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Lessons Learned from My First Attempt at Syndication

Apartment building in residential area.

When I first started searching for multifamily properties I would look for everything from duplexes to a couple hundred units. I had no rhyme or reason to what I was spending my time looking at. I just knew one thing: I wanted to get into the multifamily space.

Since this was my first attempt at syndicating a multifamily, I wanted to keep the deal small. I found an 8 unit in my area, so I used Michael Blank’s Syndicated Deal Analyzer (I highly recommend if you don’t already have some kind of spreadsheet calculator) to analyse the deal. I did my due diligence, followed Michael’s advice, and put in an offer.

It was accepted! It was at that point I thought, “Now what?!” I made an offer based on good solid numbers, actual rents, and a felt comfortable that this was a good deal.

At this point I had to approach investors with the deal and convince them that both I and the property were worthy of such investment. While reaching out to my network of colleagues, friends and family, I was also shopping around for different loan products, insurance, property management, etc.

After a lot of hard work and back-and-forth with insurance agents, loan underwriters, SEC attorneys, property managers, construction companies, and pretty much anyone else you could think of, I thought I had the deal nailed down and ready to go.

There was just one catch: I still needed to raise the  down payment, rehab budget and closing costs. This proved to be the step where I fumbled. It was like one of those fumbles where a receiver breaks open and has nothing but green field between him and the end zone. Ecstatic with his big play, he drops the ball at the 1 yard line in a bit of an early celebration. Well, that’s how I felt anyways. I dropped the ball. I got this part out of order.

Approaching the closing date rapidly, I still didn’t have enough commitment from investors to close the deal. I had exhausted all of my resources. Unfortunately (or maybe fortunately, depending on your perspective), I wasn’t able to close on the deal.

This was a real defeat, and my first one in my investing career. So, I went back to the drawing board and studied what went wrong. What could I do to ensure this wouldn’t happen again?

Here’s my list of lessons I learned from this deal:

  1. Identify your investing criteria first and foremost. This is the foundation to everything. Without a solid criteria, you’ll spend your time looking at raw land in South Texas to dilapidated fourplexes in Minneapolis to 160 unit Class A buildings in Sacramento. Narrow your search criteria and only focus on what fits in it.
  2. Don’t settle for smaller deals. Capitalize on economies of scale. There’s not much difference in many of the costs of an 8 unit and a 16 unit. Closing costs, attorney’s fees, appraisals, inspections, etc. are all relatively the same for these two types of deals.
  3. Identify interested investors before your first deal. Sure, you might know of a couple people who might invest in your deal. Maybe a coworker has mentioned it to you before, or maybe you know your relative is looking to diversify from their stock portfolio. However, you need to develop relationships with serious investors. You should identify their investment criteria, such as how long they can deploy capital, what types of returns are they interested in, do they prefer debt or equity positions. You don’t want to have to build these relationships, while trying to close the deal.
  4. You team is more important than the deal. Identify and establish relationships with property managers, insurance agents, lenders, closing agents, and attorneys. This will help your deal go much more smoothly, than trying to do this during the contract period.
  5. Tackle unforeseen issues head on. Every deal is going to have its share of unexpected issues. It’s critical to address them immediately. However, don’t let them deter you. Issues are going to come up. As a real estate investor, this is essentially your job. You are equipped with the tools, resources, know-how, and most importantly, perseverance. Keep calm, address each issue, and keep moving.

Most importantly, realize you will make mistakes along the way. They’re inevitable. Treat every obstacle as a learning lesson, and soon you’ll be a seasoned veteran. Multifamily investing is a journey. Have fun with it, treat everyone well, and learn from your mistakes as you go.

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About the author, Jacob

Jacob Ayers is an entrepreneur, real estate investor, and constant learner of business, self-improvement, time management, real estate investing, and a myriad of other things.

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