JF2499: 5 Interview Questions for Syndicators with Sam Silverman
After purchasing his first single-family investment property in college, Sam Silverman continued to purchase 8 single-family homes, and ultimately moved on to syndication. In this episode, we learn about Sam’s top 4 criteria for qualifying investments, how he uses his past experiences to raise capital, and his best piece of advice for new syndicators.
Sam Silverman Real Estate Background:
- VP of Sales at a tech company
- 3 years of experience (1 in single-family, 2 in multifamily syndication and self-storage)
- 12 syndications (2,614 units), 4 single-family houses, plus another 132 units active under contract
- Based in Tampa, FL
- Say hi to him at: https://www.linkedin.com/in/samuelsilverman3/
- Best Ever Book: The Art of Winning and Losing
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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Ash Patel and I’m with our guest today, Sam Silverman. Sam is joining us from Tampa, Florida. He is the vice-president of sales at a tech company and has three years of real estate experience. In that short time, Sam has done 12 syndications with over 2,500 units, and has also acquired self-storage. Sam, thank you for joining us. How are you today?
Sam Silverman: Good, Ash. Thanks for having me on. I appreciate it.
Ash Patel: It’s our pleasure. Sam, before we get started, can you tell us a little bit more about your background and what you’re focused on now?
Sam Silverman: Yeah, so background – right out of college I got into software sales accidentally; I quickly worked my way up, and in doing so, in sales when you have some success, the commission checks quickly follow. So I was figuring out “Hey, what do I do with this?” Like many others, I got into single-family right away, built up to eight single-family houses, realized it was something I do not want to be a part of in terms of scale and in terms of the mindshare it took up. So I quickly did a lot of research and understood that hands-off investing was the approach that made the most sense for me, so I looked into multifamily syndication. Since then I’ve scaled up to 14 active deals right now, and also two on the GP side. I’m really working on the side of investor relations capital and helping support deals in that sense.
Ash Patel: Sam, take me through the transition of single-family to your first syndication.
Sam Silverman: So I actually bought my first single-family while I was still in college. It was a condo right in the area, and I got super-aggressive, put it on a 15-year loan, virtually no cashflow [unintelligible [00:02:26].15] buy a bunch of these properties, put them on 15-year loans, pay them off and at 36 years old I’ll be done. I realized quickly that 1 – that’s way too long, and 2, it just wasn’t really scalable.
So in terms of scaling up, I kept buying more [unintelligible [00:02:43].00] and found the builder and owner of the property and bought a lot more places from him, actually. I realized quickly that they cash-flow $200, $300, $400 a month, the tenant leaves and your cashflow for the entire year is then gone when looking at turning the unit. And I also realized I don’t want calls from tenants, I don’t want to go collect late rent payments… It was just something that didn’t make sense for me.
Ash Patel: And then what was your first syndication? How did that come about?
Sam Silverman: Actually, from Michael Blank’s podcast, where — if you look at what I do for a living, I interview and hire and train salespeople. So a big thing that I’ve learned is how to interview. Listening to Michael Blank’s podcast, everyone goes in there to plug their own brand, to talk about what they’re doing. I’d find people who I enjoy their conversations, listen to what they did, I reached out to them directly [unintelligible [00:03:39].16] How do you handle a deal? How do you handle when things go poorly? What do you [unintelligible [00:03:46].07] and eventually found a few people that I liked… And I started placing minimum investments across a variety of deals to get started.
Ash Patel: So you were the passive investor at first?
Sam Silverman: Correct. I actually got into 12 passive deals in the last year and a half.
Ash Patel: And then do you run any syndications yourself?
Sam Silverman: Currently, I’m actually in two live syndications. One is technically a joint venture. It’s a little bit smaller deal. My role in those deals have been primarily on the capital raising and investor relations side of the house.
Ash Patel: Okay. So 12 passive deals that you’ve invested in… What is it specifically that you look for? Give us your top three criteria on how to qualify passive investments.
Sam Silverman: I don’t think you qualify the investments. All the deals you’ll see – the returns are negligible. They’re standard from 14%, to 17%, 18%, maybe a 20% in there (less now so), but it’s more so you bet on the people all day long that you’re giving your capital to.
If you’re looking at a deal and seeing a 15 versus 16, and you go to 16 blindly, that is one of the biggest mistakes you can make. I think betting on the people is really important.
