New Investor Seeking Guidance on Syndications

[Anthony Blanco]

Hello BiggerPockets Community,

I'm thrilled to be part of this dynamic community of real estate enthusiasts! My name is Anthony Blanco, and I'm excited to introduce myself as a new investor based in the Greater Sacramento Area.

Background: I come from a construction background, specializing in residential rehabilitation. Currently, I'm pursuing a BA degree in Business with a focus on Finance and a minor in Real Estate. In my professional life, I work as a construction sales professional, primarily in the commercial and industrial sectors.

Goals: My journey in real estate investing is driven by several key aspirations:

• Applying theoretical knowledge to practical investment scenarios.
• Connecting with fellow investors to share experiences and insights.
• Exploring collaboration and partnership opportunities for mutual growth.
• Committed to continuous learning and professional development.
• Building a sustainable real estate portfolio for long-term wealth creation.

Why Syndications? After thorough research and introspection, syndications have emerged as my preferred avenue for real estate investment. Not only do they align with my long-term ownership goals, but they also offer scalability and the opportunity to own apartment complexes, which deeply resonates with my background and aspirations. I'm drawn to the collaborative aspect and the potential for learning from seasoned syndicators.

Questions About Syndications: As I embark on this journey, I'm eager to learn from those who are actively involved in syndications. Specifically, I'd appreciate insights on:

1. Finding LPs: How do you go about finding limited partners (LPs) for syndication deals?
2. Payment Structures: What are the typical payment structures for LPs in syndication deals, and how is payment conducted - quarterly, every other quarter, monthly?
3. Reputable Sources: Can you recommend reputable individuals, companies, books, or any other sources of credible information to learn more about syndications?

I'm genuinely enthusiastic about connecting with individuals who share my passion for syndications and are willing to share their experiences and wisdom. Your guidance and insights would be immensely valuable as I navigate this exciting chapter in my real estate journey.

Thank you in advance for your time and contributions!

[Evan Polaski]

@Anthony Blanco, welcome to BiggerPockets. You bring up syndications at an interesting time, given the many established ones that are running into issues at the moment.  In 2021 and early 2022, you saw a lot of people just like yourself getting excited about real estate and capitalizing on the "easy money" in the economy and investor desire to get into real estate.  Now, you have a lot of novice (and experienced) syndicators running into major cashflow issues and more than a couple have already turned their properties back to the bank in foreclosure.  

I mention this all because I personally recommend everyone spend several years (if not a lot longer) WORKING in real estate before trying to raise money from others.  I don't count flipping houses part time or owning a couple rentals, but working as a property manager or asset manager for an operator.  Underwriting and acquisitions for a large operator.  Even things like corporate finance, FP&A, etc.  Really just getting into the corporate world of real estate and seeing how those that (presumably) have been successful at it do it.  This can also help you understand all of the questions you mentioned, while helping establish a version of "track record" that can build investor confidence and trust in you.

Finding LPs: what kind of LP do you want?  Many of the groups you see on these forums, podcasts, etc are focused on retail investors.  These groups/syndicators put out blogs, appear on podcasts, write books about passive investing, many start "guru courses" and pay for marketing to find LPs.  But most groups start with friends, family, church groups, anywhere you already have a circle of people that know, like and trust you.  

Payment structures: I have invested in groups that do monthly distributions, some do quarterly, and some semi-annually.  It is up to you and your investor base.  This is true with how you structure your deal: pref, carry, fees and waterfall, projected return thresholds, hold periods, etc.

Reputable sources: there are many mastermind groups out there.  There are books: Best Ever Real Estate Syndication Book is pretty thorough and Hands off Investor is great for helping frame syndications from the LP perspective.  

As for meeting your goals, you have to remember: running a syndication is running a company.  Your product is real estate, but at the end of the day, you are operating a company.  It is not really any different than then starting a construction company, a plumbing company, a marketing agency or a tech company.  

