JF1507: How To Break Into The Apartment Syndication Industry Part 2 of 2 | Syndication School with Theo Hicks
Here is part two of How to Break Into The Apartment Syndication Industry. Today Theo is telling you how to do the things he mentioned yesterday. 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, as always. Each week we will be airing a two-part podcast series about an aspect of the apartment syndication investment strategy, and for the majority of these series we will also be offering a free document or spreadsheet or presentation that you can download for free, that will be based off of the podcast discussion. All of these documents and all of the previous and future Syndication School series can be found at SyndicationSchool.com.
Right now you’re listening to part two of a two-part series entitled “How to break into the apartment syndication industry.” In part one we discussed the catch-22 of becoming an apartment syndicator, which is the fact that in order to become a syndicator, you need to have experience and skillsets in order to execute an apartment syndication business plan… But one of the only ways to gain those skills and expertise and experience is by actually doing an apartment syndication, so how are we supposed to enter the syndication field if we’ve never done a syndication before?
In order to overcome this catch-22, we went over the first four ways to break into the apartment syndication industry without apartment syndication experience, which were 1) have a strong business background; 2) have a strong real estate investing background; 3) become a commercial real estate professional (a commercial broker, a real estate attorney, an analyst for a real estate syndicator etc.) and 4) start your own leadership platform that is interview-based and focused on apartment syndications.
Now, in this episode, in part two, you’re going to learn five more ways to break into the apartment syndication industry. So by the end of the show you’ll have a total of nine different strategies for getting your foot in the door, either with an apartment syndicator or as an apartment syndicator. Then to conclude the episode, we’re going to discuss the consistent themes between these nine strategies.
Again, as I mentioned in the last episode, we will describe the five different strategies. First we’ll describe the strategy and what it actually is and how to do it, then we’re going to discuss the skills you’ll obtain by doing that strategy, that will help you become a syndicator or work for a syndicator, and then finally, we’ll have a conversation about how long it will take you to likely break into the actual syndication industry based off of that specific strategy.
Number five, which is probably the strategy that requires the least effort on your part as regards to getting your foot in the door… Actually, doing a syndication is going to be a hard work regardless of how you actually break into the industry… This one’s probably the easiest from an effort standpoint, and that’s just hiring a mentor, so doing a paid mentorship.
This is when you find a mentor who is an apartment syndicator, but will likely have a mentorship program already. You pay them, and they will show you how to do a deal. Now, how do you actually find a mentor? Well, the best way, and really one of the only ways to find the right mentor is through referrals. You need to find someone who is in the apartment syndication field, maybe a syndicator who has just started out, and ask them for a reference for a mentor.
Another method of finding referrals if you don’t know anyone would be to attend different conferences. Look up any multifamily conferences in your area or across the country and attend those, and you’ll find plenty of people who are investing in apartments as syndicators. Someone should have a reference for you.
You can attend different seminars or meetup groups or REIA meetings in your local area and seek out an apartment syndicator and ask them if they have any references for mentors. Now, some of these people you actually talk to might be mentors themselves, so that’s technically not a referral… But you can use them as a mentor, but make sure you qualify them first, and find other people who used them to see how the program works based off of what you should and shouldn’t expect from a mentor, which I wanna go over here in a second.
Other ways to find referrals would be through Bigger Pockets, so just posting on Bigger Pockets and explaining that you wanna become a syndicator, and if anyone has any references for mentors. Or you just search on Bigger Pockets for other people who did the same thing.
Another unique strategy would be to listen to different real estate podcasts or watch different real estate YouTube videos, or read different real estate blogs that are either conducted by an apartment syndicator or are interviewing syndicators, and reach out to those people and ask them for a mentor referral.
Again, they themselves might also be mentors, and if that’s the case, make sure you apply what I’m going to discuss about what you should and shouldn’t expect in a mentor in a few seconds.
Something else you could do is you could search different social networking sites for apartment syndicators – Facebook, Twitter and LinkedIn – and reach out to them to see if they have any mentor referrals.
