All Forum Posts by: Sam Rust

@Themis Nissirios The way I approached this was simple economies of scale. I felt like I could raise the capital if I found a good deal even if I didn't have prior experience in the space, and opening that door got us into a complex that is large enough for a full time property manager. Deals are so different that it'd be hard to make an absolute statement, but I would rather have 10% of a large deal (+ my equity percentage for putting it together), than getting into a 3-15 unit deal solo.

That being said, neither route is empirically right or wrong, the important thing is to pick one and start taking action! Best of luck!

@Tyler Silverman Same guy, I'm still working in I&C, active in REI on the side at this point. Hope things are well!

@Curt Smith

I excited to trade one set of challenges (deal finding, writing LOI's, raising funds, DD, etc.) for those of actually running the complex! I'm sure the 1/1's will turn quite often, but this local market is also heavy military, which should help with demand for that unit type.

Our structure is light on the MP end, but intentionally so. With our lack of track record, I wanted to make our offering as attractive as possible; 20% of something still isn't bad! I do hope to be able to grow that portion in future deals.

Thanks for the feedback!

@Yonah Weiss and @Trenton Parks

I put together a brief video presentation of the project and the overall numbers, sent that to select friends and family in my network, and then followed up with quite a few phone calls and email discussions answering various questions about the structure. In the end, all of my investors weren't as concerned about the return, as they were about the integrity of partners involved. Another example of the importance of relationships!

@Kendall Smith Welcome to BP! I'm out of Denver, and don't have a lot of CPA connections in your area. I would start the process by learning as much as possible. I'm sure there are several good REI meetups in your area, I'd start the CPA search by going there, building relationships, and asking for references.

Best of luck!

@Heath Ryans, I bought in as a LP as well, and used those initial funds to cover the DD costs, including the syndication attorney. Most of the larger firms I spoke with started at $25k, I don't believe they would have delivered any additional value in this deal.

@Troy Williams, I listened to several podcast episodes that featured attorney's discussing the various forms of syndication. Jillian Sidoti and Kim Lisa Taylor are two attorney's that are fairly well known in the space. Probably my favorite episode was Taylor on Wheelbarrow Profits, that episode dropped 3/29/18.

@Luke Miller We kept it very simple, 80/20 split, no acquisition or management fees, 7% pref. I wanted the GP's interest to align as closely with the investors as possible; this made the money raise quite a bit easier. 

@Emilio Ramirez and @Ben Leybovich, good follow up questions! I kept it a bit shorter in the main body to avoid TL;DR.

The complex in question is an even split of 1/1 and 2/1 units. When we performed our market study before placing the complex under contract, the 2/1's were 15% under market, and the 1/1's were 11%, so averaging 13% when the property was placed under contract. Since then we've had the good (and unplanned) fortune of rents growing quickly, upon closing our rents are 21% under market. In fact, units that came vacant this summer rented out above our underwriting, without being renovated. 

Cap rate on an in-place basis was roughly 5.7% going in, we project that once re-positioned it will be 7.3%. We plan to add several other revenue streams, including renting out onsite storage that was previously included with units, covered parking, revenue gain from a new laundry facility (just completed), and adding amenities such as a grill patio and play structures.

We project the IRR for a 5 year hold to be 23%, and a 10 year hold at 20%. This is based on selling at a 6% cap rate. Obviously we won't hit our projections if rents don't grow, but the property does cash flow immediately, and we believe strongly in Colorado Springs as a market.

@Heath Ryans The SEC compliance piece hasn't proved to be that difficult. I found a local lawyer that specializes in syndications and had a reasonable package deal. I spent around $10k, which is pretty reasonable compared to what some of the bigger firms charge.

I'm thrilled to share that I closed on my first real estate syndication deal today! I wanted to share this with the community to hopefully encourage others out there that larger-scale investing is possible without expensive courses or prior knowledge, it just requires making a goal and then taking consistent, persistent action with that goal in mind!

I stumbled on BP 13 months ago, listened to Episode #238 with "Swanny" (still one of my all-time favorite episodes), and was instantly hooked on real estate. I wasn't sure which niche I wanted to pursue, but decided to pull out some equity of our primary residence, then bought a student rental in Greeley last October as a start.

In December I put an atypical duplex under contract, but had significant issues with the financing end of the deal. After getting input from several folks here on BP, I ended up canceling the contract. At the same time I started to narrow my learning focus into multi-family, through content produced by BP, Grant Cardone,  @Michael Blank, and @Gino Barbaro

In February I started reaching out to local brokers and building relationships, while also talking to several folks about partnering together if a deal could be found. In April, after evaluating over 40 deals, I finally identified a 64 unit complex in Colorado Springs as an attractive target. This property was built in the late 60's, had good bones and a new roof and pool, but was still owned by the original builder, and had been mismanaged for several years. Rents are 10-15% below market, and there are a number of straight forward exterior items (signage, overgrown landscaping, new paint) that we plan to address as part of our turnaround strategy. I ended up partnering with two folks that had prior experience in the development and SFR arenas.

The seller proved to be very difficult to pin down, and we spent most of May and part of June pushing for a response to our offer. We finally entered into contract June 10 with 2, 30 day extensions to facilitate a 1031 for the seller. Shortly after entering under contract we secured funding through Bellco Credit Union, though it was recourse debt, we got a 4% rate, 10 year term, 30 year am, with a 1 time adjustment at 5 years. We selected a local property management company with quite a bit of experience in the Springs submarket after vetting several local firms.

The final purchase price was $7.55 million, and we ended up raising just over $2 million through a 506(b) syndication structure. Oddly enough, the money raise ended up being the easiest part of the whole process!

Our plan is to hold for a minimum of 5 years, then either refinance into agency debt and hold for 5 more, or sell and distribute the profits. Our projected IRR with conservative rent growth numbers is just under 20% for our limited partners.

I'm so thankful to have resources like BP to learn from, and other folks like @Steve K. and @Bill S. that provided valuable insight early in my journey, thank you! I have much still to learn, and I look forward to creating more value for our investors in the future. Hopefully I'll meet some of you in person at a meetup in the Denver area soon!