All Forum Posts by: Lee Yoder

@Alain Perez-Majul This is all I've been thinking about lately and I've really enjoyed reading through all of these great responses. I currently own 16 unit, 10 unit and 8 unit properties. I have them all professionally managed and have since day 1 (I purchased all of these properties last fall). I've been pretty happy with the PM, but not thrilled. They have not been very quick to fill vacant units. Their maintenance costs have been very reasonable and they've done a lot of work for me. These properties are very profitable and I purchased them with just one or two friends/family each. We own them in LLC's and only have to split any profit from cash flow, or from a refinance/sale, with 2-3 people.

I really want to take the next step with buying 100+ unit properties for all the reason mentioned above. But, syndicating definitely has some negatives that buying small properties with family/friends does not. Obviously, there is much more regulation. You also have to deal with many more investors. These investors will likely be more educated and have higher expectations. The biggest negative for me at this time though is the prices due to increased competition. I bought these smaller MF properties for much less per unit and a much higher cap rate than I could ever have dreamed of buying a 100+ unit property. I'm really hoping this changes soon as I believe the Covid shutdown is going to take us into a bad recession and serious correction in all asset classes. 

@Greg Dickerson  Yeah, I have been quoted $12-15k for a syndication attorney, so that wouldn't ruin a deal like this.

I really appreciate your input and your point of view Greg. A lot of what you said is what I've heard from others, but definitely not the popular view in this discussion. Haha. I agree that the primary reason an investor will choose to invest with me will be because they trust me as a person and as a professional. The first couple deals will probably involve people I know pretty well.

@Bill F. Yeah, I agree, $500k raise is too small. I don't want a third job. I want apartment syndication to be my only job. I want to syndicate for many reasons- I'm passionate about REI in general, but specifically MF investing because of all the incredible benefits and I want to share this with others. I want to help people become financially independent because I think this allows people to live their best life.

I totally agree with you that I'd be better off with partners. I've been working hard to find these partners. I'm pretty sure I have one already. He works full time as an accountant in the commercial real estate space. Thanks for the advice Bill!

I live in Lebanon , just up the road from South Lebanon. Parts of South Lebanon are definitely on the rise, especially if it's in King's School District. But, there are parts that are definitely not on the rise.

@Evan Polaski  Thanks for your response. You gave a me a lot of good information and I appreciate you correcting a couple of my mistakes and adding to my numbers. 

I have not been speaking with mortgage brokers yet about lending for a large apartment. I've only worked with lenders on the few deals I've done so far. I know the bigger deals will require much different lending, so this is one of my next steps. 

@Jaysen Medhurst  You asked why I even bother with syndication becuase it's more regulation and more costly. I totally agree, but my friends and family only have so much money, and there are many benefits that come with buying large apartment buildings versus smaller ones. The economies of scale and building an actual business around syndication are what attract me to it as opposed to continuing to buy small MF properties on my own with my family/friends. However, I'm still looking at smaller properties because I think this may help me to grow my own capital more than syndication. Then, I can take the profits from the smaller stuff and invest it into my syndication along with my LPs. 

@Jacob Blackett  You said, "On my first few syndications I didn't co-invest b/c I was still building up cash reserves." This is the exact position I am in- I'm still trying to build up my personal capital. You said a few investors chose not to invest with you because you weren't investing your own cash and I totally understand this. Thanks for you reply Jacob.

Thanks so much for taking the time to respond to my post guys! It's obvious you all have more experience and knowledge than I do, so it's really helpful for me to hear from you. I think it would be helpful to explain my situation and my goals a little better:

I have a full-time job as a physical therapist, but I am really slow due to Covid, so I'm not making much. My goal is to quit my PT career and syndicate apartments full-time. I know this won't happen over night, but I'm trying to figure out if I can make a living in the next year. It seems that by investing my own money in each syndication I complete, it will take 4-5 deals before I'll be making enough off of the asset management fee and the return on my capital invested. I currently have 3 small apartments- 16 unit, 8 unit and 10 unit- all purchased in the past 8 months. I've purchased these with family/friends and we've purchased them in an LLC. I have about 50% ownership of each. They were distressed properties and I'm still working on getting them turned around. I a couple more months, I should be cash-flowing around $2k/month.