[Joshua Christensen]

Quote from @Anthony Blanco:

Questions About Syndications: As I embark on this journey, I'm eager to learn from those who are actively involved in syndications. Specifically, I'd appreciate insights on:

1. Finding LPs: How do you go about finding limited partners (LPs) for syndication deals?
2. Payment Structures: What are the typical payment structures for LPs in syndication deals, and how is payment conducted - quarterly, every other quarter, monthly?
3. Reputable Sources: Can you recommend reputable individuals, companies, books, or any other sources of credible information to learn more about syndications?

 Good morning Anthony,

A. Finding LPs - A great book on this Raising Capital for Real Estate by Hunter Thompson.  LP investors will be based on your syndication structure 506(b) or (c).  Under a (b) stucture, your LP investors must be known to you before you do the deal. You cannot advertise to "NEW" contacts after your deal is structured per SEC rules.  You cannot advertise publicly on (b) deals.  You start having conversations and building an investor list long before you need the money.  

(C) deals can advertise publicly and all investors must be accredited by the SEC rules.

B.  Payment structures. This is open on every deal.  80/20, 70/30, Pref, Promote, etc.  These can get somewhat complex.  Find your syndication partners and discuss these options with them.  It all comes down to the strength of each deal & importantly, aligning the interest of the LP investors before the GP team.  

C. Reputable Sources.  Rob Beasly has a couple of books out on underwriting.  Hunter Thompson is the Capital Raising expert.  Read anything on Private Equity structures as most syndications follow those models.  Study and understand the SEC rules for accredited investors and 506 (b) or (c) rules from their website.  

CAUTION:  Be careful of syndicators who use absolute terms like Always or Never or Inflation Protection, etc. as these are fluff.  The reality is that there is risk in syndications and you are taking on millions of dollars of investor capital.  You're essentially becoming a wealth manager for your investors and have a fiduciary responsibility to protect their capital.  No guarantees and that's why there are Syndication attorneys and SEC rules in place making sure that accredited investors understand the risk they are taking.  They bet on the Jockey more than the Horse.  You are the Jokey, the deal is the horse.  

Best wishes to you.

[Nicholas L.]

@Evan Polaski

thanks for the thoughtful response.  i don't invest in syndications (yet) and I view syndications as a diversification option for... and i'll be direct... HNWIs.  it just does not make sense for a beginning investor that doesn't have a lot of liquid assets to lock up some or all of their cash in a syndication. 

thoughts? i think there is a misconception that a syndication is like a savings account... although this OP seems to have a strong understanding.

if you have 25K to your name... or even 100K... you're not ready.  period.

[Anthony Blanco]

@Evan Polaski,Thanks for getting back to me. My goal in starting a syndication and delving into real estate this way is to jump into the field without needing a huge upfront investment and gradually expand my portfolio, which aligns with some of the principles laid out in Brandon Turner's book. I completely agree that gaining experience by working for another firm and learning from seasoned professionals is crucial. That's why I've chosen to pursue a degree in real estate to further my education. At this stage, I see this strategy as one of the top three approaches for me to start actively investing. 

[Anthony Blanco]

@Joshua Christensen, Thank you for your response. I appreciate your insights into finding and structuring a syndication. Definitely easier said than done when it comes to finding investors. I was thinking that it would be great to structure a 506(c) and develop a syndication for smaller deals, then work my way up from there as I build rapport in the industry. I'll definitely be grabbing one of the Beasley books on underwriting.

[Brock Mogensen]

All great questions. First start with defining your investment niche (asset class, location, size, strategy). What is your edge? Why would an LP invest with you vs the hundreds of other syndicators doing the same thing that probably have more experience?  These questions were helpful for me to think through when scaling in this business.

Aside from that, it is essential to learn how to properly underwrite a syndicated deal..much different that a straight up acquisition. Shoot me a DM and I can send you over my underwriting model.

[Anthony Blanco]

@Brock Mogensen, starting close to home in the greater Sacramento, CA area sounds like a solid plan for me. From there, I plan to expand gradually. I'm fully aware that in the early stages of my investing journey, I'll need to earn the trust of others. I understand that aiming for 50/50 splits right off the bat might not be realistic until I've built solid rapport. I'm more than willing to take a smaller piece of the pie as I learn and grow in this field.

