My First syndication

In 2017 my wife and I had the vision and goal to invest in real estate in order to better our family’s future. I started by diving into books, podcasts and meetups. I became instantly hooked and decided to start my own meetup in my local market, which was a success and connected me to some amazing people who I have been able to learn from over the years. In 2019 my wife and I took the plunge and bought our first property, a small single family home. My wife believed in me and my passion so much that she did not even see the property before we had it under contract. The SFH was a success and we learned a ton!

We decided to shift to small-multifamily so we can scale a bit faster and bought a few duplexes which added to our experience as real estate investors and we realized quickly that having two doors is more efficient than just one. After the success of our duplexes we said to ourselves if we can buy two at a time, why not four or eight so we turned our focus to syndication. This past weekend we just closed on 66 units and made a lot of rookie mistakes on the way. I want to share with you the mistakes or lessons that I have learned from my first syndication.

Skipping the inspection

My partners and I found a 66 unit condo portfolio opportunity in south carolina and we immediately upon an initial underwriting realized that we actually had a deal and so we dove head first. My team consisted of two General contractors, a financial analyst, a serial entrepreneur and an engineer with various experience in real estate investing but this was our first syndication. So i know what you might be wondering, not doing an inspection is a silly mistake to make, i mean everyone knows that when you are buying a house that you get an inspection done, it's kind of common sense. Well in hindsight i would have to agree with that sentiment, i myself have done inspections on my smaller portfolio during acquisition but we found ourselves with two GCs who had extensive experience in the contracting business and that false sense of security led us to take the unwise decision. 

When we walked the property, my partners went into 90% of the units and took extensive notes and as a result knew pretty much what had to be done to get the units up to par for market rent. Thus the collective decision was to skip it, i mean why would you need an inspector to tell our GCs what they already knew. This is a big mistake to make and we made it and glad to say we survived. There are a few reasons why this is a big mistake to make. One being no matter how much GC experience one has you could still potentially miss something. The other reason why, which we never thought of until it was time to raise capital, is that investors want to see something in hand that assures them that this investment is a good one and that their capital is safe. So if you are reading this, even if you have 20+ years experience as a GC or even as an inspector. Always get an inspection done!

Not correlating leases to bank statements

When you have a multi-family property under contract, one of the main tasks that you have to do during due diligence is to verify all of the leases and that the rents are actually being collected. In our case we were dealing with an absentee owner and I would also say an absentee property manager, if that term even exists. We were lucky that we got 95% of the leases, some of which expired which let us know that those tenants were month-month. We asked for bank statements but never received them and in the process failed to get an actual answer by the end of the due diligence period.

We should have pushed back on the seller and asked for W-2s to see what actual income had been collected as another way to verify but we did not. We also failed to send out estoppel letters to verify what tenants claim they were paying vs what the leases said. Estoppel letters is another method we should have tried to implement but again did not. I presume the main reason why this went by the wayside is because the seller was carrying back the loan as seller financing with great terms and we were probably subconsciously not wanting to piss off the seller and him pull out of the seller financing terms which is not a good excuse. So for mistake or lesson #2 always make sure that you get either bank statements or W2s.

Relying on one main capital raiser

As we marched along this acquisition process we brought on a capital raiser to the team. This raiser was fairly new to the syndication field but have raised successfully before and they told us they could raise 85-90% of the equity needed, if not the whole thing. We meshed really well with them for the most part and so we continued the journey to the closing the table. The 66 unit portfolio was a fractured condo deal and so this was a complex deal to take down. The capital raiser after being with us for the majority of the process decided to pull out of the deal a month before closing citing that they were no longer comfortable with the deal and all of the unknowns with the HOA etc.

They knew that this was a fractured condo deal from the start and so we suspect that they did not fully realize or appreciate how complex this deal actually was and they simply could not handle it and so they pulled out. We had a month to find a capital raiser that would be able to step in and raise the equity for the deal and with time running out we stuck to it and found the right individual to get us to the closing table. This was a very stressful part in the process but my partners and I stayed calmed and focused on potential solutions instead of the problem. So for lesson #3 always make sure that you have a seasoned capital raiser on your team that will stay the course.

In conclusion, there are three mistakes that I will never make again and I would advise you to avoid them also. The first one is to always do an inspection no matter how experienced your team is. Your team might miss something but more importantly investors want to see something in hand that assures them that their capital is safe. Lesson number two is to always verify the leases with bank statements and or W2s. it would be a major problem if after closing you realize a majority of the tenants have not been paying. Lastly, lesson number 3 is to make sure that you have a seasoned capital raiser on your team. Make sure they have a track record of staying the course.

I chose the hardest deal to pursue for my first deal, as it was a fractured condo but I identified that it was a great deal and dove head first. Lots of Highs and Lows on this one, this acquisition process itself could be made into a book or a movie. This business requires grit, persistence and a relentless hunger for success. I learned so much through this process and had a lot of failures which I call lessons and as a result definitely know what not to do on the next deal! Remember to stay the course and expect problems to occur, ones that are out of your control and ones that you cause simply out of ignorance because you are new at this but never ever throw in the towel!

Good luck huntin’