First Syndication Deal

[Jonathan Pavkov]

Hi - I'm new to real estate investing and looking to build out a syndication team. 

My background: I'm a CPA, and just got my real estate license. I plan on selling real estate to in the short term to learn more about the market (I have enough savings to ramp this up over the next year, and live quite simply so expenses are low), and I have $150k to put into my fund. I know a few people who would be willing to put in $300k. My goal would be to raise $1M in capital to deploy (I'd put in 15%).

This is all new to me, so my questions are:

1. 1. What's more important - building out the partnership and raising the capital or finding the deals? I know I need to do both, but does one come first or do I do that in parallel?
2. 2. Is it better to find undervalued properties and pay cash for them, let them season and pull the money back out? Or find a multi-million dollar property and get bank funding immediately?
3. 3. What percent of the business do I take for finding the fund? I know that depends, but is it unreasonable to create add an additional 10% for my efforts in finding the opportunities?
4. 4. What are realistic expectations for investors in terms of cash on cash return in a syndication? If someone puts in $300k, should they expect an 8% return? Or 10% return? If the plan would be to sell in 5-7 years, would appreciation be factored into their return?

These forums are great - thanks for any input you have. Also, if you've done some syndication deals and would be willing to talk that would be awesome!

Thanks!

Jonathan

[Bryan Hancock]

1.  Neither is more important, but finding the money is generally harder; especially without a long track record.  I'd recommend you think about your marketing system for finding and developing relationships with investors FIRST and then shopping for projects second.  You'll always do both in parallel if you're doing it correctly.  Keeping deals and investors in balance is the whole name of the game for sponsors and having too much or too little of either creates problems

2.  It depends.  In general make sure that you think about the returns of your LPs first and yours second and you'll have a long and prosperous career.  You should be far more concerned with losing the investor's money or under-performing than you are about losing your money or time

3.  "Finding the fund" I presume means organizing the investors.  Finding the deal generally can be positioned to entitle one to a fee.  I dislike fees in general because they create misalignment, but a lot depends on you're feeding your family.  Investors should want for you to be compensated reasonably in fees so you're secure and can focus on making the deal perform well instead of scrambling around on other hustles and not focusing on the project or company.  What you can take for your services depends on supply and demand and will also depend on how well you can negotiate along with how time-intensive the deal/project/business is

4.  I'd encourage you to think about a preferred equity structure and distributions instead of cash on cash returns.  6-8% preferred returns are pretty common for most project types that use private equity structures to capitalize

A very fair structure if you learn to message it well and have quality marketing systems is:

• Preferred return to A/B (cash, property) shareholders where they're pari passu
• Match to C/D (compensatory, promoter) shareholders
• Some split that will probably range from 50/50 to 70/30 (investor/sponsor)

Dial to fetch what the market says you need to attract private capital for your investment type and perceived risk that spans horse risk and jockey risk.