Getting started with real estate syndication is a relatively straightforward 5 step process. If you follow it diligently, you will succeed in closing your first deal in 9-15 months. However, it requires executing the necessary steps with discipline. One of the first steps to success is building an efficient real estate syndication team.
5 Step process to build your syndication business:
Having a team is the essential step in this process. In this article, we will cover the vital elements of your real estate syndication team. However, before we go ahead, let’s do some homework.
I can’t overestimate the importance of goal setting when getting started with real estate investing. The goals you set have to be SMART, an acronym for Specific, Measurable, Attainable, Relevant, and Time.
Specific = Plan effectively with specific targets in mind
Measurable = Track your progress and re-evaluate along the way
Attainable = Set realistic goals that are challenging yet achievable
Relevant = Ensure the goal serves a relevant purpose.
Time = Specify a deadline, monitor progress, and re-evaluate.
For example, a SMART goal looks like this:
“Within three years, I wanna be earning $5K a month post-tax consistently so I can leave my job.”
Once you set your SMART goals, you can deconstruct them and work backward to build a plan for achieving them with real estate investing. Here are some calculations to help you estimate your earnings:
Rule of thumb to calculate multifamily syndication cash flow per unit:
Cash flow $100/ month/ unit
30 units – $3,000/ month
60 units – $6,000/ month
120 units – $12,000/ month
So if your goal is to make $12,000/ month in three years and leave your full-time job, you need to aim at sponsoring at least 120 units. You can start with smaller MF properties and scale up as you build your reputation, expand your network and solidify your team.
Additionally, if you are also passively investing in a 120-unit deal, you can get $1,000 a month assuming you invested $150K into it at 8-10% Cash on Cash return per year.
As a sponsor, you are making money in three ways:
Invest 150K as a passive investor. Return = $1,000/month. That’s assuming a conservative 8% cash-on-cash return.
Deal sponsor comp – On average, you make 1,000-1,500/unit/year as the entire sponsorship team, including appreciation. It is 120 units so $120,000 total/year to be conservative. Assume it’s a 3-way split or 3-person sponsorship team so $40K/person or $3,000/month. If you only count Cash on Cash, it’s $1,500/person/month.
1% asset management fee, it is a percentage of the total monthly income that the property collects. Assuming 120 units each renting for $1,000/month, that’s 120K in rental income, 1% asset management fee is $1,200
It consists of your Assets, Liabilities, Income, and Expenses. Having an updated PFS is essential for a deal sponsor before getting started.
The income statement lists all your income sources and all the types of expenses that you have. If you see a surplus in your personal income statement, think about what percentage of it you are ready to put into multifamily real estate investments.
You need to make your decision based on your level of risk, consultation with your financial advisor, familiarity with multifamily real estate, etc.
Build your real estate syndication team
Finding a mentor
A mentor is a crucial player to have on your team. When you choose the right mentor, they will leverage their time and experience to help you make fewer mistakes and avoid common pitfalls.
A mentor can help you speed up your learning process and acquire your first multifamily property much faster than you would have done it on your own. And it doesn’t matter if you are a passive investor or a GP.
Once you have your mentor, you have access to their team and resources to navigate the complex world of Multifamily real estate investing and hold you through the transactions and help you every step of the way.
Tips for selecting a mentor
Before choosing your mentor or mentors, ask the following questions:
Do they have experience in what you plan to do? Can they prove this experience?
Do they have a track record of mentoring others like you that have wanted to build a real estate syndication company? They need to have a passion for helping others.
Are they available for you when you need them? Do they have time to review deals with you, for example? You may want to think twice before going for a mentor who is too busy with a full-time job, traveling, and other commitments.
Do they only provide information, or do they have a support system for you? Can they help you find passive investors, contractors, brokers, etc.?
Is their goal to make you independent or co-dependent?
Does this mentor invest in their students? It’s not only about investing money but investing in their content, mentorship programs, adding new features to these programs, etc.
Finding real estate brokers
As a sponsor, you definitely need to have brokers in your real estate syndication team. . Before you start searching for them, you need to identify your three major markets and start finding brokers in those markets that control 80% of the inventory. And in most markets, there are 5-10% of the brokers do 80% of the deals.
If you want to find out who those brokers are, ask around other GPs, and get on the internet. There are plenty of resources available to help you find out who the leading brokers are. You want to build relationships with those people to get to know you and start to trust you. As a result, they will send you their deals.
Before going out there looking for brokers, ask yourself the following questions:
Who specializes in what you want to do?
Let’s say you pick Austin as your market. So you have to find out the top brokers in Austin specializing in apartment buildings and doing a large number of transactions. You can find some of these brokers even using free tools like Loopnet. Get there and start building a broker database.
How can you get in front of them?
Brokers are just like other people who want to do business with people who they know and trust. If you approach them directly with your pitch that you are looking for their deals, they may ignore you or even start sending you their deals. Then if they see no action from you, at some point, they will stop sending them to you.
So when you approach brokers – be honest with them and don’t be overly aggressive or confident. Then tell them about you, what you need and that you would love to be included in their database so that you get the deal flow. Build relationships with brokers by setting up meetings, and getting in front of them.
Pro tip: the best way to meet brokers in person is to tour their deals. Most brokers don’t have time to have lunch or a coffee with you. Therefore, find an active listing, evaluate that deal, set up the property tour and go and see it. Even if that deal doesn’t work out, the advantage is that you already built that personal connection with the broker.
