Skip to content
×
PRO
Pro Members Get Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
$0
TODAY
$69.00/month when billed monthly.
$32.50/month when billed annually.
7 day free trial. Cancel anytime
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Multi-Family and Apartment Investing
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated about 5 years ago, 10/07/2019

User Stats

1,582
Posts
3,432
Votes
Michael Ealy
  • Developer
  • Cincinnati, OH
3,432
Votes |
1,582
Posts

Apartment Syndicators - a call to protect your investors' MONEY

Michael Ealy
  • Developer
  • Cincinnati, OH
Posted

I see a lot of apartment syndicators lately...of pushing deals that to me - are MARGINAL at best and downright RISKY at worst.

I mean I see deals where the project IRR is only 15%-20%. That level of IRR is MARGINAL and I will explain in this post why I think that is not good enough.

MOST syndicators are giving away 70% of their equity to their investors because if not, with the marginal deals that they have, their investors will not make double digit returns on their money.

I say that THIS practice of being happy with a marginal deal and having to give away a majority of your deal is NOT a good practice at all.

Why?

Because IF bad things happen, the investor will be wiped out or his or her capital will be stuck in the deal. I took a screenshot of the typical deal promised by a majority of apartment syndicators: 

At first glance, the above deal seems good. I mean you get 91.8% of your money back in 5 years, so not bad, right?

Well...not really. I've successfully invested through recessions and market booms and I can tell you that the above structure is NOT a good place to be. Why? Because projections have a nasty way of being wrong, usually on the lower side. Also, the REAL ESTATE MARKET COULD CHANGE - FOR THE WORSE. Cap rates might go up in the next 5 years resulting in lower selling price. If the projections are OFF by 20%, (meaning the sales price is 20% lower than projected and NOI is 20% lower) the investor's money is stuck in the deal as the syndicator will not be able to sell the property at a gain.

If I am the passive investor (which I am in some deals), I will be upset that my money only made 8% per year and it's stuck in the property.

In contrast, we give only 30% of the equity to our investors but we promise our investors double digit IRR (18%+). This means though that we force ourselves to find really good projects, projects with an IRR of 40%+. That superior return will result in the investor getting their capital back and earning DOUBLE DIGIT RETURNS on their capital even if the actual results are 20% lower than projected.

The above is the reason why we've delivered double digit returns to our investors and no investor has lost capital with us ever, since I started raising money from investors since 2006. And despite the crazy buying frenzy that some apartment syndicators are doing, we will stick with being selective by only doing projects with SUPERIOR returns.

What about you? Are you going to be selective to protect your investors and do things differently? Or are you going with the crowd?

Loading replies...