That First Multifamily Deal

[Drew Shirley]

I've done a couple of single family fix-and-flips but I've always wanted to invest in a bigger multifamily project. I think the biggest mistake I've made in the past is wanting to do it all by myself - not asking anyone for mentoring, or capital, or anything. It's taken me a long time to realize that real estate is a team sport.

So this week, I've reached out to several investors who have done the kinds of deals I'm looking for - 100+ unit Class C properties with value-add potential. And just today I sent out an email to 400+ people I know who are either accredited, sophisticated, or know who people are. That was a scary moment. I've never been comfortable asking people for money -- or anything, for that matter. But I took a few deep breaths and hit send. 

I've already had positive responses and interest from 10 people on the list. Now I've got to get my pitch deck ready! Oh, and find a deal. No problem, right?

[Chris Grenzig]

@Drew Shirley the biggest challenge when syndicating deals is keeping investors interested while simultaneously trying to find deals. If you can do that well, than you will have a good foundation to start from. The best thing you can do with the investors is to set expectations slightly lower, and gather interest on a deal that can return you x percent. That way they know what to expect, that you may not have a deal for them right away, and that when it does come up they'll be more comfortable with what to expect from it. Also, if you can get the to "commit" to a dollar amount should that type of deal become available it will just make you're life easier in the future.

For example, if you tell them that you're looking for 100+ units, in these 5 (hypothetical) markets, that's 1980's built or newer, 3-5 year hold, an 8% preferred return with a 70%-30% split over that, and should return 6-12% COC and a 15%+ IRR to investors...than when you bring them that deal they're already mentally prepared to expect that.

However, if you just told them you're looking to invest in a 100-400 unit multifamily building soon and are they interested? Well, they might be thinking in their head they want at least a 20% IRR in 2-3 years only. That money you thought you had is now gone.

Also, something we learned the hard way, if you need to raise $1 mil, plan on raising $2 mil because ultimately when push comes to shove, some people that hypothetically said yes will say no, or invest less. And if they don't well, you're all good because you only needed the $1mil!