A syndication is simply a partnership between a group of investors pooling their resources into a single investment. I wish executing a syndication was as simple as the definition I just presented. In this article, I am going to lay out the steps took to close our first syndication, and include a video on the benefits of a syndication. Here is our video on What is a Multifamily Syndication.
What Is A Multifamily Syndication? [Video version]
The first step, and most important, is to understand the process of investing in multifamily. We teach our students the three-step framework: Buy Right Finance Right & Manage Right®. If you have yet to master how to buy deals, and how to manage them, it would irresponsible and dangerous to go out and raise capital from investors.
As a syndicator, you are in effect taking money from investors and becoming the steward of their hard earned capital. If you don’t know how to underwrite deals, finance the deal appropriately, or asset manage the deal, I would hold off before starting to raise capital. I look at the three-step framework as the foundation to your syndication business, and if the foundation is weak, then your business will fail. Please take the time to educate yourself on investing in multifamily, and to create your own business plan.
Once you are comfortable in your skills as an investor, the next step is to learn the different laws that govern syndication. When we decided to pursue syndication, the first call we made was to a syndication attorney. We had no idea about structure, type of syndication, time line, docs needed, and on and on. I would visit Kim Taylor’s website Syndication Attorneys for access to a treasure trove of articles and free resources. With all the content out there, you will still need to schedule your call with a syndication attorney.
In fact, that first call lasted over two hours!! I thought the call would last around an hour, and was ready to go fishing afterwards. No fishing that night! Don’t wait until you have a deal under contract. By then, it’ll be too late and you’ll have dozens of other tasks to attend to.
The next step is to begin to assemble your team. Here is a complete list of vendors for your syndication business. It will be virtually impossible to have them all lined up before you begin, so I would focus on your syndication attorney, CPA, website, legal entity creator, and property management company. Remember, Rome wasn’t built in a day, and neither is a syndication business.
- Website designer
- Website Hosting
- Self Directed IRA company
- Legal Entity creator
- Syndication Attorney
- Property Management Company
- Property Management Software
- Cost Segregation Specialist
- Credibility Book Designer (for raising capital)
- Zoom (for conference calls)
- Customer Relationship Manager (CRM)
- Investor portal
- Virtual Assistants
- Insurance Broker
- Laundry provider
- Secret Shopper
- Cable Company
- Social Media Platforms
This next task is a difficult one for most entrepreneurs. It really depends upon where you are in your investing journey. Are you working a full time W2 job while ramping up your syndication business, or are you a full time investor? Be honest with yourself on your strengths and how much time you have to commit to your business. We were able to hire for investor relations, while creating content to convert those investors, and we also asset and property managed the deals. There are many different moving parts in a syndication business. That’s why we say multifamily is a team sport.
In conjunction with deciding upon your time commitment, do you invest in your first syndication as a passive investor to learn and get your feet wet, or do you jump in head first and take on the responsibilities of becoming a general partner. There is no right or wrong answer, only what’s right for your unique circumstances. You may even enjoy the freedom of investing passively and pursuing your career or your family. BUT, you still need to understand to Buy right, finance right, and manage right, especially if you are going to invest in someone else’s deal.
I can share with you what Jake & I did when we starting investing in multifamily. Our first several deals were done without syndication, and we were able to use creative financing and refinancing properties to expand our portfolio. Syndication was not prevalent when we started. There were deals out there, but there was very little capital to invest in those deals.
Once we felt comfortable with our business model, we decided to test the syndication waters. We had the team built out, and when it came time to raise the money for our first syndication, it was rather easy.
The challenge that we faced was the quickness with which a syndication moves, and the responsibility to the investors. Losing your own money is bad enough, but losing your investor’s money? That was a huge block for me. My limiting beliefs of working with investors held me back from trying syndication sooner. Trust me, don’t let it hold you back!
Education * Action = Results®
Have you ever heard the term Proximity is Power? This brings us to our next step, to join a community of multifamily investors, and to begin to attend live events and meetups. Those who are rich in relationships are rich in life, both personally and professionally. There is no substitute to talking to an investor eye to eye, shaking their hand, and developing rapport with that person. Our Jake & Gino community allows the students to network amongst themselves, partner up on deals, and more importantly, share resources and ideas to expand their businesses.
As you attend these events and groups, the next step is to commit to raising capital. It is easiest to first go to friends and family when raising money for your deal. These are the people that know and trust you, and you will have the greatest influence among them. We have written a booklet on how to raise capital. If you would like to learn more, click here à
If raising capital isn’t your skill, you have two choices. You can either learn to raise capital by learning how to sell yourself and your vision, or you can focus on another responsibility in the syndication business. How about asset managing, property managing, or running the day-to-day duties? Just don’t sell yourself short on the fact that you have never asked anyone for money.
I didn’t either when I started, but the epiphany I had was that I was not asking people for money, I was offering them an amazing opportunity to invest in one of the top asset classes in the investing space. Multifamily is a basic human need: Food, clothing, and apartments!
`While you are learning the art of raising capital, your responsibilities extend to sourcing deals. I always get asked what should you do first, have the money or find a deal. If you are syndicating and opting to do a 506 B offering, you need to have a substantive relationship with any investor you offer the deal to. Once again, check out Kim’s site for definitions and structuring. Basically, if you do not have a relationship where you’ve spoken to an investor to understand their goals and their level of sophistication, you can’t present them the deal you have under contract. First, the relationship, then you can offer the deal. So, you better be out there sourcing capital for that juicy deal.
Finally, once all of those pieces are in place, it’s time to go out there and put a deal under contract. Down below, I have summarized all the steps for you.
- Learn how to Buy Right Finance Right & Manage Right®.
- Learn model of syndication and laws.
- Hire the right team members.
- Decide upon your strengths, your time commitment.
- Decide whether you are LP or GP.
- Join investor groups and attend live events.
- Learn how and commit to raise capital.
- Source deals.
- Get deal under contract.
Syndication is an amazing tool in your real estate toolbelt. It can allow you to enter into the business with limited funds, and can allow you to scale your existing portfolio. A friend once told me the quality of your life is dependent on the quality of your options. Syndication is a powerful option for you to use in multifamily.
I would love to know if you bought your first deal through a syndication, or if you used your own money. Please leave us a comment down below.
– Gino Barbaro