JF1506: How To Break Into The Apartment Syndication Industry Part 1 of 2 | Syndication School with Theo Hicks
Theo is back with another two part episode. Today he’s telling us about how we can break into the apartment syndication business. We’ve already heard about the experience we need or our team needs, now we’ll hear the next steps. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the apartment syndication school, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, which is a free resource focused on the how-to of apartment syndications. I’m your instructor, Theo Hicks. Each week we will be airing a two-part podcast series about a certain aspect of the apartment syndication investment strategy, and for the majority of the series we will be offering a free document or spreadsheet for you to download that will be accompanying the episode. All the documents and all of the past and future Syndication School series can be found at SyndicationSchool.com.
This episode is going to be part one of a new two-part series entitled “How to break into the apartment syndication industry.” By the end of this particular episode, you will learn the biggest challenges for breaking into the apartment syndication industry, and then we’re going to go over the first four ways to overcome these challenges and break into the apartment syndication industry and start your syndication career.
Now, what’s this challenge…? It’s kind of a catch-22, because on the one hand you need the experience and the skillsets to do an apartment syndication, but one of the only ways to get the experience and the skillset to do apartment syndication is to actually do one. So how can you do one when you need the other first? Well, one of the challenges that we discussed in the previous series was the education and the experience requirements needed before you actually become a syndicator, so make sure you check out episode 1499 and 1500 to learn about the experience and education requirements. But even if you have those covered, you still don’t have actual apartment syndication experience.
For example, we’re gonna break apartment syndications into three categories for the purpose of this episode. You have the acquisitions, you have the securing the capital aspect, and the asset management. Even if you have previous real estate experience, for example, or you were the CEO of a Fortune 500 company, you still don’t have experience finding apartment deals, or evaluating apartment deals, or submitting offers on apartment deals. Once the deal is under contract, you don’t know have the experience performing the due diligence to confirm your underwriting assumptions… And you probably don’t have experience structuring commercial debt with a bank or a mortgage broker.
You probably also don’t have experience finding passive investor and getting the trust from your passive investors so that they’ll invest in your deals. And then lastly, once you actually have a deal under contract should you get to that point, you probably don’t know how to implement an apartment business plan successfully.
So the short answer to how you break into the industry is that you will have to either a) work with an existing syndicator to get your foot in the door, or b) have enough experience and expertise to become a syndicator yourself. So that’s the challenge, that’s the catch-22, and in this part we’re gonna focus on four of the nine different ways to break into the apartment syndication business.
Now, how each of these strategies are going to be broken down is first, I want to provide a description of the strategy, of the way, and then I’m going to discuss these proven skills that you will obtain from this strategy that will also apply to the apartment syndication realm… And then lastly, I will discuss how long it’s going to take for you to execute this strategy before you are actually able to break into the industry.
Number one is to get or have a strong business background. What this means is that you’ve either started your own company – so you’ve started the company, you grew the company, you maintained it, and then maybe you eventually sold it, or you are more passive and wanna move on to apartment syndications. Or you held a high-level position, probably a director a higher level, at a large corporation. For example, before Joe became a syndicator, he had worked his way up through a New York advertising company, and became the youngest VP.
Now, how does this help you with becoming an apartment syndicator? Well, if you’ve started your own company or if you’ve worked your way through a large corporation, some of the proven skills that you have — and again, the reason why they’re proven is because you’ve actually shown that you can implement these skills in order to either start your own successful company or to grow within an existing company.
So one, it’s project management. You understand how to manage projects from start to finish, which is going to be very helpful on apartment syndications. You also probably have a very good network of high net worth individuals, because if you are at a director level or higher, you yourself probably make a decent amount of money, which means you know other people who are also making a decent amount of money, and those people could be prospective passive investors in your apartment deals.
And then also, you’re probably very resourceful and have the ability to problem-solve, on your feet, and don’t get stressed out when you’re facing something new, which is going to be very helpful as an apartment syndicator. It’ll help you be able to find your team members, it’ll help you find deals, and it’ll help you find passive investors.
