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Updated about 7 years ago, 11/14/2017
Closed on 320 Unit Last Week: 6 Ways to Break into the Biz
I closed on a 320 unit last week and have had a lot of people ask me how they can break into the multifamily syndication biz (i.e. raising money and buying apts with investors). I documented my lessons learned on my last two acquisitions (155 unit and 250 unit) here:
I put this together for anyone who wants to do bigger deals but didn’t know how to use their special talents (we all have them) to make it happen.
Here are 6 ways to creatively get into the biz:
1.Find an off-market deal.
2.Conservatively underwrite deals.
3.Negotiate terms and get all legal docs in order.
4.Raise capital for deal and be ongoing point person for capital sources.
5.Secure debt financing (if applicable).
6.Do property management.
What area appeals to you most? What do you want to do? How do you want to spend your time?
If you’re going to be a successful multifamily syndicator (i.e. buy apt communities with investors and share in the profit) then you’ll need to choose your primary area of focus. Because, if you try to do it all, then you’re doing your investors and yourself a disservice. Why?
Because we all have special talents. We are all wired differently and process info differently. The key is to have a business (whether it’s real estate or any biz) where you have team members doing what they love to do and are good at (surprise, they go hand-and-hand).
Yes, I have working knowledge of ALL the areas and I recommend you do too. But, you can break in the biz by having a specific focus and being strategic about how you leverage that focus.
So, here you go, the 6 ways to break into the apartment syndication biz:
#1 Find an Off-Market Deal, then you can get into the biz by:
…finding an off-market deal and bringing it to an experienced investor who can close on it.
But wait, before you actually look for deals or bring it to an experienced investor, figure out WHO you should bring it to and qualify THEM to ensure you’re not doing unnecessary work. Your time is valuable. To qualify them make sure they:
-have closed on similar properties that you’ll be looking for
-are willing to structure the agreement in a way that meets your goals (more in this below)
-are trustworthy and come with references – don’t enter into an agreement lightly. Any partnership has major implications because you’re bringing in investor money.
Re: your goals, sure, it’s nice to get a fee for finding a deal but don’t you want the long-term benefits of being in a deal? I would. So while you might need to get a fee on the first couple deals because, well, you need to eat and have shelter, the more you do it the more you should transition to being an equity partner for finding the deal. Don’t take a single family home wholesaler’s approach. Take a buy-and-hold investor’s approach because that is what ultimately sets you up for long-term financial freedom.
Practically speaking, if someone came to me with an off-market deal then I think it’s worth about 25k – 100k depending on some of the details (i.e. size, how good of a deal it really is, etc.).
#2 Conservatively Underwrite Deals, then you can get into the biz by:
…taking your talents to a group (or person) who is getting tons of deal flow and needs help underwriting deals. My biz partner and I get a ton of deal flow so we brought on a couple MBA students at UCLA to help us with the initial underwriting. After they do the initial underwriting we then take it from there and complete the analysis. We pay them 10k once we close on a deal and then there’s long-term potential for them to be in on the deals as we grow our business.
So, if you’re a numbers nerd…ahem, numbers guy/gal then this is a way to break into the industry. I interviewed a 20 year old who did this and helped close a $2.3M deal. I mean, come one, if a junior in college can do it then why not you??
#3 Negotiate Terms and Get all Legal Docs in Order, then you can get into biz by:
…Getting a law degree. If you’re not an attorney or don’t want to get a law degree then skip to #4.
Seriously, this isn’t the most practical way into the biz BUT if you already have a law degree then it…might work. First off, the person responsible for the acquisition is likely the one who negotiates the terms so really all that’s left is legal docs. And paying the cost of legal on syndicated deals makes more financial sense than bringing an attorney in on the deal as a General Partner in most cases. However, perhaps you find a group that has grown to the point where it makes financial sense to have an in-house council. It’s likely even if you’re an attorney that you’ll need to combine #3 with other things you bring to the table in order to make for an appealing partner.
#4 Raise Capital for Deal and Be Ongoing Point Person for Capital Sources, then you can get into the biz by:
…partnering with someone who has a proven track record in the multifamily syndication business. You bring the money and they bring the deal. If you have a network of high-net worth people AND they think of you as a savvy business person then this could be your ticket into the biz.
