Creating a Real Estate Syndicate with Little to No Experience

[djs13]

I wanted to create a thread where Fastlaners could share their experiences (successes/failures) with creating a real estate syndicate. Since this topic is not written about extensively, I also think it would be wise if we could share the different sources of information we collect regarding this topic.

I am primarily interested in real estate syndicates because I have relatively low startup money but I still have the determination to get involved in larger scale multi-family investments. It seems the best alternative to a syndicate would be to begin with a smaller multi-family investment and then utilizing value-play strategies to "trade-up" to a larger investment. However, a syndicate would create more leverage and most likely accomplish more in a shorter period of time.

I'd like to kick this thread off by asking a few questions to those who have some experience.

1.) Since there are numerous laws limiting the advertisement of investment proposals, how did you find the partners that you ended up working with?

2.) How much experience did you have with REI when you created your syndicate?

3.) What were the basic terms of your agreement (management fees, etc.)?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[mrf]

Disclosure: I have not raised a real estate investing syndicate; however, I do have a decent understanding of private capital / partnerships.

1. One of the best ways to find partners is to look for people who are doing what you want to do, and then get their attention.

a. SEC filings are public even if the filing is simply to say "exempt from filing." One resource I have found valuable is www.formds.com. You can browse through the people who are actively raising money in your industry. These are the people you want to talk to because they not only have experience raising money, but they also have experience with the kind of projects you are trying to raise money to pursue.

b. Once you identify the people you need to know, you have several options.
* Participate in their syndicate. Since you're trying to raise money, this one may not be viable, but it proves you are serious and can be the start of a relationship with both the sponsor and other investors.
* Invite them to a social event. This is not a date. Do not make it weird or one-on-one. It's an opportunity for THEM to meet people while having a good time. Make sure it is high-quality. If one doesn't exist, host your own (I'd suggest hosting anyway, because it puts you in a position of power).
* Ask for a favor. Plenty of people probably want to meet them for lunch or just to "pick their brain" but if you do this the right way and have established that you aren't a waste of time, it can work. To make this productive for both people it's generally best to ask for this kind of favor after you've already started doing something.
* Offer to help them for free. Again, plenty of people probably offer this, so you need to quickly establish that you have something to offer other than a body -- quickly show relevant past experience in one sentence, proof that you know what they are CURERNTLY working on and how your past experience can help in another sentence, and then make it easy to continue the conversation or take you up on your offer in another sentence.
* Find an indirect link. You want to create a syndicate, right? Well, that requires legal paperwork. Look for an attorney who has worked with people you want involved and then hire them to help with your paperwork. Casually share you goals and, if appropriate, ask for an introduction to other clients. They already know you are serious now, and it's a warm introduction, which eliminates two primary sources of doubt in successful people.

2. N/A

3. All agreements and deal structures can vary on so many levels. The biggest factor in any negotiation is your ability to sell yourself and your opportunities to people who want them and will compare you to their alternatives.

a. In a hypothetical syndicate, I'd differentiate between cash-flow and equity returns. I'd ask for a 20/80 split on cash-flow from day one, and then offer a 10% preferred return on the equity, after which any further gains would be split 20/80.

 

[SteveO]

What a coincidence. I just started a thread related to this here

The reit route will be very costly and tough to break into. You can go the route of Reg D or some other form of raising money but you will still need the help from broker/dealers and all the costs that are associated with getting that started.

Or, you can get started the old fashioned way of buying some deals and turn them to gold.

I like the suggestion from @mrf . Go to work for someone in the business to get your foot in the door. There are many mega-millionaires in this business. It is worth a shitty job for a while to get started.

 

[JustAskBenWhy]

I just gave a small piece of the general partner to a couple of start-ups. They are well connected, and own some rentals, but want to play in the big leagues. This is how you do it.

You go to a guy like me with a $10M deal in escrow, and you say - I will raise $2M for this deal...It makes my life easier, so I share the pot. And you are therefore on the sponsor team...and it begins.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

This thread is scary. You know that you don't know... and you admit that you're a newbie... but, you want to run with OPM (other people's money) and try it anyway. Are you going to tell the people who put up their money for you to play with, that this is your first time out of the box? I guess you won't disclose that HUGE vital fact. They'd be crazy to trust you!

 

[jon.a]

djs13 was last seen:

Jan 20, 2015

 

[WJK]

djs13 was last seen:

Jan 20, 2015

Good. He's gone! I should have looked...

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Zenoviy Kovtun]

I just gave a small piece of the general partner to a couple of start-ups. They are well connected, and own some rentals, but want to play in the big leagues. This is how you do it.

You go to a guy like me with a $10M deal in escrow, and you say - I will raise $2M for this deal...It makes my life easier, so I share the pot. And you are therefore on the sponsor team...and it begins.

Ben, can you elaborate a bit more? Do you always already have a property lined up prior to raising capital or have you also raised capital prior to finding the property?

Can you suggest any books specific to real estate syndication? I've noticed the choices are a bit limited.

In your experience, what would you say is the most challenging aspect of real estate syndication?

Thanks in advance!