A few big things I look for is 1) what did this person do previously and they’re giving up to go do this now? Were you flipping houses and making 50k a year, and now you’re running a big business? Nothing wrong with flipping houses and making 50k a year, but [unintelligible [00:05:13].13] to go do this. They sacrificed something to go do this that they have deep enough roots, where this has to work out in a way that makes sense.
Second, I wanna see that the structures of the deal align in a way that the general partner’s sponsor makes their upside by delivering in a big way for the investors. I don’t want to see 5% acquisition fee, I don’t wanna see all these fees tacked on. I understand they’re just keeping the lights on, but it also needs to be aligned with the bulk of the dollars [unintelligible [00:05:42].21] are for delivering for the investors and share in the upside of that.
And then third, how do they communicate? What’s the transparency level? How do they go about handling poor situations? One thing I’ll ask everyone is “Help me understand when things descend, walk me through a situation where that happened to you and how you handled it.” Because to me, even if it’s a successful five-year deal, something will go wrong. Something never [unintelligible [00:06:08].07] But what you wanna see is just someone who will handle a bad situation in a good way and be super-transparent the entire time. Seeing someone who goes from communicating weekly or monthly to going silent is not a good sign. You like things that are hands-off, but you still like knowing that you’re in good hands.
Ash Patel: Those are three great pieces of advice. I love that. Do you have an example of a syndicator and their story of sacrifice with their backs against the wall and they cannot fail?
Sam Silverman: I think I can frame it differently as to what they gave up to go do this. Someone I’ve met personally a few times – they actually had a similar background to myself, working in software companies, building a large team… And living out in California, I know what that role makes; they’re half a million dollar plus employee, [unintelligible [00:07:02].24] they left this very good career to go do this – that hits home to me in a big way, because 1) I know the operational background is there, I know the systems and processes of handling people are there, and I also know that they have a family to support, they live in an expensive area, and they have to do things a certain way to grow their business in a sustainable way.
Also, a big thing too that I didn’t mention is what’s their view on the long-term. Because you don’t want someone who views this in a super-short, get-rich-quick way. We want a longer-term partnership with them, since they have mutually aligned interests down the road as well.
Ash Patel: I wanna touch on that… When you say “longer-term”, is there a limit on how many years you want an exit from this investment?
Sam Silverman: Most deals that I’ve invested in are either a five or a seven-year hold. All of the deals that are seven-year holds have a built-in refinance which [unintelligible [00:07:58].17] for deals that have no refinance. The goal is to purchase, add value, capture the delta between current and market rent, and any operational efficiencies, reposition the asset and then sell it at a much higher price, because the NOI has been driven up.
The deals that I’ve looked at that are seven years – and very few of them are – there’s a refi built-in in year two or year three. As an investor — say you invest 100k, you may get back 50k, 60k, 70k in 2-3 years, allowing your velocity of money to keep moving. You can repurpose those dollars back into a new deal. So I think personally, my limit is about five years, understanding if anything happens to the market, that it’s in a position where if it goes past five years, it’s still an okay position, but more so giving flexibility and velocity of money… Because one of the big ways I view this is that when you can go reinvest that capital that you’ve received back with the added upside in the deal, your cashflow grows in a really big way… Kind of like a snowball effect.
Ash Patel: I agree with you. I’ve seen a lot of investment deals that are ten years, and it’s so hard to predict what’s gonna happen in five, let alone ten… So yeah, great points there. Would you invest in somebody who doesn’t have a track record, but meets all of the other qualifications? Great communicator, great structure, they’ve sacrificed their career, and they’re all in? Or is the track record pivotal to you investing?
Sam Silverman: Right now personally I’m only really going with people that have a track record, for the reason that there’s a lot of operators looking for capital right now, especially how deals are being structured today… So it’s giving me options in terms of the scarcity type scenario; I don’t have to go do that today. But I think I’d be willing to go do that in the right scenario for someone who’s starting out, but at a much smaller amount than I may give to someone else who has more experience and track record, with the goal of building up and growing with them.
Ash Patel: Yeah, I agree with you there as well. Sam, in terms of your capital raising, what have you learned from your passive investment experience to help you raise capital?
