place. Generally, the most creative syndicator will underwrite the highest projected returns and, as a result, be able to find more deals that meet their investment criteria.

 

I break down the value-add opportunities into two categories – simple and advanced. Simple opportunities are more creative, require little to no capital or effort to implement and can be add to most sized apartments. Whereas advanced opportunities require more capital and more effort and usually only make financial sense on larger projects, with some only making financial sense on luxury apartment communities. However, the opportunities in both categories will result in an increase in property value and allow the community to standout against its competitors.

 

Simple Opportunities

 

1. Add washer and dryer: install washer and dryer units into all or a select number of units and charge a monthly premium. Another option is to create a laundry room and install coin-operated washers and dryers.

 

2. Stainless steel appliances: if the units have dated or black/white appliances, such as refrigerators, dishwashers, microwaves and/or stoves, upgrade to new stainless-steel appliances and charge a rental premium.

 

3. Appliance upgrade packages: for units that already have newer or nicer appliances, charge a rental premium.

 

4. Appliance rentals: offer rentals for common items like vacuums and carpet cleaners. This will also reduce the expenses associated with turnovers.

 

5. Upgrade light fixtures: installing new light fixtures is a quick and inexpensive way to make for a more aesthetically pleasing unit.

 

6. New hardware: Of course, units with new cabinetry in the kitchen and new vanities in the bathroom will demand a higher rent. However, a more inexpensive way to update the look of the kitchen and bathroom is to install new hardware, which includes new cabinet/vanity handles, sinks, toilets, faucets, showerheads, etc. Additional new hardware upgrades are new door handles and installing curtain rods.

 

7. Ratio Utility Billing System (RUBS): Implement a RUBS program, which bills back a portion of the water, sewer, trash, electric and/or gas expenses to the residents.

 

8. Parking: Rather than implementing the more advanced parking upgrades, charge a monthly or yearly fee for a guaranteed or premium location parking spot.

 

9. Pet fees: charge a one-time deposit or monthly fee for residents with pets. This strategy is best for apartments that already allow pets but do not collect a fee.

 

10. Location/view premiums: Each unit has its own unique view and location, with some being better than others. For units with better locations and views, charge a rental premium. Examples are first floor units, units near the front of the community or amenities, units with a view of a body of water or fountains, units with better surrounding greenery, etc.

 

11. Bike rack rental: depending on the market and resident demographic, install bike racks and rent them out for a monthly fee. Bike racks are best when the resident demographics are Millennial or Gen X.

 

12. Clubhouse rental: for large communities that have a clubhouse, offer to rent it to residents for special events at a flat fee.

 

13. Upgrading property management software: use the latest and greatest property management software to accurately calculate the market rents to ensure you are charging the correct rental rates.

 

14. Short-term leases: depending on the market, offer short-term leases or offer furnished units and list them on services like AirBnB or work with a corporate housing provider.

 

Advanced Opportunities

 

15. Demographic based amenities: construct specific amenities based on the demands of the renter demographic. From a generational perspective, Millennials prefer a resort-style living experience. They value convenience and flexibility so they will often seek apartment communities that offer high-tech amenities and services. These include free coffee in the common areas, high-speed Wi-Fi, in unit USB charging ports and a modern fitness center with fitness classes offered. Gen Xers also prefer high-tech home furnishings, but also concierge services and family-friendly features like playrooms, playgrounds and areas that offer family-friendly activities. Additionally, Gen Xers want easy access to washers and dryers and fenced in backyards. Finally, Baby Boomers demand larger living spaces (both individual units and common areas), state of the art fitness centers and common areas that offer fitness classes and social gatherings.

 

16. Patios or balconies: build patios for the ground level units and/or balconies for the non-ground level units and charge a rental premium.

 

17. Fenced-in yards or patios: increase privacy by constructing fences around the yards or patios of all or a select number of ground level units and charge a rental premium.

 

18. Carports: build a select number of carports and charge a monthly or yearly fee.

 

19. Extra rooms: add extra bedrooms, bathrooms, dining rooms, living rooms, sunrooms, etc. by erecting walls in larger units or building additions onto existing units.

 

20. Dog Park: if the apartment community has a large amount of unused green space and depending on the renter demographic, fence in an area and create a dog park. But don’t forget the poop bag stands!

 

21. Storage lockers: install storage lockers in the clubhouse and rent them out for a monthly or yearly fee.

 

22. Vending Machines: buy or rent vending machines and install them in the common areas.

 

23. Billboards: depending on the traffic and building codes, install billboards on the grounds and lease them to local businesses.

 

24. Daycare, after school or summer programs: attract the family demographic with the convenience of a childcare facility for daycare or after school/summer programs.

 

25. Coffee shop or convenience mart: I’m not talking about building a Starbucks or CVS/Walgreens. Just a small shop or cart that offers coffee and/or snacks, similar to those found in hotel lobbies.

 

26. Fitness center: update or construct a fitness center and offer free fitness classes like yoga, aerobics, spin, etc.

 

27. Miscellaneous: other advanced/luxury upgrades that can be offered for free (i.e. with the costs built into the rents) or a monthly/annual/one-time fee include a car-sharing service, 24-hour concierge, cooking classes, dry cleaning/laundry service, free Wi-Fi, iCafe, package delivery management, personal shoppers, pet grooming, rock-climbing wall, rooftop terrace, spa/massage center, tech/business center and a wine cellar.

 

 

Whenever you are analyzing a prospective apartment deal, run through this list of 27 simple and advanced upgrades to determine if they make financial sense based on the property type, market and renter demographic, which is accomplished by ensuring that the required capital investment is returned, and then some, during the projected holding period. And always make sure the projected rental premiums are confirmed by the property management company and are supported by the rental comps in the area.

 

What do you think? What value-add opportunities are missing from this list?

 

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8 Step Process For Selling Your Apartment Community

You’ve acquired a new asset, completed your value-add business plan and have been distributing higher than projected returns to your satisfied investors – or if you’re just an apartment investor, to yourself –  for the past few months.

 

You think your investors are satisfied now? Well, they are going to be ecstatic when they receive that massive distribution upon sale! So, when and how do you sell your apartment community?

 

One of your responsibilities as an asset manager is to evaluate the market in which your property is located on an ongoing basis. Once you’ve stabilized the asset, completing all of the value-add projects, estimate the property value at least a few times a year. Find the current market cap rate and, using the net operating income, calculate the value of the asset.

 

Even if your business plan is to sell in five years, don’t wait until then to evaluate your asset. You may be able to provide your investors with a sizable return if you sold, or refinanced, before the end of your initial business plan.

 

If you get to the end of your business plan and the market conditions are not such that you can sell the asset and meet your investors return expectations, don’t be afraid to hold onto the property longer.

 

When the market conditions are right, here is the 8-step process to sell your apartment community:

 

 

1 – Be Mindful of The Sale

 

As you are approaching the end of your business plan, or when you determine that it makes financial sense to sell earlier, be mindful of the sale. The value of the asset is dependent on the market cap rate (which is outside of your control) and the net operating income. In order to maximize the value, you want to maximize the net operating income, which means maximizing the income and minimizing the expenses.

 

Once you’ve made the decision to sell, don’t start certain projects if the payback period extends past the sale’s date. For example, if you plan on selling in three months, it doesn’t make sense to renovate a unit for $5,000 to get a $100 rental premium.

 

Consider spending a little bit more money on marketing to increase occupancy. Offer more concessions than you usually would to increase rental revenue. Pursue collections a little harder than usual.

 

Overall, look at your profit and loss statement and see which income and expense line items can be improved in the months prior to listing the asset for sale.

 

 

2 – Send Your Lender a Notification of Disposition

 

When you decide to sell, you will need to notify your lender. To do so, you need to send them an official notification of disposition. This is typically two months prior to listing the apartment for sale to the public. Work with your experienced attorney to draft the notification and send it to your lender.

 

Depending on the loan program you used, you may have a prepayment penalty. Keep that in mind when deciding to sell, because a large prepayment penalty will drastically reduce your sales proceeds.

 

 

3 – Request a Broker’s Opinion of Value

 

Based on your evaluations of the market, if you are confident that you can sell your apartment at the price you need in order to get the returns you want, the next step is to find a listing broker. It’s easy to write down a value that makes you happy, so you’ll want to get a relatively unbiased second opinion without having to shell out a few thousand dollars for a full appraisal.

 

You want to find a broker who is the best fit to sell the property. Loyalty is important in this business, so I recommend using the same broker who represented you when you purchased the asset. But, there might be reasons why you want to go with someone else. If that is the case, reach out to two or three of the best brokers in the market and ask them for a Broker’s Opinion of Value (BOV). Send them whatever information they request (T12, rent roll, etc.).

 

When you receive their opinion of value, ask them a few follow-up questions. You need to be confident that they can sell the property at that value. Ask them questions like:

 

  • What valuation approach did you use?
  • What types of buyers do you typically sell to? What size and price range do they invest in?
  • Why do you feel confident that those buyers will purchase this asset at this price?
  • Have you sold similar assets recently?

 

Based on the value and follow-up questions, select a broker to list the property.

 

 

4 – Start a Bidding War

 

Over the next six weeks or so, your broker is going to create the offering memorandum and market the apartment to the public to whip up a whole lot of interest. Interested parties will come visit the property and follow the same approach that you did when you purchased the property – talk to the property manager, tour units, inspect the exteriors, analyze rent comps, run the numbers, and submit an offer. The goal is for your broker to create a bidding war in order to push up the offer price and get you the highest offer price possible.

 

 

5 – Screen Out Newbies with a Best and Final Call

 

Once you stop accepting offers, you will review the submissions and have a best and final call with the top offer or offers to qualify the buyers.

 

You want to know about their track record, funding capabilities and proposed business plan to gauge their ability to close. Ideally, you sell to a sponsor with a large track record. You don’t want a newbie that has to back out of the deal during the due diligence phase because they cannot fund the deal, did poor underwriting, etc.

 

 

6 – Negotiate a Purchase Sales Agreement

 

Select the best offer and negotiate a purchase sales agreement (PSA). Have your experienced attorney draft a PSA. Don’t let the buyer draft the PSA, because you want to start the negotiation with terms closest to where you need them to be, and not the other way around. Send them the PSA for their attorney to review. You’ll likely go back and forth to negotiate the terms of the contract, with the end resulting hopefully being reflective of what was in their letter of intent.

 

This negotiation process typically takes about a week. Sometimes longer, but usually not shorter.

 

7 – Fulfill Obligations During Due Diligence

 

When the negotiations have concluded and both you and the buyer have signed the PSA, the due diligence period begins. The buyer will be required to adhere to the schedule agreed upon in the PSA (i.e. they have X number of days to perform due diligence, Y number of days close, etc.). And you owe them whatever it is you agreed to in the PSA (i.e. they can come to the property with 24 hours’ notice, they can look at your bank statements, financials, leases, marketing material, etc.).

 

Best case scenario is that nothing comes up during the due diligence period and you sell the property at the price and terms defined in the PSA. If something does come up, there may be additional negotiations back and forth with the seller on either the terms, purchase price or both.

 

Once the due diligence is completed, the buyer will work with the lender and title company to finalize things in preparation of closing.

 

 

8 – Close and Distribute Sales Proceeds

 

A few days prior to the officially closing date, you will sign the hundreds of execution documents. Then, on the day of closing, you will be wired the sales proceeds.

 

Distribute the sales proceeds to your investors according to what you and your investors agreed to. They will then go from satisfied to ecstatic and will be ready to start the process all over again!

 

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What is Your Ideal Passive Apartment Investment?

After reviewing the differences between active and passive real estate investing, assessing your current economic condition, ability and risk tolerance level, you’ve decided to passively invest in apartment syndications.

 

Great! You are one step closer to investing in your first deal. So, what’s next?

 

Similar to determining your ideal general investment strategy (i.e. active vs. passive), you need to establish your ideal passive investment. And in order to establish your ideal passive investment, you need to know what your options are first. In particular, you need to learn about the different types of apartment syndications in which you can passively invest your money and the benefits and drawbacks of each.

 

Generally, apartment syndications fall into one of three categories: turnkey, distressed or value add.

 

1 – Turnkey Apartment

 

Turnkey apartments are class A properties that require minimal to no work after acquisition. These properties are fully updated to the current market standards and are highly stabilized with occupancy rates exceeding 95%. Therefore, the turnkey business model is to take over the operations and continue managing the asset in a similar fashion to the previous owners. No renovations. No tenant turnover. Nothing fancy.

 

Of the three apartment syndication strategies, investing in turnkey apartments has the lowest level of risk. The property is fully updated and fully stabilized at acquisition. The risks associated with performing renovations, which include overspending, unexpected capital expenditures, bad contractors, incorrect rental premium assumptions, etc., and turning over a large percentage of tenants are minimized. Additionally, the asset will achieve the projected cash flow from day one, because the revenue pre- and post-acquisition remains the same.

 

The drawbacks of the turnkey apartment syndication strategy are the lower ongoing returns and the lowest upside potential compared to the other two apartment types. Because the property is fully updated and stabilized, there isn’t room to increase the revenue of the property. Therefore, the ongoing returns are and remain in the low to mid-single digits. Additionally, since the value of the asset is calculated using the net operating income and the market cap rate, unless the overall market naturally appreciates, the property value will remain the relatively stable. As a result, there is little to no upside potential at sale. Most likely, you will receive your initial equity back with no profit.

 

2 – Distressed Apartment

 

On the opposite of the end of the spectrum is the distressed apartment. Distressed apartments are class C or D assets that are non-stabilized with occupancy rates below 90% and usually much lower due to a whole slew of reasons including poor operations, tenant issues, outdated interiors, exteriors, common areas and amenities, mismanagement and deferred maintenance. Generally, distressed apartment syndicators will take over and, within a year or two, stabilize the asset by addressing the interior and exterior deterred maintenance, installing a new property management company, finding new tenants, etc. Then, they will either continue their business plan to further increase the apartment’s occupancy levels and/or rental rates or they will sell the property.

 

The major advantage of passively investing in a distressed apartment is the upside potential at sale. Once the asset is stabilized the revenue – and therefore the value – will increase dramatically, resulting in a large distribution at sale.

 

The drawbacks of distressed apartments compared to the other two types are being exposed to the highest level of risk and receiving the lowest ongoing returns. The high upside potential at sale also comes with the risk of losing ALL of your investment. There are a lot of variable to take into account with a distressed apartment, which means there are a lot more things that could go wrong. Additionally, since the asset is not stabilized at acquisition, there will be little to no cash flow – and may even negative cash flow. That means you won’t receive ongoing distributions unless the syndication structure is such that you receive interest on your investment before the sale.

 

3 – Value Add Apartment

 

Lastly, we have value add apartments. Value add apartments are class C or B assets that are stabilized with occupancy rates above 90% and have an opportunity to “add value.” Generally, the value add apartment syndicator will acquire the property, “add value” over the course of 12 to 24 months and sell after five years.

 

“Adding value” means making improvements to the operations and physical property through exterior and interior renovations in order to increase the revenue or decrease expense. These renovations are different than the ones performed on a distressed apartment. Typical ways to add value are updating the unit interiors to achieve higher rental rates, adding or improving upon common amenities to increase revenue and competitiveness like renovating the clubhouse or pool area, adding a dog park, playground, BBQ pit, soccer field, carports or storage lockers and implementing procedures to decrease operational costs like loss-to-lease, bad debt, concessions, payroll, admin, maintenance, marketing, etc.

 

Compared to the other two apartment types, value add apartments have a lower level of risk, the highest ongoing returns and a high upside potential at sale. At acquisition, the property is already stabilized and generating a cash flow. So, at the very least, the property will continue to profit at its current level and your passive investment is preserved. That also means that you will receive an ongoing distribution (typically around 8%, depending on the syndication partnership agreement) during the renovation period. Once the value add projects are completed, the ongoing distribution will increase to the high single digits, low double digits and remain at a similar level until the sale. Additionally, the increase in revenue and decrease in expenses from the value add business plan will increase the overall value of the asset, which means there is the potential for a lump sum distribution at sale.

 

What’s Your Ideal Passive Investment?

 

Your ideal passive investment will be in an apartment type with the benefits and drawbacks that align most with your financial goals.

 

Are you content with tying up your capital for a year or two with minimal to no cash flow and willing to risk losing it all in order to double your investment? Then I would consider passively investing with an apartment syndicator that implements the distressed business plan.

 

Are you more interested in capital preservation and receiving a return that beats the inflation rate? Then I would consider passively investing with an apartment syndicator that purchased turnkey properties.

 

Are you attracted to the prospect of receiving an 8% to 12% cash-on-cash return each year with the prospect of a sizable lump sum profit after five or so years?  Then I would consider passively investing with an apartment syndicator that implements the value add business model.

 

COMMENT BELOW: What is your ideal passive investment – turnkey, distressed or value add? 

 

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physics on a chalkboard

The Ultimate Success Formula for Apartment Syndicators

I attended the Tony Robbins’ Unleash the Power Within seminar and one of my biggest takeaways was the Ultimate Success Formula. If you reflect back on anything you’ve accomplished in your life, no matter how big or small, I can guarantee you that you followed this formula.

 

What follows is the outline of the 5-step formula and how it can be used for finding deals and private money. Although, it can also be easily applied to any business, personal, relationship, fitness or overall lifestyle goal you pursue.

 

1.    Know your outcome

 

First, know what you want. Clarity is power, so you want to be as specific and detailed as possible.

 

As apartment syndicators, our outcome will be a desired annual income. Since we want to be as specific as possible, determine the exact amount of money you need to raise to achieve your annual income goal. Let’s say your goal is to make $100,000 this year. One of the primary ways apartment syndicators make money is with an acquisition fee. The standard fee collected at closing is 2% of the purchase price. To get a $100,000 acquisition fee, you’ll need to close on $5,000,000 worth of apartment buildings. Generally, the amount of equity required to close, including the down payment and closing fee, is 30%. 30% of $5,000,000 is $1,500,000. Therefore, to achieve a goal of $100,000, you will need to raise $1,500,000.

 

To determine the exact apartment purchase price and amount of money you need to raise in order to achieve your annual income goal, email info@joefairless.com and request a FREE Annual Income Calculator.

 

With this approach, instead of having a vague goal, you’ll know the exact number of leads and investor money we need to attract, and can take massive intelligent action (see step 3) to get there.

 

Tony Robbins says “where focus goes, energy flows.” Once you define your outcome and make it your main point of focus, you will begin to – almost automatically – take the right steps and identify the right opportunities to achieve it.

 

2. Know your reasons why

 

Jim Rohn says, “How comes second. Why comes first.” Now that you know your outcome, before formulating a plan of action for how you’ll achieve it, you need to know the reasons why you want to achieve it. Human beings can do amazing things when they have a strong enough why.

 

What are the reasons behind your outcome? Do you want to leave a legacy? Use your earnings to have a positive impact on the world?  Set your children up for success? Whatever the reason is, make sure it is consciously understood and articulated.

 

With a strong why comes a strong emotional attachment to your outcome. And those emotions will be what allow you to celebrate victories and keep you going when you experience setbacks along the way.

 

3. Take massive intelligent action

 

After defining the what and why, the how is to take action. Not a little bit of action. Not a lot of random action. And not sporadic action. But massive, intelligent and consistent action.

 

Massive intelligent action is consistently taking the small steps that, when added together, ultimately lead to the realization of an overall goal and vision.

 

By defining your overall annual income goal, you’re able to reverse engineer the smaller, day-to-day steps required to achieve it. You’ll know how much money you need to raise, which means you know you’ll need at least that amount in verbal interest from private investors.

 

You also know how many deals you need to complete to achieve your goal, which means you can calculate the number of leads you need to generate following the 100:30:10:1 lead process – for every 100 leads, 30 will meet your initial investment criteria (i.e. number of units, age, location, etc.), 10 will qualify for an offer and 1 will be closed on. So, you’ll need to generate at least 100 leads for every transaction. If you’re using direct mail, for example, how many marketing pieces must you send in order to receive the number of leads required to close on an apartment community that would result in you achieving your annual income goal?

 

The goal here is to build habits and routines that become second-nature so that you not only take massive intelligent action automatically, but even begin to crave it!

 

4. Know what you’re getting

 

As you begin to take action towards your goal, it is important to analyze and track your progress. If you aren’t tracking your results, you won’t know if you’re on the right path.

 

A powerful Tony Robbins’ anecdote is about two different boats starting off at the same point. One boat continues on to the destination while the other veers off by just one degree. A few hours later, the two boats are miles apart. Applied to apartment investing, if you are slightly off-track at the start of your journey, the longer you go without recognizing the error, the more off course you’ll be AND the more effort it will require to get you back on track.

 

So, you should routinely check in and see if your massive action is getting you closer or farther away from your money-raising and lead generation goal.

 

5. Change your approach

 

Based on your routine check ins, you may need to make adjustments to get yourself back on course. Or, you may see great results with a certain approach for a while, but it may begin to taper off and plateau, putting you in a rut. When faced with either one of these situations, celebrate the fact that you had the awareness to identified the error and then change your approach.

 

Inspirational Examples

 

Don’t just take my word or Tony’s word for the power of this success formula. Here are four inspiration examples of people who set out to achieve a certain outcome, faced adversity and barriers, changed their approach and ultimately reached a level of success far above that which they initially set out to achieve.

 

  1. Walt Disney

 

At 22 years old, Walt Disney was fired from a Missouri newspaper for “not being creative enough.” One of his early entrepreneurial ventures, Laugh-O-Gram studios, went bankrupt after only two years (but Walt did later credit his time at Laugh-O-Gram as the inspiration to create Mickey Mouse). Also, he was denied by 302 banks for a loan to start Disneyland because he “lacked originality.” But, by the end of his career, he won a record 22 Academy Awards and was in the process of opening his second theme park, Disney World. Today, the Walt Disney Company holds over $92 billion in assets with a market capitalization of roughly $150 million

 

  1. Michael Jordan

 

Michael Jordan was CUT from his high school basketball team, before going on to win an NCAA championship and 6 NBA championships and finals MVPs. He once famously said, “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

 

Michael Jordan is also a branding wizard. Between his shoes, the highest grossing basketball film of all-time Space Jam, and his part ownership of the Charlotte Hornets, MJ became the first billionaire NBA player in history, with a current net worth of $1.39 billion.