Some points to guide you along the way:
-identify partners doing deals already and who have a successful track record
-get an idea of how much you would make on a past deal of theirs if you raised XYZ amount of money – this gives you some benchmarks for how much you’ll make on future deals when you bring in the money
-make sure the partner has money in the deal – otherwise, what do they have to lose if you bring in your money and your investor money and the deal flops? Always have alignment of interests
Remember, if you are raising money for other people’s deals you must be on the General Partnership (GP) side. If you are not on the GP side and you are raising money then that’s against the law unless you have a Securities License. So, be careful here. Make sure you’re on the GP side if you’re raising for a deal.
#5 Secure Debt Financing, then you can get into the biz by:
…being a mortgage broker. So if you aren’t a mortgage broker or don’t want to be one then skip to #6.
Even if you are a mortgage broker, similar to #3, this is usually a fee that makes sense to pay instead of letting you in on the General Partnership side. That said, I know of some groups that comprise of mortgage brokers and they get in the deals by putting in their brokerage fee as the equity in the deal.
#6 Do Property Mgmt., then you can get into the biz by:
…being a property manager. As a property manager you have lots of ways of breaking into the biz. Here are some:
-Networking with local, aspiring investors who want to do deals but don’t have the track record. You can bring your team’s track record of turning deals around and they bring the money for the deal. You have a lot of leverage here because without you or someone like you they couldn’t get approved for debt financing (and likely won’t be able to raise the equity)
-Work with an experienced group and tell them you’ll exchange your property management fees for being in on their next deal. This could help them sell in the deal to their investors because it shows alignment of interests. You have less leverage than the above scenario but still provide a lot of value.
You could even combine a couple methods and raise money for the deal while also trading your property mgmt. fees for being in the deal. The more money you raise the more equity you get in the deal.
Or, you could raise money for the deal and get equity but not trade in your property mgmt. fees even though you’re managing the deal. Basically you can slice it a lot of different ways – only limited by your creativity and ability to add value to the deal. Ultimately your ownership should be proportionate to the value you add to the deal.
Some other ways:
-if you’re a broker then put in your commission to be part of the deal. On my first multifamily deal (a 168 unit) the brokers on the deal put in their commission of $317,500 to become owners of us in the deal. It was a win-win because my group had to bring less money down and they got to re-invest their commission into something that had major upside.
-If you have experience in multifamily investing but don’t want to deal with the headaches of finding deals then you could do asset management for other investors.
- you could also just do your own deal and all aspects of that deal (i.e find it, get money for it, get financing for it, get right mgmt partners, do asset mgmt) similar to what I did on my first deal (168 unit)
Hope this post helps at least one person here on BP get going in the apt syndication biz.
Great information @Joe Fairless thanks for sharing!
It's so refreshing to see this information shared without a hidden fee involved - so thank you! It's excellent thought and direction, and it sounds like you know how to play in the sandbox and turn sand into gold, with wisdom and collaboration. Great instructions!
My pleasure @Kristen Williams and @Denny Troncoso- appreciate the feedback.
@Joe Fairless do you need an underwriter? I can bang out models like a machine!
@Jared Carpenter nope but thanks for the offer!
Joe Fairless Thank you for the great post, especially for those like myself who would be new at the multifamily syndication game. Your posts here on BP and you Best Real Estate Investing Podcast ever have been an inspiration and helpful to so many of us. Thanks again!
@jordan
@Jordan Decuir really appreciate the kind words and most importantly glad it's helpful for you. Glad you listen to my podcast!
@Joe Fairless what's up I would like to reach out to you. I am reading and learning how to try to invest my first time a half a million.
@Joe Fairless A little late but was going through your posts.
You keep hitting it out of the park and are an inspiration. Thank you for generously sharing your knowledge and experience.
@Omar Khan that means a whole lot. Thank you and appreciate your comment. Are you an apartment investor or multifamily syndicator as well?
@Joe Fairless I'm learning the ropes by using your example to inspire me. Connected with @David Thompson, @Andrew Campbell and Reed to mentor me.
