All Forum Posts by: Spencer Gray

That's a good list. I would also add a comprehensive marketing plan and strategy. Website, SEO, online listings, print ads, etc will all need to be updated and a concentrated push may be required to get the word out that the property has been sold, under new management, re-branded, and better than ever. 

I would never invest in a deal where I could be taken out on a refi with a simple return of capital + my preferred return. 

That being said, some syndicators do structure their deals that way, but they are in the minority. 

The only way this is appropriate is for a full equity recapitalization where the GP stays in the deal but fresh equity buys out original equity at a favorable market price whereas the original LPs hit their targeted returns at a minimum. This could be appropriate if the deal has been held for the original deal's hold period and a recap can realize the original LP's investment but the GP wants to still manage the deal.

One of the best things about this investment strategy is to be able to de-risk the asset via a refi and achieve infinite and compounding returns! To take that out of the business plan removes one of the primary tactics of the strategy. 

It's not uncommon for the GP to bring little to no cash in a deal, although 5-10% is very common. As @Taylor L. mentioned lenders often want to see the GP have some skin in the game besides loan guarantees. 

One of the general partners being a broker is more unique, although not unheard of as is him getting an automatic commission for selling. It's not a deal killer, but I would be curious if the GP is a residential realtor or an actual commercial real estate broker who might be more qualified to market and sell the deal. 

Paying a property management fee to the GP if they are actually managing the property is standard since they are providing the service. 

There are other fees that are typical that you didn't mention such as an acquisition fee, finance fee, asset management fees, and sometimes disposition fees. 

I also wanted to clarify that when you say 70/30 after NOI, keep in mind that the mortgage payment, capital expenses, and adequate reserves have to be paid prior to free distributable cash-flow.

6% pref is on the low side of market but not unreasonable by any means. 

@Bobby Larsen anywhere between 4%-6% depending on location, upside, and risk. 

@Jack Rozema as @Brian Adams mentioned, values are based on current income and submarket cap rates.

For debt, we're about to close on a 140 unit property. We're getting a floating Freddie Mac 10 year term, 30 year amortization, 75% LTV, 248 bps spread over the 30 day SOFR, right now around a 2.58%, 5 years interest only, 1% prepayment after 12 months. We are also buying a rate cap to hedge if interest rates rise, and is also required by Freddie.

For cash on cash we usually use an 8% preferred return but target an average of 10% over the hold period. 

@Jamie Grubb while that is true, those exams are typically not applicable to most investors. I believe those exams require you to be sponsored by a firm that also has the license. 

Investing as a limited partner (passive) or starting a real estate syndication business (active)? 

@Justin Goodin mentioned the most common economic structure, but there's no right way, and that's just one element to a structure. 

Let me know if you have any specific questions!  

Family then friends then friends of friends, their friends. Getting coffee, breakfast, lunch, second lunch, dinner with anyone who will meet with you to talk real estate. 

Meet ups, conferences, networking in general.

You can see, however, that all of this requires an incredible amount of time. So at some point you'll need to build as many systems and automations as possible to generate investor leads, nurture your base, and convert them to wealthier repeat investors. 

No matter what anyone says, it's not easy and it takes time and persistence. 

Soft commits are worth 25-50 cents on the dollar.

The first raise will seem near impossible, the second will be an incredible challenge, the third will be significantly larger and easier than the first two. 

This is all about raising capital and completely separate from your ability to execute on the project or qualify an experienced operator to partner with who can successfully execute. 

@Ken Primrose the quickest, back of the napkin way of analyzing a deal is by using the 50% rule. The 50% rule assumes that there expenses will be ~ 50% of a properties NOI (Net Operating Income).

So let's say the average rent of a 100 unit apartment is $1,000/m. 

100 X $1,000 = $100,000 X 12 (months) = $1,200,000 of GPR (gross potential income). Not accounting for vacancy OR other income.

$1,200,000 X .5 = $600,000 of NOI

Now let's say the purchase price is $12,000,000 (NOI at a 5% cap rate) and you will get a 75% LTV loan with a 3% interest rate with at least one year of interest only.

$12,000,000 * .75 = $9,000,000 in loan proceeds X .03 = $270,000 of an interest only payment (NON AMORATIZING) 

That will leave net cash flow NOT including capex, RR deposits, AM fees, etc of $330,000. 

Let's also assume your required equity = 30% of the purchase price with down-payment, third party reports, lender fees, closing costs, etc. So let's assume 30% of purchase price for equity = $3,600,000

For cash on cash assuming no changes to operations $330,000/$3,600,000 = 9.1% cash on cash

9% is a pretty good cash on cash. Now I would do a more in depth analysis that takes into account actual financials, incorporating your business model, including all line items, etc. 

There are many flaws in this method, but it can be better than nothing. 

The three key elements to your platform are: your website, a CRM, and an investor portal. 

As @E. C. "Stony" Stonebraker mentioned Active Campaign is popular, we use Hubspot. It al depends on your style, budget, and preferences as most do similar things. 

We currently use IMS for our investor portal, we may switch, Syndication Pro looks pretty nice and was created by a syndicator. 

We use wordpress for our website.

I would add that much can be automated but it does take a decent amount of work to set up and maintain. 

Creating the content to attract, nurture and retain investors, and the right copy on your website/emails is the greatest challenge, but also a huge opportunity.