Again, how you find a mentor – the only way and the best way to do it is through referrals, because that’s really the only way you can know for certain that it’s a good mentor, and I just gave you a bunch of different ways to actually find this person. I would pick a few, start there, try it for a couple weeks, see if you find anyone, and if not, try another strategy until you find a candidate.
Now, once you find a candidate, since they were referred to you, there is some credibility that comes from that, but you’re still going to want to evaluate their program and they themselves in order to determine if they are the right fit for you. You should do that by first understanding what to expect and what you actually want from a good mentor. There’s four different things.
Number one is you’re gonna want expertise. This person needs to have a successful track record and be active in the apartment syndication field, but also doing exactly what it is you wanna do. So if you wanna be a value-add syndicator, then they should be a value-add syndicator themselves.
You’re also going to want someone who provides a do-it-yourself system. That is a system that tells you how to do what they do, and then you go out and act on that system in order to replicate their success. Third, you want an ally that you can call on. This is someone that you can call and know and not feel guilty about only talking about yourself and not them. If you talk to your friends or your business partner or someone you have a relationship with, you kind of have to talk about them too, whereas with a mentor, since you’re paying them, you don’t have to worry about that; you can talk about whatever you want, whether it’s related to the next step in the syndication process, or something going on in your personal life.
And then lastly – and this is key – is you want connections. The reason why you want someone who has a successful track record, is active and is doing the same strategy that you want to do is because they’re gonna have all the connections you need. They should provide you with a property management company, they should provide you with a broker to reach out to, attorneys. They might even have access to a potential passive investor for your deals. So they should have connections.
Now, the two things that you should not expect from a mentor is going to be a knight in shining armor; you’re not gonna hire a mentor and then magically have a syndication deal done or in your lap tomorrow. If you actually find a deal, you don’t want a mentor that’s going to do everything for you.
In a similar note, you don’t want a done-for-you program. You want that do-it-yourself program. So you don’t want the program where they essentially do everything for you and you just pay them and you get a deal… Because 1) that’s probably too good to be true, but 2) more importantly, you’re going to be reliant on that person forever… Because if you are not using their do-it-yourself system and actually acting on it yourself, or you’re not getting connections from them but actually talking to these people yourself, then you’re not gonna know what you’re doing… And if you don’t know what you’re doing, then you aren’t gonna be able to do it by yourself, and you’re always gonna need that mentor, and you’re gonna be paying them forever.
So that’s what you should expect and want out of a mentor. When you’re talking to a prospective mentor, make sure they meet those qualifications. Now, the benefits of the mentor when it comes to the types of skills you’ll obtain that you can apply to syndications is really everything. With a paid mentorship, they should have resources that teach you how to do all aspects of the syndication process. You should understand the acquisitions phase, you should understand how to raise capital, and you should understand how to asset-manage a deal.
Now, all you need to do is go out there and actually act on that strategy, but you’ve got a huge head start, because you don’t have to eliminate or at least reduce that trial and error period. And then secondly, you’re also going to have an advisor that you can call upon whenever you have any issues or questions. So since they’re active and successful, and have ideally been doing this for a while, they should understand the common mistakes that syndicators make, because they probably made them themselves… So they could 1) provide you with resources that tell you how to avoid those mistakes, but if you do happen to make a mistake or are faced with a challenge, rather than having to face that on your own, you are paying someone to face that challenge with you. And again, they likely know what to do to overcome that obstacle, and they can tell you what you need to do.
Another advantage is that you are going to have an additional level of trust with your passive investors, because when you are talking to them, you can let them know that you have an advisor on your team. For example, let’s say Joe is your advisor – you could say “Well, I’m a part of a program that is managed by Joe Fairless, who has been a syndicator for many years now, and controls over 400 million dollars in apartment syndications, is tapped into a huge network of apartment syndication professionals, and he will be a part of the team as well.”
So you’re essentially leveraging (in this case Joe’s) your mentor’s experience in order to gain additional trust in the eyes of the investors. Because if you’re by yourself, investors might or might not trust you, depending on if they know you or not… But if you tell them that you’ve got an advisor who’s done hundreds of millions of dollars in deals, then they are going to trust that you’re gonna have the ability to preserve their capital and meet their return projections because of your team.
