Structuring a real estate syndication

[Saverio Nestico]

Hey guys! Thanks in advance for any guidance... I am entering into the world of syndication (large #multifamily income producing, value add investments) and I’ve been educating myself through my experience, constant practice of analyzing investments, reading and listening to podcasts. I’ve created a model investment Proforma and been using it to practice and analyze real estate offerings that are currently on the market. I have tons of questions but I’m stuck on 3 in particular. I am trying to create as much of a systematic model as possible 

The investment i am currently evaluating is a value add 55 unit building 

Current Operating Income - $512,020

Current Operating Expenses - $170,000

1. How much $ in Reserves do you typically allocate for an evaluation like this? Is there a % model to use regardless of the size? I would like this to be held back after all operating expenses and debt service is paid but before any investor distribution is allocated. How should i structure this? 

2. Do you include the upfront insurance premium cost in the raise amount? On this property the annual insurance cost is approx. $18,000 so the upfront cost i budget for is 25%. Do you even include it or use the proceeds from the 1st months rent and then chase the rest?

3. How to incorporate attorney fees with setting up the syndication documents? I imagine the first deal will be the most costly and every deal thereafter will cost a bit less

[Sam Grooms]

1. The bank will tell you the required reserves. Typically $250-300/door, but it depends on your lender. Could be $500, especially with HUD.
2. Include the first year of insurance in the raise. 
3. I'd budget $10,000-$15,000. That might be high for 55 units, but will give you some cushion. List it with other closing fees. Similar to lender's fees, you'll pay this out of pocket, and get reimbursed at or after closing. Unlikely to be reduced by much on future deals. 25% at most.