Finding real estate attorneys
You need to have at least one attorney on your real estate syndication team. You might want to have several attorneys depending on the markets you deal with. Therefore, having an attorney in each state where you have your deals makes a lot of sense and is highly recommended because you will probably set up legal entities in those states as well.
Moreover, when you syndicate deals, you will need security attorneys specializing in LCC laws and put together your offering package, your PPM, and your investor questionnaire.
Some questions to ask when choosing an attorney:
What is their fee structure?
Do they have a solid reputation and track record? For example, some attorneys have a reputation for killing the deals by redlining the whole process, so sellers end up not accepting the deal. Make sure you vet the attorney and get some references before going ahead.
What are their process and timeline? How can you get in front of them? Should you set up a meeting, or a phone call will be enough?
Do they have experience working with syndicators and apartment transactions?
Do they have experience with syndication law?
Note: some attorneys are one-stop shops and have experience with apartment transactions and syndication law. Some specialize in one or the other. It is up to you to choose what’s right for your business.
Finding loan brokers
Trust me, every time you are sponsoring a deal and trying to secure your debt, you won’t have time to go to 20 different banks. Instead, you can go to a loan broker that specializes in having those relationships with direct lenders. It all comes down to leveraging other people’s time and experience.
Questions to ask:
What is their track record?
How many apartment buildings have they financed?
What types of apartment buildings have they financed?
Are they nationally focused or specialize in a specific market?
Note: ask fellow syndicators for references. What’s more, you can look for loan brokers who have relationships with real estate brokers. Some loan brokers specialize in specific markets and have the in-depth market knowledge and a vast network of contacts that could be beneficial for you.
Finding investors
As a deal sponsor, you need to have an extensive database of other investors. In addition, you need to attend networking events like Sumrok’s and build trust and relationships with investors. As a result, once you find a deal as a sponsor, you already have a database of investors that could be interested in your deal. Invest in a robust CRM from the beginning and in an investor-facing tool that will make it easy for your LPs to evaluate your deals and invest.
It works similarly for passive investors. Once you already know a few sponsors, have relationships with them, and contact each other, you will be the first to know about their deals.
Important: before including investors into your database, ask if they are accredited or sophisticated investors. Always follow the SEC laws.
Property management companies
Having contacts with property management companies in your target real estate markets is essential. Moreover, when looking for PMCs, do your research to ensure that they have experience managing similar types of assets. For example, B&C Class, value add assets, and similar in your market. See the properties they manage, look at their monthly reports, talk to some of their customers, go online, and see the reviews for the properties they manage. Talk to the people that are using those PMCs. You will need to have at least a basic understanding of asset management to be able to evaluate your property management company’s performance and to ensure the success of your multifamily project.
Questions to ask:
What kind of properties do they manage? In what markets?
Do they manage assets similar to the type you want to buy? Suppose if they specialize in working with 500+ units A-class buildings and you are planning on purchasing a 90-unit C-class building. In this case, that’s not going to be a good fit.
What are their reviews? What do others say about them?
Finding multifamily contractors
There is a whole list of contractors that sponsors need to have in their real estate syndication teams. It includes roofers, electricians, plumbers, exterior, interior, all types of contractors that will assist you with value-added improvements.
Often these contractors will be handled by your property management company. However, it’s beneficial for you to have a relationship with them and some of the product manufacturers so that you could specify your needs. If you can’t specify, then a management company will decide who they will hire to do your roofing, for example. Moreover, they will specify what type of products they will use for your property.
As a result, the more information you have about specific products and specific contractors, the more control and direction you can offer to your management company.
Some questions to ask:
What is their track record?
How efficient are they?
What is their pricing structure?
What are their team and company structures?
Choosing a self-directed IRA company
As a sponsor, you need to have an SD IRA Co. as a part of your real estate syndication team. to direct your passive investors. Many passive investors will want to invest their SD IRA into your deals. Consequently, you need to ensure that you have an SD IRA Co that you vetted that is easy to work with, making it hassle-free for the passive investors and deal sponsors to do business together.
Some criteria to help you choose an SD IRA Co:
They have to be easy to work with
They have to be acting fast. It’s important because some of the IRA custodians can slow down the process, taking 2-3 weeks. As a result, you aren’t getting your money as a syndicator, and the investor is probably missing out on an opportunity to invest.
Check their credibility. Ask around and get some references.
Choosing real estate insurance companies
It’s vital to have an insurance provider that specializes in apartment building insurance. Avoid using insurance providers that insured your or your relatives’ single-family homes or cars. You need to find someone that specializes in multifamily insurance.
Tips for choosing an insurance company:
Check if they specialize in apartment buildings.
Check what type of coverage you are going to get. Ask the insurance company to give you more information on the coverage and deductibles.
Do they give preliminary quotes? It’s an essential part because when you are evaluating a deal, you want your insurance broker to help you forecast what your insurance expenses will be when you own that property.
As a bonus, we’ve recorded this video to help you navigate through the roles of a lead sponsor, co-sponsor, acquisitions, key principal, capital raiser, and asset manager do:
We hope you found this helpful and that you are ready to start building your real estate, syndication team.
Kristina Xie is a real estate syndication enthusiast. She invests in properties in NYC, however became interested in large scale multifamily units after attending her first real estate conference in November 2021. When she is not actively interviewing people or writing articles, she enjoys the outdoors and traveling around the world!
