Is this fair?? 1.3 Million syndication structure.

[Cole Johnson]

Hey BP,

So I have recently purchased a 4-plex and its going great. Now im on to a 46 unit apartment building. I am partnering with a bigger broker in town that is into real estate. We are going to be offering on this building and are going to be raising money to fund the down payment. This is looking like a great deal, being conservative the cap rate is 10% and ROI is 13%. I just got done sitting down with him and here are my concearns.

There is a 15% deal structuring fee. This will be split 3 ways equally.

1.ME

2. Him

3. His brother

This seems like a high deal acquisition fee to me. The way we get it is him and his brother will do everything up to closing. After closing they are out and I manage the building. I will also get a 5% managing fee on the net income, which i can defer to a management company at any time.

All of us are going to be puting money into the deal as well and are going to have to raise around 275k from investors.

Should I ask for more anywhere else? They dont have any other rental properties but their family owns ALOT.

What do you think is this deal fair to me?

[David Thompson]

Hi Cole,

Yes, 1-3% acquisition fee; 1-3% asset management fees are the main fees that syndicates charge and are industry averages.  Syndicates with a lot of experience and solid track record get 2-3%.  Newbies in the 1% range.  Splits 70/30 very common for experienced operators and I see clubs / newbies going 80/20 or 75/25 to just get some experience going and attract investors in w/higher potential returns for the limited partner.  Any investor w/experience won't signup for a 15% fee off the top.  Certainly roles should be defined but if this is a partnership the partners should be putting in money into the deal and aligning w/the investors.  The GP should be getting most of their return on the backend not front end.

Couple other tips.  Raising capital has important legal considerations so seek out a competent attorney w/SEC experience in doing syndications.  Here's a few blogs to review that might help you as you enter the syndication game and position yourself favorably w/investors.

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/53959-vet...