Sam Silverman: I think a really big thing that I’ve learned is that communication is a really important thing. You learn quickly how you wanna be communicated to. I almost see passive investing as a very highly paid educational course for what I wanna go do. Whereas if someone’s paying you 16% – 18% to go get a crash course on what you’re doing, it’s not so bad. You get to see “Hey, this is how these [unintelligible [00:11:41].03] have done this. This is what I’ve liked, this is what I didn’t like. This is a deal structure that felt good to me, or felt uncomfortable to me.”
I think a really big thing that investors wanna see is simple. Simple is good, especially when talking about finance with someone. Something I’ve realized as well is just that when you talk about money with people, it can be an uncomfortable topic. You learn a lot about how someone grew up. If they grew up from a very conservative family, are they new money, are they old money. You learn a lot about how to interact with people from different socio-economic backgrounds, where they all meet in the same place, but how they’ve gotten there can be extremely different.
Ash Patel: That’s interesting. So you tailor your approach based on their upbringing, their financial history…
Sam Silverman: Yeah. If you think about it, say you have Joe and Pete, and Joe has a background of family with multiple 8-figure net worth; he grew up with a silver spoon in his mouth. It doesn’t mean he won’t do anything else bigger today, but he’s used to the lifestyle that he has. Whereas if you look at Pete, who may have grown up with, say, a family who’s immigrated here, and they started from scratch, and he saw what it was like to be on the entire other end of the spectrum, having to [unintelligible [00:12:59].21] his way up to get to where he is today – they’re gonna be far more conservative, because they feel as though if things go South, they can lose that, they can lose it all. Whereas Joe – he’s been used to having everything his entire life, and always feels that the downside isn’t really downside. He’s never experienced the downside.
People who have experienced that contrast in quality of life and economic status are always more cautious to what can happen to them, what can happen to their money. But the Petes of the world – if you deliver for a Pete, they are loyal through and through. So I think it’s interesting just having conversations with both of those kinds of people, and there’s many more different investor profiles or personas you can interact with… But I kind of frame it as old money and new money are the two primary buckets of people as to how they got there today.
Ash Patel: I love that perspective. Sam, when you interview potential syndicators, what are some of the hard questions that you ask them?
Sam Silverman: I think one is “Walk me through a time that things didn’t go your way and how you handled it.” Just because you look at this deal — the deal is not gonna pan out exactly how you expect it to. Walking me through what can go wrong here, walk me through why someone would say no to this investment, walk me through the downsides, and walk me through your assumptions. Are you using assumptions? Because we all know when looking at an Excel sheet you can make numbers look however you wanna make them look, and most people won’t catch it. So kind of walking through all of your underwriting in a deal and why, being super-conservative, to a point. There’s over-conservative where you won’t find any deals, there’s also overly conservative where your [unintelligible [00:14:35].19] things in a way just to be appealing to the investor… So understanding how they got to where their assumptions are today is really important, and also what they plan on doing to actually hit those assumptions; what’s their whole business plan. Not just saying “Hey, we’re gonna throw granite on the countertops and put in some new black [unintelligible [00:14:51].03] fixtures… Like, walking through who’s doing it, what’s the relationship, what’s the track record and the reliability of the contractors, property management – all those areas that people may not dig into as much I think is really important in those relationships there.
Ash Patel: I see a how-to book in your future, or at least both guide syndicators as well as new investors. Speaking of which, what would your advice be to somebody who’s becoming a new syndicator?
Sam Silverman: Be super-transparent and don’t tell us you have all the answers if you don’t. Growing up in sales – when you get questions, even live questions if you’re in a boardroom or with a group of executives and you don’t know the answer, tell them. Don’t tell something that’s not true. These people will call you out on it all day long, and I’d rather tell you “Hey Ash, it’s a great question. I’ll go figure it out.” Versus “Hey Ash, it’s this”, when it’s really that. If I did that to you, there’s no reason you’re ever giving me money ever again.
I think the honesty and transparency piece… And don’t expect to know everything. If you look at becoming a novice and being decent in something, the barrier is not very high. Being decent to being an expert is really high. They don’t expect you to always be an expert in that area; they expect you to be on the path to getting there and putting effort in to get a hell of a lot closer.
Ash Patel: So don’t fake it till you make it.
Sam Silverman: No, not at all. Not at all.
Ash Patel: Sam, are you in the multifamily only space, or do you invest in other types of asset classes in your syndications?