 

  1. Stephen King

 

Stephen King is an uber-successful author of horror, supernatural fiction, suspense, science fiction and fantasy, selling over 350 million book copies and having many books adapted into featured films, including the number 1 ranked movie on IMDB Shawshank Redemption. But, did you know that when he was 20, his manuscript for Carrie was rejected by 30 publishers, with one saying “We are not interested in science fiction which deals with negative utopias. They do not sell.” He actually threw the manuscript in the trash, before it was retrieved by his wife, who convinced him to resubmit it. Once published, the paperback sold over 1 million copies in its first year, and the rest is history.

 

  1. Harland “Colonel” Sanders

 

In 1955, at the age of 65, Harland Sanders, who was a retiree collecting $105 a month in social security, decided to attempt to franchise his secret Kentucky Fried Chicken recipe. He traveled the country looking for a restaurant interested in his recipe, often sleeping in the back of his car. After 1009 rejections, he finally found a taker. By 1964, there were 600 franchises selling his chicken recipe, and by 1976, he was ranked as the world’s second most recognizable celebrity. By the time of his death, there were 6000 KFCs across 48 countries with $2 billion in annual sales.

 

Conclusion

 

There isn’t a cookie-cutter strategy for being a successful apartment syndicator. We are all investing in different markets and asset sizes with different investors, and we all have different unique talents, strengths and weaknesses, and skills. That’s why there are multiple money-raising and lead generation tactics and strategies available on the resources site. You’ll need to find the techniques that are ideal for your particular situation.

 

So, once you’ve defined your outcome, articulated your why and began taking massive action, analyze your results. Keep doing the things that are working and try out new things for those that aren’t.

 

What are your 2018 goals and how will the Ultimate Success Formula help you achieve them?

 

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If you have any comments or questions, leave a comment below.

 

apartment community real estate investing

So You Just Closed On Your First Apartment Community…Now What?

You just closed on your first apartment community. Congratulations!

Now what are the next steps?

As the asset manager, and in order to earn the asset management fee, it is your duty to ensure the successful take over and ongoing management of the apartment community. To do so, here are the 11 things you need to do:

 

1 – Implement the Business Plan

As the asset manager, your main responsibility is to ensure the successful implementation of the business plan. This starts by forming an operating budget (often referred to as the pro forma), calculating the projected rental premiums based on your rehab plan (through a rent comparable analysis) – both of which should be completed during the underwriting and due diligence phases – and running these figures by your property management company for approval, all before actually closing on the deal.

Once the management company has confirmed your budget and rental premium assumptions and after you close on the deal, it is your responsibility to oversee the budget. I recommend gaining access to your property management company’s online reporting systems so that you can review the monthly financial statements. You will be comparing the budgeted expenses and projected rental premiums to the actual figures on an ongoing basis, making adjustments when necessary.

 

2 – Notify Investors at Closing

The weeks leading up to closing, my company always prepares a “Congrats! We Closed” email that we will send to our passive investors once we’ve officially closed. The purpose of this email is to not only notify the investors that the deal is closed, but to also set ongoing expectations.

In the email, we explain how often they should expect to receive update emails (we prefer once a month, but quarterly or annual updates are also an option) and the financial statements (we prefer sending the trailing 12-month income and expenses and a current rent roll on a quarterly basis). We will also include links to relevant articles that reinforce the project and/or market.

We will also attach an Investor Guide to this email. The purpose of the investor guide is to proactively address common investor questions about the project. The guide will inform the investors about ongoing investor communication in more detail, tax information, distribution frequency and amount and any other piece of information deemed relevant to the investors.

I strongly recommend preparing both the email and the investor guide before you close so you can send it out immediately.

 

3 – Weekly Performance Review

Before closing the deal, you want to schedule a weekly call with your point person at the property management company to go over and track the property’s key performance indicators. Examples of KPIs to track are, but not limited to:

 

4 – Investor Distributions

On either a monthly or quarterly basis, you will need to send out the correct distributions. Before closing on the deal, make sure you know who will be responsible for sending out the distributions and where they need to be sent. Ideally, your property manager handles the distributions with your oversight and your investors fill out an ACH application so that their distributions are deposited directly into their bank account.

 

5 – Investor Communication

You will be responsible for ongoing communication with your investors. Each month, we provide our investors with an email that recaps the previous month. The information we include in these emails are:

  • Distribution information
  • Occupancy and pre-lease occupancy rates
  • Renovation updates (i.e. how many units have been renovated?)
  • Rental premium updates (i.e. are we meeting or exceeding our projections?)
  • Capital expenditure updates
  • (i.e. holiday parties, resident events, local business or real estate news)

Additionally, on a quarterly basis, we provide the financials (trailing 12-month income and expenses and a current rent roll). Finally, we provide our investors with their tax documentation, the K1, on an annual basis.

 

6 – Managing Renovations

If you purchase the asset with a bridge loan or another loan type that includes renovation costs, you will have constant communication with the lender during the renovation period. You won’t get a lump sum of money upfront for renovations and capital expenditure projects. Instead, you will receive draws from the bank. So, you will be interacting with the lender about the construction draws as you implement your capital expenditure projects.

If you’re renovations are not included in the financing and you’re covering the costs by raising equity from your investors, you’ll have control of the capital expenditures budget and won’t have to go back and forth with the lender.

 

7 – Maintaining Economic Occupancy

Assuming you’re a value-add investor like me, once you take over a property, you will begin to implement our value-add business plan. Since you are performing renovations, you should have already accounted for a higher vacancy rate during the first 12 to 24 months. However, it is your responsibility to make sure you’re maintaining occupancy so that you can hit your return projections.

Hopefully, your property management company is implementing the best practices for maintaining occupancy, like advertising and marketing to local business and competitors, adjusting rental rates as occupancy dips and doing weekly market surveys to determine the market rents. But as the asset manager, it is your responsibility to advise the management company on the speed at which renovations are made. You don’t want to handicap your property management company by forcing renovations. So, don’t be too aggressive with the pace at which you do your renovations.

Generally, you will renovate vacant units (ones that are vacant at closing or due to turnover). Other strategies include offering newly renovated units to residents who are living in nonrenovated units so that you can renovate their unit once they move, or increasing nonrenovated rents to promote turnover. However, if you have a large influx of vacant, nonrenovated units, don’t feel forced to renovate all of them. It’s okay if for every five or six units that become vacant, you only renovate half and lease the remaining units back to the market unrenovated, because you’ll get them next time people move out.

Overall, you want to renovate at a pace that will not adversely affect occupancy rates and make sure your property management company (or whomever is managing the renovations) has agreed to the renovation timeline.

 

8 – Frequently Analyze the Competition

You want to set up a process for doing rent surveys of the competition in the area. The goal of the rent survey is to compare your property’s rental rates to those of surrounding apartments, as well as the overall market rates, to determine if you can further increase your rates while remaining under the leading competitor. Hopefully, this is something your property management company will perform and will provide you with the results and advice on rate increases.

 

9 – Frequently Analyze the Market

You will also want to pay close attention to the market in which your apartment is located. Where are the prices and cap rates at? What would you get if you sold right now, or refinanced? Even if your business plan is to sell in five years, don’t wait until then to look at the market. You may be able to provide your investors with a sizable return if you sold after two years, or three and a half years. But you’ll never know if you aren’t constantly analyzing the market conditions. I recommend determining how much return you’d achieve if you sold at least a couple times a year.

 

10 – Plan Trips to the Property

I recommend visiting the apartment community at least once a month. However, don’t announce every one of your trips. If the management company is aware of your visit, they will have time to prepare and you may not get a true representation of how the property is typically managed. Whereas if you visit unannounced, you’ll see how the property is actually operated on a day-to-day basis.

 

11 – Expect the Unexpected

Finally, as unexpected issues arise (and you can guarantee that they will), you are responsible for making the proper decision to resolve the problem. For example, if you receive a call from the property manager, notifying you that the boiler unexpectedly broke down, you’ll have to decide if you will use money from the operating budget to replace, refurbish or repair it.

 

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How to Find Private Money Regardless of Where You Live

Last week we closed on our 12th property and our company portfolio is now valued at more than $250,000,000 (click here to see the lesson I learned on my last deal). Since this quarter billion dollar mark is sort of a milestone I thought it would be interesting to look at where my potential and current investors live to see if there is anything interesting we could learn from it.

 

Yes. Yes, there is.

 

Before we look at the stats, let’s define a couple things.

 

I define Potential Investors as investors with whom I have a relationship, are accredited and have expressed interest in investing with me but have not invested yet. Current Investors are accredited investors with whom I have a relationship that are currently investing in my apartment deals.

 

Now let’s dig into the stats of my investor database.

 

Top 5 Cities with the most Current and Potential Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 10%
  3. Los Angeles: 9%
  4. Houston: 5%
  5. San Francisco: 4%

 

So, out of all my Current and Potential Investors across the United States, 18% live in NYC, 10% live in DFW, etc. This makes sense for a handful of reasons.

 

First, they are large cities (ex. Population of NYC is 8M+).

Second, I lived in NYC and DFW so have family and friends there.

Third, our properties are in Texas so DFW and Houston investors have a level of familiarity with the market they are investing in. They see the same thing we see in terms of population growth, job growth, economic outlook, etc.

 

Now let’s look at the Top 5 cities with the most Current Investors (removed Potential Investors).

 

Top 5 Cities with the most Current Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 11%
  3. Los Angeles: 6%
  4. San Francisco: 5%
  5. Tied- Houston, Miami, Austin and Seattle: 4%

 

Ok, still making sense and for the reasons stated above. Large cities, places I lived, have family and friends residing, and, in three cases, are in the same state as our multifamily deals (Austin, Houston and Dallas-Fort Worth).

 

But here’s where the wrinkle occurs.

 

Let’s look at all the equity my investors have invested in my apartment syndications and what % of the total invested dollars is attributed to each city where investors live.

 

Top 5 Cities with % of Investment Dollars in Deals

  1. New York City: 18%
  2. Cincinnati: 13%
  3. Dallas-Fort Worth: 11%
  4. Miami: 7%
  5. San Francisco: 6%

 

…what in the Cincinnati just happened?!?!

 

Cincinnati isn’t a top 5 city of mine in terms of total # of Current Investors and/or Potential Investors.  In fact, to dig deeper Cincinnati only has 2.5% of my Current and Potential Investors living there. And only 3.5% of my Current Investors living there.

 

I am not from Cincinnati and, in fact, have only lived here for approximately 3 years. So, why does it represent 13% of all the equity invested in my apartment deals? The short answer is because I am actively involved in the local community. But that short answer doesn’t do the real lesson learned justice so let me elaborate more.

 

Here’s how I did it:

 

  • Host a local meetup. The first month I officially moved to Cincinnati (because my wife is from here and she’s the love of my life so I followed her to the city and now we’re here for the long-term) I started a meet-up. If you have time to ATTEND a meet-up then you have time to HOST a meetup. It doesn’t take that much more effort to HOST than it does to simply ATTEND and the rewards for HOSTING are exponentially greater. I did this to make friends in Cincy. I didn’t do it necessarily to generate investor relationships but that’s exactly what it did.
  • Host Board Game and Drinks nights at your house. This Friday my wife and I are having friends of ours, some of which are investors, come over to our house for a night of board games, drinks and dinner. Hosting events at your house as couples, along with couples, is fun and goes a long way to continue to build your friendship with those locally.
  • Consistent online presence that has an interview component to it. Or, in short, my podcast. I interview someone Every. Single. Day. on real estate investing and have released an episode for the last 1,197 days. There are multiple benefits for doing this and I won’t get into all of them but I will focus on one of the benefits and that is that every time I interview someone they then want to share it out to their audience which helps expand my reach. And, if I interview people in my local market that introduces new, local connections to me which can then turn into business relationships since I get to have dinner, drinks, etc. with them. Here’s a post I wrote on the step-by-step process to create a real estate thought leadership platform.
  • Volunteer then become a board member for that non-profit. I had no intention to meet investors when I started volunteering for Junior Achievement. But I have since realized that by volunteering for a cause I feel strongly about (Junior Achievement helps kids in underserved communities learn financial and entrepreneurial skills) I was able to connect with like-minded people and then become friends with them. I got on the board for JA in Cincinnati and have built friendships with people on the board which then turned into business relationship where they invest in my deals. You could take the same approach but make sure you genuinely believe in the cause and are doing it for the right reasons (i.e. helping further the cause’s mission) vs trying to grow your biz, otherwise it will fall flat and won’t be fulfilling for you.

 

By doing these simple things, you can build an investor network in your city that is perhaps stronger than any other network. When people personally know you they are more likely to trust you, recommend you to others, and invest larger. The beauty in this is that it’s helpful for you regardless of where you live.

 

Cincinnati is approximately the same size as St. Paul, Minnesota, Toledo, Ohio, Stockton, California and…Anchorage, Alaska. So, if you live in a city that is larger then there’s really no excuse to not having all the capital you need for your deals. If you live in a city that’s smaller than Cincinnati (300k population) then you can still apply these principles although it might require you to host your meetup in the next largest city next to where you live, that way you get better return on your time.  Regardless, apply these principals and you will quickly build a local investor network than can help you fund your deals.

 

In the comment section below, tell me how you will implement these proven money-raising tactics in your real estate business.

 

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If you have any comments or questions, leave a comment below.

 

highrise apartment real estate from the ground

Should an Apartment Syndicator Invest in Their Own Deal?

As an apartment syndicator, you raise money from accredited investors to purchase apartment communities and share in the profit. However, should you rely on private capital to fund the entirety of the deal, or should a portion of the investment come out of your own pocket? Based on my experience as a syndicator and interviewing syndicators on my podcast, I believe a syndicator should invest in all of their deals.

 

First, it benefits the syndicator from a monetary standpoint. By investing their own capital in the deal, they will make the same projected returns as your investors. So, by neglecting to do so, they’re decreasing their overall profits.

 

Secondly, and most importantly, investing in your own deal results in an alignment of interest with your investors. If you have your own skin in the game, your investors will have more assurance in the investment. In fact, it may be a requirement for them to actually invest their own capital.  If you don’t invest in your own deals, why would someone else have the confidence to do so?

 

But what happens if you don’t have enough money to invest in your deals? This was the situation I was faced with on my first deal – I just didn’t have enough money saved up to invest. So, if the reason you aren’t investing in your own deals is because you don’t have enough money, you’ll need to achieve an alignment of interest in other ways.

 

For example, on my first deal, I had the brokerage that represented the seller invest their commission into the deal. Because they had over 20 years of experience and believed in the deal, this made up for my lack of investment in the minds of my investors. Therefore, if you don’t have enough money to invest in your own deal, consider offering the broker/s the opportunity to reinvest their commissions and become a limited partner. Similarly, another option is to have the property management company invest in the deal. They can either invest their own capital or bring on their own private investors. The idea for both of these approaches is to have an experienced party invest to provide your investors with additional faith in the strength of the deal.

 

Another way to show alignment of interests is to invest your acquisition fee into the deal. Generally, a syndicator is paid a fee of 0.5% to 3% of the purchase price at close for finding, analyzing, evaluating, financing and closing the investment. Instead of cashing in on this fee, reinvest it back into the deal. This accomplishes the alignment of interest and will increase your overall profit on the deal too.

 

Finally, offer a preferred return. A preferred return isn’t a guarantee, but it signals to your investors that you believe the deal’s performance will not only achieve, but also exceed the level of preferred return. And to take it a step further, something my company does is we put our asset management fee in second position to the preferred return. If the asset doesn’t achieve the specified preferred return, we don’t collect our asset management fee. If our investors don’t get paid, we don’t get paid.

 

Ultimately, to attract private capital, it boils down to an alignment of interests. You want to show your investors that they take a priority over your interests. Having your own skin in the game is own way to accomplish this, but if you don’t have enough capital to invest in the deal, you must achieve an alignment of interests in other ways, like having the broker or property management company invest in the deal, reinvesting your acquisition fee or offering the preferred return before collecting an asset management fee.

 

How do you show alignment of interest to your private money investors?

 

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If you have any comments or questions, leave a comment below.

 

stop sign

When to NOT Work with a Passive Investor on an Apartment Deal

When I first started raising money from investors to purchase apartment communities, as long as the individual was interested in a passive investment and met the accredited qualifications, I accepted their capital without hesitation. And if you are just launching your syndication career, perhaps you’re doing the same. However, as you begin to gain experience and your list of private investors grows, it is beneficial to be aware of the red flags that may indicate the potential for future disputes and, if necessary, to not add or remove the investor from future new investment offering correspondences.

 

To understand these red flags, it is first important to define the ideal syndicator/passive investor relationship. The typical life cycle of an apartment syndication is 5 years. Therefore, when forming a relationship of this length, I want a passive investor who both trusts me as a person and treats me as a partner, as opposed to considering me as their vendor. Based on my experience from hundreds of accredited investor conversations and completing more than ten apartment syndications, I’ve found that there are two main factors that indicate to me that our relationship will not meet these requirements.

 

Red Flag 1 – Contempt

 

A famous study published in 1998 by marriage researcher John Gottman videotaped newlywed couples discussing a controversial topic for 15 minutes with the purpose of measuring how the fought over it. Then, three to six years later, Gottman and his team checked in on these couples’ marital status – were they together or were they divorced? As a result, they determined that they could predict with an 83% accuracy if newlywed couples would divorce. The study found that there are four major emotional reactions that are destructive to marriages and of the four, contempt is the strongest.

 

If there is contempt in a marriage, it will not last. And I believe that the same applies to business relationships.  According to Dictionary.com, contempt is the feeling that a person or a thing is beneath consideration, worthless, or deserving of scorn.

 

How I identify contempt is based on my initial gut reaction. Do I get the feeling that this person sees me as an equal and as a partner? Or do they look down on me and see me as a vendor? For example, I recently had an email correspondence with a potential investor. He led off the conversation by saying, “My standards are high. My patience for slick marketing is low.” Then, after I provided him some information about my company, including past case studies of the returns I provided to my investors, his reply was, “So what I need to hear is why do some deals with you as opposed to (the company with which he currently invests)?” I felt that this individual’s replies had traces of contempt and politely explained that we wouldn’t be a good fit. If I was earlier on in my career, I would have likely brought this individual on as a partner, but since I already have strong relationships with my current investors, I didn’t find the potential issues worth pursuing the relationship any further.

 

If you are having a conversation with an investor and your gut is telling you that this person holds you in contempt, I would consider passing on the relationship. To set the relationship up for success, only work with investors who treat you as an equal and who want a mutually beneficial partnership.

 

Red Flag 2 – Lots of accusatory questions that don’t convey that they trust me

 

The second red flag I’ve come across is when a potential investor asks a laundry list of questions in an accusatory tone. For example, I have an investor who literally sends me a list of 50 or more questions that are written in an accusatory fashion for every new investment offering. After taking the time to answer each question on multiple deals, they have yet to invest. Because they are asking questions in that manner, regardless of my answer, they will still be suspicious.

 

An important distinction to make here is that I have no issue with my investors sending me a list of questions, no matter how long. In fact, that is encouraged, because the more information I can provide about the deal, the more confidence they will have in the investment. The red flag is when the questions are asked in an accusatory manner. That conveys that they don’t have trust in me and that they’ll likely never invest in a deal. At the end of the day, the key to a successful, long-term relationship is trust, and when my instincts are telling me that there is a lack of trust, I decide to no longer pursue the relationship.

 

Conclusion

 

The two red flags to look for when having conversations with investors is contempt and the asking of a long list of questions in an accusatory tone that conveys that they don’t trust me.

 

Keep in mind that both these factors are highly subjective. Each syndicator and each investor has a different personality and will get along with different types of people. Just because you get the feeling that someone holds you in contempt or asks questions in an accusatory tone does not mean that they are a bad person. However, what it does indicate is that you will have an issue connecting in such a way that builds a relationship that is capable of surviving the course of a syndication deal. So, if either of these red flags arise, be polite, but strongly consider not working with that investor on your apartment deal.

 

If you have had a rocky business relationship in the past that came to an unfortunate end, what did you identify as the cause?

 

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If you have any comments or questions, leave a comment below.

 

 

bunch of money in hands

Top 5 Essentials for Raising Private Capital

Written By David Thompson, Thompson Investing

 

After 8 deals and $13 million raised in 18 months, I condensed my top ten tips to five essentials for successfully raising capital.  I continue to learn new things on every deal, but this is the best of the best so far.

 

If you can master the art and skill of raising capital, you have a big advantage.  It’s one of the top 3 skills in demand in this highly competitive and increasingly complex world according to Cal Newport in his book Deep Work.

 

Everyone seems to need capital to grow including startups, businesses, communities, nonprofits, you name it.  Even companies I’ve talked with that have a ton of experiences and rich capital sources are interested in talking with me because at the end of the day, it’s just human nature to grow.  A small firm can also negotiate better win / win terms from the operator’s standpoint versus wall street private equity that often may negotiate less than favorable terms with them.

 

Companies either want to grow bigger, faster, or take advantage of opportunities that often come in bunches instead of at systematic intervals.  Lack of capital stops ideas, companies and people from growing.  If you focus on this one skill you will have folks wanting to partner with you in a variety of areas.  Your goal will be to stay focused, establish key relationships with a few very experienced operators, build your reputation and network of investors by honing your craft and providing them with sound and logical opportunities while taking care of their needs.  So, here are my top 5 essentials for being successful in this area.