Now, what you are lacking if all you have is a strong business background is the actual real estate experience and the apartment experience… So you’re gonna need to offset that with a credible team. You’re likely gonna need to find a partner, ideally someone who has operational experience, which means they have some experience with the apartment transaction acquisition and management process, whether they bought apartments themselves or worked at another company that bought apartments. You’re also gonna need some sort of advisor or a mentor, and we’re gonna go into more detail on the advisor and mentor later in part two.
You’re gonna need a property management to oversee the day-to-day operations, and also a real estate broker to find the deals. But you yourself likely have access to private capital, and because of your network and your resourcefulness, you should have no problem finding these team members and gaining their trust because of your business background.
Now, what about the timing for this strategy? If you’re starting from scratch and you’re listening to this and you have no business background, it’s probably going to take you 5-10 years (or even more) in order to reach a high enough level in a business to have the proven skills that I previously mentioned. But the benefit is that once you actually reach that level, then you can actually become the apartment syndicators. You don’t have to worry about working your way up through another business; you have the skillsets to actually do it yourselves, as long as, again, you’re surrounding yourself with the right team.
So that’s strategy number one, which is go out there and start a business, or work your way up through an existing business, and then leverage those skillsets to start your own syndication business.
Now, on the other side of the coin is strategy number two, which is to get or have real estate investing experience. That means you’ve invested your own money in real estate in the past, and you were successful. By successful I mean that you met or exceeded your return expectations, which means you must have had return expectations upfront, and properly underwritten the deal. If you were able to successfully invest your own money and meet or exceed return projections, then you’ve likely approached the deal the right way and didn’t just buy it on a whim, or if you did evaluate it, evaluated it incorrectly.
Now, not all real estate investing holds equal weight when it comes to breaking into the apartment syndication industry. I would say that going from he least beneficial to the most beneficial would be starting with fix and flips, and then from there would be single-family rentals, and then next would be small multifamily rentals, so if you bought a multifamily building that was less than 50 units… And then the best real estate investing experience would be if you actually bought an apartment. If you’ve actually bought an apartment, then you are setting yourself up for success, but obviously, that would take a little bit longer… Whereas if you have some success in the single-family resident rentals, or fix and flipping, you’ve proven that you’re able to successfully do a real estate transaction, but you haven’t proven that you can replicate that success for a larger deal.
Now, what are the proven skills that you will have obtained from your real estate experience that will apply to syndications? Well, you’ve got your project management skills, of course, because you’ve taken a project from start to finish, or at least you’ve taken it from start to managing it and maintaining it in regards to rentals, but then more importantly, you actually have the real estate transaction and operational experience. You understand what it takes to put a deal under contract, you understand the due diligence process, the closing process, and you also understand how to manage the deal. Again, it might not be the same size as a larger apartment, but you still have a basic understanding of how the ongoing operations of real estate works.
You also have experience finding deals, which is gonna be very helpful when you’re running your syndication business. You’re likely a very resourceful person, and then of course, which is gonna be key for your passive investors, is the fact that you’ve shown proven returns. So you can say “Hey, I’ve found a deal, I underwrote it, and I projected to receive 8% cash-on-cash return each year, I held the property for four years, and I actually received the 10% cash-on-cash return. When someone who’s interested in passively investing hears that, he’s gonna be a lot more interested than someone who has never done a real estate deal before, or did a real estate deal and didn’t meet their return projections.
Now, the one thing that you’re likely going to be lacking if you just have real estate investing experience is the access to the capital and passive investors, because most of your relationships are gonna be with real estate investors, who are likely going to want to be more active… Because that’s what they do; they want more control over the process, whereas you’re looking for people that are mostly passive.
Plus, if you don’t have that business background, you may not have relationships with high net worth individuals. So, similar to what the person with the business background should do, you’re also gonna need to partner up and create a credible team. So you’re still gonna need the property management company, even though you might know how to do it yourself; you’re still gonna need their credibility, and you’re also gonna want their expertise so they can oversee the day-to-day operations.