Then lastly, as I mentioned, what you should expect out of the mentor are the connections. When you have a mentor, you don’t have to worry about finding team members. You shouldn’t have to worry about finding team members yourself. They should provide you with connections, actual people, or at least provide you with a system that you can use to find team members in your particular market.
Overall, the advantage of the mentor is that all the different skills that you need to acquire in order to be a successful syndicator are going to be available to you because the mentor should provide you with a system that tells you exactly how to acquire those skillsets and how to identify the skills that you do have. And if you don’t have a certain skillset or aren’t gonna be able to acquire that skillset in the right amount of time, they should also have a proven system for how to find the right connections so you can offset your lack of experience and lack of skills with the right team members.
Now, in regards to timing, technically you could hire a mentor tomorrow if you had one in mind, but it’ll probably take a few months to actually find one, and then depending on how much their program costs, it might take a couple of months up to a couple of years to save up money to actually afford the program. Then once you’re in the program, it really depends on the offering.
Some mentors might say it’ll take you 12 months to do your first deal, others might say it might take you five years to do your first deal. So the timing of when you actually do your first deal depends, but once you find the mentor and have the money, then you can get your foot in the door right away. So that’s number five, a paid mentorship.
The reason why I focused on the paid mentorship so long is because it is the foundation of the next strategies I’m going to discuss. The rest of the strategies I’m going to discuss involve working with a syndicator. Most mentors – or actually all mentors – should be active syndicators. If you can’t afford the mentorship or you want to go a different route, another approach – which is number six – is to intern for an apartment syndicator for free. So you’re not paying them, they’re not paying you; you’re doing it for free.
In order to find this person, follow the similar approach that you would to finding a mentor: through referrals, attending conferences, seminars and meetup groups, searching on Bigger Pockets, listening to podcasts, watching YouTube videos, reading blogs, searching on different social networking sites like Facebook and Twitter and LinkedIn… There are a lot of different ways to actually find this person.
Now, for the mentorship option you’re actually paying them money, so that’s how you’re adding value to their business, and that’s why they’re choosing you, because you’re paying them. For this strategy, since you’re not paying them, you have to ask yourself — or a question that you’re probably asking yourself is “Why would they hire you, as opposed to the tens or hundreds of other people who are reaching out to intern for them?”, or as opposed to people who are willing to pay them for a mentorship?
For example, Joe gets multiple e-mails from people who are interested in interning for them… Their messages will be very thoughtful, and very long, and they’ll describe their background, but the gist of the messages are usually them saying that they’ll work for Joe for free, or that they are willing to work for Joe, “Please let me know what I can do to help your business.”
Now, if you find a syndicator who’s just starting out, that would probably work, because who would turn down free labor? But once you gain experience, once you become a syndicator at Joe’s size, then simply offering to work for free isn’t enough of a value add, and it’s not worth taking that risk and extra time investment to train this person, tell them what they should do etc.
Then for the second most common message, which is when people reach out and they ask “Is there anything I can do for your business?”, again, the problem with that is that the syndicator is not gonna know what your abilities are, so they’re gonna have to figure out what you can do, or they’re gonna need to tell you what to do, and again, that’s going to take up time. And for a starting syndicator it could work, but if you wanna find the right syndicator, who has a strong track record, those two strategies aren’t gonna work.
So what can you do instead? Well, rather than offering to work for free, or rather than saying “Hey, what can I do for you?”, instead offer something more than your free labor. The exact strategy of how to do this is to conduct research on that person’s business — again, this entire strategy is as powerful as you are creative. Step one is to conduct research on their business. That doesn’t just mean going to their website and reading what they do, because their About Us section is gonna be very similar to anyone’s About Us section; it’s not gonna be specific enough. So listen to their podcast, or read their blog, visit them at a meetup group, maybe try to take them out to coffee, try to get to know them on a more personal, specific level.