 

1) Partner with experts

  • You increase your experience and credibility faster when you are working with partners that are experts in what they do
  • You will be sharing good deals with investors in strong markets behind an experienced team
  • Your learning and development accelerates because experienced partners can share their knowledge. You’ll avoid newbie mistakes that can harm your reputation
  • Your brand becomes more known and credible building on an experienced partner’s track record

 

2) Be Yourself  / Authentic

  • Focus on education with investors as the primary objective
  • Don’t sell or appear needy. You have something that investors want
  • Being knowledgeable increases confidence and the investor will feel that you know what you are talking about. You will be more relaxed and natural when sharing the idea with investors.
  • Keep the message logical and simple. Frame the opportunity around a good market, a good deal with an experienced team behind it.  Share with them what’s driving value creation.
  • Prepare for investor questions: review my blog on 25 FAQs

 

3) Play to your strengths

  • Analyze your network and know where your investors are coming from
  • Focus on getting stronger in the areas of your strengths. Pick the top two areas you are finding most of your investors and develop a more comprehensive plan to further develop those areas
  • Don’t waste time in areas that aren’t working or are not natural paths for you
  • Bonus: Read StrengthsFinder 2.0 (Tom Rath) to help you understand the importance of playing to your strengths
  • Return customers and referrals are 85% of my business now so understand it gets easier over time

 

4) Raise min 25% more than you need

  • Know investors may change their mind for a variety of legitimate reasons such as pending job uncertainty, health or family emergency, unable to get liquid in time, etc.
  • Don’t be surprised when investors change their mind. Be mature and empathetic with the investor
  • Focus on building that long-term relationship so they are ready next time
  • To avoid big investor decommits, take half and put the rest on backup reserve in case you need it
  • Demand and interest increases when folks are put on backup. Psychologically, folks want in more when they can’t get in.  They assume they are missing out on a great opportunity

 

5) Develop a thought leadership platform for long term success

  • Building your brand requires a long-term strategy of developing content and knowledge share
  • Create good content for free and focus on educating others to increase awareness of your brand
  • Thought leadership ideas are blogging, podcast interviews, newsletters, videos, special reports, website, online forum or meetup group participation or start your own meetup group.
  • Most of my new leads today come from my thought leadership platform

 

In summary, building a foundation on these five essential factors will accelerate your capital raising efforts and enable you to add significant value to the partners you work with in your business while building an investor base that has confidence in the ideas you share with them.

 

gummy bears

3 Ways to Separate Yourself from Other Apartment Syndicators

 

There are thousands of qualified syndicators who raise money from accredited, passive investors and purchase apartment deals. With so many options available, how should you differentiate yourself from the competition to win an investor’s business?

 

There’s no secret and magic formula that, if applied, will allow you to easily attract millions of dollars in private capital. However, if you follow these three tactics, you can slowly start to separate yourself from the pack, build relationships with high net worth individuals and ultimately build a sustainable and successful apartment syndication business model.

 

Is there an alignment of interests?

 

The first way to differentiate yourself from other syndicators is making sure there is an alignment of interest. What are you doing to show your investors that their interests are just as important, if not more important, than yours?

 

There are many different ways to accomplish this, but one thing that my company does that many others don’t is putting our asset management fee in second position to the investor’s preferred return. In other words, if the project doesn’t meet the investor’s preferred return, which is typically 8% on an annual basis, then we don’t collect our asset management fee.

 

Now, that may seem like it’s common sense – if the project is performing for the investors and they aren’t receiving the projected returns, why should we get paid? However, this actually isn’t a common practice. And it’s certainly not a common practice to explicitly state this in an operating agreement. But that is what my company does. Our operating agreement says that if the project is not on track to achieve the investor’s preferred return, we do not collect the asset management fee.

 

Hopefully, it never comes down to this, but having this in the operating agreement reinforces the alignment of interest with our investors and differentiates us from other apartment syndicators.

 

Are you transparent with your investors?

 

Another way to differentiate yourself from the competition is by having a high level of transparency. Now, you obviously don’t want to bother your investors with every single aspect of the operations, but how often do you send out updates to your investors? I know some syndicators provide quarterly updates, while others offer annual updates. But for my business, we send out detailed email updates to our investors on a monthly basis, including occupancy rates, renovation updates, rental rate actuals vs. projections, capital improvement updates, issues with proposed solutions and any other updates relevant to the project. Then, we send out detailed financials on a quarterly basis so investors can have a granular level look at the operations.

 

Additionally, we are extremely responsive to investor questions and concerns. The last thing a passive investor wants is to ask a question and be ignored or receive a response a few days or weeks later. Therefore, if an investor sends you an email, quickly find the answer and reply to them in a timely manner. This may seem minor, but again, this can go a long way in differentiating yourself from other apartment syndicators who take forever to reply to investor concerns.

 

Can your investors trust you?

 

Finally, and certainly most importantly, the private investor must trust the person leading the charge, which – as an apartment syndicator – is you.

 

One of the main ways to build trust – I know this isn’t earth shattering advice – is to be yourself. There’s no reason to put on a show for your investors. Instead, you will build the best relationships if you just be your authentic self.

 

Besides authenticity, the best way for investors to trust you the fastest is through your online presence. And this is accomplished by creating a thought leadership platform, whether it’s a podcast, YouTube channel, blog, etc. Whenever I jump on a call with a prospective investor, most of them say, “I feel like I’ve already talked to you because of your podcast.” That’s music to my ears, because we’ve already established rapport before even having our first conversation.

 

 

Ultimately, differentiating yourself from other apartment syndicators boils down to building trust and credibility and determining how to do so in a scalable way.

 

What are some tactics you’ve discovered that enable you to differentiate yourself from other investors in your niche?

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

aparment real estate from the ground

The 3 Secrets to Attract and Keep Your Passive Apartment Investors

Before raising money for my first deal, I thought the primary reason accredited investors would passively invest in my deal would be because of the return. However, after raising $1 million for that deal, I discovered that the return on investment was not the major concern. Because there are other syndication and investment avenues to which an investor can go, offering solid returns cannot be the driving factor.

 

So, if returns aren’t their primary motivation, what is?

 

Since my first deal, I’ve partnered with hundreds of accredited investors on more than ten apartments communities worth nearly $200,000,000. From this experience, I have narrowed down the passive investors’ three primary reasons for investing in an apartment syndication:

 

  • My money is in good hands
  • I will be updated on relevant information on the deal
  • The process is hassle-free

 

Need #1 – Is my money in good hands?

 

My first need is to know that my money is in good hands. First and foremost, that means I want to know that – at the very least – you won’t lose my money. Billionaire investor Warren Buffett has two rules for investing: 1) Never lose money. 2) Never forget rule number 1. Therefore, your main focus when managing other people’s money should be capital preservation.

 

Like any investment, there are never guarantees – not for returns or the preservation of capital. So, I need to know that you are proactively mitigating any major risks. The syndicator accomplishes this by adhering to the three principles of apartment investing:

 

  • Don’t buy for appreciation
  • Don’t overleverage
  • Don’t get forced to sell

 

Follow these three principles and I will be confident that you will not only preserve my capital, but maximize my return as well.

 

Along with this, I want to know that my money is in the hands of an experienced syndicator. So, before you’re ready to raise money for your first deal, you must establish a solid educational foundation and have a track record in business and/or real estate. If you are lacking in either or both of these areas, you can make up for your deficiencies by surrounding yourself with a trustworthy, credible team, like a mentor, property management company and broker who have experience in the apartment industry and have successfully completed syndications. For me to invest in your deals, I must be confident in you and your team’s ability to return my capital and provide me with the projected return.

 

I also need to trust you as a person. I need to have a good feeling about you and truly believe that you have my best interests in mind. This trust is established by the length and quality of our relationship and by you demonstrating your expertise through your experience, your team or your thought leadership.

 

With this trust, I will be confident that you will have common sense, make good decisions, conservatively underwrite the deal, perform all the required due diligence before purchasing an apartment and at a minimum, meet the projected returns you outlined.

 

Finally, I want to know that you are a responsive communicator. If there is a problem with the deal, I want you to not only notify me of the issue, but have a proposed solution as well. And if I reach out to you with a question or concern, I expect that same lightning quick response with an answer.

 

Overall, I want to know that my money is in good hands. The syndicator will convey this to me by proactively mitigating the risks, having the relevant experience, building a trusting relationship and being a responsive communicator.

 

Need #2 – Will I be provided with status updates on the deal?

 

Additionally, I want to be provided with ongoing status updates of the project. On a consistent basis, I want a director level – not a CEO or entry-level employee level – update on the deal with supporting data.

 

To accomplish this, the syndicator needs to provide their investors with a monthly email update (I use MailChimp) that includes the following information:

 

  • Distribution details
  • Occupancy and pre-leased occupancy rates
  • Actual rents vs. projected rents
  • (If you are a value add investor) actual rental premium vs. projected rental premiums
  • Capital expenditure updates with pictures of the progress
  • Relevant market and/or submarket updates
  • Any issues, plus your proposed solution
  • Any community engagement events

 

Then, on a quarterly basis, provide me with the profit and loss statement and rent roll so if I want, I can review the operations of the property and dig deeper into the details. My company actually provides monthly distributions – as opposed to quarterly or annual distributions – so our investors are not only provided with updates on a monthly basis, but are paid as well.

 

Need #3 –  Is the process hassle-free?

 

Finally, I want a hassle-free process. The reason I am a passive investor is because I want to park my money in an investment and not have to worry about doing any of the day-to-day operations. I am busy making money with other business endeavors, so I want to minimize my time investment in the deal.

 

After performing my initial due diligence on the deal prior to investing, I want a boring investment with little to no surprises. All I want to do is read the monthly email updates and receive my distributions. So, to effectively provide investor distributions, set up a direct deposit, as opposed to sending checks in the mail, so all I need to do is look at my bank account rather than going to the bank each month to deposit a check.

 

If I do reach out with a concern, I want a quick resolution with minimal back and forth. Therefore, you should proactively address potential concerns in your monthly updates and if an investor has a concern, have a solution in place prior to replying.

 

Conclusion

 

In summary, I’ve completed nearly $200,000,000 worth of apartment syndications with hundreds of passive investors, and if you set your business/deals up so your investors answer YES to these 3 questions, you’ll be well on your way to closing more deals:

  • Is my money in good hands?
  • Will I be provided with status updates on the deal?
  • Is the process hassle-free?

 

If you use private money investors for you deals, what have you found to be their top motivations for investing with you and not with another qualified investor?

 

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business deal

The Ultimate Guide to Finding an Apartment Broker

One of the real estate professionals you want as a part of your real estate team is a broker. A great broker is one that sends you deals, and more specifically, sends you off-market deals. However, like all relationships, it must be reciprocal. Most likely, the broker will have countless investors asking them for deals. Therefore, when approaching a conversation with a new broker, it is important to realize that they are interviewing you as much as you are interviewing them.

 

Read on for tips on how to approach these broker conversations. First, I will provide a list of questions you need to ask them. Next, I will outline how you can win the broker over to your side by focusing on coming across as a serious, credible investor who will close a deal. Finally, I will provide a list of questions the broker may ask and that you should be prepared to answer.

 

Questions to Ask the Broker

 

When interviewing a broker, you need to know your outcome of the conversation. For me, as an apartment syndicator, my main goal is to determine their level of experience and success with apartment communities that are comparable to my investment criteria.

 

To accomplish this goal, here is a list of 11 questions to ask during the interview:

 

  1. What is your transaction volume?
  2. How many successful closes have you experienced in the last year?
  3. How long have you been working as an agent? How long have you focused on apartments?
  4. How many listing do you currently have?
  5. How do you find deals?
  6. Do you offer both on-market and off-market deals?
  7. What stage is the local apartment market in?
  8. What is your specialty?
  9. What are the top three things that separate you from your competition?
  10. Will you please provide references?
  11. What haven’t I asked you that I need to know?

 

Ideally, we want to find a broker that will send us an endless supply of off-market apartment deals. However, don’t bank on this, especially in the beginning phases of the relationship. But after you’ve proven to the broker that you’re the real deal, successfully closing on a few deals, it will become more and more likely that you will be the first person who is notified when they have a new off-market deal. It just comes with time.

 

How Do I Win Over a Broker?

 

Again, when interviewing a broker, it’s important to realize that they are interviewing you too. Therefore, put yourself in their shoes and ask yourself “what are they looking for when deciding whether or not to bring on a new client?”

 

Since brokers are paid a commission at the sale of a property, their number one motivator is to close on a deal as quickly and as easily as possible. They don’t like tire kickers, wannabe investors who waste their time asking a bunch of questions but never close on a deal. Their ideal client is an investor who has a proven track record of closing on deals. So, if you don’t have previous investing experience, that will be your number one challenge.

 

To win over a broker during a conversation, you need to sell yourself and your business and build rapport. If you have past investing experience, you shouldn’t have an issue selling yourself. If you don’t however, what relevant experience do you have that will convey to the broker that you are serious about closing deals? Have you successfully completed projects in a non-real estate related field? Have you started a business in the past?

 

If you are struggling to come up with relevant experiences, this is where having a reputable team comes into play. Sell your team members. Talk about your real estate mentor or advisor’s real estate experience. Tell them about the number of apartments your property management company manages. And bring up any other relevant relationships you’ve formed (i.e. contractors, attorneys, CPAs, your meetup group or thought leadership platform, etc.)

 

Along with the asking them business questions, to build rapport, get to know something personal about them. Find out something that’s important to them and bring it up with genuine interest next time you meet. A quick way to accomplish this is to ask, after having already established yourself, “what’s been the highlight of your week?”

 

Finally, I recommend preparing an opening statement or elevator pitch. If you already have a deal in mind, you can say, “I’d like to discuss making an offering on ABC apartment.” Or, another example would be saying “I am working with ABC Property Management and will be buying a property in (city name) in the next few months.” The purpose of the opening statement is to grab the attention of the broker, come across as a serious investor, and address their “want” – which is to close on an apartment – from the start.

 

Questions to be Prepared to Answer

 

Don’t expect the broker to simply answer your questions, chat about their business and personal life and then get up and walk away. If they are seriously interested in bringing you on as a client, they will want to ask you questions as well. Therefore, you need to proactively brainstorm questions they may ask and have ready-made answers.

 

Here is a list of 9 potential questions an interested broker will ask you during the interview:

 

  1. Who is your property management company?
  2. How many units to they manage?
  3. Are they local?
  4. Have you (or someone on your team) purchased an apartment building before?
  5. What type of deals are you looking for? What markets are you looking in?
  6. How did you find me?
  7. Will you sign an exclusive agreement with me so I can get you the best deals?
  8. What are your expectations?
  9. Can I see a biography of you and your partners?

 

And as you interview brokers, if you are asked questions you’re not prepared to answer, make a note and tell them you will find that answer right after the meeting and send them an answer.

 

In today’s market, buyers are a dime a dozen. So, many brokers will simply brush off an investor who is looking to purchase deals. Ultimately, a broker will bring more deals to buyers that they like to work with, and the types of buyers that like to work with are the ones who will close and not lose a deal due to inexperience, laziness or passivity. However, by following the approach outlined above, you will come across as a credible investor who can make aggressive offers and back them up by closing the deal.

 

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cash in hand

5 Steps to Raise over $30,000,000 for Apartment Syndications


How do you raise private capital from high net individuals to invest in large multifamily deals? Well, that question assumes that 1) you have high net worth individuals in your network and 2) you know how to syndicate large multifamily deals. If you are like most entrepreneurs, neither of those assumptions are true. So, the real question is, how do I create a network of high net worth individuals, and how do I learn how to syndicate large multifamily deals?

 

Dave Zook, who has closed on over 2,800 units since 2010, has raised well over $30 million for apartment syndication deals. But, at one point he was like you. He didn’t have the connections, nor did he know how to invest in apartments. So, how did he get to where he is today, and how can you replicate his success?

 

In our recent conversation, he condensed his journey into a five-step process to raising millions of dollars from private money investors.

 

Related: How Do I Know If I’m Ready to Become an Apartment Syndicator?

 

Step #1 – Build a Reputation

 

Before even entertaining the idea of raising money for deals, Dave was already investing in multifamily utilizing his own capital. Also, he was running a sales and marketing company. Due to these successes, he was known by others in his local market to be a savvy entrepreneur who could effectively manage a business. “Having a good reputation in your local market is a great start,” Dave said. “We’re well-known in the community for the business we’ve done there.”

 

A reputation of previous business success, even if it’s not in apartment investing, is a requirement prior to raising money. No one will entrust you with their hard-earned money without having the confidence that you can navigate the syndication niche.

 

Related: How a Wannabe or Experienced Investor Can Obtain a FREE or PAID Real Estate Education

 

Step #2 – Tell Your Story

 

After building a business reputation, you want to locate the high net worth individuals in your current network and tell them your story. And if you are thinking to yourself, “Joe, I don’t have any high net worth individuals in my network,” then you need to continue working on that reputation. When you are performing at a high level, in either real estate or business, you will cross paths with these potential private money investors.  For example, prior to becoming a syndicator, I was a VP at a New York City advertising firm. When I decided to raise private money, people whom I created relationships with in that industry were some of my first investors, and they still invest to this day. They had seen my success in business (the advertising industry) and in real estate (I had purchased multiple SFRs and taught classes on how to invest in SFRs).

 

Similarly, Dave said, “what really helped [me] was I was able to show them what I was doing. I started in this business investing in multifamily on my own for myself. I had a tax problem. I needed some tax shelter. We got creative on that side, so I was able to approach some of the people that I knew that had some investable income, and I just told them my story.”

 

So, after building your reputation, use it as a selling point to the high net worth individuals you met along the way.

 

Related: Four Tips to Successfully Sell Yourself in Real Estate Investing

 

Step #3 – Get Investor Commitments

 

Once you’ve built your reputation and begin telling your story high net worth individuals, get them to commit to investing in a deal. For example, Dave’s first investors came from the members of a local bank’s board in which he was invited to join. He said, “I was invited to sit on the board of a local startup bank… I was listening to conversation that went something like this – These guys were talking back and forth, and I knew most of these guys around the table, about a dozen guys. They were talking about investing in this bank and wanting to know if it was a good idea, a wise investment. I heard conversations like, ‘Well, you may not see a return for 5-7 years, but it’s better than putting our money in a CD.’ I was just blown away. I was amazed at the conversation. I got to looking at what I was doing in the multifamily space and got thinking, ‘Man, how can I add value to these guys?’ It was about the time I had bought a couple hundred units on my own. I was sort of coming to the point where I was running out of cash. I had to slow down. Then I talked to another friend of mine who was on the board as well. I ran the idea by him about syndicating and teaming up with these guys. He thought it was a great idea. For the next deal, they come along.”

 

Due to his business reputation, he was invited onto the board. Due to his previous real estate experience and successes, he had a compelling story to tell. With this combination, he was able to raise private money for his first syndication deal. “I needed $850K to get the deal done,” Dave said, “and I went to see some of these individuals. Some guys that I knew were able. It was about getting around the right people and about having a good relationship in the community, and being able to go out there and talk to people that knew and trusted me.”

 

Related: A 5-Step Process for Raising BIG Capital for Multifamily Syndications

 

Step #4 – Increase Investor Network Through Referrals

 

Once you gain your first investors and complete a deal or two, as long as those deals were a success, your current investors will refer you to their other high net worth friends. From there, it’s a snowball effect.

 

Dave said, “If I would pinpoint and go back to each one of those [investors], a lot of the guys were from referrals. People that invested with me and then said ‘Hey, I’ve got a friend,’ and they’d give me a third-party endorsement, and we ended up doing a deal together. One thing led to the next, and the next thing you know they’re a really faithful investor.”

 

Related: Three Ways to Cultivate Word-of-Mouth Referrals

 

Step #5 – Retain Current and Referral Investors

 

Finally, once you receive a new investor, either your first investors or through referrals, retain them by continuing to syndicate successful deals. As long as you consistently provide your investors with a solid return, you will not only continue to receive more referrals, but those current and referral investors will come back deal after deal. For an example, Dave said, “We [recently] closed a 373-unit building. We’ve raised $3.5 million. About 85% of those investors had invested with me on other deals. So, they were current investors and just coming back for another round.”

 

Related: 16 Lessons from Over $175,000,000 in Multifamily Syndications

 

Conclusion

 

For those aspiring entrepreneurs who want to become multifamily syndicators, starting from scratch, the 5-step process is to:

 

  • Build a business or real estate reputation in your target market
  • Convey your reputation to high net worth individuals in your network through storytelling
  • Get investors to commit to your next deal
  • Increase your number of private money investors through referrals
  • Retain your investors by consistently providing a solid return on investment

 

Related: 6 Creative Ways to Break into Multifamily Syndication

 

 

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S.O.S.

The S.O.S. Approach to Managing an Investment During a Crisis (like Hurricane Harvey)

As I am sure you are aware, Texas was hit by Hurricane Harvey earlier this week, and it continues to persist as of this writing. The director of FEMA, Brock Long, called Harvey the worst disaster in Texas history, and expected the recovery to take many years. So, first and foremost, our thoughts are with all of those who’ve been impacted.

 

To help those individuals who lost it all from the storm, we’ve set up a make-shift distribution center using the home of one of my investors. He is accepting supplies and is taking them to Houston shelters that are servicing those in immediate need. For those interested, click here for more information.

 

From a business perspective, when a crisis – a hurricane, fire, earthquake, etc. –  occurs and you have an investment property in the area, you need to have a process for approaching the situation, and even more so if you have private investors. The procedure I use is the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary.

 

S – Safety

 

The first step when a crisis occurs is always and most importantly safety. That is, safety for both the people and the money.

 

So, you first want to ensure the safety of both your residents and your team members on the ground. I own two apartment buildings in the Houston area. One building was unaffected, while the other was in the flood zone and received minor damage. Fortunately, from all accounts so far, the residents and team members on the ground are safe and secure.

 

From a money perspective, one of the properties took in small amounts of water. But, we have flood insurance. So, after we do a final assessment once the weather permits, we will determine if we will make an insurance claim or not.

 

O – Ongoing Communication

 

Once we have ensured the safety of the people and have an understanding of the initial damage done to the investment, we communicate that information to the investors.

 

Since this crisis was a hurricane, we had some degree of forewarning. So, once Harvey made landfall, we sent an initial email to investors to notify them if the property was impacted. And in this case, one of the properties wasn’t, so we relayed that information to our investors. For the property that did take in water, we communicated that information and stated that we would provide another, more detailed update once Harvey weakened.

 

A few days later, once the hurricane weakened, we sent the investors a second email with another status update and how we will manage the situation moving forward.

 

The important thing to remember here is to only provide sustentative information and not hour by hour updates.

 

S – Summary

 

In a week or two, we will have a better understanding of the situation. At that point, we will provide our investors with a summary of where we are netting out from an insurance claim standpoint, if there is one at all, as well as any other developments.

 

So, when a crisis occurs, the three step procedure is S.O.S. – safety of the people and the money, ongoing communication to provide your investors with status updates, and then providing a summary a few weeks later.

How Do I Know If I’m Ready to Become an Apartment Syndicator?

 

When considering to make the transition from either a corporate job or another smaller real estate niche (i.e. SFR rentals, fix-and-flipping, etc.) to apartment syndication, one important question, and one in which I myself had to answer, is how do I know I am ready?

 

Simply put, based on personal experience and more so based on interviewing hundreds of investors, you first need to address your education, and then you needed establish a track record in either business or real estate. Getting the proper education and having a track record in a similar field is a requirement to successfully switch to apartment syndication.