You’re also gonna need a real estate broker, because they’ll help you find deals- again, even though you know how to do that yourself, and they’ll also help you with the due diligence and closing and contract process for commercial real estate, which you might not have experience with. And you’re also gonna need that mentor of advisor to help you along the way. But this time, instead of getting a partner that has the operational experience, because that’s going to be you, you’re going to need someone who can raise money. You’re gonna need someone who has access to private money, or they themselves have a large net worth and a lot of liquidity, and they’re willing to invest in your company and receive a return while you do the rest.
Now, the timing for this strategy kind of depends on what the actual real estate investing strategy you pursue, but it’s going to take at least a couple of years; it might take five years, or it might take more than that before you have the proven track record and the skillset to transition to becoming an apartment syndicator.
So that’s strategy number two – to get [unintelligible [00:16:04].17] already have real estate investing experience, and use those skillsets to become an apartment syndicator and partner up with someone who has access to the capital you’ll need to buy the deals.
Strategy number three is similar to number two, but instead of being an actual investor, this time you’re going to get or already have commercial real estate experience. Not necessarily as an investor, but you will be working as a professional in the commercial real estate industry. Now, if you do this approach, you’re going to obtain some skills, really no matter what industry or what part of the commercial real estate industry you decide to work in.
Number one, and probably the most important, is going to be the network you’ve built. If you are working in the commercial real estate field, you’re going to know all the movers and shakers in regards to the various team members you’re gonna need to bring on – property managers, mortgage brokers, commercial real estate brokers… That’ll help you vastly when you’re attempting to put together your team.
Then also you’re going to have at minimum a basic understanding of the apartment transaction process. Unlike the person who has just general real estate investing experience, you’re gonna not only have an understanding of the actual real estate transaction process, but how that applies to commercial real estate as well.
And then thirdly, you’re going to be hyper-specialized and hyper-knowledgeable in a very specific part of the apartment syndication process. From there, you can figure out what team members you need to bring on to complement those skillsets.
Now, in regards to the different types of professions you can pursue, and the skillsets that come from those – number one, you can work for an actual commercial real estate brokerage. When you do that, you’re going to be hyper-specialized in how to find deals, because that’s one of the main jobs of brokers – they’re constantly pursuing different lead generation strategies in order to find deals that they can market to their investor base. So you’re gonna know exactly how to find deals.
You might also have experience actually evaluating the deals. Maybe your responsibility is to find them, but maybe your responsibility is also (or instead) to evaluate the deals first, put together a proforma, figure out what the value-add opportunities are, and you’ll do rental comparable analysis to figure out what the rents are going to be, visit the properties in person when you’re giving tours… You’re gonna have a very good understanding of the evaluation process before a deal goes under contract.
And then finally, you’re gonna have an understanding of the actual due diligence process, because as a broker, you’re gonna be working with whoever you’re representing while they perform your due diligence between the contract and the close.
So as a commercial real estate broker or working for a brokerage, you’re gonna have a very good understanding of the process from finding the deal to closing on the deal. But you’re gonna be lacking in the asset management and the passive investor front, so you’ll need to find other people to help you with that.
Another profession you can go into is to become or work with a lender or a commercial mortgage broker. If you do that, you’re gonna be hyper-specialized in evaluating deals, you’re gonna know exactly how to underwrite deals, what to look for, and any of the common pitfalls that investors fall into. You’re gonna know exactly how to overcome those, because you’re gonna be underwriting deals constantly.
You’re also gonna understand the due diligence process, because the lender or mortgage broker is heavily involved in the due diligence process, because since they’re the one providing financing, they have to make sure that this property is up to par.
And then you’re also gonna have a good understanding of the debt structuring of the deal. You’re gonna understand based off of the business plan and the type of deal, what’s the best debt for that specific project. But of course, you’re gonna be lacking in the finding the deal department, as well as the ongoing asset management.
Another profession would be to work for, or start your own, or work in a property management company. A property management company that has experience repositioning large apartment deals for example, or whatever the strategy that you are interested in doing, they have experience managing those types of apartments.
