Syndication Investor Pitch

[John Whitridge]

Hi BP, I recently closed on my first Real Estate and purchased a Duplex in Philadelphia.  It was a great experience and I want to get back into the Real Estate game as quickly as possible and after talking to various investors and brokers deal Syndication came up a lot.  

I have been doing research but wanted to know how deals are pitched to investors from the perspective of a syndicator?  How much of the property value and monthly cash flow do you usually promise investors you are brining into the deal?  And what tips or tricks seems to win over investors who are on the edge about investing in a property?

[Jonathan Twombly]

@John Whitridge

From my perspective having raised about $6,000,000 in syndication deals so far, investors are naturally concerned about:  (1) your track record; (2) the strength of the deal; (3) asset preservation; (4) returns; and (5) if you are investing alongside them.  You must put together a very robust offering package that explains the deal, the market, and your business plan, and you must have this reviewed by a lawyer to make sure you are not on the wrong side of the SEC.  You must also have a private placement memorandum prepared by a securities lawyer.

In terms of what you offer investors, you typically pay them a preferred return, which is an exclusive right to collect payment before you are able to participate.  Typically. the preferred return is 7-8% cash on cash.  After that, you are able to participate in the proceeds of the deal, according to the split that is in your contract with the investors.  

When you sell, you return all capital to the investors, pay any unpaid preferred returns, and then you split the profits with the investors according to your agreed split.

In a syndication, the investors own the deal.  You are the sponsor, who gets paid a participation if you hit the preferred return and a carried interest or promote at the end of the deal, when you sell.  If you put your own money in, then that money is treated like any other investor money, and can participate in the preferred returns.