 

However, after a recent conversation with James Eng, who’s currently a partner in 2,500 multifamily units and arranges financing on over $100 million in multifamily properties every year, there are two additional criteria the aspiring investor needs to address prior to moving into the syndication business.

 

James also believes that education and experience are both foundational to successfully shifting to the syndication model, but he takes it a few steps further. He said, “Depending on where you want to be in 3-5 years, I want to understand sort of where you’re going. The education piece is important, so that when you start looking at deals… A lot of people, we will review their personal financial statement today, and then we we’ll lay out ‘Okay, based on your financials and based off of your experience and based on the amount of time you have, is it better for you to be a general partner or a limited partner, or maybe a key principle on someone else’s deal?’ and understand that piece of it so that you can start taking steps in the correct direction. That’s usually how we start – education, and then understanding what your personal financial situation is today.”

 

Related: 16 Lessons from Over $175,000,000 in Multifamily Syndications

 

The two added factors James provided are time and money – what is your personal financial situation and how much time can you dedicate towards this? The answer to those two questions will not only determine if you are ready for apartment syndication, but also what role you should assume when you begin. James said, “Let’s say you come to me and you say ‘I want be a general partner, but I also have a full-time job (time) and also I have limited capital to even put down earnest money (money).’ That’s going to be very difficult for someone to get started, so I might recommend somebody like that to build your education piece, build your capital, and then let’s go try to get some deals under contract.”

 

In the example above, the individual doesn’t have the time to get a general partner –  how are they supposed to manage the project, find deals, bring on investors, etc while working all day? Also, they don’t have capital, so they can’t invest their own funds in the deal, which means there isn’t an alignment of interest –  investors prefer it that the general partnership invests their own funds in the deal. Therefore, for the time being, all they can do is work on their education and financial situation (or follow one of these 6 creative ways for breaking into the multifamily business).

 

Basically, the aspiring syndicator should rank themselves on all four factors – time, money, experience, education – to determine which role, if any, is the ideal starting point.

 

Only have the money, but no time? One option is to start off as a limited partner by being a passive investor in the deal in order to gain experience and education.

 

Have experience (real estate or business related), time and education, but no capital? Those were my circumstances when starting out, and I started as the general partner by bringing on private money investors to fund the deal.

 

Lacking in all four areas? Read some books, listen to investing podcasts, get hands on experience in either business or real estate (learn how do accomplish this for free here), and/or start building up capital.

 

The goal is to take some form of action to start heading in the right direction, towards becoming an apartment syndicator.

 

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large apartment complex real estate investment

4 Legal Ways to Get Paid Raising Capital for Apartment Deals

 

A question I receive all the time is how can I make money from connecting syndicators with high net worth individuals? Unfortunately, it is not as simple as going out into the market and just doing it. There are rules and regulations around the money-raising business, and the main issue is making sure you aren’t performing broker dealer activities. If you are doing so without the proper certification, you are breaking the law.

 

Amy Wan, a crowdfunding lawyer who was named one of 10 women to watch in the legal technology industry by the American Bar Association Journal, is an expert on the rules that regulate the money raising industry. In our recent conversation, she provided four ways you can legally raise money without being a broker or a dealer.

 

Disclaimer: The purpose of this blog is educational purposes only. This is not legal advice. Consult with an attorney before taking any action!

 

What is a Broker Dealer?

 

There are four things that regulators look at when determining whether someone is engaging in unlicensed broker activities. Amy said those four things are:

 

  • “Are they taking transaction-based compensation? Transaction-based compensation is basically payments based on the transaction amount – how much money they’re bringing to the table. [For example], commissions, straight up commissions – that’s definitely transaction-based compensation.”
  • “Are they soliciting or going out and trying to find potential investors?”
  • “Is that person providing advice or engaging in negotiations? Are they helping to structure this deal in any way?”
  • “Do they have previous securities deals experience or history of disciplinary action?”

 

If you are involved in the activities outlined above, you are engaging in broker dealer activities.

 

Assuming you want to raise money without getting your broker dealer’s license, here are four options to pursue.

 

#1 – Become the Issuer

 

As a broker dealer, by definition you are selling securities to other people. So one option is to sell securities to yourself by becoming a part of the issuer. Amy said, “If you become part of the issuer, and what that means is you’re not just raising money, you need to be doing other things that area a little bit more day-to-day. But if you are part of the management or the GP or whatever it is who’s the active sponsor, then suddenly you’re not selling securities for others, you’re selling securities for yourself.”

 

The key here, and to most of the other options I will outline below, is to perform additional duties on top of raising the money. Amy said, for example, “maybe the guy helps them set up their bank account. Maybe he advises them on what strategies they should use for student housing, or any other area that maybe he can contribute. Maybe he’s helping out with property management, or helping with monthly distributions. Something that’s not purely just the raising capital. If he is involved actively in some of the day-to-day AND he’s raising capital, suddenly we’re not raising money for other people. We’re raising for the money for ourselves and that’s okay.”

 

Related: 6 Creative Ways to Break Into Multifamily Syndication

 

#2 – Give Class B Interest

 

Your second option is similar to the first, but instead of being a part of the issuer or management, you’re a part of a separate entity. The syndication can be structured with two classes of ownership interests. One is class A, which is for the investors, and another is class B, which goes to you.

 

When following this strategy, Amy said, “instead of them being a part of management, they’re not actually a part of the owner or the issuer anymore. They are a separate entity. You are giving them some of the class B shares, even though they’re not actually part of the management.”

 

However, just like option #1, you want to perform additional duties on top of raising money, and the compensation cannot be based on how much money was raised. “If you give a guy maybe 5% of whatever the class B interest is, if you make it not transactional-based compensation – maybe he gets 5% regardless of whether he brings in a million dollars or a hundred thousand – that starts looking a lot less like being a broker dealer,” Amy explained.
“And again, just as with the last example, even if they’re not a part of the management, it’d be nice if they could provide some sort of additional service. Maybe it’s them personally guaranteeing the loan. So even if they’re not bringing capital, they’re helping you get capital from the bank because they’ve signed the loan documents.”

 

#3 – Charge a Finder’s Fee

 

For a more creative option, you can charge a finder’s fee. However, just like the previous two options, you need to be careful to not tie the fee to the amount of money raised so it’s not transactional-based compensation. It should be a flat fee.

 

You also need to be careful when soliciting investors, which applies to all four options. Amy said, “when we’re soliciting investors, what we don’t want to do is to pre-screen or to recommend an investment or anything of the sort. But if it’s a mere e-mail introduction to someone who’s just interested in learning about multifamily apartments generally, and the person happens to know that this guy also happens to be interested in investing in real estate, that on its face is okay.”

 

When doing investor outreach, you don’t want to say something like, “Hey, Joe has this amazing 250-unit apartment complex that he’s raising five million dollars for. You should take a look at this.” You want to do soft introductions and nothing more.

 

#4 – Become a Consultant

 

The last option that Amy sees a lot is to negotiate with the issuer to become their consultant. And again (sounding like a broken record), the compensation structure cannot be based on the amount of money raised.

 

As a consultant, Amy said, “they’ll sign a consulting agreement. The consultant has to do a number of things. One of them could be going out and helping to raise capital or make those introductions. But it has to be that this consulting agreement is not merely raising. What we’re paying the consultant is not based on how much capital this person brings in, and as is the general theme here, they should have some sort of other job too.”

 

Conclusion

 

In order to make money by raising capital for apartment deals, you must avoid performing broker dealer duties. Your four options are:

 

  • Become part of the issuer
  • Give class B interest
  • Charge a finder’s fee
  • Become a consultant

 

Finally, before doing anything, run your plan by an attorney. Amy offered to provide advice or connect you with an attorney. You can find her at www.bootstraplegal.com.

 

Related: 4 Skillsets Needed Prior to Raising Private Money for Apartment Deals

 

 

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filling out survey

The 4-Pronged Test to Raise Money Legally and Avoid Fines, Lawsuits, and Jail Time

Have you ever thought about raising money from private investors and buying large multifamily buildings? If so, it’s important to know if you must adhere to the SEC guidelines. If you fail to do so, you will be susceptible to fines, lawsuits, and maybe even jail time.

 

In fact, the SEC’s main revenue stream comes from pursuing syndicators who break the “rules.”

 

In a recent conversation with Jillian Sidoti, an attorney who’s an expert on money raising techniques for real estate investors, said the SEC “runs on fines. That’s how they make money. That’s how they justify their existence, by generating revenue through fines. They’re looking for people who are not following the rules.”

 

Fines from the SEC can be problematic, but Jillian said the larger threat, in regards to breaking SEC rules, are your investors. “If you don’t do right by your investors, that not doing right by your investors [and] not following the law in the first place is going to be exhibit A against you in the trial against you when your investors come to see you [in court],” she said. “It could just be you having a falling out with an investor, or an investor needs their money back in the middle of the project. How are they going to get it back if you’re not very willing to give it to them [or you can’t give it to them]? They’re going to sue you and they’re going to use all of this evidence against you in order to get their money back.”

 

How can you avoid the wrath of both your investors and the SEC? It’s fairly simple: Don’t make the biggest legal mistake Jillian comes across – not understanding the difference between what a security and a joint venture is. And there is a lot of disinformation out there.

 

“I often hear people say to me, ‘Well, if I just use a joint venture agreement or call it a joint venture, then that’s not securities and I’m in the clear,’” Jillian said. “I’ve sat in a seminar where people say, ‘If you just use a joint venture agreement then you don’t have to worry about any of these security’s laws and you can do whatever you want,’ and that is simply not true.”

 

Raising money for a deal and believing that securities laws do not apply to you (because you think it’s a joint venture) can land you in a lot of legal trouble down the road. It is not worth pursuing the short-term benefits of a joint venture.

 

How to you know if securities laws apply to you? Jillian provided a simple 4 prong test, commonly known as the Howey Test. If these “prongs” apply to your situation, then you must adhere to SEC securities laws, which means it would highly benefit you to find a good securities attorney like Jillian.

 

Here is the 4-prong Howey test to differentiate between a security and a joint venture:

 

  • Investment of Money: this will be a given since investors are giving you money to invest in a deal
  • Expectation of Profit: of course, your investors expect to make money, which is why they are investing with you, so this will apply to your situation
  • More than One Investor (i.e. common enterprise): This doesn’t mean “do you have one investor?” If you have only one investor period, you and that investor form the common enterprise. Again this will apply to your situation
  • Through the Efforts of a Promoter: This is the “prong” that mainly differentiates a security from a joint venture. If you doing all the work and your investor or investors are passive, it qualifies as a security.

 

If your situation meets these four-prongs, it is an investment contract and you are required to follow SEC laws. According to the SEC, the definition of an investment contract is “an investment of money (#1) in a common enterprise (#3), with an expectation of profits (#2) based solely on the efforts of the promoter (#4).”

 

For more on the differences between a security and joint venture, read Joint Ventures or Securities – What’s the Difference? And of course, consult with a securities attorney.

 

Conclusion

 

When raising money for deals, in order to avoid fines from the SEC or losing potential lawsuits from your investors, you must understand whether or not your situation is regulated by the SEC. This is determined by the 4-pronged Howey Test:

 

  • Is there an investment of money?
  • Is there an expectation of profit?
  • Is there more than one investor?
  • Is everything done through the efforts of a promoter?

 

If the answer is “yes” to these four questions, you are regulated by the SEC and must adhere to their rules.

 

 

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4 Skillsets Needed Prior to Raising Private Money for Apartment Deals

Want to become a multifamily syndicator but lack the commercial real estate experience? No problem!

 

When I bought my first apartment, a 168-unit building in Cincinnati, my previous real estate experience only included four single family rentals.

 

How did I make the jump from four units to 168? I cultivated the following four skillsets.

 

#1 – Trustworthiness

 

First and foremost, people need to already recognize you as a trustworthy person. If you can’t look yourself in the mirror and say “yeah of course people find me trustworthy,” then forget about raising private money. Why would someone entrust you will thousands of dollars of their own capital if you have a history of untrustworthiness?

 

#2 – Proven Track Record

 

Assuming you are already trustworthy, you will need a proven track record. However, this track record doesn’t necessarily have to be real estate related. Having prior real estate experience, whether it’s wholesaling, fix-and-flipping, etc., is a plus but not a requirement. If you don’t have real estate experience, then you must have a proven track record in a professional career.

 

Now, if you just graduated college, have no real estate experience, and have been working in a corporate job for a few years, you will not be set up for success. Examples of a proven track record in a professional career would be if you had entrepreneurial experiences in college, you bought and sold a company, you started your own company, or you’ve held high-level responsibilities at a corporate job. For example, I was a VP of a New York marketing company prior to raising money for my first syndication deal.

 

Experiences like that would be compelling to private money investors. It shows that you have the business foundation required to handle managing other people’s money.

 

Ideally, you would have a combination of the two, but either or would suffice.

 

#3 – Resourcefulness

 

Another skillset is being incredibly resourceful.

 

I believe I am the most resourceful people on the face of this earth. I will find a way to make things happen. I will talk to enough people. I will do whatever it takes. That is a core, guiding belief of mine. And let me tell you, making the leap from single-family residences to a 168-unit required a lot of resourcefulness.

 

I believe we have to be resourceful as multifamily syndicators because challenges will come up and there’s not necessarily a roadmap for how to complete a deal from start to finish. Therefore, resourcefulness is a must.

 

#4 – Understand the Numbers and Terms

 

Finally, you’ve got to know how to run the numbers and understand how to analyze deals. You don’t need to have 10 or more years of experience analyzing deals because you can partner with someone, like I did, who has that experience. However, you still need to have a basic understanding of how the numbers work and of the multifamily lingo. The last thing you want to have happen is speak with a private money investor who asks drops terms like gross rent multipliers or internal rate of returns and you have no clue what they is talking about.

 

 

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4 Principles to Source Capital from High Net-Worth Individuals and Find Off-Market Deals

In February 2017, we hosted the first annual Best Ever Conference in Denver, CO. To kick off the conference, I gave a keynote address (to watch my address, click here).

 

The conference was unique in that I asked each attendee to submit the answer to the following question: What are current obstacles you are trying to overcome in your real estate business? Rather than create a conference the way I wanted to, I created it around the personal obstacles of each individual attendee.

 

After read over one hundred submissions, the common thread I found between everyone’s obstacle was two-fold: raising more money and finding more off-market deals.

 

In keeping with the personalized theme of the conference, I formed my keynote address so that at its conclusion, all attendees would have practical takeaways for how to raise money and find off-market deals.

 

Here are the four tactics I provided:

 

1 – Build Your Network

 

When I interviewed Robert Kiyosaki (listen to the full interview here), he said, “the richest people in the world build networks. Everyone else looks for work.”

 

The most important thing that we can do to play the long game in real estate investing is to build a network. I have found that the best way to build a network and what I attribute to the majority of my success is to create a thought leadership platform.

 

A thought leadership platform can come to life in one of four ways: 1) a podcast, 2) a YouTube channel, 3) a blog, and 4) an in-person event.

 

The keys to having a successful thought leadership platform or network are:

 

Consistency – For example, I host the world’s longest running daily real estate investing podcast.

 

Identify what your unique angle will be – I have two clients with military background. One was in the Army and the other was in the Air Force. They created a lease-option business and YouTube channel called “Joint Ops.” Due to launching this brand, they now raise over $200,000 a month in private money.

 

Start within Your Sphere of Influence – When you are starting a thought leadership platform, you are not going to get instant results from people who don’t know you. However, your sphere of influence that already exists will begin to know what you are doing and you will start to become the thought leaders within that sphere. It takes a lot of time and consistency to get strangers into your sphere, but you’ll get instantaneous results from people who already know you (i.e. friends, family, work colleagues, etc.). That’s how I raised $1 million for my first deal.

 

Tie into a Large Distribution Channel – Don’t recreate the wheel. Leverage an existing channel with a large network. For example, with a YouTube channel, you have access to millions of potential viewers. With a podcast, you can tap into the billions of ears on iTunes. With a blog, post to your own website, but also to BiggerPockets, LinkedIn, Medium.com, and social media to begin to create a following. With a meet-up, it’s a little trickier. However, someone in my network moved to Atlanta, partnered up with an existing meet-up host, and had 90 investors at his first meet-up!

 

2 – Ask Better Questions

 

Whenever I have a meeting with a client, I always ask them to tell me what is the best thing that’s happened to them since the last time we spoke. For some of my newer clients, their response will be, “oh, not that bad.” While that may seem innocuous, when we dissect it, what are they saying? They aren’t saying things are good, that’s for sure.

 

We have to be very careful with our language. Even though they are saying they aren’t bad, they are still using the word bad, a negative word. As far as I’m concerned, this puts us in the wrong mindset. The same applies to the questions we ask. When I was reading through the obstacles of the attendees of the conference, I read things like, “What happens if I raise money, but I don’t find a deal?” or “What happens if a deal doesn’t work out?” or “What happens if I can’t raise the money.” Instead, we have to ask better questions that don’t assume we are going to fail. Re-frame the question to “how do people who raise money and find deals successful?” Model them, stick with them, and grow together.

 

3 – Create Opportunities

 

To find deals in a hot market, we have to be creative and create our own opportunities. Read here for an example of how I was able to find an off-market deal while touring an on-market deal and added both to my portfolio.

 

4 – Partner Up

 

When I was a solo investor, I purchase four single-family homes and one large apartment building, and then my business remained stagnant for a few years. Once I partnered up with someone who complements my strengths and helps me with my weakness, my growth skyrocketed; I was able to added over $100 million worth of properties to my portfolio.

 

To find the perfect partner like I did, it’s important to know yourself. It takes a little bit of time and experience, but after completing a few deals, look in the mirror and ask yourself, “What am I really good at and what am I really bad at?”

 

Build a team around those answers and once you do that, your business is going to flourish.

 

Personally, after my first syndication deal, I realized I was great a raising money and marketing, but I was terrible at underwriting and asset management. My partner has an institutional background, so he is phenomenal at the underwriting and asset management. Therefore, we complemented each other perfectly, which is why we’ve been able to scale so quickly.

 

Conclusion

 

In order to raise more money and find more deals, you must:

 

  • Build your network through a thought leadership platform
  • Re-frame your mind and ask better questions
  • Create opportunities rather than wait for opportunities
  • Partner up with someone who complements your strengths and weaknesses

 

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ideas on a chalkboard

Working in Apartment Syndication – What’s Possible in One Year!

Guest Post by David Thompson

This month is my one year anniversary working in commercial real estate.  I started helping an apartment syndicator raise capital to close on a 320-unit apartment in Dallas last May.  Prior to that, I spent about three to four months learning from Joe Fairless who had a program that was meant to teach me how to find, purchase and syndicate my own 100-unit apartment over what we decided would be about a 12 to 18 month goal. Three months into his program, it dawned on me that this end-to-end syndication business was pretty overwhelming and that it was definitely going to be a team sport. The landscape was competitive and I starting feeling that brokers, lenders and investors would be asking what my experience was before I would be able to get any business from them.  Since I didn’t have any commercial real estate experiences beyond some single-family and small multi-family properties that I managed, I thought there must be a better, faster and more successful way to get into this business.  I had left the full-time corporate world about six months prior to fully dedicate myself to this area.  Since I had the time and thought, why not just work with the experts for a while and gain that experience?

 

One day I simply asked Joe how I could help him as he was doing a lot of large apartment deals in the background.  That led to him suggesting that I raise capital for him.  I would learn and leverage the expertise and credibility of his partners while learning how to discuss apartment investing and deals with prospective investors.  Those investors I brought in would be my investors not his and that per the SEC rules, I had to be part of the general partnership (GP) and help him with other activities to be able to market the deals legally.  Being part of the GP had an attractive potential income component to it that further enhanced this proposition. I would be compensated for how much I raised, paid a bit of the acquisition fee at close (my wife liked that), I would get part of the GP quarterly distributions so creating a passive income stream and a potential for a much larger payout when we refinanced and / or sold the property in two to five years.

 

Fast forward one year and I’ve raised close to $9m to help acquire over five large apartment communities.  I’m part of the GP team and own a part of over 1200 units. I’ve grown an investor base to over 80 accredited investors.  On this last deal that I’m finishing up, almost half of the investors are return investors from prior deals which makes the capital raise process easier.  I am starting to get referrals in bunches, folks are coming to my website asking how they can learn about what we do and what opportunities are out there. My exposure has increased dramatically in a rather short period of time.

 

I’ve been interviewed a handful of times on real estate investing podcasts with one interview covering a BP post I did on the top ten things I’ve learned raising $1m in two weeks on my first deal, which I turned into my first book (eBook you can download for free on my website).  I’ve spoken at a REI conference this past February on capital raising and handling international investors.  I am in Bigger Pockets apartment forums regularly sharing ideas on what I’ve learned about raising capital, the syndication business, vetting sponsors, apartment investing, markets, you name it.  As my knowledge expands, I’ve increased my connections with others, giving back when I can and helping those either interested in learning more about investing in this area or simply wanting more direction in how to accelerate their growth.

 

My business model has morphed into other attractive niche areas like self-storage as I have a growing investor base who have done several apartment deals and are looking to further diversify. I’ve met other mentors that have helped introduce me to other top notch sponsors in these niches as they all seem to need capital to continue their acquisitions. I’ve come to learn that if you can raise capital, significant capital, you can be a big player in this business.  I’m now discussing potential partnerships with other folks that do what I do, looking to create unique funds targeting certain niches, leverage a larger pool of capital to negotiate better terms with the operators to ensure my investor base is getting exposed to solid opportunities with attractive returns.  I’ve met with some of the top sponsors in the self-storage industry to see if we’d make a good match.  I’ve written a blog on why I find this niche attractive to start getting my investor base warm to the idea. I’m attending a three-day self-storage workshop in two weeks as part of my professional development plan and already diving into his home study program.  My goal is to ensure I’m well educated in any niche area first, then vet and partner with the top sponsors and provide my investor base with solid opportunities to diversify both by niche, geography and by sponsor.

 

My personal financial goal is to be part of the general partnership in several of these niches with long term partners that are experts in their field, believe in win/win philosophies and have aspirations to continue to grow with solid deals.  When I left the corporate world over 18 months ago, it’s amazing how busy but exciting my new life has become.  This passion and success I’m seeing did not come without a ton of hard work, but I found that because I thoroughly enjoyed the process, meeting new people, sharing and educating them in opportunities they never had even heard about was a natural for me.  I never ever felt I was in a sales or marketing role and I still don’t. I simply educate and if the right person is ready, they and you will know, I then simply lead them to the next step in the process.

