JF1751: How To Secure Commitments From Your Passive Investors Part 1 of 8 | Syndication School with Theo Hicks

June 19, 2019 | Joe Fairless | 00:24:34

JF1751: How To Secure Commitments From Your Passive Investors Part 1 of 8 | Syndication School with Theo Hicks

We’ve heard a lot about the apartment communities and due diligence process for your apartment syndication acquisitions. Now, Theo starts covering how to secure commitments from your investors. There is a lot to go over here, so this will be a six parter. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Don’t tell them no, the deal is full, come back next time. Add them to your waiting list”


Free Document:



If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


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, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks.

Each week we air two podcast episodes that are part of a larger podcast series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these series we will be offering a document, spreadsheet, PowerPoint template, some sort of resource for you to download for free. All these free documents and past Syndication School series can be found at SyndicationSchool.com, or you can check in to the Best Ever Show podcast page or your podcast app on iTunes, on every Wednesday and Thursday, because that’s when we release these episodes.

Today we’re beginning a new series entitled “How to secure commitments from your passive investors.” If you haven’t done so already, I highly recommend listening to all of the previous Syndication School series, but more importantly the previous two, because after you put a deal under contract – that’s where we’re at right now, the three things that you need to do is 1) secure financing, 2) perform due diligence, and 3) secure commitments from your passive investors. We’ve already done the first two, and now we’re gonna focus on the third.

In this episode we’re going to introduce the five things that you need to do in order to secure the financial commitments from your passive investors, and then we’re gonna begin by focusing on step number one.

At this point, as I mentioned, you should have a deal under contract, as well as verbal commitments from your passive investors. So if you remember all the way back in series number 9, a long 8-part series, so four weeks of how to raise capital from passive investors, how to find passive investors; at that point you didn’t have a deal, but we discussed how you want to actually get verbal commitments, or at least interest from people, because you don’t want to be scrambling for capital once you have a deal under contract, but also you needed to know how much money you’re capable of raising in order to determine what sized and type deals you can go after.

So at this point in the process a deal is under contract and you’ve got your list of passive investors. If you do not have a deal under contract, don’t have  a list of passive investors and wanna find out how, go to SyndicationSchool.com and check out those podcast series.

Now, overall for your first deal or your first few deals expect to be fairly proactive when you are in the commitment securing phase, because — we’re gonna go over this, but once you’ve sent out and presented a deal to your investors, you’re likely going to have to do some following up, because none of these people have invested with you before. Once people become comfortable investing with you, once they’re confident in your ability to provide them with the returns, and ideally you have a waiting list — ideally, once you send out the deal, you’ve got people e-mailing you their commitments on their own. But in the beginning – and we’ll discuss how to follow up, but I just wanted to mention, overall expect the process to be more proactive in the beginning and become more reactive as you gain more and more experience.

Before introducing the five steps I just wanted to also mention how to determine how much money you actually need to raise. If you remember, during the underwriting phase one of the data tables – the output of that data table was the amount of money you need to raise, and we also discussed specifically what the different factors are that make up the initial equity investment. Little things like, obviously, the down payment for the loan, any construction costs (if those are not included in the loan), closing costs, financing fees, acquisition fees and then the operating account fund.

So once you’ve underwritten your deal, if you use the simplified cashflow calculator or a different calculator, and that simplified cashflow calculator is available for free at SyndicationSchool.com, then you will essentially automatically have the output for how much money you need to raise. If for some reason you’re doing it manually, then you’re gonna have to go back and listen to that series about how to underwrite a value-add apartment syndicated deal to determine how to calculate those 5-6 factors that make up the equity investment… But that’s how much money you’re going to need to bring to the table at closing in order to close on a deal… But we always recommend that you raise capital on top of that.

That doesn’t mean that you’re actually taking money from people, but once you’ve reached 100% of your equity investment, and those people are sending you their money or their capital, don’t turn away someone else who comes and says “Hey, is there still availability? I wanna invest 100k in the deal.” Don’t tell them “No, the deal is all filled up. Come back next time.” Instead, say “Currently we’ve raised 100% of the equity, but I will add your name to a waiting list. Obviously, the first person is the first on that list, the second person is second on that list, so that if someone drops out, you can take their place.”