I'll definitely reach out shortly. I appreciate your insights, and I'm eager to learn more and discuss further. Thank you for sharing offering to share your underwriting model as well.

[Amy Heitner]

Hi Anthony,

Great questions. On the topic of who to learn from, there is a ton of great free information out there that you can learn a lot from, such as podcasts and blogs. Here are a few great podcasts that have been around a while:

* Michael Blank's "The Apartment Investing Podcast"
* Joe Fairless' "The Best Ever Show"
* Charles Dobens' "The Multifamily Investing Academy Podcast"
* Rod Khleif's "Lifetime Cashflow Through Real Estate"
* The Jake and Gino show

Through podcasts, you get exposed to different ideas and approaches that you can piece together to develop your own strategy. You can learn from the mistakes of others so you can avoid them yourself. And you can stay in touch with what's happening in the market right now. Plus, you can listen to them while you're in the car or doing other things.

Attending some live events is also really helpful. Some events are better for the content and others are better for networking. Both parts are important. We keep a list of upcoming events on our website so feel free to send me a message if you'd like that link.

Then, once you have a pretty good foundation and are closer to being ready to get started, if possible it would be good to have a mentor. I know all of the podcast hosts above have coaching programs. Besides additional training, you also usually get access to a network of like-minded investors who you could potentially partner with. And when you're working on a deal, it really helps to have people you can turn to who will give you personal help and answer your questions quickly.

It sounds like you're taking a long-range approach, which is what's needed. I wish you well!

[Evan Polaski]

@Nicholas L., I agree.  I am not sure if you meant to tag me in your comment, or not. 

These are almost always long term, illiquid investments.  And whether it is $25k, 100k or $10mm: if it is all you have to your name, you should not be investing it in a single investment. 

These are leveraged buyout, private equity investments.  Replace the apartments with a SaaS company with strong subscription revenue.  Replace a 5% cap rate with a 20x EBITDA and you have the EXACT SAME THING.

[Dimitrius Kiritsis]

Hey Anthony, welcome to Bigger Pockets. There are a number of ways to find LP's for syndication deals. I would start out with friends and family to get the ball rolling and then ask them to refer you any investors they think would be interested in your service. Regarding advertisements, this is only an option for 506(c) syndicators.  

Regarding payment structures, they are commonly in the form of preferred equity and common equity. Preferred equity bears less risk in light of the fact that they senior to common equity. However, because common equity bears more risk, returns can be much more lucrative if the deal is executed properly. In terms of fees, the most common are acquisition fees, asset management fees, promote fees, refinance fees, and disposition fees. 

As for reputable sources, The Hands-Off Investor by Brian Burke is the way to go! 

Good Luck!

[Robert Rixer]

Get some experience under your belt doing a quad, duplex or even a SFH on your own. Investors are unlikely going to invest with someone with no track record. Also, if you're starting out from the ground floor, you're going to spend all your time going out and raising funds and very little time in honing your craft as a successful operator. What is your competitive advantage over seasoned and experienced operators? Get a small success under your belt first, then go out and raise money!

[Anthony Blanco]

@Amy Heitner, Thank you for all the great recommendations! I literally added all the recommended podcasts to my favorites list and have been listening to them during my commute to work and job sites. I'm also planning to look into the coaching programs mentioned once I've learned more about each individual and determined which one best aligns with my goals.

[Anthony Blanco]

@Dimitrius Kiritsis, Thanks for the great insight! I feel utilizing friends and family is a great way to start. After doing much more research and hearing the opinions of other professionals, I've concluded that it's best to utilize them for smaller deals, refinance to pay them back in full so I can take over full ownership, and continue to progress from there. I also appreciate the book recommendation. "The Hands-Off Investor" by Brian Burke seems like a great read!

[Anthony Blanco]

@Robert Rixer, Thanks for the advice! I agree with your recommendation. After doing some research and hearing the exact same thing more than once, I know this is the path I want to follow as I start out. My plan is to repay the borrowers through refinancing and assume full ownership.