Over the last 12 years I have successfully done 26 syndications, and the journey has been quite exciting and rewarding. Along the way, I have developed my philosophy of investing, which I would like to share with you, along with some other important aspects to this art of acquiring larger commercial properties.
I’ve had to learn to spin 5 plates (or areas of operation) at once, and you can, too. Here’s how:
PLATE 1 — Building Superb Teams
These team members are brokers, contractors, due diligence experts, legal counsel (real estate and syndication) and management companies. As a great example, you need good relationships with brokers to get pocket listings. Actually, I coined the term “napkin listings” after I started getting a text or a call from my network of brokers as soon as the sellers sat down with them for coffee or lunch and they wrote out their intention to sell the asset and the approximate terms of the sale on the only thing handy: a napkin!
It’s imperative that we build a strong relationship with many brokers in whatever emerging market we are pursuing. For a great syndicator, it’s of supreme importance that the market to buy in must be a strong emerging market where the investor’s money will flow in easily and quickly.
Choosing a great partner to work with is essential, also. Many times, in the beginning, you need to seek out a high net worth partner or one who is experienced in commercial real estate acquisitions.
PLATE 2: Investors Lists and Relationships
It is very important to learn the art of softening, educating and feeding information to your growing list of investors through monthly newsletters and personalized emails. Keep educating your database of investors about the benefits of multifamily investing, ways to do it and emerging market news.
Once you educate them about how to use their retirement funds — IRA, 401(k) via self-directed accounts —they should be ready to jump in quickly at the right opportunity.Make sure they understand the window of time in which to invest is very short! It’s first-come, first-served.
Here’s a great tactic I designed: paying 2% annual interest on the funds from investors after filling out the proper paperwork. The interest is paid from the day of deposit until the closing date.
Ask for referrals and meet them professionally. Do webinars, attend meetings of real estate groups and real estate investor meetups, ToastMasters clubs, Chambers of Commerce and philanthropic organizations (where you can find a lot of high net worth members). Remember: If the investors don’t show up to dance at the closing, it’s no deal at all! So, we must cultivate and nurture our relationships with investors; they are gold!
PLATE 3: Underwriting Aggressively to Find the ‘Golden Opportunity”
Get lots of OMs (operating memorandums) from brokers offerings. It is important to learn the materials well. Practice filling out CAs (confidentiality agreements). Practice, practice and more practice! Become a master at sampling and understanding the tricks and the rules of cash flows and COC (cash on cash), NOI (net operating income), IRR (internal rate of return), ROI (return on investment) – all ratios.
PLATE 4: Loan Qualification
Get a loan broker — fast! — who will guide you and prepare your financial statement. Liquidity is a must for any investment (approximately 6 to 10 months of the mortgage after closing). Know what you can qualify for. You may need to get a high net worth partner initially to qualify for the loan. Or target seller financing. Usually the net worth has to be equal to or greater than the amount of the loan.
Get a great syndication attorney and a real estate attorney who can help you decide on the right entity structures. There must be be total trust, confidence and a strong relationship here.
Research and hire a marketing company or virtual assistant to help design the investor information summary packet. The PPM (private placement memorandum) and oither documents need to be prepared by a reputable syndication attorney.
PLATE 5: Property Takeover and Management Team
It is imperative that we prepare ourselves fully as to what happens on the day of closing. The takeover process is detailed and must happen smoothly. Among the decisions to make is whether to self-manage (like in all our acquisitions) or hire a professional management company.
Take it from me: It is very hard to find a trustworthy and professional company that can manage like you can! Do a lot of inquiring and face-to-face meetings to ascertain the very best one.
A Few Last Points
The most important job of a syndicator is his or her fiduciary responsibility to the “valued investors,” as they have entrusted their life savings (in many cases) to this deal.
The operation of the asset is the key to making sure that all the monthly or quarterly cash flows are generated and passed out to the investors regularly.
And be prepared: the operation of the asset is much more important and difficult than the acquisition of it!