Now, the reason you wanna do this is because if someone does drop out, which is possible, you don’t want to be scrambling for capital. You want to have a list of people that are already interesting in investing that you can reach out to, rather than sending out the e-mail to everyone again. So a good rule of thumb is to have 150% of the capital required to close raised. So if you need to raise a million dollars, then once you’ve hit that million-dollar mark, then your goal would be to get a waiting list with $500,000 on it.

So let’s now transition into the meat of this series, which is going to be how to secure commitments from passive investors. We’re just going to go through each of these steps one by one, and kind of go into as much detail as possible, and kind of continue on for however long it takes us. This might be a six or an eight-part series. I’m not 100% sure yet.

As I mentioned, there’s five steps. The first step is for you to create an investment summary. Step two is going to be for you to e-mail the deal to your investor database. Step three is going to be to conduct the conference call/webinar for the deal with your investors. Step four, which again, is going to be more for the beginning syndicators – that will be follow-up to actually secure the investments, and then step five is going to be to send the proper documentation to formalize your investors’ investment.

As I mentioned, we are going to be focusing on step one in this episode, in the next episode, and maybe even in the third episode of this series. That is going to be to create that investment summary.

So as the name implies, the investment summary is going to be a document — it’ll actually most likely be a PowerPoint presentation, just so you can design it, rather than sending a simple Word document… But it’s gonna be some sort of document that provides your investors with the details on the investment.

So step two is e-mail your investor database. In that e-mail you’ll want to include — we’ll go into more specifics when we get to that point, but you’re gonna want to include high-level highlights of the deal, and then you’re gonna want to include a link to an investment summary that you’ve created.

In this episode we’re gonna walk through an actual investment summary. I’m gonna explain to you what the information is and why it’s in there. We’re also going to be giving you a free investment summary template that we have, so that you can download that and follow along, or you can download that and use it for your own deals.

So the investment summary — it’s really gonna vary depending on the syndicator, but the one that we have that we’re gonna be offering the template for free has seven different sections. There’s the executive summary, there’s the investment highlights, there’s the property overview, there’s the financial analysis, there’s the market overview, there’s the portfolio and case studies, and then there is the appendix.

Now, when you actually download this, you kind of recognize it from one of the earlier Syndication School series about underwriting, because the investment summary looks fairly similar to the offering memorandum put together by the broker.

So you have in your investment summary the deal/investment highlights, property description, financial analysis, market overview, and all those things are also included in the OM… But unlike the OM, this is your information based on your underwriting. So let’s go ahead and go through this template together, and we’ll go until we hit the 30-minute mark for this.

First page – we’ve got a couple pictures of the property, title of the property, the location of the property, number of units… You wanna mention that it’s a confidential investment summary, so people can’t send this information to whoever they want. You’re asking them that it’s only for prospective investors, and that’s it.

The next page, page two, is where we get into the actual details on the deal. That’s going to be the executive summary. On this you’re essentially going to provide all of the valuable, important information that your investors need to know. If someone just looks at this page right here, they could essentially make their investment decision off of that. Then everything else in the investment summary is going to essentially be how you got to all these numbers.

On the executive summary, the first paragraph explains “This is the property name, this is the number of units, the deal is on market or off market”, maybe it’ll have some information about the business plan, so any upgrades that you’re doing to the property… So it’s gonna have some written words, but the meat of it will be the data table.

As you’ll see, there’s a few data tables on there. First, there’s the investment snapshot, which goes over the high-level numbers of the deal – purchase price, how much money we’re spending on the renovations, the closing costs, and then the total project cost, total capitalization, number of units, the year the property is built and current occupancy. Then based on the business plan, what are the returns gonna be – overall it gives you a total equity multiple, a total average annual return, and an internal rate of return. So if you remember during underwriting, the average annual return and the internal rate of return were the two major factors that you used to determine whether or not you should invest in that deal or not.

And then it goes into detail on the average annual return and the internal rate of return… Usually, you’ll want to include the project cash-on-cash return and the project IRR, as well as the IRR and the cash-on-cash return to your investors, just because the investors don’t necessarily care how the overall project will perform. They wanna know what the return to them will be.

