Quote from @Brian Plajer:
I have heard several podcasts related to Partnering to scale up and buy a commercial apartment building. It sounds like they get a deal under contract and then raise the capital. How is that possible for someone inexperienced ? I'm struggling with the chicken or the egg scenario. If someone never owned an apartment building or raised capital before I can't imagine their offer would be taken seriously much less get it under contract. If that same person tried to raise capital I imagine they would receive the same resistance. I have heard its recommended to be an LP and try to learn the process but how involved can you be as an LP? I am struggling with the next step.
Hi Brian -
This all depends on you and your goals. You will get different advice from everyone and you just have to take in all the data and make the best informed decision. There really isn't a right or wrong. The only bad decision, is no decision.
It is great you are taking action, learning, and attending classes. At some point you need to pull the trigger. Here are just a few things (my opinion, so just use as more data) you might consider.
1. Ask yourself what you bring to the table for a deal as well as a partnership? Do you bring underwriting skills, money, relationships, asset management to the table? Meaning, why are partners that are experienced and doing well in the market going to want to partner with you?
2. Do you really think you are ready to go alone (even if you just go alone to get a deal lined up, are you ready to not miss anything in submitting an LOI, DD, etc?).
3. What size of deals and class of property interest you and why? What markets and sub markets are you looking at?
4. Have you established relationships with brokers?
5. Have you started to build your own team? (Lender, broker, insurance, atty, CPA, contractor, PM companies, etc)
These "classes" are good for the basics, but most are BS and won't prepare you for what needs to be done. You will think you are prepared after the class only to get a rude awakening when you get into a deal.
Oh, and you are right. In this market, if you haven't done a deal before, it is harder to get a deal. Most sellers and brokers will take a lower number if they are more convinced someone will be able to close due to their experience. That doesn't mean you can't do it, as you can do anything, it just means it is another road block as you already know.
Being an LP has a lot of advantages if you want to learn. There are inexpensive ways to do this for your first deal. The key is getting the most out of it. Go into a deal as if it was your deal. Ask for the teams analysis (underwriting), watch how they do DD, line up lending and what type such as bridge, plan to renovate and timeframe, exit horizon and goals, etc. The more you are prepared going in, the more you will get out of it and advance your learning exponentially instead of a death by a 1000 cuts. Create your own learning bootcamp so to speak.
Mike