Sam Silverman: Passively I’ve also invested in three self-storage deals. Longer-term, the way I view it is I like to have multifamily being 70%-80% of my personal portfolio, and also deals that I can bring to investors as well. I like being diversified, so I have holdings in Florida, Texas, Arizona, Colorado, Idaho… Being diversified also in deals, in terms of classes of assets, so call it a class A versus a class B. And also types of assets, so looking at secondary assets such as mobile home parks or self-storage complexes as a way of diversification. Personally, I have zero dollars in the stock market, where all of it is just spread out between different assets. I like the self storage plays a lot.
Ash Patel: Somebody with your background who has a sales interviewing background, what’s the benefit of helping other people raise capital? how is that beneficial to you?
Sam Silverman: It’s beneficial [unintelligible [00:17:18].14] both parties, in the sense of I’m a very big believer in going very, very deep in one area. I’d rather be a master of one thing than a jack-of-all-trades and master of none. So if you look at it from a sense of — if I can go partner with operators of a very good core function, whether it’s finding deals, operating a deal, underwriting, running the finances and back-office of it, running the construction and the property management – having people who are very specified and deep into one area allows everyone to move a lot quicker.
Ash Patel: And then are you on the GP side once you are a capital raiser?
Sam Silverman: We’ve [unintelligible [00:17:54].24] a few models. One is the GP side isn’t actually involved in other areas. As we all know, you can’t go legally raise capital for commissions. So in certain deals involved in other areas outside of that, whether it be investor relations, asset management, due diligence etc. We’ve also looked at the fund-to-fund model, where you’re building a personal fund to go invest into a larger deal, with that deal identified ahead of time, the goal being entirely SEC-compliant when looking at raising capital and working with multiple operators, versus being a core part of that team.
Ash Patel: I wanna go back to interviewing of syndicators. Let’s say you are the actual syndicator. What would the idea structure be that’s fair for both investors, as well as the operator? The perfect world, where it’s just across the board fair, what do those numbers look like?
Sam Silverman: I think you all at Ashcroft actually nail it. Typically, it’s 7 and 70. So it’s 7% preferred return, structured as non-guaranteed debt on your capital, for the use of your capital. Then once that capital is then returned, a 70/30 split, or a split of some kind from the investor at 70% and the syndicator at 30%. I think it’s also a very good structure for the reason that the syndicators are then compensated for delivering half the initial waterfall to the investor.
It is really important that it’s aligned in the sense that if the syndicator [unintelligible [00:19:21].07] they benefit as well. If they don’t, they don’t. They should make the bulk of their earnings from [unintelligible [00:19:27].29] operating the deal well, and exiting profitably for the investors. Anything along those structures… I’ve also seen no preferred return and a higher split to the investor, which I think is also really important for syndicators as well… As a syndicator, the bulk of your dollars were made upon the exit of the deal, whereas if it’s someone newer, who’s actually living off this capital and going full-time, maybe it’s 75/25, no preferred return if it makes sense, so that the syndicator can have some cashflow along the way as well to allow himself to keep going and growing… So as long as the investors make the bulk of it, the structure can really be dependent on the deal itself.
Ash Patel: What are some examples of really high fees that you’ve seen?
Sam Silverman: [unintelligible [00:20:43].12] for purchasing deals recently, and you look at fee structures, so call it a 5% acquisition fee, where they’re making a giant chunk of their dollars on purchasing an asset… I think an acquisition fee is fair, but I think it should be in the 2%-3% tops range, versus a 5%, where that’s just not aligned appropriately.
If you look at it, on a 5% acquisition fee you’re roughly raising anywhere between 33% and 40% of the purchase price of the deal. Say you raise a third of the capital for a deal; say it’s 30 million dollars and you raise 10 million – basically, on that 10 million you’re then paying on a 30-million dollar deal 1.5 million dollars acquisition fee, which is a giant chunk of that 10-million dollar raise. So it doesn’t feel right when looking at 15% of their capital being gone to an acquisition fee.
Ash Patel: Yeah. Just out of principle, I would not invest in that, because they’ve made all their money upfront and they’re disincentivised to really hit that waterfall return.
Sam Silverman: I’d rather be the syndicator makes more money on the backend, where it’s aligned, where if they deliver big, they should get paid. I’m all for that. But it should be them getting paid for doing right by the investors. It’s really [unintelligible [00:21:56].15] of their capital. These are people’s hard-earned dollars you’re putting to work, whether it’s their retirement savings, whether it’s commission checks being earned, whatever it may be. We all know how hard dollars are to make; they’re trusting you with the future of their financial success there.
