Lewis Center, OH · Member since 2016 · 4 posts · 1 vote
Hi,
I'm from Columbus, OH and me and my partners are looking to syndicate a MF deal. Turns out syndicating a deal is going to have a huge lawyer bill. I want to know if anybody has done such a deal for their FIRST EVER deal. It is probably not too difficult if you pay for the lawyer bills in your second or third deal assuming the cash flow from the first deal is able to cover it. But is syndicating a deal worth it right of the bat? What are the pros and cons? If syndicating is not ideal for the first deal what other options are available to buy, lets say, a million dollar property? In what other way can we use the investors money to make it a win-win without going the syndication route?
Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
9y
I syndicated my first deal (48 units) with zero RE experience at all.
It may sound trite but, if you can't afford the legal fees you probably shouldn't be doing the deal IMO. My attorney charges 10-15k per deal depending on the size of the cash raise, this is part of your cash raise (you get reimbursed from the acquiring entity once you close).
I think syndicating my first deal was more than worth it but I had people around me that had acquisition experience and others that had Ops experience that I could ask questions as I went. It was a little nerve racking for sure but I made 300% + on that first deal. It was bought in 2012 so it would be hard to duplicate those numbers now.
When you syndicate you can leverage other peoples investing dollars to get something bigger than if you did it yourself and the bigger the property the easier it is to run.
Con is that now you have other personalities involved and is a more difficult deal. If you structure it right then your passive investors have no input in day-to-day ops but that doesn't stop them from asking questions.
Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
9y
I syndicated my first deal (48 units) with zero RE experience at all.
It may sound trite but, if you can't afford the legal fees you probably shouldn't be doing the deal IMO. My attorney charges 10-15k per deal depending on the size of the cash raise, this is part of your cash raise (you get reimbursed from the acquiring entity once you close).
I think syndicating my first deal was more than worth it but I had people around me that had acquisition experience and others that had Ops experience that I could ask questions as I went. It was a little nerve racking for sure but I made 300% + on that first deal. It was bought in 2012 so it would be hard to duplicate those numbers now.
When you syndicate you can leverage other peoples investing dollars to get something bigger than if you did it yourself and the bigger the property the easier it is to run.
Con is that now you have other personalities involved and is a more difficult deal. If you structure it right then your passive investors have no input in day-to-day ops but that doesn't stop them from asking questions.
Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
9y
There is absolutely no reason you can't syndicate a deal as your first one. I did.
Are all the investors are in the same state as the property? You might be able to save a lot on legal fees by following your state's Intrastate securities laws and skipping the SEC-compliant stuff.
Will all investors be involved in making decisions about the investment? (Member-managed LLC.) If so, it's a Joint-Venture and no securities are being sold, so securities laws aren't relevant. (per Gene Trowbridge.)
In addition, companies like www.regdresources.com will produce all of the legal docs and Form D (except the LLC operating agreement...still have to go to your guy for that) for $5500. And the docs look MUCH BETTER and more professional than anything an attorney can produce.
Finding investors is one of the hardest parts. If you already have them lined up, you've accomplished a lot.
Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
9y
Hi Pradeep,
To me, it would depend on the deals and what is needed from outsiders to determine your path. Keep in mind that the laws are strict in this area so worthwhile as Marc mentions to get some syndication education and have some discussions to determine which way you might want to proceed. I can help you with some ideas on the money raising aspects because that is how I got started in the syndication business, teaming and leveraging the credibility of more experienced partners (syndicators). Without that experience, you will have real challenges raising private equity from investors and getting a loan from lenders.
I have some podcast interviews on my BP profile page to listen to and a free eBook you can download on my website under thought leadership to get you some ideas on this aspect of syndication. You can have the deal but w/o the money, where are you?
I am doing the opposite. I have accumulated a portfolio with my own funds, and am now looking to scale and start to syndicate. There is no right or wrong answer. It lies upon the level of comfort you have. With a syndication, one of the drawbacks is that yo have to answer to your investors. If I have an off month, I don't have to worry about talking to investors. On the other hand, there are amazing benefits to syndicating. The legal fees are paid up front, but you can recoup them from the investors.
The key is to buy your first deal! I applaud you for considering syndication on your first deal
Investor · Broomfield, CO · Member since 2015 · 60 posts · 83 votes
9y
Hi Pradeep,
You can also check out Doug Ruark of Reg D Resources. They put together an entire securities filing for you, even set you up with a digital presence and an investor's portal to manage all the investor prospects and paperwork for an incredibly reasonable fee compared to the $15-$50K I've come across in the past.
Also if all of your partners are active participants in the deal/holding company and not just silent investors, you may be able to forgo the necessity of a securities filing. In that case you can file the LLC registration docs yourself and draft up a well thought out Operating Agreement from a solid family office attorney for much, much cheaper.