At the bottom of the executive summary page we have a breakdown of a sample $100,000 investment. “Here’s how much money you will make each year based on a $100,000 investment.” Then there’s also the partnership structure data table, which essentially just explains the structure of the partnership between the LP and the GP. So what’s the preferred return, what’s the IRR, are there any hurdles – if so, what’s the equity split before that hurdle is reached, and what’s the equity split after that hurdle is reached. For example, if the preferred return is 8% and the IRR is 20%, then the split might be 70/30 to the LP/GP up until you reach 20% IRR, and then that changes to 50/50.

That’s the executive summary. Then the next page goes in the table of contents. There’s more pictures on there as well, so you wanna make sure that at least every other page there’s some sort of picture, just so people aren’t inundated with text.

As you’ll see here, there’s a quick risk and disclosures page. For this, you need to input the property name and the address and anything else that’s specific to the property, but these risks of real estate investing are pretty general. You’ve got “In general, here are some risks, here’s some selling or refinancing risks, here’s some government regulation risks, and here’s some environmental liability risks.” And there’s even more risks on the four or five pages of risks on here.

The next important part of this report is going to be the investment highlights. Again, as I mentioned, you’ve got your executive summary – that summarizes everything that’s in the investment summary. The investment highlights is going to be something that the main points of this are in that executive summary.

For this particular example that I’m looking at, the investment highlights are broken into the business plan, how solid the asset is, and then the school district and location highlights – market highlights, they kind of talk about our underwriting, it talks about the proven track record of the team, and it talks about the returns.

Other examples could be information about the debt, information about the renovation program, information about the exterior program… It really just depends on what the highlights are of this deal. If you aren’t performing renovations, then you probably don’t wanna talk about it. If the market is not very good, you probably don’t wanna talk about it. If the asset currently isn’t very solid, then you don’t want to put “Solid asset.” So some examples of things you’re gonna highlight for each of those different sections that could potentially be in the investment summary…

For the business plan, you’re gonna focus on the interior renovations. For example, what percentage of the units have already been upgraded, and what percentage of the units still need to be upgraded… Because if 98% of the units have been upgraded, then there might not be enough meat on the bone for a value-add program.

What types of upgrades will you be implementing? How much will these renovations cost for each unit? What’s the renovation timeline? What rental premiums do you expect to demand after you’ve upgraded those units?

You can also highlight operational improvements. How – if you are – will you improve the operations of the apartment? Are you gonna rebrand the apartments? Will you have someone taking over operations that has experience? What strategies will you implement to improve the operations? Did you identify anything during the underwriting process that you know you can improve upon pretty quickly?

As I mentioned, financing… You can discuss the type of debt you’re securing on the property. Is it low interest rates, fixed debt, is it an assumable loan? Do you plan on doing a refinance or supplemental loan, and if so, is that included in your projections? Did you buy a cap on the interest rate if it’s floating? Again, you wanna highlight things that are actually positive about this deal. So if you’ve got a really bad loan, then you probably don’t wanna talk about that in the investment highlights. Or if you do, you wanna mention why the loan is not very good.

Also, you could talk about — and this is all under the business plan… You can talk about your exit strategy; when you plan on selling the property. Do you plan on refinancing? If so, when? Is the refinance included in your return projections? Which is something you don’t want to do, because it’s [unintelligible [00:17:14].23] return of capital, but if you’ve got a refinance projection at year two, and they’re getting 50% of their capital back and you [unintelligible [00:17:21].22] cash-on-cash return that year, it’s gonna throw off all of your returns.

Those are things you can add in the business plan. If you have a category specific to the actual interior renovations, then you can for example include a picture of a non-renovated unit and a renovated unit, so the investors can visually see the types of upgrades you will be implementing. If the current owner has already started a renovation program, then the renovation picture could be of an actual unit. If they haven’t, then you should either pull a picture of a similarly upgraded unit from a different property you have, or ask your management company for an image to include.

Also, below that you wanna include a little description of the renovated unit and the non-renovated unit. On the non-renovated unit you could say “White appliances. Cheap laminate flooring. Terrible countertops…” Obviously, you don’t say it like that, but just whatever the materials are… And then on the upgraded it could be “Stainless steel appliances. Luxury laminate flooring”, things like that.