 

Joe is an expert at not only multifamily apartment investing but his background is marketing and advertising.  I had no clue when I started other than an investment summary deck to talk to accredited investors about.  Since then, he’s helped me immensely understand the power of reach, credibility and presence.  I have a website, I blog bi-weekly, I’m in the BP apartment forums almost daily sharing thoughts, I wrote the eBook that I’m going to get on Amazon later this year, I’ve spoken at his conference, I developed a monthly newsletter for my clients and prospects, I attend regular local multifamily meetups, but unsatisfied with that, I’m going to create my own monthly meetup group over the summer that will be a club membership for accredited, passive investors only to review educational and deal flow opportunities.

 

I have had so much fun with this that I approached Joe about doing a capital raising workshop next spring to share our best ideas on taking this niche within a niche to building an incredible business.  Wow, can’t wait to see what happens, who I’ll meet and what roads and doors will open up over the next few years at this pace.  It’s been an incredible year. I share this with you not for me, but to give you an idea of what’s possible when you put your heart, passion and energy into something and give it your time.  It won’t seem like work, it’s all fun to me. My wife told me the other day she could not believe how hard I work at it and I tell her it does not feel like work, put more time in, surround yourself with experts to get the right coaching, create a solid home support system to enable you to be your best and you will surprise yourself.

 

 

Author Bio: David has strong experiences in real estate investing in both domestic and international projects covering single-family, multi-family and land development.  He earned his MBA in finance from Thunderbird School of Global Management, and graduated summa cum laude with a B.A. degree from Arizona State University.  David spent over 20 years in high-tech management positions at Dell, AT&T, and Lucent Technologies.  At Lucent he managed a $2.5B investment portfolio and raised over $1B in funds for acquisitions.

 

After leaving the corporate world, David started Thompson Investing and has raised several million dollars in private equity.  Most recently Dave has partnered with Ashcroft Capital and as part of the General Partnership has helped provide investor capital to purchase over 800 apartment units in three separate communities worth over $68M.

David prides himself on building long-term relationships with investors and partners while providing a great customer experience.  Dave has lived in Austin, Texas for twenty years with his wife and has two daughters.

 

 

 

 

investment insurance currency

5 Creative Ways to Raise Private Money with a 506(c) Offering

Back in 2015, I had Mark Mascia on the podcast to discuss how to best qualify a development deal (How a Billion Dollar Developer Qualifies a Deal). Since then, Mark has transitioned from being a billion dollar developer to a half a million-dollar syndicator. He currently controls over half a million dollars in retail and medical office space.

 

When raising money for his deals, he elected to use the 506(c) offerings over the 506(b) offering. The main difference is with 506(c), Mark is able to publicly advertise for accredited investors for his deals. Here is a video where I interviewed a securities law expert on the differences between 506(b) and 506(c).

 

Mark said, “the first and foremost reason that we like [506(c) offerings] is because we can talk about what we’re doing actively, and not have to keep everything a secret or know you personally before we talk about it.” Since he is able to publicly advertise for his deals, he doesn’t need to have a personal relationship with his investors, which in turn, enables him to utilize more creative techniques for finding investors.

 

When Mark first began raising money, his capital came from a single source – family offices, which are offices that manage the wealth for high net-worth families. However, he realized, “we just don’t want to have any sort of single source of capital, just like we don’t want to have a single tenant or any single property that can sort of wipe out our wholes business.”

 

Now, Mark focuses on not only diversifying his investments, but also his passive investors. He said, “every deal we do, we have the ability to raise all of the funds from these large, big-pocketed family offices, but we specifically chose not to (for two reasons). One, so that we can keep relationships with our friends and family and other investors who have been with us for a long-time, but two, to meet new investors.”

 

With the 506(c) offering, Mark is able to advertise his deals, which is the main source of his new investors. In our conversation on my podcast, he provided the 5 advertising methods he uses in order to find these new investors for his deals.

 

1 – Crowdfunding

 

Mark’s first method for obtaining new investors is through crowdfunding (click here for a crash course in crowdfunding). He said, “Every deal we do, we do a portion of it crowd funded, which is really nothing more than just advertising online through one of these third-party platforms for new investors. So it’s straight general solicitation out there, advertising on the website, and they advertise on other platforms. But they’re aggregating individuals who are interested in investing in real estate and putting our deal in front of those eyeballs. So every deal we do, we reserve a least a few hundred thousand dollars for that specific purpose.”

 

For a deal Mark is currently working on, he is using the platform CrowdStreet. However, he mentioned he’s used just about ever crowdfunding platform out there and doesn’t have a specific favorite.

 

The benefit of crowdfunding is that Mark finds investors that he wouldn’t have been able to find otherwise. “These are people that I would otherwise have never met in my life that are interested in investing with us, and some of them have already invested with us. It’s a great opportunity to grow your network of individuals that either might be interested or are definitely interested in investing.”

 

2 – Facebook

 

For a recent project, Mark opened up the deal to investors on Facebook for the first time. He said he’s trying out Facebook because, “We’ve heard in the past a lot of great reviews from friends about how they acquired investors that way because you can be super targeted. We know very clearly that 90% of our investors are 40 years and older, live all over the country but mainly in population centers of 100,000 people or more.” Educational attainment (college educated) and professionals (doctors, lawyers, executives, and small business owners) are also target criteria.

 

Related: The 4 Keys to Building Relationships on Social Media

 

3 – Newspapers

 

Mark also puts advertisements in the local newspaper. “We are also trying old school newspaper advertising because our investor base tends to be a little bit older. In some cases, we have investors 70, 80, 90 years old and newspaper still happens to be a very relevant source for those people.”

 

For a recent deal in Spartanburg, South Carolina, he took out ads in local papers in North and South Carolina. “[I’ve taken ads out in] markets that are very close to these areas. Charlotte’s an hour away. Greenville is about 45 minutes away. Charleston. Those types of things because people tend to like investing locally, even though long-term I think that’s a bad strategy, it’s a great gateway if they can drive by the property and see it.”

 

4 – Webinars

 

In addition to crowdfunding, Facebook, and newspaper ads, Mark also does webinars. In adherence to the “be everywhere,” “blanket/carpet” marketing strategy, he wants to advertise on as many platforms as possible.

 

Mark said, “The webinar was helpful because we get one-on-one questions. We get a bunch of people and interest built around that specific concept of hosting a webinar and you can record it and then send it to others, so it gives you sort of a platform and another contact point to reach out to people.”

 

5 – Referrals

 

Mark’s final advertising strategy is good, old-fashioned referrals. He said, “The referral [is] probably in everyone’s experience has been why you start with your friends and family, because they know you… If you perform for them, they will refer you to their friends and family, and so on and so on. That’s typically been the best source for us overall.”

 

When finding new investors through referrals, the most effective method is through social proof. Mark said, “What I’ll try to do is people that do know each other or people that don’t know each other, some of the family offices that didn’t know each other, I introduced them to each other. Now they know each other, so when I say, ‘XYZ family office is investing. Don’t you guys want to invest as well?’ they go ‘Oh yeah, of course. If they’re invested, we’ll do it too.’ So there’s a little bit of trying to get people in the same room or same social network of some sort, even if it’s just because I introduced them, so that there’s that social proof aspect where people feel obligated or inclined to invest because of someone else.”

 

Related: 4 Non-Obvious Ways to Raise Private Money for Your Deals

 

Conclusion

 

Raising money using the 506(c) offering allows you to publicly advertise for investors. The top 5 advertising methods Mark uses to raising money for his deals are:

 

  1. Crowdfunding
  2. Facebook
  3. Local newspapers
  4. Webinars
  5. Referrals

 

Want to learn more about passively investing in apartment syndications? Visit the Best Ever Passive Investor Resources page, the only comprehensive resource available to passive investor.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

presenting

7-Steps to Presenting a New Apartment Deal to Your Private Investors

Last week, my partner and I presented a new multifamily deal to our private investors. Our current approach is to set-up a 60-minute phone conference using the free software at www.freeconferencecall.com.

 

For those who are currently raising money for deals, or expect/desire to raise money for deals in the future, presenting a deal to investors can be a stressful experience, especially if it’s your first time. In order to mitigate the stress, preparation is a must. That being said, I wanted to share how I prepare and structure my presentations for investors.

 

1 – Get Your Mind Right

 

First, you have to get in the right frame of mind. What I mean by that is you must answer the question, “Why am I presenting this opportunity to investors?” I write the answer to this question at the top of the Word Document outline I use as a guide when presenting a deal.

 

At the top of the document, in bold letters, reads, “I am here to serve. I am here to help my investors retire, do what they want with their money, and ultimately do what they want with their time. When they get the returns we’re projecting, then they’re going to be able to spend their time the way they want to spend it.

 

If I accomplish the goal of this statement, it is a win-win for both my business and for my investors. A personal belief I hold is when people spend time how they want to spend it, they will naturally gravitate towards doing more altruistic things. I’m not just helping my investors make money, but I am helping them have the financial freedom to do what they want with their time, which in turn, will result in more altruism and philanthropy in the world.

 

So, starting out with the right mindset, as well as coming from the heart and knowing that you’re there to serve the investors is the foundation for a successful conference call.

 

2 – What’s Your Main Focus?

 

In addition to getting myself in the “service” mindset, I also remind myself what my main point of focus is – capital preservation.

 

This became my main point of focus in part due to an interesting psychological concept called loss aversion. Loss aversion refers to people’s preference to avoiding losses relative to acquiring an equivalent gain. In other words, people’s negative reaction to losing $5 is greater than the positive reaction of gaining $5. Through personal investment experience and after interviewing 1000 real estate professionals, I have the anecdotal evidence to support this concept as well.

 

Assuming you are conservatively underwriting a deal (which you should) then capital preservation needs to be sprinkled into the discussion with investors.

 

3 – Introduction

 

Now that my mindset is right and I’m focused on capital preservation, I’m ready to start the actual conference call. I start every call with an introduction, which is a simple summary of my background.

 

Additionally, I provide my email address and ask the investors to send any and all questions to me so that my business partner and I can answer them during the Q&A session (see step 6).

 

4 – Deal, Market, and Team

After I’ve provided my bio, the call is structured into three categories.

 

  • The Deal Details
  • The Market Details
  • The Team Details

 

I’ve already determined the main highlights of the deal, so before going into granular details on the three categories, I provide a high level overview of the deal. The overview explains the main reasons why I like the deal. I do this because I want to focus on and continue to reiterate these main points throughout the call. I don’t want to discuss these three data points and have everyone’s mind swimming in numbers. I want to make sure that the points I want to make about the deal are clearly and consistently communicated.

 

For the investor call I had last week, the two main points for that deal were exceptional location and a proven business model with a proven team. I led off with that, and that was the theme throughout each of the three categories.

 

Next, I went into each of the three categories and explained the highlights of each.

 

When I say something like, “It’s an exceptional area,” I will follow it up with, “and here’s why,” versus just throwing out hyperbole. You always want to have stats to back up your claims, and if you want to take it to the next level, tell a story as well.

 

For example, the deal I presented to investors last week was in Fort Worth, Texas. I mentioned that it’s an exceptional location. The population is growing, and as a reference point, the U.S. Census Bureau named it the number one fastest growing city in the United States, with a 47% population growth from 2000 to 2015.

 

I could have left it there with that stat. However, I went on to explain why the population is growing. I mentioned job growth, job diversity, and gave some specific employers. This was the macro level overview for the market.

 

Then I went into the micro level for the submarket. I talked about the school district and the specific employers within a 3-5 mile radius.

 

Overall, it’s important to know what you’re talking about (obviously), but mention the numbers and the reason behind the numbers, rather than just stating statistics. Tell a story, and then make sure you are hitting the points you need to hit, which are the ones you’ve predetermined are the most important selling points or desirable attributes for the particular opportunity.

 

5 – Dive into More Details

 

I present steps 3 and 4, which takes about 15 minutes. Then my business partner talks for another 20 minutes. He explains the business model in more detail, the financing we are obtaining, etc.

 

6 – Q&A

 

Finally, the rest of the call is the Q&A session to answer the questions investors emailed me. I will reply to some of the emails while my business partner is speaking, but most of the questions are addressed at this point.

 

At the conclusion of the Q&A session, the conference call is completed.

 

7 – Send Recording to Investors

 

Since I record all conference calls, I will send out the link to the recording to all my investors. I do this because probably around 40% of the investors aren’t able to attend the call.

 

Conclusion

 

My conference calls with investors consist of 7 steps:

 

  • Get my mind right
  • Determine my main focus
  • Introduction
  • Three categories – deal, market, team
  • Dive into more details
  • Q&A
  • Send recording to investors

 

When you follow this 7-step formula, it makes for a very concise conversation and you’re able to have an effective call.

 

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Money-Raising

My Four-Step Apartment Syndication Money-Raising Process

I was recently awarded another apartment deal. Here is a link to an article I wrote about the main lesson I learned: https://joefairless.com/find-deals-hot-market/

 

However, prior to putting the property under contract, I already started the money-raising process.

 

In this post, I wanted to walk you through how I approach raising money for my deals, which begins before I am awarded the deal.

 

Step #1 – Am I capable of raising X amount of dollars?

 

First and foremost, I make sure that I have the equity lined up before I get awarded to deal. That doesn’t necessarily mean that I know exactly who will be investing what amount. I just want to know that I have the capability of raising the amount of money required.

 

For example, for the deal I was recently awarded, I will have to raise between $7 million and $8 million. Based on experience, I am confident that I will be able to his that number. However, if the number were $25 million or $50 million, it would be a different story.

 

Step #2 – Who will be the investors?

 

Once I believe I have the capability to raise the required amount, I start to identify the specific investors that will bring the equity, at least conceptually. They don’t have to be the exact people who end up investing at closing because things usually change when you start speaking to investors. Some invest more, some invest less, and some don’t invest at all.

 

For this step, I list out all the names of the investors whose goals are in alignment with this specific project – which I already know based on previous deals and/or investor conversations. Then next to each name, I write down the amount of money I believe they would invest, which includes a low amount and high amount. That allows me to identify the number of investors I will likely need for the deal.

 

For this step, I input all the information into an excel document entitled “Money Raising Tracker” that I created from scratch. If you are interested in using my tracker for your deals, email me at info@joefairless.com and be sure to mention “money raising tracker” in the subject line.

 

Step #3 – Create a One Page Deal Summary

 

Next, I create a one-page document with a high-level overview of the opportunity and send it out to the list of investors created in step #2. At this point in the process, I may still not have been awarded the deal, while in other cases, I have. However, if I haven’t been awarded the deal, I would feel comfortable sending out the one-pager to investors anyways, as long as the contract is scheduled to be in place in a few days.

 

The reason why I create the one-page document and send it out to investors is because it let’s me get the opportunity in front of the investors while I work on completing step #4, which is…

 

Step #4 – Create Detailed Marketing Package

 

Finally, I will create a marketing package that is more robust and detailed compared to the one-pager from step #3. It has everything from the projected returns to the market information to the business plan to the team and everything in-between.

 

This document usually takes about a week to a week and a half to prepare. While I am doing that, I don’t want to sit on my hands. That is why I send out the one-pager with the high-level overview of the opportunity so I can gauge the initial interest of my investors.

 

Bonus Step

 

One additional step I take on my deals is hiring a videographer who has a drone. They go to the property and use the drone to record videos, including shots of a birds-eye view, the units, the amenities, and close by retail. Then, we make a video compilation and send it to the investors. It really helps bring the project to life.

 

Depending on how robust you want the video, the cost can be anywhere from $1,000 to $5,000. But it’s certainly worth it.

 

Conclusion

 

My four-step money raising process is:

 

  • Determining if I am capable of raising the required amount of money
  • Filling out my “Money Raising Tracker,” listing potential investors and the low and high amount they may invest
  • Creating a one-page document that provides a high-level overview of the opportunity
  • Creating a detailed marketing package

 

Finally, I will hire a drone videographer to create an investor video, which is a compilation of different shots of the property and surrounding areas.

 

 

Did you like this blog post? If so, please feel free to share is using the social media buttons on this page.

 

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black and white businessmen

4 Ways to Partner with a Property Management Company on Your First Apartment Syndication Deal

 

The major challenge first-time apartment syndicators face when pursuing a deal is a lack of credibility. They’ve never done a deal before and don’t have a proven track record. To put it lightly, being taken seriously by real estate brokers, apartment owners and passive investors isn’t a guarantee.

 

However, there are many ways to portray yourself as a credible syndicator who is capable of closing on the deal. For example, a long-term strategy is to create a thought leadership platform. But if you find a deal before you’ve established a thought leadership platform, a faster technique is to find and partner with a property management company. By partnering with a property management company, the you can leverage the management company’s experience in order to establish credibility with the seller, the lender, and your private money investors.

 

Based on my syndication experience, there are four distinct ways a first-time syndicator can partner with an established property management company.

 

Method #1 – Sign the Loan

 

The first way to partner with a property management company is to have them sign on the loan. As a result, they will become a general partner in the deal.

 

This is ideal if the syndicator doesn’t personally have the liquidity or net worth to qualify with a commercial lender. By having the property management company’s signature, the syndicator can leverage their liquidity to be approved for a loan.

 

To compensate the property management company, the syndicator can offer a one-time fee of 0.25% to 2% of the loan balance paid at closing, or offer a general partnership ownership interest, or a combination of the two.

 

Method #2 – Invest in Deal

 

Another way is to have a property management company invest in the deal and as a result, become limited partners. For this method, they will have the same compensation structure as your passive investors.

 

Method #3 – Bring on Investors

 

A third way is to have the property management company invest in the deal and/or bring in their own investors. The extra benefit of following this method is that it adds another layer of credibility (i.e. the property management company’s investors) and it adds another level of alignment of interests since the property management company and their investors have their own skin in the game.

 

Similar to method #2, they will have the same compensation structure as your passive investors.

 

Method #4 – Ownership Interest

 

The final way that a syndicator can partner with a property management company is to exchange the property management fee for ownership interest in the general partnership.

 

The benefits of this method are three-fold. First, it establishes credibility right out of the gate for all parties, as the experience property management company is part of the general partnership. Two, the first-time syndicator can leverage the property management company’s liquidity or net worth to qualify for the loan. And three, since the property management company will likely bring in their own money and/or their investor’s money, it decreases the amount of money the syndicator must raise.

 

Are There Any Downsides?

 

The downside of bringing on a property management company as a general partner is that they and the syndicator are essentially married. Therefore, if the management company falls off the face of the earth, completely forsakes the property, or they turn out to be bad people, the syndicator is going to have a very messy divorce. If this happens, the syndicator will have to buy them out in some form or fashion.

 

If you decide to follow any of the four methods, in order to mitigate your risk, you need to make sure that you have proper clauses in the contract that stipulates a buyout process. Also, you have to be careful about who you select as a property management company. (See All You Need to Know About Building a Solid Real Estate Team)

 

From personal experiences, I believe the benefits of partnering with a property management company outweigh the potential downsides, as long as you’ve planned for them in advance. I have successfully overcome the challenges mentioned earlier (i.e. lacking in credibility and/or liquidity/net worth) by partnering with property management companies on past deals using all four of the methods described above.

 

 

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money closeup

3 Primary Ways an Apartment Syndicator Makes Money on a Deal

There are countless ways for a syndicator (also referred to as sponsors or general partners) to make money on an apartment deal. However, three are the most common.

 

#1 Acquisition Fee

 

The first primary way that a multifamily syndicator makes money is with an acquisition fee. The acquisition fee compensates the syndicator for their time for putting the entire deal together, from start to close.

 

The acquisition fee charged can be anywhere from 1% to 5% of the purchase price. I’ve heard upwards of 5% at certain seminars I’ve attended but I’ve never actually seen it in real life. And I’ve actually personally seen an acquisition fee of less than 1%, which was what I charged on my first deal. At the time, I didn’t know about the acquisition fee, and I backed into it after I talked to my investors, which resulted in a very awkward conversation!

 

If a syndicator were to charge a 2% acquisition fee, for example, and the apartment sales price is $1 million, it would be $20,000 paid to the syndicator at closing.

 

#2 Asset Management Fee

 

The second primary fee is an asset management fee. I’ve seen this fee collected in two different ways.

 

First, an asset management fee can be charged as a percentage of income. The industry standard is 2%. If a property collected $100,000 in income per month, the syndicator would receive $2,000 each month.

 

Another asset management fee structure is a cost per unit per year. The standard fee I’ve seen is $250 per unit per year. If a syndicator is managing a 100-unit asset, they’ll be compensated $25,000 per year.

 

I personally don’t like the latter approach – cost per unit per year – because it doesn’t show alignment of interest. No matter how well or poorly the property performs, the syndicator’s compensation remains the same. Therefore, I prefer the alignment of interests that receiving a percentage of monthly income provides.

 

#3 Percent Ownership

 

The third primary way a syndicator makes money is getting ownership interest in the entity that owns the property. Ownership can be anywhere from 10% to upwards of 70%. It depends on the deal, how much money the syndicator personally invested, and the overall opportunity for the investors.

 

A typical example is the limited partners (i.e. the investors) receiving 70% ownership and the general partner (i.e. the syndicator) receiving the remaining 30%. These percentages equate into dollars when you refinance or sell the property. While this method lacks in consistent cash flow, as long as the syndicator performs for the investors, it’ll turn out to be significant dollars at the end.

 

 

Did you like this blog post? If so, please feel free to share is using the social media buttons on this page.

 

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That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

signing agreement documents

Multifamily Syndication Tip: When Do I Need to Form my LLC?

A question I get asked a lot is “as a multifamily syndicator who is just starting out, when do I need to form my LLC?” which I answer in the video above.

 

However, the short answer: Not right now.

