First Time Apartment Building Syndication

Multi-Family and Apartment Investing
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First Time Apartment Building Syndication

Boruch Leivi Bartfield
Brooklyn, NY · Member since 2016 · 11 posts · 1 vote

Dear BP,

I had a quick question:

I have located a tertiary market in PA.

I see a few 10 unit buildings that have a 10 CAP (at advertised) asking between 450-500k and NOI's of between 40-50k. On paper they have great value add potentials (mom and pop ran with below market rents).

Being that I'm butt naked broke (I only have 30k). My plan is to raise all the capital for the down payment, closing costs, and renovations. I want to up the rent to market value and then refi and hold.

I want to syndicate the deal at a 70-30 split, (70 to investors and 30 for myself). Once I refi and all the initial capital is returned to my investors the plan is to swap to a 50-50 split. 

I have raised about 200k in verbal commitment. (I wrote up a detailed executive summary and business plan to get the verbal commitments before locating the deal(s).

I'm pumped to go out and make this happen!!

However, the brokers have given me push back asking for proof of funds and for pre-appoval from the bank before they agree to show the listings and give the T12s. All I have are the proformas.

Does anyone have any advice for how I can get around this temporary obstacle?

Thank you!!!

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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
9y
Maybe the numbers just aren't there. It seems like there is more money searching for yield than ever. Let me know if you need help analyzing The P&L
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  • Joe Hughis
    Lender · New York City, NY · Member since 2017 · 194 posts · 56 votes
    9y

    @Boruch Leivi Bartfield - If your strategy is to renovate the multifamily property and raise the rents right away, the T12 shouldn't really have a significant roll in your plan. This would be a case were past performance should look significantly different than future results (if your plan has big changes).

    If you have knowledge of where average income and expenses are for like properties around the area (which would be advisable to have if you are planning on investing there) you should be able to guestimate fairly closely a proforma without getting data from the current owners. 

    You can't really blame the brokers on their push back.  They want to deal with buyers who are ready to go and they don't want to disrespect their clients privacy by dispersing the property financials before a potential buyer is vetted.    

    0Reply
  • Boruch Leivi Bartfield
    OP
    Brooklyn, NY · Member since 2016 · 11 posts · 1 vote
    9y

    @Joe Hughis  Thank you for weighing in! 

    That's a great point about being able to guestimate the proforma!

    My thoughts for wanting the T12's are to be able to present to my investors the contrast of the current returns and the upside potential for when we put in the work. I want to be as pragmatic as can be about the ability to up the NOI for the refi.

    I understand the brokers push back and I can certainly respect that as well. However, I am looking for a way to get around that and make this happen. 

    Thanks again!

    0Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    I have a couple of thoughts, one you didn't even ask about. :)

    For a first time syndicator, your equity split with your investors are geared way in your advantage. For a syndicator with no experience and hardly any skin in the game, I personally would not invest with that sort of split. 70/30 is steep enough but then I lose all upside during refi? No thanks.

    As for your other question, if you're having problems with proof of funds then find a partner who has the funds. Or if you happen to have some close friends or family that have large bank accounts, you can borrow their statements. They could be your partner. Who knows? You ain't lying when you send it to the broker. As for pre-approval  from a bank, just form relationships with some mortgage brokers and get term sheets from them. That should be sufficient.

    1Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    If the building is $500k, you only need $100k or so to buy it. Don't use investors for the full $500. Why not use investors for the downpayment and keep more equity (since the bank doesn't take equity for their loan) For now just proforma the deal. Once under contrast you can get t12 and all that as part of DD
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  • Boruch Leivi Bartfield
    OP
    Brooklyn, NY · Member since 2016 · 11 posts · 1 vote
    9y

    @Michael Le - Thanks for taking the time to comment, and help out a rookie!

    I hear your point about my equity split being high for a rookie. I'm definitely open to reconsidering the 70-30 and 50-50 structure.

    The thought was, that at the 70-30 split, I'd be giving over 8% COC returns to investors in years 1&2. Once I upped the rents and refi'd I'd be giving about 5-6% (after the higher debt costs) with no skin in the game. I figured it's essentially a 2 year loan at 8% with upside. (The game plan is to take the current NOI from 40k to 61k).

    Great idea for the proof of funds and the pre-approval! I can (easily) get that done :)

    @Cody L. - I have seen many of your comments here on BP. Thanks for your input!

    I was thinking 75% LTV from the bank at 400k that's 100k. Plus closing costs and $ in reserves for the updates to up the NOI I'm thinking I need about 150k from investors for the deal plus 30k of my own.

    Great point I can always get the T12 in DD as you mentioned, Thanks man!

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    Maybe the numbers just aren't there. It seems like there is more money searching for yield than ever. Let me know if you need help analyzing The P&L
    2Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    70/30 is a fine split, maybe not the 50/50 after refi. I wouldn't change things around during the deal - justs adds a layer of confusion. 

    0Reply
  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Lane Kawaoka  I could not agree more.

    0Reply
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