You could also have a category for your capital improvement budget, so you’re gonna have a data table that outlines all of the interior and exterior capital improvement costs. As I mentioned, you could do something about the debt summary. You could do a school district and location highlights… These are really just market highlights, so anything important about the market, whether it’s the market ranks really high in jobs, the school district is ranked really high, what’s the demographic, what’s the average household income, what’s the average property value, you can talk about your underwriting… For example, let’s say your rental premiums that you’re projecting are $100/unit, but the comps are $150/unit; that’s something you obviously want to highlight.

You can also talk about your team – how many units does your property management company own, how are those compared to this property, things like that.

And then as you’ll see on the template, after they go through bullet points, there’s actually a section called Investment Strategies, which goes into more — not necessarily specifics, but essentially takes the things that aren’t necessarily the main highlights and describes them in paragraph form. It talks about “Here’s our exit strategy. Here’s the returns we expect. Here’s our improvement plan. Here’s our debt summary”, things like that.

Next we’ve got the property overview section, which is essentially just a bunch of data tables about the property. You’ve got your property information, which is the purchase price, the number of buildings, number of units, rentable square feet, price per unit, year built, land size, what’s the water situation, what’s the utility situation, what’s the construction of the property, what’s the parking situation… And then it lists out “Here are the community amenities and here are the standard unit features.” And again, you wanna make sure you’ve got some pictures as well.

Next we’ve got the unit mix information. It shows you “Here are the different unit types, here are the number of each of those unit types, here’s what they are from bed/bath perspective, here’s the size, the square footage, here’s the current market rents and here’s the rent per square feet.”

Then you’ve got your site map. Under Template it’s blank, but on this particular example I’m looking at the property site map that shows you where all the buildings are and where all the amenities are, and the surrounding streets. Then we’ve also got kind of a Google Map view of the apartment, with a red line around the boundaries… Then you’ve got your standard map zoomed out, that shows “Here’s the subject property, here’s all the surrounding landmarks.” On this one [unintelligible [00:21:02].05] industrial park with a bunch of businesses in it, here’s an airport, here’s the major highways… Again, it’s gonna vary from deal to deal, but you wanna include a site map of the property, you wanna include that Google Map image, and you’ll also wanna include something that  highlights visually the different types of landmarks, retail, restaurants, jobs that are surrounding the property.

And again, for the property information — I guess I should specify where you find that from; you need to find that on the OM. Typically, the information will be listed by the broker. If not, you’ll find it by looking up the property on Apartments.com. Then for the community amenities and the state of unit features – that’s something you should have gotten either from the OM, from the property website, or when you actually visit the property in person.

I probably should have gone over this earlier, but for the executive summary, the investment snapshot, the partnership structure, the yield projections, the sample $100,000 investment – all those numbers are from your cashflow calculator.

Same with some of the investment highlights and the investment strategies. Look at the numbers from your cashflow calculator and then put together your business plan – that’s something you should have done already. We talked about that in the chapter on underwriting.

After the property overview, it goes into the financial analysis, and we’re gonna stop here for today and we will pick up on the financial analysis on tomorrow’s episode.

So far in this episode we discussed obviously where you should be at this point in the process, which s have a deal under contract and have those verbal commitments from your investors.

On your first deal, expect your the money-raising process to be more proactive on your part. We’ve talked about how you wanna make sure that you’ve got 150% of the capital required to close in verbal commitments. You wanna have 100% of equity lined up, and then after that you want to create a waiting list of 50%; it could be 33%, or 100% more… It really depends. The rule of thumb is 50% extra, so that if someone backs out you’re not scrambling for capital.

Then we’ve introduced the entire money-raising process, which are five steps, which are create an investment summary, e-mail your investor database, conduct the conference call, follow up with your investors and send proper documentation. And we got about halfway through the investment summary in this episode. As I mentioned, we will pick up back with the investment summary tomorrow.

In the meantime, make sure you listen to some of the other Syndication School series about the how-to’s of apartment syndications, and make sure you download that free investment summary template at syndicationschool.com.

Thank you for listening, and I will talk to you tomorrow.

Follow Me:  

Share this:  

You may also like

Leave a comment

Joe Fairless