Multi-family investors/syndicators, what say you?

[David S.]

I have been thinking of investing in multi-family syndications as a way of moving away from active direct investments into more passive investments to simplify life.

I found this article in the link below very interesting.....I especially like the last line.... "We can't pencil in anything over 17 [IRR]," Rivas said. "Unless we are drinking a lot of Kool-Aid, then it's a 25."

However, most syndications i have looked at seem to promote their skill in re-positioning to raise rents and adding value...and I am seeing plenty of sponsors promoting IRRs in the 20 ballpark...Maybe the big syndicators haven't caught on yet?

What say you?  is it better to wait until the risks of increasing supply and economic slowdown subside? 

https://www.bisnow.com/dallas-ft-worth/news/capita...

[Omar Khan]

@David S. The IRR is easily gamed especially by newer Sponsors who are desperate to raise capital.

If you peel back the layers and start asking pointed questions, the average syndicator's experience is:

• No underwriting background. In fact, either copied a "mentor's" model (btw, this mentor has no background in underwriting) or paid some Internet guy $100 to download their underwriting model i.e. ZERO financial analysis background (also biggest cause for concern because if a syndicator is taking shortcuts here... you know where this is going)
• No property management experience
• No investment management experience
• On average, the only "experience" is flipping / wholesaling houses... I actually lol every single time I read this under experience

Regardless, the IRR is dependent on many factors including:

• purchase price, 
• exit price (this factor is the biggest contributor to IRR),
• rent growth strength, 
• ability to re-position, 
• debt terms - LTV, rate, term, IO years, amortization years

Articles you might find useful:

• The Inside Track to Vetting A Multifamily Deal Sponsor
• Deal Screening Checklist for Passive Multifamily Investors

Focus on developing relationships with the right syndicators (full disclosure: I am one) with the right background/experience working with the right teams. 

Waiting for a demand/supply slowdown might not be the most prudent long-term move. The investment decision depends on your investment horizon, strength (or weakness) of the market and the investment strategy.