First Syndication on Commercial Apartment with a GP LP Structure

Back story
As you may already know, my husband and I have been buying rental properties for the last 5 years. Up until this year we would use the cash generated from my real estate commissions and the funds from his mobile home flips to purchase mobile homes, houses and small multi family apartments that are 100% owned by us.

I have a mentor at my CrossFit gym who does big commercial and land deals who one day planted a few seeds in my head. He said "Allie, the real wealth is gained with leverage." He met me in his office to show me how he structured his past deals and broke down terms like limited partners, general partners, water falls, and more. Then he proceeded to ask me, "do you know the difference between a small deal and a big deal? It's the commission check! The work is the same so why not go for a bigger deal?" He had really inspired me to start looking for a bigger deal and bringing on partners.

Finding the deal
One day my husband was checking on a triplex and four plex that we have. We self manage all of our properties so he was doing a regular drive by to make sure the tenants were parking in their right spots, the landscaping looked good, and there were no issues he could see.

He called me to tell me that there was dog poop all over our property again! The neighboring apartment complex had let their chihuahuas loose again and they kept pooping everywhere making the neighborhood smell like crap. This apartment complex was DISGUSTING.

It had human waste in the driveway from broken sewer lines. It also had broken down cars parked in the back, the front and on the street next to it. They had drug dealers and parties going on every weekend. It was filthy. I told my husband to go over and see if he could talk to the tenants to get the landlords information. Our vision was to see if the owner would sell it to us "as is" in the hopes of renovating the property to bring up the neighborhood safety and value.

We ended up speaking to the owner on the phone and found out that he was an out of state owner from California and he was interested in selling it. I gave him an offer of 100k per unit and followed up with him for a few months. He eventually told me our offer was too low so we ended up settling on 120k a unit. In this zip code properties were selling for 180k to 200k per unit remodeled.

Estimating Capital Needed
By this time we have already renovated a triplex and four plex on this street so we knew approximately what it would cost to renovate each unit interior, replace sewer lines, repairs roofs, ac's, add landscaping, paint and replace appliances. The only quote we needed was to replace the driveway concrete slab because it was destroyed.

We also had our own comps of market rents which made it even easier for us to project costs and predict our return.

Finding partners
I met a couple in their mid twenties at a friend's birthday dinner a few years prior. They loved to talk about Bigger Pockets and building wealth. We had become close friends immediately. Since that day they have used me as a realtor to buy 4 rental properties. Their parents and grandparents have also used me to buy their personal residences. I have gone to their wedding and we have had dinner and game nights regularly. We have built both a close friendship and great business trust over the past few years as they have witnessed our integrity, market knowledge, and ability to help them grow long term wealth through investing in real estate. We also have great confidence in them as our partners because we have seen the way that they work and their hunger to learn and do more deals. It was really an easy decision for us all to work together on this deal. Their parents even joined in on the deal!

The structure
1. 100% to the members until the members have received distributions equal to their initial capital contribution (return of capital); thereafter

2. 100% to the members until the partners have received their preferred return of 6% per year simple interest on their outstanding capital contribution; thereafter

3. 100% to the manager until the manager has received equal to one-third of the preferred return distributed to the members reflecting an overall profit split of 75% to the members and 25% to the managers; thereafter

4. 75% to the members and 25% to the managers until the members have received distributions equal to a return of capital, plus a preferred return of 18% per year simple interest; thereafter

5. 30% to the managers and 70% to the members.

We had the operating agreement drawn up by an attorney, an account opened and funded within a week of the proposal.

A few months later contractors finished remodeling, we placed new tenants, and came in under budget. We did our first distribution to the members and everyone is eagerly waiting for our next deal together!

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