Reasonable to get a 5-10 unit Multi-fam,100% OPM for first deal?

Question

Im not qualified for FHA since i dont have two years of tax returns....

If i form an llc and syndicate money, is it reasonable to get close to 100% funding on it even if its my first deal?

Andrew Johnson · Answer

@Devin Mann I'm not trying to be negative, I'm really not.  It's different when it's *your* money that you're putting into a deal as a passive investor.  Yes, the property matters.  Yes, the lead in the syndication matters.  Yes, the track record or returning capital to investors matters.  Yes, it matters that the lead has skin in the game.  It all matters.  And, yes, every single other syndicator out there (with a track record and with skin in the game) talks about the same "good ROI".

Let's say they give a 7% preferred return.  I have to add the risk of your lack of real estate experience.  I have to add the risk of not having money financially in the deal.  I have to add the risk of you never have returned capital to investors before.  By the time I de-risk the deal through increasing my preferred return, what's left for you?

Again, you're asking if it's *reasonable* and I've seen nothing at all that tells me why I should choose "Mann Syndication".  And why I'm telling you this?  It's because I don't think what you're proposing is "free."  So far, I'm imagining that accredited investors are all going to go the route of experienced syndicators.  You can go after non-accredited investors through word-of-mouth (no advertising) and you'll probably have to set up a private placement memorandum.  Google what it costs to set up a private placement memorandum.  See a sampling of the costs and the fees you'll pay to an attorney.  Don't take my word for it.

Maybe you can get away with doing an LLC where members have voting rights proportional to their investment.  Your position is subordinate to their so you lose control of your investment.  I don't think you want that.  Who knows, maybe it doesn't matter to you.  Most syndicator leads (if for efficiency if nothing else) would want control and outside (passive) investors don't want the (perceived or real) liability of being an managing member.

All of that said, I'm no lawyer, this isn't legal advice, maybe there's some simple almost-free way to set it up.

Andrew Johnson · Answer

@Devin Mann Lawyers will be able to tell you if it's a true "need" or if there are workarounds.  Workarounds generally come with risk.  It's easier to sue you, giving up control of the LLC, etc.  Some of the value in that giant PPM is that it states risks again and again so that they (the investor) can't later come back and say "but I didn't know" or "they didn't tell me".  My understanding is that is fairly important when you're dealing with a non-accredited investor because there's either an assumption or presumption that they aren't as savvy as an accredited investor.  Now I don't know how "net worth" got equated with "investment savvy" and it's probably a topic for another time.  It doesn't matter what I think, it only matters what courts, judges, the SEC, and lawyers think.  I guess you could try approaching the crowdfunding sites that are out there.  There are, of course, fees attached to that and with no experience, no skin in the game, etc. you might have it hard or impossible to get your deal up there and live.  I've never tried to do it so I don't know the process.

Again, other people are far more knowledgeable that me on the matter and I'm certainly not a lawyer.  When I looked into it all of the "standard" fees (like a PPM) make the cost/benefit analysis for a smaller deal I was looking at, well, not worth it.  Then again, I'm also pretty risk averse when it comes to opening myself up for legal exposure.  If I was going after a $10MM property then the cost structure makes sense, who cares about a PPM fee at that point?  But then I'm now over the fund raising limit and can only go after accredited investors.

I'm sure like most things, doing your first is 100 times more painful that doing your 100th.

Bill Gulley · Answer

No, you have zip experience, who you gett'n it from your mom and dad?

No entity gives you experience or credibility for investors who have money, that's the first thing they look at is you.

Why don't you partner with experience, don't go elephant hunting with an air riffle, take a small interest for managing something you can master, that has value. Earn your way in.

Don't mean to pop your dreams but you gotta wake up...... good luck :)

Devin Mann · Answer

thanks

Devin Mann · Answer

thank you that helped.  I was going to go after the non accredited investor.   do i need PPM to set up with non accredited investors?

thanks again

Devin Mann · Answer

question in reverse: if someone offered me part ownership of the building and i was able to see a good ROI then yes my answer would be yes

If i got 2-10 people to syndicate their money + part owner financing + a bank, i dont see why that isnt realistic

Andrew Johnson · Answer

@Devin Mann You're asking if it's "reasonable" and the answer is an easy "no".  Why?  Just ask yourself the question in reverse:  Would you invest your money with someone who had no experience and no financial skin in the game?  Would you encourage your friends to do it?  Would you encourage your family to do it?  I'm going to go out on a limb and say the answers would be: no, no, and no.

And if I have money there's no shortage of syndications/syndicators out there with people that have some of their own money in the deal as well as a history of returning capital to investors.  So you've basically given zero reason as to why you're a competitive option, let alone a better one.  That might sound harsh but it's true.

Right now it sounds like you don't even have a property in mind.  It sounds like you have an idea of what you want to do.  Which is great, it's a place to start, you've at least narrowed down your focus.  It's going to be very hard (if not impossible) to approach anyone with no money, no specific property, and just the thought that you want to participate in a deal for 5-10 units with none of your own money.

Now the reality is that I'm thinking/guessing/hoping you've thought it through more than the way that I've laid it out.  Maybe you have a more detailed plan in mind, have run the numbers on a property, have taken a stab at an investor presentation, have a proforma showing the ability to generate outsized preferred returns, etc.  If you have, feel free to share it, if you haven't then you have a lot of work to do.

Devin Mann · Answer

?

Devin Mann · Answer

how can i partner with experience? find a deal and find an investor to partner with?

Reasonable to get a 5-10 unit Multi-fam,100% OPM for first deal?

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