The reason why you wanna do this is because you are trying to identify any need that they might have, even if it’s a need that they don’t know that they have… But identifying some sort of need that they have, so that when you reach out to them, you can offer to fulfill that need.
For example, let’s say you’re listening to a podcast by a syndicator, and they are expanding to a new market. What I would say to myself is “Okay, well, they probably need to evaluate that market. If they don’t live in that market, they might need someone to help them look at deals in that market, or they might need someone to bring them deals from that market.” Those are three things that you can do to help that syndicator fulfill their need.
So what you would do is you’d reach out and say “Hey Joe/Theo/syndicator, my name is Theo. I actually live in the market you’re expanding to, so I would be willing to do the boots on the ground market research; I’ll drive around to the different submarkets you’re interested in investing in, and I’ve already conducted a market evaluation report which I’ve attached to this e-mail. I’m also in conversation with brokers in this market, so if I find any deals, I’ll send them to you.” Boom.
Now, compare that message to “Hey Joe, I’m willing to work for you for free. Let me know if there’s anything I can do.” Huge difference. Something that I added to that example was instead of just offering to do something, I already did it, so I already conducted the market report and attached it to that e-mail. The entire idea behind this is to use your unique skillsets and creativity to proactively add value to the syndicator’s business in order to stand out from the sea of other messages that they’re receiving, and to show them that you’re willing to put forth effort and that you can actually add value to their business.
This strategy is really close to home, because this is exactly how I broke into the syndication business. I went to Joe’s meetup group, and he mentioned a need that he wanted help with the podcast. I told him – even though I had zero experience with podcasts – I’d help him out, and rather than just doing what he told me to do, I put together a business plan for how to expand the podcast’s reach. It included doing a newsletter, I logged every single review that he had, which was hundreds of reviews, and I categorized all of them based off of the type of advice or feedback that was offered, and gave some tips on what we could do to improve the podcast.
So I went above and beyond what Joe was asking, and because of that, three years later I’m sitting here talking to you, hosting an episode on Joe’s podcast.
What’s great about this strategy is that the opportunities are really endless. Once you get your foot in the door, even if you get your foot in the door as an assistant or bringing them a deal, or really anything… Once you get your foot in the door, then the opportunities are going to be limitless, and I could not have expected to be where I was a few years after meeting Joe.
So what’s really nice about this interning for free strategy is that it’s gonna be harder to actually do, but once you do it, the opportunities are really going to be limitless. And in regards to the actual skills that you’ll learn, you could learn one particular thing; maybe you just help them evaluate deals or find deals… Or you could learn the entire syndication process eventually, by working under them. It’s really depending on the role.
Now, in regards to timing, again, this is a very unique strategy, so it kind of depends. Maybe you find a syndicator who is willing to take you on as a free intern in a few months; maybe it takes a few years. This is a strategy that you should be implementing alongside another strategy. You shouldn’t be doing this by itself. Maybe you should be investing yourself, as well as working your way up through your company, and starting your thought leadership platform while reaching out to one syndicator a week, and offering to proactively add value to their business. So that’s number six – intern for an apartment syndicator for free.
These final three (seven, eight, nine), you could do by itself, or it could be something that you do in tandem with another strategy… Or these are three ways that you can proactively add value to that apartment syndicator’s business based off of your background.
Again, how you add value is based off of your creativity and your unique skillsets, but these are three specific examples that really anyone can do in order to add value to that syndicator’s business for free.
Number one is to find off-market deals for that syndicator. Figure out what types of deals they’re looking for, and then find them that deal and present it to them. For example, the types of deals that Joe looks for are properties that are built after the 1980’s, that are in or near a major city, that are over 150 units, and there’s an opportunity to add value. Now that you know that, if you find a deal and send it to Joe, maybe they end up buying that deal, and you can get your foot in the door that way.
In regards to actually how to find off-market deals – it’s not the focus of this podcast. We’ll have plenty of episodes in the future about finding off-market deals. But the benefits and the skills you’ll get – number one is pretty obvious, which is you’ll understand how to find deals, as well as evaluate these deals as they come in. You’ll also be able to make some money; you’ll either make a finder’s fee, or receive an equity stake in that particular deal.
