How to set up syndication as GP

Question

Hi all,

I have several investors that are interested in deals that I have and I am thinking it would be best to tackle them as a syndication. I have tons of questions but mainly am looking for good resources that discuss how to set up and structure the partnerships from a legal and financial perspective. 1) I'm curious what I should do for splits. I could manage a large part of the deal but would want to outsource some of the day to day management to a company that I trust locally. I know that would cut into what the typical split would be. 2) Super dumb question. Do you use investor funds as down payment and still get bank financing or is it fully funded by investor funds and purchased cash? Lastly, when I evaluate CF for a SFH I take out my % for maintenance, capex, management etc. Do you still do the same for a syndication and then pay out CF percentages. I assume you keep a certain % in reserves every month and then pay out investors the left overs.

Appreciate any resources anyone has or if anyone would like to chat about this.

Thanks!

Blake

Senate Eskridge · Answer

Check out Premier Law Group, Maurico's website has a ton of information that can help with this. He even does a free weekly video series where he answers questions. https://www.premierlawgroup.ne...

Brock Mogensen · Answer

Solid questions and great to hear you are looking to get into the space!

1.) You can structure these deals many different ways. I suggest keeping your structure very simple on the first one. A straight 80/20 (LP/GP) split is a good way to do it. Property Management can be outsourced, and the PM fee gets charged to the property.

2.) Investors (LP's) will provide the down payment + reserves, closing costs, fees. The rest can be financed through a bank. That is the common way to do it.

3.) Properly budgeting for cap ex is key. You should have a budget of reserves in your bank account at closing and also deposit a certain amount in there each month. A common rule of thumb is $250/unit/year

Evan Polaski · Answer

@Blake Sullivan, what are your investors willing to accept?

Many syndicators outsource a lot of the day to day work, and that is a line item on the property expenses before you get to NOI. On larger deals management payroll and management fees are both property expenses that would be taken out before any splits.

As for uses of funds, this will be based on the deal. If you were acquiring with your own capital, would you buy it cash? I would say more often than not, a syndication is down payment, potentially cap ex budget, reserve funding, and debt is used. But some people syndicate the "debt" and put investors in first position liens.

Technically, you can do this however you want, but typically you create your budget for the whole deal, and back into the amount you need to raise based on where capital is needed. I.e. $20mm purchase price, $3mm capex, $500k reserves, etc. You can get a loan for $16mm, so you need to raise $7.5mm, assuming your maintenance, management, etc are all covered by monthly revenue.

Crisselda Clark · Answer

I don't know the size of the deals you're looking into but maybe check out tribevest, well suited for smaller and less complex groups of investors.

Brody Garcia · Answer

@Senate Eskridge

I would recommend going to Maurico's weekly Zoom meeting it is very informative, and he always does a Q&A at the end.

Another SEC attorney I would recommend is Tate Legal, Very Smart and Transparent

https://tate-legal.com/

Aaryan Patel · Answer

The typical splits are 70/30 with LPs getting 70. It can be different for every syndication though. There are other fees to structure as well such as the acquisition fee. And yes, usually investors are for raising the downpayment on a syndication. Lastly, you are correct, usually you keep some money for reserves and pay investors their preferred return.

How to set up syndication as GP

How to set up syndication as GP

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