 

I am not a lawyer, so I recommend speaking with one before forming an LLC, but based on my experience, here are a few things I do know:

 

  1. You don’t need to form an LLC until you have a deal for your investors.
  2. Once you have a property identified, you can form your LLC
  3. Whatever your company LLC is, your property LLC will be different. In doing so, you are protecting your investors and yourself from the domino effect where every entity is tied to your company
  4. Every property is going to be it’s own individual LLC (same reason as point 3)
  5. Focus on the step-by-step process of multifamily syndication before anything else (i.e. how to run the numbers, how to approach investor conversations, create your brand, have a thought leadership platform, etc.). Visit multifamilysyndication.com for articles and videos on the apartment syndication process

 

Again, I am not an attorney and I do not specialize in LLCs, so I recommend speaking with one. But I do know that we don’t need to spend thousands of dollars and/or our precious time on forming an LLC before we have a deal or understand the multifamily syndication process.

 

Did you like this blog post? If so, please feel free to share is using the social media buttons on this page.

 

I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

16 Lessons From Over $175,000,000 in Apartment 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 $175,000,000 in assets.

 

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 16 invaluable lessons to my syndication process, which I can attribute to my continued success.

 

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 hired put their own money into the deal. It is true that you will have less equity in the deal, but 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 due to an alignment of interests. This is something I didn’t do on my first deal, which was a mistake, but I did apply it to the 250-unit deal in Houston.

 

When following this strategy, it is even more important that you’ve adequately vetted the property management company. If you aren’t completely comfortable with your selection, then you’ll be stuck with them as both a manager AND a general partner – a double whammy.

 

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 up-charges.

 

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

 

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 flowed 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.

 

Here is the exact process I use for priming investors before finding 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. A simple email will suffice. 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.

 

 

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 performed the underwriting
  • I raised all the private money
  • I conducted 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.

 

As long as no missteps are made when selecting who to partner with, it allows the business to go farther faster because you are both focused solely on your crafts. Yes, there is should overlap (for example, 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.

 

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)

 

Related: Self-Publishing Your Way to Thought Leadership, Leads, Money, and Much More

 

  • 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)
  • Meetup.com (host a frequent meet-up group)

 

Related: The 4 Keys to Building Relationships Via Social Media

 

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:

 

  1. 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
  2. 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!

 

 

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:

 

  1. Find an off-market deal
  2. Conservatively underwrite deals
  3. Negotiate terms and get all legal documents in order
  4. Raise capital for deals and be the ongoing point person for capital sources
  5. Secure debt financing (if applicable)
  6. 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.).

 

Related: 4 Legal Ways to Get Paid Raising Capital for Apartment Deals

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 is 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 are the 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 can 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’s 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.

 

I’ve written multiple posts on proven methods successful investors I’ve interviewed are using to raise capital:

 

  1. My Four-Step Apartment Syndication Money-Raising Process
  2. 3 Ways to Raise Over $1 Million for Your 1st Apartment Syndication
  3. A 5-Step Process for Raising BIG Capital For Multifamily Syndication
  4. 4 Principles to Source Capital from High Net-Worth Individuals
  5. 4 Non-Obvious Ways to Raise Private Money for Apartment Deals
  6. How to Overcome Objections When Raising Money for Multifamily Investing

 

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 management 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 management 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 to Break into the Business:

 

  • If you’re a broker then: put 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 multifamily investing 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.

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. More 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.

 

3.BiggerPockets

 

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

 

 

The six syndication deal my company closed on was a 200+ unit in Richardson, TX, which is a submarket of Dallas. After adding 200+ units to our portfolio, my company broke 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 doing so. 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.

 

  1. Buy my book (all profits are donated to Junior Achievement),
  2. Listen to my podcast and write a review on iTunes
  3. 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 audiobooks and that 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? 

 

Yes.

 

It’s slightly different but has dramatically different results.

 

Here’s how:

 

Even though he’s in the middle of listening to two to three audiobooks, 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?

 

Yep.

 

Is there a big ole difference between the perceived value that each of the approaches provides?

 

Oh yeah.

 

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.

 

 

The seventh 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.

 

Some examples…

 

  • 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:

 

  1. Market
  2. Team
  3. Deal

 

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:

 

Market

  • DFW is home to 25 Fortune 500 headquarters and has been a top growth market in the country for years

 

Team

  • My company currently controls over $70,000,000 in apartment communities in Dallas

 

Deal

  • 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

 

More recently, I closed on my eighth and ninth deals, both in Dallas, TX. In fact, the are directly across the street from one another. After closing on these two deals, the value of assets under my company’s control was over $175,000,000.

 

After reflecting on these two deals, I had one major takeaway. But before getting to that lesson, I want to provide some context.

 

There was an on-market deal that was highly publicized and marketed by a broker. My partner and I loved the deal. However, due to competition, the price kept creeping higher and higher so we weren’t sure if the deal would make financial sense.

 

Directly across the street from this on-market deal was another apartment complex. The on-market deal is over 300-units and the majority of units are 1-bedroom. The property across the street was over 200-units and is primarily 2 and 3-bedroom units. Therefore, the two buildings naturally complemented each other.

 

Fortunately, we have a very good relationship with a broker in Dallas who also happened to know the owner of the apartment across the street. The broker reached out to the owner and since it was an off-market deal, we were able to negotiate and get the property under contract at a significant discount.

 

At the same time, we were in negotiations for the on-market deal. Since we were purchasing the property across the street at a significant discount, we were comfortable bidding higher on the on-market property because we would have the cost savings that comes from economies of scale.

 

One of savings that results from economies of scale, for example, is the lead maintenance person. Instead of having one person onsite and paying them let’s say $50,000/property, you can split that cost. There are also economies of scale for marketing and advertising, leasing staff salaries and commissions, and property management.

 

Also, since one building is primarily comprised of 1-bedroom units and the other is comprised of 2 and 3-bedroom units, we have a natural referral source. If someone is looking for a 1-bedroom unit, we’ve got it covered. If someone is looking for a 2 or 3-bedroom unit, rather than saying “no can do,” we can send them across the street!

 

Now to the lesson I learned.

 

Lesson #16 – Find Deals in a Hot Market By Creating Opportunities

 

In order to find deals in a hot, competitive market, create opportunities. Don’t just look at what the brokers are giving you. Instead, get creative. Look at what else is around the on-market property and maybe you can package two deals into one transaction.

 

I can almost guarantee nobody on the face of this earth was doing that for this deal. Everyone was looking at the on-market deal, but nobody looked across the street (or elsewhere in the surrounding area) and thought to themselves, “Hmm, I wonder if I could buy that property too?” Because if they had, they might have seen the same thing we saw – a natural opportunity to combine the two deals.

 

I can also tell you that this is the first time we’ve purchased two apartment buildings simultaneously. We had to self-reflect and say to ourselves, “Okay. If we get this one deal, then we can definitely pull it off from an equity standpoint, but what if we get two deals? We know we can do one, but can we really deliver on two?”

 

We had to have faith based on our track record of delivering on our previous deals. Lo and behold, we had one investor who’s invested with us in the past few deals put up all the equity that we needed for both deals (minus the money that we put in).

 

Overall, it was a learning experience across the board, from how to find deals in a hot market (you create opportunities) and also when to strategically stretch yourself based on the situation at hand.

 

Conclusion

 

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
  • Lesson #16 – Create Opportunities to Find Deals in a Hot Market

 

Did you like this blog post? If so, please feel free to share is using the social media buttons on this page.

 

I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

skyscraper in the clouds

Throwback Thursday: Closed on a 200+ Unit Multifamily Syndication: 1 Simple Lesson

Four months ago, I closed on a 200+ unit in Richardson, TX, which is a submarket of Dallas. Upon closing, it put my company at over 1,200 units under management.

 

I’ve documented the lessons I’ve learned from each of my previous four deals, so you can catch up here:

 

Closed on 155-units in Houston, TX … 3 Lessons Learned

 

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

 

Closed on 320-units … 6 Ways to Creatively Get into the Multifamily Syndication Business

 

Investor Analysis After Closing on a 296-unit … 2 Lessons Learned

 

 

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.

  1. I told him that he could buy my book (all profits are donated to Junior Achievement),
  2. Listen to my podcast and write a review on iTunes
  3. 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? 

Yes.

It’s slightly different but has dramatically different results.

Here’s how:

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?

Yep.

Is there a big ole difference between the perceived value that each of the approaches provides?

Oh yeah.

THAT leads me to the lesson I learned that was reinforced on this 217-unit deal.

The lesson?

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.

 

 

Want to learn more multifamily syndication tips, as well as learn more about a wide-range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

highrise apartment real estate investment

Flashback Friday: Investor Analysis After Closing on a 296-unit Apartment … 2 Lessons Learned

I conducted an investor analysis after closing on a 296-unit apartment 5 months ago and came away with some interesting findings.

 

This was the 4th purchase in a 12-month period. You can read about my lessons learned on the other ones here:

 

Closed on 155-units in Houston, TX … 3 Lessons Learned

 

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

 

Closed on 320-units … 6 Ways to Creatively Get into the Multifamily Syndication Business

 

For this 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 apartment 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 apartment syndication projects.

  • 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.
  • 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.

 

3. BiggerPockets

 

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

 

I hope this is helpful for your money-raise efforts as well!

 

Want to learn more multifamily and apartment syndication tips, as well as learn more about a wide-range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

 

one-million dollars in a case

3 Ways to Raise Over $1MM for Your 1st Apartment Syndication

If you were brand new to the real estate syndication niche, it is unlikely that you would be able to raise over $1 million for your first deal. It would be even more unlikely that you would be able to raise over $1 million for both of your first two deals. However, a client of mine, David Thompson, was able to accomplish this improbable feat.

 

David is also one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

 

 

In a conversation with David in October of last year, he provided his Best Ever advice, which is a sneak preview of the information he will be presenting at the conference.

 

What was David’s advice? He explained how he was able to raise millions of dollars on his first two deals by leveraging his natural networks.

 

David raised over $1 million for both of his first two deals from three different natural networks: personal network, BiggerPockets, and local multifamily meet-ups.

 

1. Personal Network

 

David’s personal network includes family, friends, and work colleagues. These are the individuals that already knew him AND knew about his real estate background.

 

Before raising money these two deals, David already had real estate experience

  • Over 5 years of experience purchasing single-family residents
  • In a previous career, he managed a $2.5 billion investment portfolio and raised over $1 billion in funds for acquisitions.

 

Needless to say, his personal network already perceived David as a successful investor.

 

Within this network, the two main money raising avenues were his wife’s network and a past business associate:

 

His wife’s network was a natural path because she knew many people that were already interested in real estate and had cash readily available. Also, she had already built trusting relationships with these individuals.

 

The past business associate is someone that he used to work with in the high-tech sector. This is David’s biggest contributor.

 

Advice in Action: If you have been or are currently involved in the high-tech, legal, or medical industry, this is a gold mine for raising money. Many of those people are making good incomes, but they likely don’t have the time to be active in real estate investing. However, they are savvy enough to understand that real estate is an important and effective method of investing.

2. BiggerPockets

 

BiggerPockets was another network that David leveraged to raise money. Social media outlets, like BiggerPockets, that focus on real estate education tend to attract investors who are actively looking for opportunities. While David couldn’t advertise for his specific deals, he was able to portray the same message by posting valuable content and creating a strong bio page. As a result, whenever he posted content to the forums responded to another real estate professional question, investors that view his profile would know that he is a real estate syndicator that raises money for his deals.

3. Local Multifamily Meet-ups

 

The third network that David leveraged to raise money were local multifamily meet-ups. Although, he expected to be more successful at raising money at meet-ups than he actually was. It seemed as if this would be an event that would naturally attract investors. However, David discovered that many of these people wanted to be active in real estate, rather than passive investors. Also, many of them weren’t accredited investors.

 

Now that we’ve learned David’s three go-to money raising networks, let’s dive into the actual deals!

 

Deal #1 Money Raising Breakdown

 

For David’s first deal, he had 13 total investors.

 

In regards to the percentage of dollars raised from each of the three main networks:

 

  • Personal Network = 70%
    • Wife’s network = 35%
    • One past business associate = 35%
  • BiggerPockets = 25%
  • Local Multifamily Meet-ups = 5%

 

Interestingly enough, the number of investors from David’s wife’s network and BiggerPockets were essentially the same. However, the amount invested differed. David believes this difference can be attributed to the existing level of trust he had with his wife’s network. Since BiggerPockets is online, those investors didn’t know as much about him or his background, aside from the information in his posts and bio. So it makes sense that they would invest less on average.

 

Another interesting point: David didn’t have much success with referrals. He asked for a few but didn’t feel confident enough to ask for too many since it was his first deal. However, he believes that referrals and repeat investors will make up a larger portion of the money raising pie moving forward.

 

This was experienced first-hand when David raised money for his second deal…

 

Deal #2 Money Raising Breakdown

 

For David’s second deal, he had 15 total investors. Of the original 13 investors from the first deal, 5 were repeat investors for the second deal.

 

In regards to the percentage of dollars David raised from each of his three main networks: his wife’s network, the one business associate, and BiggerPockets accounted for over 90%.

 

Advice in Action: As you can see, for David’s first deal, 70% of the money raised came from 2 networks. For the second deal, over 90% came from 3 networks. Therefore, David recommends that you focus the majority of your efforts on the natural paths that result in the largest percentage of money raised. Spend a much lower amount of your time focusing on the remaining 10%-30% that come from many other misc. sources.

 

Conclusion

 

David Thompson was able to accomplish an improbable feat for his first two multifamily syndication deals: he raised over $1 million for both deals. He was able to do so by leveraging three of his pre-existing, natural networks:

 

  1. Personal Network

 

When raising money in your personal network, David recommends finding people who are in the high-tech, legal, medical, or similar industry because they likely make high incomes but don’t have the time to actively invest themselves.

 

  1. BiggerPockets

 

To raise money on BiggerPockets, since you can’t actively advertise deals, instead, David advises that you frequently post valuable content and create a strong bio page that explains that you raise money for multifamily deals.

 

  1. Local Multifamily meet-ups

 

David’s third money raising network was local multifamily meet-ups. However, much to his surprise, they were the least successful of the three.

 

 

Want to learn more about raising private money for your deal, as well as a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

 

Related: Best Ever Speaker Kevin Bupp Sneak Peek Lessons Learned From Losing Everything During the Financial Crash

 

Related: Best Ever Speaker Theresa Bradley-Banta Sneak Peek Don’t Invest in Real Estate on Unfounded Optimism and Emotions

 

Related: Best Ever Speaker Linda Libertore Best Ever Success Habit of the Nation’s #1 Landlord Aid

 

Related: Best Ever Speaker Kevin Amolsch Why Moving at a STEADY Pace is the Secret to Real Estate Success

 

Related: Best Ever Speaker Bob Scott and Jimmy Vreeland How to Acquire over 100 Properties in 24 Months Utilizing the Lease-Option Strategy

 

Related: Best Ever Speaker Jeremy Roll 3 Essential Factors of Diversification in Passive Real Estate Investing

 

3 Essential Factors of Diversification in Passive Real Estate Investing

Jeremy Roll, who is currently an investor in more than 70 deals across over $500 million worth of real estate and business assets, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

In a conversation with Jeremy last year, he provided his Best Ever Advice, which is a sneak preview of the information he will be presenting at the conference.

 

What was Jeremy’s advice? He explains the three essential factors to take into account when approaching diversification in passive real estate investing – geography, asset-class, and operators.

 

Geographic Diversification

 

Some investors like to invest locally, which can be defined as a location that is within an hour or two-hour drive. Others will invest out-of-state, but all in one sub-market. There are thousands of different ways to invest and most of them are effective. However, there is a problem with having all of your properties concentrated in one geographic location: you are much more susceptible to economic, weather, and other geographically related risks.

 

If there is a major earthquake, for example, and you own 10 properties within 3 miles of each other that are all destroyed, you are in trouble. I know this is an extreme example, but it is still a risk. Since earthquakes and similar risks are such a rarity, Jeremy calls them 1% risks.

 

In last months of 2016, Florida was hit by hurricanes, which most likely had a major affect on some real estate. While it might be okay to own real estate in Florida, if you were heavily invested in one Floridian location and one hurricane wiped out half of your properties, again, you are in trouble.

 

Another weather related example – Jeremy invests in six different funds with some very large mobile home park operators, with one being the 5th largest in the world. This operator shared a story about why they have no issue with investing in areas that have tornados, but they avoid hurricane areas. The reasoning was that when a hurricane hits, it typically wipes out a massive territory. As a result, the different governmental agencies and insurance companies are too overwhelmed and can’t handle it, so it takes forever to repair the damage. But for tornadoes, a more isolated area is affected, so FEMA will come in immediately and help. Isolated areas are much more manageable. In this specific situation, these mobile home operators had all of their homes that were damaged or destroyed by a tornado replaced for free. The lesson here is that tornados are manageable and hurricanes are unmanageable.

 

Besides weather related risks, another reason to diversify across different geographical areas is that each has it’s own unique economies and as a result, it’s own unique challenges. If you are invested in a city that relies heavily on a specific employer and they decide to relocate their plant across the country, you are in trouble.

 

There are countless other examples, so all in all, it is important to spread your investments out across different geographical areas.

 

Asset-Class Diversification

 

It is also important to diversify across different asset classes, both from an asset-type and tenant perspective. For example, Jeremy won’t invest in apartments unless they are 100 units of more. For a 100 unit building, when one person leaves his vacancy rates increases by 1%. On the other hand, if you invest in a 4plex and one tenant leaves, your vacancy rate increases by 25%!

 

Diversifying across asset-types is key because certain types perform better in a growing economy while others perform better, or are at least more manageable, during a downturn. For example, office and retail don’t perform as well during a good economy, but can go through a recession relatively well. Specifically, retail with anchor tenants – big grocery stores, CVS, Walgreens. Mobile home and self-storage – can perform even better during a down turn. In 2009, self-storage vacancy only increased by 1%. This is probably due to the increase in demand that came from homeowners who were foreclosed on and needed a place to store all their personal belongings.

 

In the long-term, you want to be as diversified as possible. In doing so, whether we are in a good economy or a bad economy, the cash flow is still going to come in. This is especially important if, like Jeremy, you are dependent on cash flow to live off of.

 

Jeremy does not recommend that you invest in every asset class. For example, he personally doesn’t invest in hotel or industrial space. On average, these asset classes tend to do really well in an upturn or positive economy. However, they tend to have really quick revenue reductions during a downturn. He doesn’t want to be exposed to that volatility.

 

Therefore, it is important that you diversify as much as possible, but make sure that you are comfortable and knowledgeable in all the asset classes you select.

 

Operator Diversification

 

Whenever you invest passively, you are trading control for diversification. You are giving someone else control of the day-to-day operations and you are probably investing with multiple different investors, so your control is minimized. Therefore, if you are going to give up control, you better trade it for diversification. Jeremy finds that there is always a 1% risk with operators, due to the possibility of mismanagement, fraud, a Ponzi Scheme, etc. You are increasing your risk inherently by being a passive investor. To mitigate that risk, diversify across operators. Don’t have too many eggs in one basket.

 

Everyone has their own take on the maximum exposure an investor should have in terms of number of operators. The common number that Jeremy sees is that people don’t like to be exposed to an operator with more than 5% to 10% of their total capital. The same applies to geography and asset-classes as well.

 

It is also important to keep in mind that proper diversification takes a long time, but it is the best way to reduce risk. The more diversified, the better. Jeremy recommends that you shouldn’t invest more than 5% of your capital into an opportunity. This means that your goal should be to diversify across at least 20 different opportunities. At that point, you can determine how many operators you are comfortable with – 1, 3, 5 or more, depending on the person. It is very subjective and depends on what you are comfortable with.

 

Conclusion

Diversification in real estate investing is a must to ensure long-term success and reduce risk. Jeremy Roll diversifies his investments by keeping three essential factors in mind:

  1. Geography
  2. Asset-class
  3. Operators

 

Jeremy believes your ultimate investment goal should work towards investing no more than 5% of your overall capital into a single opportunity and to expose no more than 10% of your capital to a single geography, asset-class, or with a single operator.

 

 

What are some stories of problems you have come across that were a direct result of not being diversified enough?

 

 

Want to learn more about lease-option investing, as well as a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

 

Related: Best Ever Speaker Kevin Bupp Sneak Peek Lessons Learned From Losing Everything During the Financial Crash

 

Related: Best Ever Speaker Theresa Bradley-Banta Sneak Peek Don’t Invest in Real Estate on Unfounded Optimism and Emotions

 

Related: Best Ever Speaker Linda Libertore Best Ever Success Habit of the Nation’s #1 Landlord Aid

 

Related: Best Ever Speaker Kevin Amolsch Why Moving at a STEADY Pace is the Secret to Real Estate Success

 

Related: Best Ever Speaker Bob Scott and Jimmy Vreeland How to Acquire over 100 Properties in 24 Months Utilizing the Lease-Option Strategy

 

 

spiral staircase

6 Ways to Creatively Get into the Multifamily Syndication Business

Eight months ago, my business partners and I closed on our 4rd syndication deal – a 320-unit. I also documented my lessons learned from my 2nd and 3rd acquisitions (155-unit and 250-unit) here:

 

Closed on 155-units in Houston, TX … 3 Lessons Learned

 

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

 

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:

 

  1. Find an off-market deal
  2. Conservatively underwrite deals
  3. Negotiate terms and get all legal documents in order
  4. Raise capital for deals and be the ongoing point person for capital sources
  5. Secure debt financing (if applicable)
  6. 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:

#1 Find an Off-Market Deal, then you can get into the biz by

 

… Finding an off-market deal and bringing 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 WHO 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.).

#2 Conservatively Underwrite Deals, then you can get into the biz 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??

#3 Negotiate Terms and Get all Legal Docs in Order, then you can get into biz by:

 

… Getting a law degree. If you’re not an attorney or don’t want to get a law degree then skip to #4.

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 #3 with other things you bring to the table in order to make for an appealing partner.

#4 Raise Capital for Deal and Be Ongoing Point Person for Capital Sources, then you can get into the biz 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.

#5 Secure Debt Financing, then you can get into the biz by:

 

… Being a mortgage broker. If you aren’t a mortgage broker or don’t want to be one then skip to #6.

Even if you are a mortgage broker, similar to #3, 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.

#6 Do Property Mgmt., then you can get into the biz by:

 

… Being 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.

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).

 

Want to learn more multifamily syndication tips, as well as learn more about a wide-range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

people colabroating and taking notes

Throwback Thursday: Closed on 155-units in Houston, TX … 3 Lessons Learned

About 10 months ago, my business partners and I closed on a 155-unit apartment deal in Houston. It was my 3rd syndicated deal. My first deal was a 168-unit and the second was 250-units.