So for the timing for the strategy, it’s probably gonna take you six months to a year to find your first deal, if you’re starting from scratch right now. So that’s number seven, finding an off-market deal and presenting it to a apartment syndicator.
Number eight is to get access to private capital. This is something that you either already have, or that you can work towards gaining, and focus 100% on that. Focus 100% of your energies on raising capital. When you do that, you can offer to raise capital for a syndicator’s deal.
Syndicators are always looking for capital for their deals, so if you can raise a couple hundred thousand dollars for investors deal, you can gain credibility in the eyes of those particular passive investors and future passive investors, because you have experience raising money and returning their capital, even if it’s not necessarily your deal.
You’ll also get your foot in the door with a syndicator, and have the ability to raise capital for future deals… But also, as you successfully raise capital for these deals and create a larger and larger investor database, then the goal would be to eventually partner up with someone who has operational experience and start a syndication business together. You would be the equity raiser and they would do everything else.
This is actually what my business partner and I are doing. He has raised money for some of Joe’s deals in the past, and I have the operational experience, so we’re partnering up. Again, he’s been raising money for a couple of years, but he’s got the credibility with his investors, and the credibility of success raising money, which goes a long way for both the investors and the various team members – the mortgage brokers and the real estate brokers – when you are looking to find deals and secure financing.
Again, for this strategy, the timing really depends on where you’re at right now. If you have access to zero capital, then it’s gonna take you some time to build up that network and then find that syndicator, and then actually raise money for one of their deals, and then build that investor database up before you can partner with someone else and start your own business. But if you have access to a lot of capital right now, then you could likely start your own syndication business. All you need to do is find that partner, which finding a business partner will be the subject of future episodes. Again, for this one, it kind of depends on where you’re at. If you have access to capital now, you should be able to break into the industry pretty quickly.
And then lastly, number nine is to passively invest in apartment syndications. You can break into the industry by passively investing in apartment syndications. Now, when you reach out to that apartment syndicator that you wanna intern for, that’s one way that you can add value to their business. You can mention that you have money to invest in their actual deal. Now, this probably isn’t the best way to become an intern, because it’s actually in the word “passive investor” – you’re gonna be passive, so you’re not gonna be involved in the actual operations of the business, or you’re gonna have trouble becoming an intern, because they have a lot of passive investors. It’s still worth trying, but in general, you can break into the apartment syndication industry by passively investing in a deal.
The benefits of this and the proven skills you’ll get by passively investing is 1) you can leverage that experience and credibility, because you had been a partner in a larger apartment deal. So if you want to become a syndicator yourself, you can mention that you’ve invested in the past.
Now, that’s kind of indirect, because you’re not necessarily doing anything if you just invest your money and your only other involvement is collecting your checks… But there are ways to become more active, in a sense, in these types of deals.
For example, you’re going to get experience reviewing deals. Whenever the syndicators have a new deal, they’ll typically send out an investment package that highlights that major points of the deal, as well as goes into detail on the financials the property description, the market… So you can read through all those, and that will give you a very basic understanding of the evaluation process, how to underwrite deals, how to evaluate markets, things like that.
But then something else that you can leverage is the syndicator’s experience, only during the due diligence process. Once the deal is under contract, and before they close, when the syndicator is raising money from passive investors, they’ll typically do some sort of new investment offering call, where they’ll present the deal and then have a Q&A session at the end. Any questions you have about the particular deal or their investment strategy, you can ask, and then you can also e-mail them questions throughout the due diligence period as well.
Now, I’m not saying you can e-mail them 1,000-word blog posts with 50 questions about the deal and then not invest, because it’s not gonna look very good, but asking him a handful of questions that are the most important to you is possible and is encouraged during the due diligence process.
Now, the timing for this strategy could be today. You could invest in a deal right now if you had the money and are on a syndicator’s list, or it could take a few years to become liquid enough to invest in a deal and to find the right syndicator and to find the right deal.
