How to do first multifamily syndication deal with no money down?

[Jameel Jason]

Hi Everyone, 

I am really getting into multifamily in the Indianapolis area and I am looking to scale my business to the next step.  A friend of mine who is a buy and hold investor for large multifamily units told me that he prefers to do larger deals because of the cash flow.  So far it's working wonders for him and he is only been in the game for 2 years. 

I would love to understand what creative financing options are out there to do large multifamily with no money or little money down? I have heard of sellers carrying 2nd mortgages for down payments. What other ways can you do it? 

Thanks

[Gary Leonard]

Quote from @Jameel Jason:

Hi Everyone, 

I am really getting into multifamily in the Indianapolis area and I am looking to scale my business to the next step.  A friend of mine who is a buy and hold investor for large multifamily units told me that he prefers to do larger deals because of the cash flow.  So far it's working wonders for him and he is only been in the game for 2 years. 

I would love to understand what creative financing options are out there to do large multifamily with no money or little money down? I have heard of sellers carrying 2nd mortgages for down payments. What other ways can you do it? 

Thanks

Well first you need to determine your overall approach.  Too often I see new investors who are all over the map, ready to take on the world, but never even begin.  

It sounds like you are trying to invest in multi units with little or no money down, rather than being a syndicate.  In syndication, your job would primarily be A) Find Multi Family Homes B) Analyze multi family deals and their proforma info etc.  C) Present investment opportunity to a pool of viable passive cash investors.  

example:

Lets say a 12 unit complex is for sale and all of the numbers checked out as being a "great deal".  Let's say the seller wants $1,500,000, the facility needs roughly $700,000 in renovations and upgrades and the fair market value of the property comps out at $7,500,000.

You negotiate with the seller and agree on a purchase price of $900,000 instead of $1,500,000.   

You create a report with real time data, photos etc.  and present this information to passive investors.  You will need, in this example:

$900,000 purchase

$54,000 closing admin costs 

$700,000 for renovations 

Total money needed: $1,654,000 for this investment that has a proven top of market value of $7,500,000.  

Ensure you determine then specify your exit strategy.  Have a timeline and payment methods to investors.  Since you don't have the funds, you need investors looking for returns who dont want NO management responsibilities.  

So you market this deal to investors for shares.  Let's say for this example 1000 investors have given you $1,654.00  

Money needed: $1,654,000

Money collected from interested passive investors: $1,654.00 × 1000 investors = $1,654,000.00

You collect the money and make the purchase, oversee renovations and watch your budget.  

Budget: 

Projected  $1,654,000

Actual $1,250,000.00

Relisted for $7 million 8.5 months later the multifamily sells for $6.5 million

Money made: $6.5 mill - $1.250 mill = $5,250,000 profit made

Now, since you used crowd funding through syndicating 1000 investors your split overall is 70/30 split.  

You receive: $1,575,000 for syndicating the deal

The investors overall made $3,675,000 /1000 investors = $3,675.00 return on $1654 investment.  Each investor within your syndication pool made a profit of $2,021 over their $1,654 initial investment.  

You will need to sharpen your understanding on analyzing deals, leveraging help in areas you suck or are "so-so" in doing, and have a great market approach. Syndication is basically you collecting other investors money to invest in real estate that will yield them a medium to high ROI. You may spend $0 on the actual investment since your using OPM, however, your responsibility is to manage the investment from the beginning to the end.

Now creative financing is different and has nothing to do with syndication.  

Lets use the same example and you negotiate with the seller.  The seller has a $500,000 note on the property at a monthly payment of $5000 to bank of America.  Although the seller tells you they at least want to walk away with $400,000 but they are in no need for the money and have concerns of tax implications on this capital gain.  

YOU OFFER 

$400,000 CASH PAYMENT TO SELLER amortized into 1000 payments at a 6% interest rate- Balance due in full whenever you the buyer resells the property.

With subject to the existing mortgage balance of $500,000 payment of $2,100 per month. 

If you dont have money you assign the structured deal for a $50,000 fee.  The assigned investor will then be responsible for the renovations, monthly equity and mortgage payments, and managing  when filling occupants.  Your efforts are all done up front, and when all the structuring and signing is completed and  then it's time to put money up, you assign to investor who wouldn't mind stepping in this Hybrid deal.  Thus, both syndication and creative financing strategies are two completly different concepts of investing.  All strategies leverage another person's funds and abilities however almost never 0 money down.  I think you mean 0 money down from you.