Ash Patel: That’s a great point. Sam, can you tell me about your joint venture that you mentioned?
Sam Silverman: It was actually a local deal. It was 28 units in Lakeland, Florida, directly between Tampa and Orlando. Three of us – actually myself and two others – put the deal together. [unintelligible [00:22:25].23] The numbers on it are great. So we more so raised capital from a few folks to get the deal done. It’s a value-add play, so there’s about [unintelligible [00:22:35].20] between current and market rent. The goal is to go in there, non-renew all of the tenants, put in granite countertops, paint the walls, redo the parking, redo all the cabinets, rebrand the property as well, so give it a fresh facelift, retenant the entire property, and then from there look at doing a refinance with the goal of getting the investors all their capital back in less than 18 months.
Ash Patel: And are all of the investors equal partners?
Sam Silverman: No, they’re not. What we did was actually fairly similar. It’s 6% preferred return, 70/30 split, and actually, in this deal, the partners put in about 40% of the capital, which you never see.
Another great question for syndicators is how much of their own capital goes into the deal, past the acquisition fees.
Ash Patel: Great question. So how is this different than a syndication? This JV.
Sam Silverman: The paperwork. It operates the same way when looking at the split with the investors. It wasn’t a huge deal, so when looking at following a formal syndication, we’re looking at $12,000 to $15,000. A joint venture – we paid sub $2,000 for the legal paperwork. So for us, being [unintelligible [00:23:39].19] of the investors, it’s saving about a $1,000-$1,200 per share of investment to the sponsors and the investors. Because of that route we chose to make it a joint venture versus a syndication.
Ash Patel: Sam, from a compliance standpoint is there a difference between existing relationships on syndicators versus JVs?
Sam Silverman: The way a joint venture works – it’s similar to a 506(c), where you have to have a previous relationship with them. These were all close friends, family etc. for this deal. All of our deals so far have been 506(c) and we kind of planned with that going forward. Personally, I have a lot of connections with people who are up-and-coming software sales folks who are very close to that threshold, the accredited investor, where making $200,000 back to back in a W-2, or a million dollar net worth, where we can raise the capital we need for our deals without having to publicly advertise for it.
So for us, we’re not big enough yet at this point to where we need to go do that, so it allows us to raise capital from people who are close, but still [unintelligible [00:24:40].04]
Ash Patel: And a lot of your software friends wanna follow in your footsteps.
Sam Silverman: Yes, it’s an interesting experience being the one who manages a lot of your friends’ money. There’s definitely an onus on you to do right by them as well.
Ash Patel: Absolutely. Sam, what is your best real estate investing advice ever?
Sam Silverman: Start young, start now. Buy things as early as you possibly can, and think really big. When I first started, I thought really small about it. I would have thought much bigger, much quicker.
Ash Patel: Great advice. Sam, are you ready for the Lightning Round?
Sam Silverman: Let’s do it.
Ash Patel: Let’s do it. Sam, what’s the best ever book you’ve recently read?
Sam Silverman: The Art of Winning and Losing. It really goes into how people think, based on how someone grew up, how they think. Nothing really to do with sales or real estate, but more so the more you understand how people think and operate, the better off you’ll be, moving them in directions that you wanna get them to.
Ash Patel: Sam, what’s the best ever way you like to give back?
Sam Silverman: I spend a lot of time coaching younger sales people, and also financial advice with a lot of my younger sales people as well. At my previous company we had 50+ reps in my organization, and I spent a lot of time on financial literacy… Where you go through college and they teach you how to do all the things you’ll never have to do, so I spent a lot of time working with them on thinking bigger and kind of working towards understanding the end in mind.
Ash Patel: Sam, how can the Best Ever listeners reach out to you?
Sam Silverman: The best way to get in contact with me is on my website, silvermancapital.co. I’m really active on LinkedIn, Sam Silverman, and my cell phone number is 917-575-3523. Text and call me. I’m always around.
Ash Patel: Sam, thank you. You’ve shared a great story where you started out in software sales and got into real estate, very quickly scaled, and became a passive investing expert… And you’re on your way to do great things, so thank you for sharing all of your tips with us. We’ve learned a lot about how to qualify operators and what to look for.
Sam, thank you very much for joining us. Best Ever listeners, thank you. Have a best ever day.
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