So that’s number nine, passively invest in apartment syndications, and just to summarize the strategies five through nine again – number five is to get a paid mentorship with an apartment syndicator. Number six is to attempt to intern for an apartment syndicator for free. Number seven is to find off-market deals for an apartment syndicator. Number eight is to raise capital for an apartment syndicator, and number nine is to passively invest in an apartment syndication yourself.
Before we end, I wanted to tie all the nine strategies together and just quickly go over three themes of these that are consistent between these three strategies. These are three things that you need to keep in mind when you are interested in breaking into the industry.
Number one is patience. For all of these strategies, I went over how long it would take to actually break into the industry once you’ve decided to actually act on that strategy, and once you’ve broken in, how long it will take to actually do your first deal. The majority of the strategies take at least a couple of years before you do your first deal.
Unlike wholesaling, where you could probably wholesale a deal in a week, or fix and flipping which you could do in a couple of months, apartment syndication is a long-term strategy. Even if you have all the education, all the experience today, it’ll still take you 12-18 months to do your first deal, because you have to find the right team; once you find the right team, you have to find the passive investors. Once you find the passive investors, you have to find the right deal. Once you find the right deal, you have to hopefully get your offer accepted, and once you get your offer accepted, you’ve got a couple of months of due diligence before you actually close. And then your work just gets started, because you have to actually implement the business plan and sell the property in order to conserve your investor’s capital and provide them with returns.
So since this is a long-term strategy, a lot of these strategies take a long time to come to fruition. You have to be patient.
The second theme is I went over nine different ways to break into the industry, and the best strategy for you is going to be based off of your background, your unique skillsets, and your willingness to put effort forth. You need to be honest with yourself, with your skills, with how much work you’re willing to put forth based off of past efforts, past businesses or past jobs, and figure out what’s the best approach for you.
If you’re a hustler and you’ve got a proven track record of being a hustler, then interning for an apartment syndicator might be the best strategy for you. But if you know you’re not necessarily a hustler, then maybe you should just pay a syndicator; that way everything’s not going to be done for you, but all the systems are there for you to use, and all you need to do is act on what someone else tells you to do until you build up the ability to do that yourself.
So be honest with yourself and based off of that assessment, pick the best strategies for you, keeping in mind that maybe the best strategy for you is not to become a syndicator right away. Maybe it’s to work for a syndicator, or work in another commercial real estate branch in order to build up the experience and education first.
Then the third theme between all of these is the idea of partnering up. For all of these strategies I went over the proven skills you’ll learn, and what you’ll realize, except for maybe the mentorship and the interning strategy, is that you do not cover all of the skillsets required to do a syndication. Sometimes you only learn one specific skill, sometimes you learn half the skills, but never all of the skills. So don’t try to do it all yourself. Find a partner(s) to complement your skillsets.
Also, don’t be afraid to give up a percentage of the general partnership to get the deal done. If you, for example, are the equity raiser and you can’t raise equity for 100% of the deal, don’t not do the deal because you’re not gonna get your full equity stake or ownership stake in the general partnership. Instead, network, find others to raise money, and offer them a percentage of the general partnership instead. Because as the saying goes, 50% of something is better than 100% of nothing.
Those are the three themes between all nine of the strategies, which is patience is key; two, be honest with yourself when choosing the ideal strategy, and number three, don’t be afraid to partner up with someone.
In this episode you learned ways five through nine for breaking into the apartment syndication industry, which was number five, paid mentorships, number six, interning for an apartment syndicator, number seven, find off-market deals for an apartment syndicator, number eight, have access to private capital, and number nine, passively invest in apartment syndications.
Then we went over the three main themes that are consistent between these nine strategies, which is patience is key, be honest with yourself when choosing the ideal investment strategy, and don’t be afraid to partner up.
This is the conclusion of part two. Make sure you listen to part one to hear the first four strategies, and you can listen to other Syndication School series as well, about the how-to’s of apartment syndications, and you can download the free documents we have available. All that can be done at SyndicationSchool.com.
Thank you for listening, and I will talk to you next week.