 

In case you missed it, here are the two lessons I learned from closing on that second deal: Throwback Thursday: Closed on 250-units in Houston, TX…2 lessons learned

 

Here are three more lessons I learned from the 155-units

 

1. 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.

 

2. 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)
  • com (writing books and publishing them)

 

Related: Self-Publishing Your Way to Thought Leadership, Leads, Money, and Much More

 

  • 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)

 

Related: The 4 Keys to Building Relationships Via Social Media

 

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.

 

 

3. 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:

 

  1. 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
  2. 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!

 

 

Want to learn more on how to successfully syndicate a multifamily deal, raise and raise private money? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

people colabroating and taking notes

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

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.

aparment building real estate

I just reached over $100,000,000 in apartment communities: Lesson Learned

I recently closed on a 200-unit multifamily deal in Dallas, TX, which puts my company at over $100,000,000 in assets under management (1,438 units). Today, like after many other purchases, I wanted to share a lesson I’ve learned.

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.

Some examples…

· The 4-Hour Workweek 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.

I’ve identified three themes to talk about ANY deal. They are:

1. Market

2. Team

3. Deal

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:

Market

· DFW is home to 25 Fortune 500 headquarters and has been a top growth market in the country for years

Team

· My company currently controls over $70,000,000 in apartment communities in Dallas

Deal

· 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

classified seal

4 Non-Obvious Ways to Raise Private Money For Apartment Deals

Last Updated 6-20-2018

 

As a real estate entrepreneur, both syndicating large apartment deals with investors and coaching others to do the same, I am always brainstorming new and unique ways to raise capital. While it’s important to confirm existing money raising techniques to reinforce their validity, it’s even more important to seek out more effective ways in order to climb the real estate success ladder and go from outstanding to extraordinary.

 

Assuming you are equipped with the skills needed to raising private money for apartment deals, here are the 4 not-so-obvious methods I’ve identified to effectively raise capital.

 

1 – Master the Art of the Phone Call

 

We get so caught up in emails, texting or messaging on social meida that we forget the art of the phone call.

 

For one of my earliest syndications, I had an investor that I knew was interested in my next deal. But, when I had the deal under contract, I emailed out the offering to my investor database and this investor never responded. Rather than giving up and assuming he wasn’t interested, I picked up the phone and gave him a call. Good thing I did, because he decided to invest in that deal, and ended up investing BIG TIME in my future deals.

 

From this experience, I realized that there are a lot of different ways to send and receive communications, but different people prefer different methods. For example, I am very responsive to emails and I always pick up the phone, but I hate text messaging. Someone else may never respond to emails, but love to text. Therefore, it’s important to understand your target investor and their preferred method of communication. With the upper age range of my target investor being 65, I have found that phone calls have been the most effective method for bringing on and retaining investors and business partners.

 

2 – Send Out Investor Qualifiers

 

Qualifying investors prior to finding a deal is great technique, especially if you are concerned about having investors tell you that they are interested in your next deal, but when the time comes, they end up backing out.

 

Have your investors fill out an investor qualifier document prior to bringing them a deal. This gets them involved early on by reading through something and writing down their information. It doesn’t have to get personal or require a bank statement. It just has them express that they are a qualified, accredited investor. While it’s not legally binding, it establishes more of a commitment level since they are signing some documents. I’ve found this to be an effective way of mitigating the number of times an investors says “yes I’m interested” but then backs when I have a deal under contract.

 

3 – Increase Your Responsiveness

 

My clients who are very effective at raising investor capital are outstanding at being responsive. My business partner is also very good at it. And I like to think that I am good at it too! One of the most important things for me in a business partner, whether it’s an investor or someone I am doing deals with, is to have an open line of communication and being able to talk to them very easily whenever it’s needed. And vice versa.

 

We are in an industry where things move quickly. There are a lot of distractions, but people expect to hear back from you ASAP, especially investors and business partners. At the very least, you need to set expectations on your responsiveness. This doesn’t mean you should be waking up in the middle of the night to respond to emails – unless that’s what you want to do. But if one of my investors, clients or business partners has a question, I am on top of it immediately.

 

I like to jump on things quickly and nip them in the butt before they turn into a monster. The worst thing that can happen is to let a tiny problem fester and grow into a behemoth. This is avoidable if you make the commitment to address all questions, problems, or concerns as soon as they happen.

 

4 – Build Relationships as a Couple

 

When you build relationships with investors as a couple, it makes a huge difference because it adds another dimension to the relationship. Ultimately, your goal is to build a friendship with your investors. So, if your significant other is getting to know their significant other and they become friends, that’s going to help from a long-term perspective.

 

Obviously, this is something that is really only relevant to those that have a significant other.

 

For everyone that has a significant other, I highly recommend building friendships through couple’s dinners, evenings out, or weekends away. It definitely adds a level of trust and credibility because they get to know you and your family on a personal level.

 

I have found this to be one of the most effective ways to get a ton of investor referrals.

 

Conclusion

 

I know that at least one of these money raising tips – starting to use the phone more, sending out investor qualifiers, being quick to respond, and building relationships as a couple – were a surprise to you. And quite frankly, they were a surprise to me as well. I just uncovered these things when I was assessing what was working and what wasn’t working that wouldn’t be obvious from a money-raising standpoint.

 

How about you? Comment below: What are some non-obvious ways that you have been able to increase your business’s efficiency, whether it be raising money, finding leads, locating deals, etc.?

 

 

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How I Went From 3 SFR’s to Over $300MM in Apartments in 4 Years

Over the past four years, I have learned a lot. Four years ago, I owned 3 single-family homes. Flash-forward to the present, I control over $300 million in apartment communities. While it would take much longer than a quick blog post to explain, in extreme detail, how I was able to accomplish this growth, the following is a 3-step, high-level approach that ANY investor can follow in order to replicate my success.

 

 

Step 1 – Get Your Hands Dirty

 

On my first multifamily deal, a 168-unit, I assumed all responsibilities. I did everything, which included raising the capital from private investors, managing the property management company (i.e. ongoing asset management), performing the due diligence and underwriting, securing the financing from the lender, and essentially putting together all the pieces that make for a successful deal.

 

One benefit of starting off by getting your hands dirty and doing everything yourself is that it forces you to confront, and ultimately conquer, your fears and limiting beliefs about real estate investing. If you had any doubts in your mind that you weren’t capable of raising money, finding a good deal, communicating with different lenders, brokers, property management companies, etc., upon closing the deal, those will all be demolished. If you can just push yourself to do it once, you will gain the confidence to do it again and again.

 

Another benefit is the hands on, real world education. While reading books and listening to podcasts, for example, are amazing educational tools, there is nothing quite like tactile, kinesthetic learning. You will be fully immersed in multiple facets of real estate, which will be of great importance moving into step 2.

 

 

Step 2 – Identify What You Are Really Good At

 

By getting yours hands dirty during your first investment, you will understand, first hand, what it takes to successfully, or unsuccessfully, complete the different aspects of closing and managing a deal. In doing so, you will understand which aspects you like and dislike, and more importantly, what you are good and no so good at.

 

Personally, I believe that we all have special talents and are really good at one thing. I also believe that we are all here with the purpose of applying that “one thing” to improve the world. Therefore, the next thing that I did was determining which “hat” (aspect of real estate) fit me best. For me, it is sales and marketing. As a result, I focus my energies on tasks like my daily podcast, these blog posts, YouTube videos, etc. That “one thing” is what I utilize in order to grow my business by bringing in more private money investors, buying properties together, and sharing in the profits.

 

 

Step 3 – Fill In the Blanks with Experts

 

The final step, after identifying what I was good at, was bringing in team members who could complement my background with their expertise. In other words, I brought on experts who could “fill in the blank” and assume the responsibilities that I discovered, from step 1, that I didn’t like or wasn’t good at. I brought in team members who are phenomenal at underwriting, for example. I am pretty good at underwriting, but I am not extraordinary. Therefore, I brought in experts who have many more years of underwriting experience than what I have. I also brought in great property management, an assistant, and every other team member that I needed in order to run a successful business, while I get to focus solely on sales and marketing.

 

 

 

Once I got my hands dirty, identified what I was really good at, and brought in partners, I was ready to scale my business. As a result, I was able to go from owning three SFR’s to controlling over $300 million worth of real estate in just 4 years. Are you ready to do the same?

 

 

COMMENT BELOW: Based on “getting your hands dirty,” hands on experience, what is the one thing that you are REALLY good at? What is the thing/things that you aren’t so good at and need to outsource to other team members?

 

investor

3-Step Process for Optimizing Investor Conversations

Having trouble finding private money for your multifamily deals? Well, we have all been there. However, by adhering to a simple 3-step process when approaching investor conversations, I have been able to turn my “luck” around and raise millions of dollars for my multifamily syndication deals.

 

 

Step One – Listen More, Talk Less

 

Mark Twain famously stated, “If we were supposed to talk more than we listen, we would have two tongues and one ear.” Therefore, when first meeting someone, whether you’ve already identified him or her as a potential investor or it is a “random” stranger, don’t instantly jump into talking about your real estate business. Instead, talk about them. Listen and discover that they are interested in. Learn as much as you can about them.

 

If you’ve already identified them as a potential investor, get to know them on a deeper level so that you can see if you two are compatible enough to be business partners. If you haven’t identified them as a potential investor, still take the time to listen and learn more about them. You never know where the relationship may lead.

 

 

Step Two – Become a Thought Leader

 

If you want to achieve massive levels of success in multifamily syndication, and real estate investing in general, you MUST have some sort of thought leadership. Personally, I have chosen to provide weekly YouTube tips for raising money and buying apartments. I have the world’ longest running daily podcast, as well as a weekly email newsletter, a book, daily blog posts, and a monthly mastermind group. So, I have ongoing thought leadership that allows me to keep in touch with my new friends and with the new relationships I am creating. It allows me to stay top of mind because I am constantly providing valuable, free information. And essentially, it has allowed me to network with people on a global level, all while I am asleep!

 

However, I didn’t wake up one morning and tell myself, “I am going to start a YouTube channel, podcast, newsletter, blog, write a book, and create mastermind group today.” Rather, I took it one step at a time. So pick one platform and use that are your launching point. If you aren’t comfortable starting any of the things that I have, then at the very least, start by becoming more active on the BiggerPockets’ forums, by either asking great questions or providing great answers.

 

How do you know if you are a thought leader? By John Quincy Adam’s definition, “If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”

 

Step Three – Have a Great Deal

 

Finally, once you’ve had the conversations and provided thought leadership, you need to actually have a deal that you can share with your new investors.

 

Now, you may be thinking, “But Joe, I don’t have people I can reach out to and share a deal with.” My response: see Step One and Two. Without the first two steps, you’ll have no investors to fund the deal. Although, if you have followed my advice – started listening and becoming a though leader – without having a deal, what the heck are your investors going to invest in? Therefore, you need all three-steps in order to be successful.

 

company meeting

How to Overcome Objections When Raising Money for Multifamily Investing

Last week, I explained how one can know if they are ready to become a multifamily syndicator and buy apartment communities with investors while sharing in the profits. Essentially, the two requirements are (1) establishing an education and (2) having experience being successful in real estate investing and/or business. Now, that sounds fine and dandy, but even if you have met both requirements, potential investors may still have objections:

 

Well, I see that you have prior success working for a large corporation, but that doesn’t make me feel any more comfortable giving you my money to investing in real estate.

 

Or…

 

It is amazing that you’ve been able to flip all those properties, but you haven’t done anything in the multifamily realm. I don’t want to be your test subject.

 

 

How do you overcome these objections, aside from responding with “just trust me?” These objections are quite real. If you haven’t successfully completed a syndication deal before, then all the education and unrelated past success may mean nothing to potential investors. Therefore, to squash these objections, surround yourself with the right team members. Having a knowledgeable, tried and true team is the main way to offset any lack of experience you may have.

 

Here are a couple tactical things that you can do to build the right team and eliminate any investor objections:

 

Property Management Company

 

One of the most vital team members that can aid in addressing investor objections is a property management company that specializes in apartment communities.

 

Why?

 

  • By going in the deal with you, the property management company will have their own skin in the game. They are incentivized to make sure that the deal goes smoothly.
  • Since they have past and present experience managing apartments, they should have case studies that show their success. You can use their case studies as proof that your team has the credibility and experience to successfully manage the deal.

 

Also, you may even have the added bonus of the property management company bringing in investors of their own.

 

Experience Syndicator

 

Another tactic is to find another experience syndicator that has already done what you are trying to accomplish. An applicable Tony Robbins’ quote is “success leaves clues.” We aren’t the first person to ever live. Nor are we the first to invest in real estate or raise money for apartment communities. Therefore, you don’t have to start from scratch. Instead, go out, find the best of the best in our given field, and follow the breadcrumbs they’ve left behind to replicate their success. They can help you along the way. And, you can leverage their experience to get the deal done and gain that credibility your investors are looking for.

 

 

A property management company and experienced syndicator are just two examples. However, there are many other professionals you can add to your team whose experience you can leverage – CPAs, attorneys, brokers, agents, etc. Ultimately, overcoming investor objections boils down to the team you surround yourself with and how you leverage those relationships to create credibility for you and your business.

hands reaching to the sky

Closed on a 200+ unit: One Simple Lesson

Yesterday I closed on a 200+ unit in Richardson, Texas (submarket of Dallas). It puts my company over 1,200 units under management.

 

As for this deal, the lesson learned is simple. But before I mention it let me tell you a story…

 

I recently had lunch with someone who asked me to meet with him. He wants to raise 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 3 things I tell most people.

 

  1. I told him that he could buy my book (all profits are donated to Junior Achievement)

 

  1. Listen to my podcast and write a review in iTunes

 

  1. 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 2 or 3 other book he’s 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 way to approach that really impresses the person who you’re attempting to add value to?

 

Yes.

 

It’s slightly different but has dramatically different results.

 

Here’s how:

 

Even though he’s in the middle of 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 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 make from a perception standpoint. Is he spending the same amount of money and time regardless of which approach he takes?

 

Yep.

 

Is there a big ole difference between the perceived value each of the approaches provides?

 

Oh yeah.

 

….and THAT leads me to the lesson I learned and was reinforced on this 217 unit deal.

 

The lesson?

 

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 1 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 biz.

 

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 because I applaud him for asking what he can do to add value and saying he’ll do it. I’m simply saying that 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 recently said on his podcast, “Be unique before trying to be incrementally better.” And 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.

How to Know You’re Ready to Become a Multifamily Syndicator

 

“How do I know if I am ready to do multifamily syndication?”

 

“How do I know if I am equipped to raise money to buy apartment communities with investors and share in the profits?”

 

Aside from being one of the most common questions I receive from clients, it is also the main question that was keeping me from transitioning from SFR investing to multifamily syndication. “How do I know whether or not I am ready to use other people’s money to scale my business?” Through speaking with countless successful syndicators, and being one myself, I have discovered that there are two main requirements one must meet before becoming a multifamily syndicator.

 

Requirement #1 – Education

 

First, you need to establish a solid educational foundation. If you have the book knowledge and if you know the terminology, then you can start the process of raising money and looking at multifamily properties. To “establish a solid foundation”, at the very least, you should have a basic understanding of:

 

  • Forced appreciation
  • Cash flow and cash-on-cash return
  • Effective gross income (EGI)
  • Net operating income (NOI)
  • Capitalization rate
  • Gross income
  • Vacancy rate
  • Operating expenses
  • Debt service
  • Price per unit
  • Debt service coverage ratio
  • Gross rent multiplier
  • Breakeven occupancy
  • Internal rate of return
  • Neighborhood and property classes
  • Loss to lease
  • Bad debt
  • Preferred return
  • Equity multiple

 

Most of these terms will come up when discussing a potential deal with your investors. Therefore, if you don’t know the definitions or how to immediately calculate them, you aren’t ready.

 

Requirement #2 – Experience

 

Once you’ve covered your basis, that is, established a foundation and understood the terminology, then the next requirement is having a track record in business and/or real estate.

 

  • What is your real estate background? Are you already successful in real estate? Do you have a track record of successfully investing your own money in SFRs, small multifamily, etc.?

 

  • What is your business track record? Have you received business awards? Have you received promotions? Do you have project management experience? Would your business colleagues/employer describe you as successful?

 

If you are lacking in both of these areas, then you are not ready to become a multifamily syndicator. You must either have previous real estate success or a solid business background.

 

If you have success in business, then you can easily translate that into buying apartment communities with investors. Although, since you are lacking in real estate knowledge, it is vital that you surround yourself with the right group of advisors.

 

On the other hand, if you already have real estate experience, it will be a more seamless transition. However, it might be more challenging to bring on investors. Since you have solely focused on real estate, you will likely have fewer relationships with individuals that are outside the real estate world. This is important because I personally believe that it is better to have investors who are more focused on a non-real estate, full-time job. They may have some interest in real estate, but they don’t have the time to invest themselves – hence why they are investing with me – because they are busy making money elsewhere.

 

 

If you have built the foundation of knowledge and have the track record in business and/or real estate, then you are ready to begin your career as a multifamily syndicator. If not, and you want to raise money to invest in apartments, strategize what steps you must take to complete these two requirements.

 

 

 

network

How to Raise $1 Million for First 2 Real Estate Syndication Deals

 

If you were brand new to the apartment syndication niche, it is unlikely that you would be able to raise over $1 million for your first deal. It would be even more unlikely that you would be able to raise over $1 million for you first deal AND your second deal. However, a client of mine, David Thompson, was able to accomplish this improbable feat.

 

RELATED: Working in Apartment Syndication – What’s Possible in One Year!

 

How did he do it?

 

David was able to raise millions of dollars on his first two deals by leveraging his natural networks – three in particular. In a conversation on my podcast, David explained how, through his personal network, BiggerPockets and local multifamily meet-ups, he was able to acquire private capital so that you can work towards replicating his success.

 

1. Personal Network

 

The individuals in David’s personal network who invested in his deals were family, friends, and work colleagues. They knew him personally, so a level of trust was already in place. AND they knew about his real estate background.

 

Prior to entering the syndication niche, David’s real estate experience was:

 

  • Over 5 years of experience purchasing single-family residents
  • In a previous career, he managed a $2.5 billion investment portfolio and raised over $1 billion in funds for acquisitions.

 

Needless to say, his personal network already perceived David as a successful investor and entrepreneur, even though it wasn’t in apartment syndication.

 

RELATED: How Do I Know If I’m Ready to Become an Apartment Syndicator

 

Within his network, the two-main money raising avenues were through his wife’s network and a past business associate. 70% of the capital he raised came from these two sources – 35% from the former and 35% from the latter.

 

His wife’s network was a natural path because she had personal, trusting relationships with people who were interested in real estate and who had cash readily available.

 

And the past business associate is someone that he used to work with in the high-tech sector; this person was David’s biggest contributor.

 

Based on David’s success, how can you leverage your personal network of existing relationships to raise private capital?

 

Do you have family members or spouses with access to cash? Or maybe they have someone in their network – someone who is one or two degrees of separation away?

 

Or have you been or are you currently involved in the high-tech, legal, or medical industry? This is a gold mine for raising money. Many of your associates are making good incomes, but they likely don’t have the time to be active in real estate investing. However, they are savvy enough to understand that real estate is an important and effective method of investing.

 

RELATED: 4 Principles to Source Capital from High Net-Worth Individuals and Find Off-Market Deals

 

2. BiggerPockets

 

BiggerPockets was another network that David leveraged to raise money. 25% of the capital he raised came from BiggerPockets. Social media outlets, like BiggerPockets, that focus on real estate education tend to attract investors who are actively looking for opportunities.

 

However, you aren’t allowed to advertise for a specific deal on BiggerPockets or on really any social media outlet. That’s why instead, David frequently posted valuable content – in both the BP blog and forums – and created biography page stating that he was a syndicator. When someone read a piece of his content and clicked on his profile, they’d discover that he raised private money for deals. If they wanted to learn more, they would reach out to start a conversation. Then some of those conversations turned into relationships, and some of those relationships turned into business partnerships.

 

RELATED: The Secrets to Starting a Relationship with Someone You Don’t Know

 

Therefore, by posting valuable content and creating a biography page, David accomplished the same goal without explicitly advertising for money. But keep in mind that this is obviously a more long-term approach. You need to establish yourself as a recognized expert by consistently posting informative blogs and answering questions first. That means not getting frustrated and giving up if you haven’t raised a single dime after a month of two.

 

3. Local Multifamily Meet-ups

 

The third network that David leveraged to raise money were local multifamily meet-ups. Although, he expected to be more successful at raising money at meet-ups than he actually was. It seemed as if this would be an event that would naturally attract investors. However, David discovered that many of these people wanted to be active in real estate, rather than passive investors. Also, many of them weren’t accredited investors.

 

RELATED: How to Make Over 6-Figures with This Simple Networking Strategy

 

Conclusion

 

David Thompson was able to accomplish an improbable feat for his first two multifamily syndication deals. He raised over $1 million for both deals. He was able to do so by leveraging three of his pre-existing, natural networks:

 

  • Personal Network

 

When raising money in your personal network, David recommends finding people who are in the high-tech, legal, medical, or similar industry because they likely make high incomes but don’t have the time to actively invest themselves.

 

  • BiggerPockets

 

To raise money on BiggerPockets, since you can’t actively advertise deals, instead, David advises that you frequently post valuable content and create a strong bio page that explains that you raise money for multifamily deals.

 

  • Local Multifamily meet-ups

 

 

David’s third money raising network was local multifamily meet-ups. However, much to his surprise, they were the least successful of the three.

 

 

Did you like this blog post? If so, please feel free to share it using the social media buttons on this page.

 

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

 

                       

If you have any comments or questions, leave a comment below.

 

 

 

 

investor

Investor Analysis After Closing on a 296 Unit: 2 Lessons Learned

I did an investor analysis after recently closing on a 296 unit and came away with some interesting findings. This is the 4th purchase in the last 12 months.

 

This analysis looked at the investors who invested, in particular, looking at if they are new or returning AND how much each (new vs. returning) contributed to the total raise.

 

Here’s the finding on this deal:

 

  • 69% are new investors
  • 31% are returning investors

 

The interesting thing I found is that the % capital contributed to total raise was almost split 50/50. See below:

 

  • % 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:

 

1.    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, guess what, after the 1st deal the new investors are no longer new investors! So as long as you deliver and/or exceed expectations it’s likely the amount invested will increase over time.

