How to present a deal to investor(s)?

Question

Hello BP community. New to the site and fairly new to real estate investing. I currently own 2 rentals and in the process of a BRRRR. I've decided after this 3rd single family rental I'd like to switch focus to Multi-family. Here is my question:

When introducing a deal to investors for multi-family syndication, I've read things about 80/20 or 75/25 for cash dispersement. What percentage of the equity do they end up owning? Or when I eventually sell the property are they entitled to any of the capital?

Example: Purchase a property for 1,000,000. Hold for 10 years and principal is cut down to 600,000. If sold for 1.2 million. Does the investor receive say 300,000 or a certain percentage of the capital?

Sorry if this question was ill written, and thanks in advance for responses.

Jon Strick

Appleton, WI

Luke Miller · Answer

@Jon S Strick this will all be laid out in your Private Placement Memorandum (PPM). If you're doing a true syndication an attorney will draft this document, which lays out all the rules of the deal and how everyone will get paid. You should however have an idea on how the deal will be structured so you can start analyzing deals based on those criteria.

Generally deals are split 70/30 or 80/20. A good basic thought process is that everything is split in this fashion. Cash flow, proceeds, etc. Deals can be structured any way you like (within legal boundaries) whether or not you'll find someone to invest with you is another story. Most experienced LPs are looking for 80/20, high CoCR, preferred return, lower asset management fee for large deals, and other things.

I would suggest researching deal structure from some books. I'm sure others will chime in on their favorites.

Jon S Strick · Answer

@Theo Hicks @Daniel Reyes,

Thank You for the posts and for the invitation to ask further questions. (I know there will be many more).  Still working on finding a deal that works for my first Multi-family.

Theo Hicks · Answer

Hi Jon,

One of the most common structures is a preferred return with a profit split. For example, an 8% preferred return and a 70/30 profit split. That means the investor receives a return on capital of 8% on their capital. Then, all remaining profits (ongoing cash flow and sales profits) are split 70/30 - 70% goes to investors, 30% goes to you.

Of course, the way you structure the profit split is completely up to you. For example, I know one syndicator who offers a 6% preferred return and a 50/50 profit split until the investor has received a 12% annualized return, at which point the GP gets the remaining profits.

Mike Taravella · Answer

Hello @Jon S Strick

Welcome to BP and congrats on your first post!

I am currently in the same boat as you are with 2 single family properties and looking to join the apartment syndication world.

From the conferences I have been to and the pros I have learned from on this platform, you have to first develop a network of investors by pitching them the idea of multifamily investing as a form of investment. Then you would show how you as a syndicator the specific strategy of multifamily properties you are investing in and the business plan you will be executing. After that presentation you can walk them through an example deal and show the investors how they would get paid.

After you have a network of investors you can develop a team including a property manager, broker, accountant, etc to help find potential deals and underwrite them.

Hopefully this helps and if you need a book to read I would highly recommend "Best Ever Apartment Syndication" by Joe Fairless and Theo Hicks. Helped me a lot in my start.

Feel free to reach out at anytime!

Daniel Reyes · Answer

@Jon S Strick

Hi Jon,

Great question! The answers provided are all appropriate, with the splits and such varying by scenario. Before formally presenting a deal to an investor, it is best to have already consulted with a securities attorney and prepared a private placement memorandum.

With regard to presenting an opportunity to an investor, I would recommend having done 99% of the due diligence work before looking for a specific interest in the deal. This means all of the underwriting, financial/physical/operational reviews, as well as discussed the deal with consultants (tax, insurance, etc.). This way the focus of the investor meeting is how the vetted deal fits into their agenda, as opposed to discussing nuances about the property.

Of course, it is preferable to have an investor database already established for yourself. This should include some form of risk profile so you know if they would be interested in a development deal vs a value-add deal, for example. This is done by way of meetings and conversations.

I wish you all the best, Jon! Please feel at liberty to contact me if I may assist you further.

Daniel Reyes

InsightBay.co

Chase Louderback · Answer

@Jon S Strick

Welcome to BP.

The others in this thread have great responses.  Just think about the split as complete ownership in the property and that simplifies everything with the disbursements and equity breakdown.  @Alina Trigub 's recommended books are very good reads to get into the apartment space.

Deals are definitely hard to come by with this market environment, but they are still out there.  Just keep working at it and I'm sure you will find something.

Good luck!

Alina Trigub · Answer

@Jon S Strick

Welcome to BP community!

Prior to jumping to syndications, I suggest you concentrate on learning how MFH investing works. It'll be essential to understand and know how to operate prior to jumping and educating yourself on the topic of syndications.

Good reads to start with are Lindahl's books on emerging markets and multifamily millions. I can give you a link to my library if you'd like more books recommendations.

Take it one step at a time and you'll be on your way to success!

Best!

Jon S Strick · Answer

Thank you Lucas and Mike for the responses. Question answered. The money doesn’t seem to be an issue in my area but the deals are hard to come by. I’ve gotten in touch with a broker and we are getting lunch next week to discuss what is available.

I have a extensive background in construction and currently work as a project manager in commercial construction. I hope I can return the assistance to the BP community that was shared here.

Jon

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