Now, by being a property management company, you’re gonna learn what those first two professions didn’t, which is the ongoing asset management. So you’ll understand what needs to be done after the deal is closed, and you’ll likely have some experience – depending on the company you work for, or if you set your own company, the services that you offer – some understanding of the due diligence process, because as a syndicator, you’re going to want your property management company to sign off on your budget before you put the deal under contract. [unintelligible [00:21:30].09] check your assumptions, but then also as due diligence reports come back and your assumptions are updated, you want your property management company to confirm those… And if you’ve got a really good property management company, they’ll actually help you obtain those reports and help you with the inspections, and things like that.
But again, you’re not gonna have all the skills. You’re gonna need to have someone help you find deals, you’re gonna need to have someone help you underwrite and evaluate these deals, as well as source the capital for the deals.
Another profession that you can enter is you can actually work for a commercial real estate investment firm. This would be you working for an actual syndication business. If you do that, your proven skills and the types of things that you can do can be one specific thing; you can just be, for example, an analyst, and evaluate deals… But eventually, you can maybe work your way up to becoming an asset manager, or a director of acquisitions, or a partner, someday, in that company.
That profession kind of just depends on your work effort and the company you join, and things like that. What’s great about that strategy, again, is that you could likely learn all aspects of the syndication process. You might not be an expert on all of them, but you’ll have a better understanding of all of them, which is gonna be very helpful if you wanna launch your own business someday.
Another example – and I kind of already talked about this – is you can become an analyst. You can be an analyst at a brokerage, for a mortgage broker, for a commercial real estate firm… Heck, maybe even for a property management company. And as an analyst, you’re likely gonna be focusing on evaluating deals, so the underwriting, which is also a very important aspect of the syndication process.
For example, I know that Joe and his company, they brought on some analysts that they found at a university in California, and they focus on underwriting deals for them… And if they underwrite a deal that Joe eventually closes, then they get paid a flat fee or receive an equity stake in that deal. So if you’re in college, becoming an analyst for a company could be a great way to break into the syndication industry and work for an experienced syndicator and work your way up through there.
And then lastly, and this is probably not gonna apply to many people, but you could technically become a real estate attorney; so get your law degree and become an attorney, and maybe you’ll be able to partner up with a syndicator and just be their attorney, but more likely you’ll work with multiple syndicators and help them put together the legal documents during the contract to close period, and then maybe also when they’re just putting their partnership together.
So the timing for working in the commercial real estate industry, again, kind of depends, because those are all very different, and if you wanna become an analyst, if you’re in college right now, you can probably do that the next couple of months; but then if you wanna become a real estate attorney, that’ll probably take you for years at least.
And then once you actually enter this field, you’ll probably either be in the field for another 3-5 years to gain experience and become super-specialized and an expert in that specific part of the syndication process. Then you might be able to partner with syndicators directly, or you might be able to transition into becoming a syndicator yourself.
So for this strategy (number three) getting or having commercial real estate experience, it’s kind of all over the place. You could break into the industry as quickly as tomorrow, or it might be a multi-year strategy, depending on where you’re currently at.
Strategy number four, which is the last one I’m going to discuss in this particular episode, is going to be to break into the syndication industry by creating a thought leadership platform.
A thought leadership platform is what you’re listening to now, for example. It could be a podcast, it could also be a YouTube channel, or a blog, or a meetup group, but the whole point behind it is that it’s an interview-based thought leadership platform that focuses on apartment syndications. Now, you could have absolutely zero experience in real estate or business right now, and start a thought leadership platform. So this is one of the only strategies that you can literally do right now, today, as you’re listening to this.
A lot of future Syndication School episodes will be focused specifically on how to create a thought leadership platform, so we’re not gonna go over that today. But once you do start your thought leadership platform, the skills you’re going to acquire are, number one, you’re going to be able to test out the waters and see if apartment syndications are actually for you, because you’re gonna be interviewing different syndicators and different professionals that work with syndicators, and you’ll get a basic understanding of how the process works, and make sure that it’s the right fit for you. And if it is, you can also figure out which aspect you wanna be involved in. Do you wanna start your own syndication business, or do you wanna start off by becoming a broker, for example, and you’re working your way up from there? Again, it depends on your background.