 

2.    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) 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 they’d like to give it to.

 

  1. 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 helped me have a consistent presence in iTunes and via Google searches. Most importantly it helps people get to know me even though we’re not having a one-on-one conversation.

 

  1. BiggerPockets

 

I’ve posted over 2,500 times over the years and have been rewarded 10x over via the new friendships I’ve made from BiggerPockets

 

Hope this is helpful for your money-raise efforts as well!

 

United State capital building

A 5-Step Process For Raising BIG Capital For Multifamily Syndications


In my conversation with Richard Wilson, who is an investment advisor for millionaire and billionaire families, he laid out a 5-step process that has allowed him to raise over $3 billion in private capital. The 5-steps are (1) analyze (2) position (3) architect (4) execute (5) iterate.

 

Step 1 – Analyze

 

Richard finds that many people skip the first step. They come into the investment space without understanding their competition, without listening closely to the potential investors, or not even knowing if the investors are interested in the asset class they want to raise capital for. Others try to raise capital when they aren’t experienced or “mature” enough.

 

Before starting, you need to know what is going on, in regards to your marketplace, investors, and competition. That comes through analysis. A deep analysis enables you to emulate the best practices. This is the most simple and common sense step – look around through networking and research to determine what is going on in your specific niche. Do not rush into investing without conducting a thorough analysis because if you do, the subsequent steps are not going to mean anything. This is the foundation that you will launch from; don’t skip it!

 

Step 2 – Position

 

Positioning means that you know what you want to stand for and how it sets you apart from the competition. Richard provided a beautiful analogy to explain positioning:

 

In Rio, Brazil during the most recent Olympics, you would have found over ½ million people on the beach at once. If you Google Image search “Rio Beach Olympics,” it will look like a massive blob. It would be impossible differentiate from person to person, so you wouldn’t know who was the tallest, oldest, youngest or sharpest looking person. If you were a real estate investor attempting to position yourself on the beach in Rio, how would someone know if they could trust you with their money? They wouldn’t. You would be a generic face that is only provided them with your title, so why would they trust you?

 

Instead of positioning yourself on a Rio sized beach, define a “sand box” that you want to play in that only has 1 or 2 main competitors. Also, try to position yourself at the top end of that niche or in the most profitable, easy-to-move-in, or the one with the most low hanging fruit.

 

It is really important to not position yourself by trying to be everything to everyone. Figure out the valuable “sand box” that, no matter how long it takes, you will have the conviction to become the dominant force in and reach the top. It must be worth any amount or magnitude of work, even if it takes 5 to 7 years to get there.

 

Ironically, by having that conviction, combined with having a long-term vision versus a short-term vision, you will actually get to where you want to be faster. When you are all-in, your passion, conviction, and long-term mindset will be projected onto others. You will come off as the person that knows their stuff, is connected, has the off-market deals, and has the ability and focus to actually execute and follow through.

 

Step 3 – Architect

 

This is the most critical step and is also the step where the most people get lost. Many people might have a niche or two that they want to go after, but they don’t have conviction. As a result, they never architect. Even those with high conviction, another common mistake is that they stick to the old school money raising methods. (i.e. call through their lead list, reaching out to their network, cold calling, etc.)

 

At this point, you should have already selected the “sand box” you will be playing in. Now, it is time to build your sand castle that will attract the investors. Richard believes that the best and most efficient sand castle is an investor funnel. He provided another beautiful analogy on how to catch a fish that explains the old school vs. ideal approach to an investor funnel:

 

Old School Mentality: Going to a lake to catch a fish dinner and blindly stabbing a spear into the water, hoping that you will eventually catch something.

 

Ideal Approach: Going to the part of the lake where the fish are jumping out of the water and right into your boat. Minimal effort is required.

 

When Richard began his investor advising business, he only reached out to a single client. From that one client, every other client cold called him, asking for his business. He attributes this success to the value he provided to the initial client, but more importantly, the valuable content he architected and put out in his space. Here are some tips on creating content in tandem with an awesome funnel:

 

  • The top layer of your funnel consists of valuable content
  • Examples of valuable content to attract individuals to enter the top of your funnel
    • Books, podcast, hosting or speaking at conferences, blog posts, article writing, PR writing, white papers, YouTube videos
  • Create evergreen content
    • The fundamentals of your space
    • content that will still be true 10 years from now

 

Here is a real world example of a client that Richard obtained from architecting a funnel:

  • Top of funnel
    • Someone purchased a book that he wrote
  • Next layer of funnel
    • Because of the book, they figured that Richard was the expert in that field and gave him a call
  • Bottom of funnel
    • They invested with Richard without even meeting him in person

 

That is an example of how powerful the funnel can work for you!

 

Another example of the power of the funnel is how to promotes long-term growth and exposure. For example, when Richard hosts a live-conference, he creates a ton of connections. First, 700 people attend the event in person. Secondly, the individuals that attend the conference will discuss it with family, friends, and business colleagues, so now they know who he is too! Finally, Richard finds that for every 1 person that attends his event, 100 people will visit the event page online. Combined, that is thousands of connection made from only one conference.

 

Step 4 – Execute

 

Richard advises that you execute in a systematic way. You need to put systems in place that allow you to delegate as much as possible. You need to have capital raising habits. Every single one of your habits are either helping or hurting. Therefore, it is important to understand the key performance indicators (KPIs) you are measuring for your team and for yourself. Then, take inventory on your habits and determine which ones are having positive or negative effects on the KPIs. Having KPIs allows you to tangibly understand what is critical to pushing the ball forward every single day, every single week, and every single month.

 

Richard and his team run KPI reports at the beginning of each day, at the end of the day, weekly, and monthly. Also, they create and update a one-page document (i.e. one pager) that explains their capital-raising plan.

Step 5 – Iterate

 

During his 10 years as an investment advisor, Richards has discovered many valuable opportunities via iterations of his current business (i.e. businesses within businesses). It is important to always look for more valuable ways to use your time. One of the best ways to do this is by leveraging your current business and relationship to create new opportunities. Identify a niche within a niche, and then run that through the same 5-step process. By leveraging your already existing content and riding the momentum of your first business, you may be able to create something that is worth twice as much or more. Be creative here!Dan Kennedy believes that the worst number in business is one – having one business model, one way of making money, one way of attracting investors, etc. When you have a nuanced, multi-dimensional business, you have a competitive advantage in the marketplace. Also, you will have layer upon layer of ways to attracting capital and executing deals. Iterations from current practices is the most effective way to create additional layers and dimensions to your overall business.

 

 

real estate building blueprints

3 Ways a 23-Year-Old Investor Funds Million Dollar Deals

 

In my conversation with Devan McClish, who has completed over 60 deals and is currently building 26 properties at the ripe age of 23 year old, he explains the trick that has enabled him to create such a large business at such a young age: using other people’s money!

 

Devan’s real estate philosophy is to only focus on finding deals. Then, once he has obtained a deal, he makes it his life’s mission to find the money to fund the deal. Everything else is secondary.

 

Just because you don’t have any money doesn’t mean that you can’t invest in real estate. When Devan came out of college, he didn’t have any money at all. However instead of going into another profession, he decided to just focus on finding deals, finding funding, and then figuring everything else out later.

 

In regards to “finding the funding,” Devan has found success in three main arenas:

 

 

1. Google Search

 

Devan met his largest investor to date using Google. When he was 19 years old, he typed “top real estate investors in Nashville Tennessee” into the Google search function. He sent introduction emails to the top 50 hits that were returned. Out of the 50, only one responded.

 

Devan sat down for coffee with the investor that responded and explained his business plan. Fortunately, the investor offered him free advice and said that if Devan brought him a deal, he would analyze it with him and see if it was a good deal.

 

Over the next few years, Devan brought this investor numerous deals. Upon analysis, the investor continually concluded that the deals weren’t good. Finally, Devan brought him a deal that the investor approved of, AND he invested in it! Devan made the investor a good amount of money on that deal, so they partnered again and again.

 

Eventually, it got to the point where the investor was comfortable enough to invest $350,000 into a new construction deal. Since Devan had a track record of never losing money and always making money, the investor had no problem investing such a large sum of money.

 

2. Local REIA

 

Another arena that Devan has found investors is at the local REIA group. He has found that while most attendees have never done a deal or have only done a few, they do have cash. That is why they are there. Typically, 60% to 70% of the people at the meetings have over $100,000 in their pocket that they want to put to work. All you need to do is have the courage to walk up to them with a deal and say:

 

Hi, my name is ____________. I noticed that you said at the beginning of the meeting that you are a cash buyer. Well, I have a deal. I am not interested in selling it to you but I am interested in partnering on the deal. Here are the numbers. Does this deal sound good to you?

 

1 of 2 outcomes will happen:

 

  1. They aren’t interested. Therefore, you walk up to someone else and repeat the statement above. Most of the time, if it is a good deal, someone is going to listen to you.
  2. They say “yes” and you say, “lets go talk about the deal further.” At this point if you don’t like what they have to say, that is fine. You aren’t obligated to have them invest in the deal. You walk away, find someone else and repeat the statement above.

 

 

3. BiggerPockets

 

Devan met his second biggest investor on BiggerPockets. Every time he sees a new member post an introductory message on the forum, he sends them a DM inviting them to sit down and talk real estate. On one such occasion, he sat down with someone that had a very good paying w2 job. Devan explained that he focuses on new construction and asked, “If I bring you a good enough deal, would you take a look at it?”

 

A couple of weeks later, Devan found a deal. He presented it to him, showed him the deal financials and asked if he was interested in investing? In this particular situation, Devan needed to close on the deal in 17 days, so they would have to pay all cash. The investor agreed and invested $200,000.

 

Start Locally

 

Google searching for the areas top investors, the local REIA, and BiggerPockets are three real world examples of ways Devan has been able to raise capital for his deals. However, if you are just starting out, Devan recommends that you begin with local investors. With nonlocal or out-of-state investors, it gets a little more complicated and more importantly, it is harder to truly know those people. You need to sit down with these people and build a relationship. Keep in mind; you are interviewing them just as much as they are interviewing you.

 

private money

List of Questions Asked on Buyer-Seller Call for a $20MM Apt. Building

In my conversation with fellow multifamily syndicator John Cohen, who is in the process of closing on a 240-unit apartment building for over $20 million, he provided a list of questions that you should be prepared to answer during the best and final buyer-seller call.

The objective of the best and final buyer-seller call is to provide the seller with information about your business plan that convinces them to award you with the deal. Therefore, the more prepared you are to answer the seller questions, the more appreciative, comfortable, and trusting the seller will be, and the better chance you have of being awarded the deal.

Here are a list of questions that John was actually asked and prepared to answer during his best and final buyer-seller call, which resulted in him getting a 240-unit apartment complex under contract for over $20 million.

Main Questions

1. Who you are?

2. What do you own in the area?

3. Who is your manager?

4. What is your business plan?

-What is your budget breakdown?

-What is your detailed plan?

-What opportunity do you see here?

5. What are you attempting to deliver?

-How long do you plan on holding the property?

-What is your financing?

–How will you be securing debt?

–What did you underwrite?

–What type of loan?

–What is the LTV?

–What is the rate?

–Can I see your term sheet?

-What is your renovation plan?

–Estimated budget?

–Rehab plan?

—Interior?

—Exterior?

—Common area?

Additional Questions

6. Tell me about your team?

7. Tell me about the investors?

8. Do you have an approval process?

9. Is your equity ready?

10. Have you toured the property?

11. Has the equity toured the property?

12. Is any surprise going to come up?

Bonus: Three Questions to ask the seller

1. Why are you selling?

2. Is there any reason why we would not be awarded the deal?

3. What else do you own? – See if there are other investment opportunities

 

John is a firm believer in putting all of the cards on the table and coming prepared. The seller will appreciate that and you will gain their trust due to your proactive transparency.

 

What other questions have you been asked on a best and final buyer-seller call?

gated apartment community

6 Creative Ways to Break into Multifamily Syndication

So you want to become a multifamily syndicator? Well, you aren’t alone. “How do I break into the multifamily syndication business?” is the most common question I receive.

 

Multifamily or apartment syndication is simply raising money from private investors and buying apartment buildings. I have been in the syndication business for many years, and once you have cultivated the four skill sets needed prior to raising money for apartment deals (learn what those are here), I’ve discovered 6 creative ways for those interested to get their foot in the door:

  1. Find an off-market deal.
  2. Conservatively underwrite deals.
  3. Negotiate terms and get all legal docs in order.
  4. Raise capital for the deal and be the ongoing point person for capital sources.
  5. Secure debt financing (if applicable).
  6. Do property management.

 

What area appeals to you most about multifamily syndication? What do you want to do? How do you want to spend your time?

 

And if you’re thinking “none of the above, Joe. I just want to cut a check and have my money and others work for me so I can be a passive investor” then, if you are an accredited investor, you can connect with me , and we’ll set up a call so we can get to know each other better. That way you can be one of the first people to get access to my next deal.

 

But, if you’re going to be successful in multifamily syndication, then you’ll need to choose your primary area of focus. From experience, I can tell you that if you try to do it all, you’re doing your investors and yourself a huge disservice.

 

Related: The 22 Tactics to Go from a Corporate Job to $130,000,000 in Multifamily Real Estate

 

So, here you go, the 6 ways to break into the apartment syndication biz:

#1 Find an Off-Market Deal

You can get into the biz by finding a deal and bringing it to an experienced investor who can close on it. I put together a guide that lists 24 Ways to Find Off-Market Deals. If you haven’t seen it yet then opt-in to my weekly newsletter, and it will be sent to you automatically.

 

But wait, before you actually look for multifamily syndication deals or bring it to an experienced investor, figure out what investors you can take it to. First, ensure you’re not doing unnecessary work by qualifying them and ensuring they:

 

  • Have closed on properties that are similar to the one you bring to the table
  • Will structure the agreement to meet your goals (more about this below)
  • Come with trusted references you can contact – don’t enter into an agreement without vetting the investor. When you’re bringing in investor money, that partnership major implications for all the involved parties.

 

When you find a great multifamily syndication deal and locate qualified, accredited investors, should you be compensated with a finder’s fee? Or would you rather be an equity partner in the multifamily syndication deal?

 

While it’s great to get a fee for finding a deal, I would personally prefer the long-term benefits of being in a deal. Of course, you might need to get a finder’s fee for the first couple deals in order to survive and pay your bills. Speaking from experience, it’s worth about 25k-100k (depending on the size and how good of a deal it is) for someone to come to me with an off-market deal I’m interested in.

 

The more deals you bring to the table, however, the more you should be able to become an equity partner on the deals you find, ultimately setting you up for the long-term financial freedom we all seek.

 

Related: 4 Legal Ways to Get Paid Raising Capital for Apartment Deals

#2 Conservatively Underwrite Multifamily Syndication Deals

If you’re an underwriter or are willing to learn this skill, you can also break into the biz by offering your expertise to a group (or individual) who has no issue finding deals but may need help underwriting them.

 

For example, my business partner and I brought on some UCLA students who were earning their MBA. They helped us with the initial underwriting on the tons of deals we had. After they worked their magic, we just had to complete the final analysis. Once each deal closed, we paid them $10k and offered them the long-term potential to be in on future deals as we grow our business.

#3 Negotiate Terms and Get all Legal Docs in Order

signing legal documentsYou can get into the biz by earning a degree in law. Go ahead and skip to #4 if you’re not currently an attorney and don’t wish to earn a law degree. Honestly, if you don’t already have some law experience, this may not be the most direct way to break into the multifamily syndication business. If you do, however, it may be effective.

 

You may not be the one negotiating the terms of the deal, since you likely didn’t acquire it. That means your main responsibility as a legal counsel will be to prepare the legal documents. Many involved in real estate investing prefer to just pay for outsourced attorneys on syndicated deals, rather than paying the sometimes much higher cost of bringing in an attorney as a partner.
To be really valuable as a potential partner, you may have to bring other things to the table on top of your law experience. This is especially true if you wish to join a group of investors who have grown to the point of needing in-house counsel.

#4 Raise Capital for Deal and Be Ongoing Point Person for Capital Sources

If you’re willing to raise capital and be the point person on a deal, you could get into the biz by partnering with someone highly experienced in the multifamily syndication business. This means someone with a successful track record who can show you how much they made on past deals. This will give you an idea of how much you can make on future deals.

 

Even though your partner should have money in the deal (beware if they don’t, because what happens if the deal flops), you will align your interests by bringing in more money. Maybe you have professional connections to high-net-worth people who can offer financial backing for a deal your experienced partner is working on. This is only true, however, if your potential partner and investor connection think you’re a savvy enough business person.

Remember, if you are raising capital for a deal someone else acquired, you have to join as a general partner, unless you have a Securities License. Without this, raising money for deals you’re not on the General Partnership side of is against the law.

#5 Secure Debt Financing

real estate deal financingMortgage brokers can get into the biz using this creative method. So, if you aren’t a mortgage broker or don’t want to be one then skip to #6.

 

Like #3, even if you are a mortgage broker, you will usually earn a fee rather than come in on the General Partnership side. I know of some groups, however, that comprise of mortgage brokers who come into deals by using their brokerage fee as their part of the equity.

#6 Do Property Mgmt.

As an experienced property manager, you have many of ways of breaking into the business. Here are some:

 

  • By networking with local, aspiring investors who want to complete deals but don’t have the track record, you can bring your team’s track record of turning deals around. They bring the money for the deal. You have leverage here because, without you or another property manager, they couldn’t get approved for debt financing and likely have trouble raising the equity another way).
  • Work with an experienced group by offering to exchange your property management fees for a chance to be in on their next deal. This could help them sell the deal to their investors because it shows an alignment of interests. You have less leverage than the above scenario but still provide a lot of value.

 

You could combine these methods and raise money for multifamily syndication deals while also trading your property mgmt. fees for being involved 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 – 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.

 

Related: 4 Ways to Partner with a Property Management Company on Your First Apartment Syndication Deal

 

Some other ways:

  • if you’re a broker then put in your commission to join a multifamily syndication opportunity. On my first multifamily deal (a 168 unit), the brokers offered their commission of $317,500 to become owners in the deal. It was a win-win because my group had to bring less money, and they got to re-invest their commission into something that had major upside.
  • If you have experience in multifamily investing but don’t want to deal with the headaches of finding opportunities, then you could complete asset management for other investors. Just check out this interview I did with an asset manager, and hear how much he gets paid: https://joefairless.com/blog/podcast/jf140-how-much-do-multifamily-asset-managers-get-paid/

 

Related: Working in Apartment Syndication – What’s Possible in One Year!

Conclusion

I have explained many different creative ways to enter into the multifamily syndication business. Once you are ready to become a syndicator, here are six tips for how to get started:

  1. Find an off-market deal.
  2. Conservatively underwrite deals.
  3. Negotiate terms, and get all legal docs in order.
  4. Raise capital for deals and be the ongoing point person for capital sources.
  5. Secure debt financing (if applicable).
  6. Do property management.

 

If “how to break into the multifamily syndication business?” is the number one question I receive, “how do I raise money from private investors?” is a close second. I’ve written multiple posts on proven methods successful investors I’ve interviewed on my podcast are using to raise capital, six of which I’ve shared below.

 

  1. My Four-Step Apartment Syndication Money-Raising Process
  2. 3 Ways to Raise Over $1 Million for Your 1st Apartment Syndication
  3. A 5-Step Process for Raising BIG Capital For Multifamily Syndication
  4. 4 Principles to Source Capital from High Net-Worth Individuals
  5. 4 Non-Obvious Ways to Raise Private Money for Apartment Deals
  6. How to Overcome Objections When Raising Money for Multifamily Investing

These are more great resources you should check out if you want to know how to buy a multifamily property with a degree of success.

Isn’t that Risky?

I was on a date the other night and she asked me what I do. After explaining that I raise money from investors and buy apartment complexes she said, “Isn’t that risky?

Fair question.

She said that she’d be concerned about losing people’s money. That’s a lot of responsibility.

And good point.

I responded by saying that it comes down to education (i.e. knowing what you’re doing) and experience (i.e. having done it and/or surrounding yourself with team members who are experts). But I’ve thought about it a lot more since then and I don’t think I fully answered the question.

Let’s talk about risk. When we think of risk we tend to think of the BAD. Right?

“Well that sounds risky…” or “Are you sure you want to take on all that risk?”

And that’s a healthy and necessary thought process. We must evaluate the BAD. But, what about the GOOD? And, better yet, what about the loss of POTENTIAL GOOD?

POTENTIAL GOOD is all the nice, wonderful experiences and outcomes that result from us choosing to do something outside our comfort zone. Be comfortable being uncomfortable. Isn’t that true? Isn’t there something you’ve done in your life that initially made you uncomfortable but once you got past that the rewards far outweighed the risk?

When I evaluate things in life I look at the BAD, GOOD and LOSS of POTENTIAL GOOD. Then make a decision on if I should proceed. Let’s do an example:

EVALUATE: Should I eat a king size Snickers bar?

BAD:

–        High in saturated fat – will not be happy with myself

–        Not healthy

–        Cancels out my workout

GOOD:

–        Mmmmmmm

LOSSS of POTENTIAL GOOD:

–        Nuthin

MY DECISION?

–        Usually I resist.

But now let’s look at another example:

EVALUATE: Should I have a business that raises money from investors and buys apartment complexes? (hmm, this sounds familiar)

BAD:

–        There’s no guarantee in ANY investment so there’s always a chance it doesn’t work out as projected. In that scenario, my reputation is ruined, my business crumbles and I am a disgrace.

GOOD:

–        Providing investors a conservative opportunity to make more money than what they currently get from other sources

LOSS of POTENTIAL GOOD (here’s the kicker for me):

–        The relationships I make during the investment process with my investors and team members.

–        The ability to be the go-to person to help others reach their financial goals

–        The ability to help others learn this business so they too can spend their time how they want to spend it. We all deserve that.

–        The freedom to spend time with my family (when I have one) so I can focus on the important things in life vs. having to work 9 – 5 for someone else and hope I get enough vacation time to attend all my kid’s activities.

MY DECISION?

–        Well, you know what I decided. But I only decided that after mitigating the BAD with education + experienced team members. Then, after doing that, I’m focused on the GOOD and POTENTIAL GOOD. That’s what drives me every day and that’s what makes me do what I do.

Next time someone asks me about my job and mentions risk here’s how I’ll respond:

“Risky? Yes, there is so much risk if I don’t do it.”