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.
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.
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!
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.
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