If you have a strong business background, then you could become a syndicator. But if you’re what I mentioned in the beginning of this step, which is you have no experience in anything, then you’re likely going to want to use one of the other strategies.
You’re also going to get an education, and it’s gonna be a very customized education, because you’re deciding not only who to interview, but what questions to ask during the interview. So if you think about it, if you do one podcast interview a week, for example, you’re gonna be talking to 52 different apartment syndication professionals a year, which is 100 every two years, or 150 every three years. That’s gonna be a lot of information.
On that same note, if you’re talking to that many apartment syndication professionals, you’re also going to have a very strong network. So once you are ready to either launch your own business or join another commercial real estate professional, you’ll have a lot of contacts to reach out to, who already know not only who you are, but they’ve actually spoken to you before in the past.
Also, from a networking perspective, since you are talking to other apartment syndication specialists, and did a podcast with a large audience, and you are hopefully letting people know that you are in the process of launching your syndication business or are interested in doing it, you could also start to be contacted by potential passive investors. These are people who are interested in investing in your syndication, which again, is going to be helpful when you’re launching your own business, because that’s how you fund the deals.
And then lastly – and this is something which is going to address one of the major challenges you’ll face when raising money, which is going to be your passive investors actually trusting you… Because people don’t invest based off of the amount of returns they get. They invest based off of if they trust the individual to provide them with returns.
That is the personal connection that comes from having a thought leadership platform. You’re not necessarily talking to these people one on one – by “these people” I mean potential passive investors, but by them listening to you talk for an hour a week for a year, you’re gonna create an existing personal connection with that person that you wouldn’t have been able to otherwise.
So rather than the first time they’ve heard your voice being on the phone when you do a prospective investor call, instead they’re going to have heard you at least once before.
Me and Joe have talked about this on this podcast before, how Joe will hop on an investor call and they investor will mention that they feel like they already know Joe, and that they’ve been friends for years, because they’ve been a listener of the podcast.
So the thought leadership platform allows you to network with these types of investors, and even team members, and form this personal connection while you’re not actually in front of the person. So you’re able to leverage your time more effectively, because you could be sleeping and networking with someone in Australia, who might invest $100,000 in one of your future deals.
In regards to timing, for the thought leadership platform, again, technically you could start the thought leadership platform right after this episode ends, or at least start the process, but you’re gonna need to have the thought leadership platform live for at least a few years. It could be as low as six months, but most likely you’re gonna have to be recording episodes for a year or two before you build up the network and the education and the personal connection before you can move on to the next step, which would be you can either become a syndicator yourself, but you’ll likely need to do that in tandem with one of the other strategies… For example, while you are doing your thought leadership platform for two years, you could invest in a couple of deals and work your way up through your corporate job.
Or you can keep an ear out when you’re talking to actual apartment syndicators or other apartment syndication professionals, and try to work with them, work in their business, become an intern for them, see if they have any job openings so you can get your foot in the door.
Again, similar to the working in a commercial real estate profession, when it comes to the thought leadership platform, the opportunities are really endless. It just depends on the types of conversations you have and how resourceful you are.
Those are the first four ways to break into the apartment syndication industry. Again, those are to:
1) Get a strong business background
2) Get a strong real estate investing background
3) Get commercial real estate experience, so become a commercial real estate professional
4) Start an interview-based thought leadership platform that focuses on the apartment syndication field.
Those are the four things we learned, and in the beginning of the episode we talked about the catch-22 of becoming a syndicator, which is you need experience to become a syndicator, but the best way to get experience is actually be a syndicator… So the best way to overcome that challenge is to implement one of these four strategies that I’ve mentioned, or one of the next five next strategies that will be discussed in part two, which you can listen to tomorrow.
We will also in that episode discuss the three major themes that are consistent between these nine strategies discussed.
Thank you for listening. To listen to other Syndication School series about the how-to’s of apartment syndications and to download the free documents that we have for the majority of those episodes, be sure to visit SyndicationSchool.com.
Thank you for listening, and I will talk to you tomorrow.