How Do Real Estate Syndications Work? The Complete Guide
Updated: Dec 6, 2021
How does this work?
True story... commercial real estate, specifically Multifamily Real Estate (Apartment Complexes), has outperformed every real estate investment vehicle since, well, since the statisticians started to track these trends. This asset has even outperformed Wall Street. That's all before we even hit on the tax advantages. I know you, like me, have been looking at how volatile and susceptible my 401k retirement account has been and how crazy the stock market is behaving.
Tad adjusted returns. Pound for pound, this asset class has proven to be a top earner for wealth.
Let's get to it. We will take a look behind the curtain here and show you the proven process that the wealthy have been using for generations. We have a 6-step process:
Discover Emerging Markets.
Locate Value-Add Multifamily Assets.
Full Property Inspections.
Qualify For Financing.
Liquidation of Property.
1. Discover Emerging Markets. What is an emerging market? I am bullish on the Florida multifamily real estate market. It is not that I live in this market, although, not gonna lie, that helps. There is actual data that I follow in order to pick a market to invest in (thanks to Neal Bawa). There are key indicators to determine an emerging market and it’s studying specific trends to identify them. This is our 5-point list:
Population Growth: The city must have at least 20% population growth.
Median Household Income: The median household income must have at least 30% growth.
Median House Value: The median house value must have at least 40% growth.
Crime Levels: The crime level must be on a down trend and below 500 on the crime table in www.city-data.com.
Job Growth: The city must have 2% annualized job growth in the last 12-months.
2. Locate Value-Add Multifamily Assets. How do we target apartment communities? Our team has several ways that we attract deals, which include the following 3:
Broker Relationships. We invest a lot of energy in cultivating broker relationships to ensure a priority communication when listings are due. This has also given us favorable position in off-market leads. The Bentley deal that we closed on in 2019 is an example of this.
Direct to Owner. Our direct to owner campaign continues to net us strong and positive leads on properties that are not on the open market. We recently closed on several off-market properties that were built around this direct to owner model.
Partnerships. It has become clear that collaboration is a key to success. Collaboration has put us in great positions to receive invitations to participate in exclusive deals nationwide.
3. Full Property Inspections. How do we confirm we are getting the asset that was marketed to us? Due diligence means taking a cautious approach, performing and stressing our calculations, reviewing documents such as leases and service contracts, procuring insurance, walking the property, etc. — essentially doing your homework for the property BEFORE you actually make the purchase. This includes physical inspections with the services of an expert inspector, and we partner with the best in the nation to uncover every item hiding in nooks and crevices.
4. Qualify For Financing. Unlike qualifying for a standard home purchase mortgage loan, there are many nuances and strict rules to qualifying for a commercial loan. The lenders look at items such as net-worth and liquidity, as well as background checks and experience. Since we have already been through the scrutiny and sponsored several deals, we are able to quickly qualify for commercial loans. Within our network, we are able to qualify on any project up to $15M in value. Our sponsorship team takes on the burden of the loans so you don't have to.
5. Asset Management. Simply put, manage the asset, managing the property as a business. Before submitting an offer on a deal, we create a very detailed Business Plan. This includes how often we will have meetings, any renovations or upgrades we are looking to do and any value add ideas to increase rents. Then, once acquired, our Asset Management team executes and manages the Business Plan. This includes:
Capital Expenditures. With our network of professional contractors, we prepare a plan for the rehab and value-add items required for the property. This includes budget, schedule and strategy for implementation.
Property Management. To be clear, we do not become the Property Manager. However, it is our job to place and hold responsible the best possible manager to manage the day to day operations, which include leasing and vendor management.
Investor Relations. It is the Asset Manager’s role to manage all of the investor capital, which includes managing all of the bank accounts, member cash distributions and tax preparations. We carefully monitor the cash flow to ensure the plan is being executed and share this with our equity partners.
6. Liquidation of the Asset. By understanding market cycles, we study what is going on in the local and broader economy and look to time the best moment for a refinance or a sale.
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We are Ten15 Capital, and we are innovating the world of real estate investing via apartment complexes. We create lucrative opportunities via syndication or joint venture projects.
To learn more, please go to our website: www.Ten15.co