Best and Worst Syndication You've Invested in

[Kyle Kovats]

I'm hoping to speak about just deals you've invested in since 2018 since most deals between 2012-2017 we're pretty much home runs regardless of the GP's. I've invested in 8 multi-family syndications over the past year. I'd say 3 are doing well, 3 are doing great, 1 is doing ehhh and 1 is going dreadful. 

The best deal I've invested in over the past year is about to go back on the market after just closing in September 2018. This is a deal that will produce a 90% total return in 15 months time. Occupancy remained high, lack of housing in the area caused tenants to accept 15% rent bumps without even doing any renovations (plan was to jump rents to encourage people to move out so $4.5k/door could be spent to get those 15% rent bumps), unit mix was all townhome style units 3 and 4 bedrooms. This was also the GP's first deal but he was a guy I got to know and trust and knew he was serious about his craft. 

The worst deal I've passively invested in has dropped down from about 92% occupancy at takeover all the way down to around 62% occupancy within 1 years time, renovations have gone poorly, unanticipated expenses have popped up such as having to hire security staff at the property due to all the crime, break-ins, homeless problem on the property, management changes. New mgmt company in place is doing a better job getting occupancy back up but I'd honestly be happy here if the deal sold and I just got my initial capital back. 

Curious to hear some of the best deals you've invested in since the start of 2018 and the worst ones and why you think they're the best and worst. 

[Kyle Kovats]

I should've added this earlier but these are 13 important questions I ask GP's before investing now. 

• Are you putting your own money into this deal? Not from an acquisition fee but are you putting current liquid capital into the deal and if so how much? Reason: I want to make sure they have at least some skin in the game
• Will there be an acquisition fee? Reason: I understand a nominal flat type of fee, it's a pain in the *** to put together a syndication. However, when syndicators are buying communities for $40 mill., beating out other syndicators and institutions and then on top of it asking their LP's to pay them an extra $800k-$1.6 depending on the acquisition fee I want to know why you think you've earned that. I think is is a conflict of interest as they know all they have to do is push the deal across the finish line and whether it winds up being crap or great, they've made a good nut up front. 
• What is the asset management fee? Reason: Ideally I want to see 1.5% or under. I also want to know if they plan on re-investing any of that into the property. 
• Is there a preferred rate of return or straight equity split? Reason: I personally am not a fan of the pref structure, I think it doesn't keep LP and GP interests lined up. What if there's an 8% pref and year 1 is only 4%? Year 2 is only 5%? Now in year 3 the GP is starting the really get behind the ball and if they can't catch up I worry they sell at an inopportune time. Also, usually when there's a pref there's usually waterfall structures on the back end. I prefer just a simple straight split no higher than 20GP/80LP. 
• At the time of sale, do I get my initial capital back before you get a dime? Most of the time the answer is yes for obvious reasons. 
• Have you personally “shopped the comps” and visited them and why are you confident that this property is comparable or better? Self-explanatory. I want to make sure they honestly know the market and didn't just underwrite from another time zone and have never visited the property. 
• What is the number one concern you have with this deal? There should always be a concern or two that the sponsors have, if not they're lying. I appreciate the honesty and want to know how they plan on tackling this concern. 
• How did you come up with your numbers for property taxes on the pro-forma? Depending on the state this can make or break a deal. 
• Does your insurance policy cover loss of rental income in case of a fire and does your insurance policy cover the FULL cost to rebuild in the case that 5 or 25 units are damaged by fire? very very very very important that the property has comprehensive insurance. I want there to be code upgrade insurance, replacement cost, debris removal, business interruption, etc. 
• I’m not going to hold you to it but what upside is there that wasn’t spoken about? Sometimes there's some real nice value-add components that the GP's don't talk about because they don't want to set expectations too high so I always like to ask this one. 
• What Is your relationship like with the property management company and how many properties do they manage in the area? Also are those comparable properties? Extremely important. The PM company will make or break the deal. 
• What is the most recent deal you did and how is that performing? Can I see the webinar/projections of that deal along with your most recent monthly report to compare it with actual performance? I want to see how they're on previous deals they've done. Are they the type to over promise and under deliver or vice versa. 
• Are any of your family or friends investing in this deal? I know it's a weird question but I think it's important. If there's one people you don't want to let down it's your family and friends and I feel GP's feel an extra level of accountability to family and friends.