Sourcing a large down payment through syndicating?

Question

Hey all!So my 2020 goals have been to really take my brokering skills for a thrill ride, and phase out of doing normal consumer deals. "Path of least resistance" has led me to network with 2 dozen folks that have 10-50k to invest (which you can't buy anything around me for 40 that doesnt need another 40). That same path is also turning into package deals, whether 3-5 or 5-10 here and there. Current problem that I'm trying to help with. We have an 88 unit package near Indianapolis but also maybe 45 minutes from Cincinnati, sitting on I74.Without getting much into numbers, the deal is cashflowing well with 55k in monthly rents, 5% vacancy, and allotting for average $80k a year in maintenance and capex.The seller wants XMillionI have buyers ready who can pull off an 80% LTC loan. My brain starts hurting when we get to discussing the 20%. Roughly $500k-1m.Is this a crowd funding answer? Should I reach out to my network of smaller (relatively speaking) amounts that would want to be partners debt or equity or both?Interested in what others would suggest!

Don Konipol · Answer

@Justin PolstonAccredited investors have lots of syndication investment choices these days. Most opportunities are easily accessible on the internet. Here’s what investors are looking for in a syndication besides a minimum return on investment, first year tax write offs, and a deal fitting into their risk parameters1. Syndicator track record of success in the type of investment opportunity being offered2. Offering filed with the Securities and Exchange Commission3. Syndicator investing his own capital under same terms as outside investors4. Professional, experienced property management5. Limited upfront and continuing syndication fees, and syndicator reward only after the outside investors receive their investment back and a minimum annual return6. Professionally prepared Private Placement Memorandum, Operating Agreement, and Subscription Agreement7. Ability to track their investment, distributions, property operational results, etc. on line, and in real time.8. Distributions automatically ACHed to their designated account.9. K1 and other tax information provided in a timely manner.10. A continuity plan should the lead person running the syndicate become incapacitated11. A central online deal room where appraisals, purchase contracts offering documents, photos, financial projections, financial reports, tax returns, etc. are available to be viewed.12. Protection of their financial information shared with the syndicator.

Joseph Cornwell · Answer

@Justin PolstonJust keep in mind, if you are going to peice meal a portfolio purchase, you will have seperate loan fees and closing cost for each transaction, with this many units it could eat up a siginificant portion of your profits. Unless, the numbers on this deal are just astronomically high, like a 40% CoC return or something similiar, I would much rather buy an 80 unit apartment complex than try to acquire, manage, and maintain 88 houses spread out whatever distance. You lose a massive benefit of the economies of scale by doing so. Think of the travel time, 88 roofs vs 1 or 3. Often the cost of maintenance and construction isnt the work, its the travel time back and forth. Again, if the deal is insanely good, I would still consider it, but keep in mind what you are trading off by not raising the same amount of capital for a single property deal. Best of luck!

Taylor L. · Answer

Sounds like the makings of a syndication. What you need is a business plan. How can you get your investors in and out of this deal in somewhere between 5 to 10 years, while producing a return for them which they find compelling?Syndication does have somewhat high legal costs (if you're not used to it) which can be around $20k for the legal paperwork.

Allan Smith · Answer

I mean that's what the syndication model is. Buy a $5m building by bringing in limited partners for the $1m down payment. Sometimes you'll have a sponsor who gets an ownership percentage just for using their wealth to sign the loan.it's a complicated process, sounds like you haven't done much research on it. Theres a lot of information out there. Joe fairless has a podcast and I think a syndication school.

Justin Polston · Answer

@Joseph Cornwell yeah it'll all add up, I'm just thinking if multiple buyers get involved, that may be an easier route.

Justin Polston · Answer

@Taylor L. Just trying to make a play. At some point, is it easier to to carve up into smaller chunks with staggered options that buyers can swallow a little bit at a time (if seller would wait).

Justin Polston · Answer

@Allan Smith thanks! I'm trying to not reinvent a wheel thats already out there. Thanks for the suggestion!