@Jaysen Medhurst: You ask, "Why would anyone write you a check for tens or hundreds of thousands of dollars, when you're not willing to invest in it yourself?" That's a great question and I think most investors would think that way. But, isn't that the point of syndication? The general partners/syndicator provides the deal (and everything that goes into that) and the limited partners/investors provide the capital. So, the answer to your questions is: Someone would write me a check because they have extra money to invest but they don't have a deal in which to invest. They decide they like the deal that I am providing. They believe I'll make them more money. I, the syndicator on the other hand, don't have a bunch of extra money, but I have a great deal. I still agree with your point, and I do plan to invest in my first few syndications at the very least, but I'm still trying to think through this.

So, let's say I have $100,000 of my own money to invest. But, I want to live off of this money (while still making some money as a PT) while I transition into full-time apartment syndication. If I invest in each of my own syndications, I could do 2, maybe 3 deals like the one I outlined in my OP. If I am fortunate enough to close 3 deals in my first year, I'll be extremely excited, and well on my way to apartment syndication success, but I'll have made very little to support my family. In year two, the cash flow will start to increase and I'll be closer, but still far away from my goal right? Also, I definitely won't have enough money to invest my own capital in my 4th or 5th deal. I guess at that point I'll have a much better track record, so potential investors will be more likely to invest with me even if I don't invest my own coin.

Thanks again for your input!

So, I've been looking at a smaller apartment building (48 units) in SW Ohio. I want to syndicate this deal. I've heard many say you should invest your own capital in your syndication because it shows that you really believe in the deal and have your own skin in the game. When running the numbers on this specific deal (and I think other deals like this would have the same issue), I don't see how investing my own money makes sense for me. Here are some basic numbers as I see it:

Purchase price: $1,800,000

Down payment: $360,000  

Closing costs and rehab costs (lots of rehab and expecting high turnover) $140,000

Total amount invested: $500,000

Expected annual profit after mortgage: $70,000

Preferred return of 8% to investors ($40,000) and then 70/30 equity split (LPs: $21,000, GPs: $9,000)

So, if I syndicate this deal with a partner (I don't like the idea of syndicating on my own) we would each make $18,000 for the Acquisition Fee, then $2,700 each for the Asset Management Fee, and then $4,500 each as our part of the equity split.

My total profit in year 1: $25,700. I'd be thrilled with this profit. This would feel like a great payoff for all the work I've put in to make this deal happen and then manage the asset as we get it turned around. My profit in year 2, 3, 4 etc would only be $7,000-$10,000 as we get the property turned around, but that's okay because I know I'm building lots of equity in the building which will payoff for myself and all of our investors when we refinance or sell in year 3, 4 or 5. Also, I will be syndicating more deals each year for which I'll be compensated like I was for this deal in year 1.

Now, if I were to invest my own money, say $25,000, my profit for year 1 would be $700 plus my 8% preferred return of $2,000, so $2,700 total. That does not feel like a good payoff for all the work I put in. In this scenario, my only way to really be paid well is to refinance or sell. This means waiting 3-5 years to really see a good profit from this apartment syndication. If I were a guy that had a lot of money to invest, this would not bother me, but I am trying to build my wealth right now. I'm not in a position where I'm simply trying to grow and preserve my wealth like I assume many of my investors are.

Am I thinking about this incorrectly? Is this deal just too small to syndicate?

I'm considering selling a multifamily property because I do think prices for commercial RE will fall by the end of this year and I don't think they'll return to early 2020 levels for a few years. I could be totally wrong, but I do think we have been "topping" for a year or so now. However, I do agree with others that have said they don't see a reason for selling when their investment will still cash-flow even if values drop 30%. The value of your property only matters when you're trying to buy or sell. In my case, I am trying to buy bigger multifamily properties, so I'm hoping to sell my smaller apartments while prices are high and buy when prices are low. I know it's basically impossible to time the market, but like I said, I think this is the top, so I believe it's a good time to sell.