3 Ways into Syndications (Multifamily or Commercial)
By Christopher Levarek
“A Ship is always Safe at shore, but that is not What it is Built for.”
- Albert Einstein
A traditional path for many investors into real estate is to start with residential or single-family home investments. It is a natural trajectory since most people are familiar with a house or home ownership and thus feel they better understand the asset. Eventually however, many investors begin to see the benefits of investing into commercial or multifamily due to massive benefits regarding economies of scale, tax depreciation, lending terms based on property financials, etc.
With large multifamily, syndication, the partnering of multiple individuals, of course becomes one of the main methods anyone can be part of large commercial acquisitions. As we have grown our business, Valkere Investment Group, and moved into apartment/commercial syndications we have discovered there are typically three ways in which anyone can learn how to invest or run an apartment syndication.
I will cover in this post the three most typical ways we have seen for someone with a desire to own, manage, partner or run a commercial syndication.
Option 1 : Pay for a Mentorship or Network
This option is usually the most obvious and apparent way into apartment syndication. The aspiring syndicator can purchase a mentorship with a qualified or experienced syndicator or investor in the asset class of choice. By paying for a mentorship, typically the investor will get access to not only a mentor coach with weekly/monthly calls or accountability check-ins but all the resources and network of the mentor/program to include contacts, connections, templates, documents, learning videos, etc.
Some popular mentorship programs at time of writing this blog include programs by Rod Kleif, Brad Sumrok, Joe Fairless, Michael Blank, Hunter Thompson and more.
The following are some Pros and Cons to using a mentorship to get started in learning Syndications :
Pros :
Access to 1 on 1 coaching and mentoring
Access to learning resources, videos, books, online portals of content, etc.
Access to Mentor connections and network
Can jumpstart or greatly speed up a Syndicator’s journey with less bumps(mistakes made) along the way.
Cons :
Costly - Typical programs can range from $5,000 - $30,0000
No Guarantee - Work is still needed by the aspiring syndicator. Many pay the cost but never execute on the goal.
Not all mentorships will match the needs of the aspiring syndicator. Research needed to select the “right” one.
Option 2 : Self-Educate, Hard work and Action - “Go It Alone”
This option is where an investor decides to get into commercial syndication by pure sweat equity or hard work. Rather than purchase a mentorship or network, the investor or aspiring syndicator chooses to progress organically through small multifamily or single-family acquisitions into large multifamily or commercial acquisitions. Some will be able to jump right into a syndication from the start as managing partner, without a natural learning progression, but typically some form of value or credibility is needed to make the jump into larger commercial acquisitions or to be involved on a project.
Many advanced or experienced syndicators who are offering the mentorships above in Option 1 made there name with this option as such programs weren’t widely available years ago. At Valkere Investment Group, we chose to pursue this option and learned the process through pure self-education, asking questions and pure hard work. The following are some Pros and Cons to “going it alone” or organically growing into the syndication space:
Pros :
Returns or rewards can be greater as you are managing the entire process.
Mistakes made are remembered as they are experienced firsthand thus enforcing the need they do not get made again.
Enforces a strong desire to succeed due to amount of hard work.
Satisfaction and pride in doing it yourself = “The American Dream”
Cons :
Mistakes made can be costly due to lack of knowledge. You don’t know what you don’t know.
Credibility can be difficult to build for the new syndicator.
Slower to build a business or scale due to many systems/processes being built from scratch.
Option 3 : Partnership
This option is where the investor or aspiring syndicator is able to be involved on a syndication project whether passively or actively and in thus manner learns while receiving the benefits of being on the project. In my opinion, this is the option I would suggest to those looking to get into syndications knowing what I know now. Whether through investing one’s own capital or networking with the right people and providing value to be included as a managing partner, this option is all about partnering. It truly is the best of both worlds.
In the case of the passive investment as a limited partner, instead of paying for learning in a 1 and 1 exchange in a mentorship, the investor is paying for all the real estate investment benefits while learning how a syndication works. In the case of providing value as a managing partner in one role (asset management, capital-raising, deal-finding, investor relations, infrastructure management, etc), a investor or syndicator can learn the other roles or full process of a syndication while only playing a specific role they are good at.
Pros :
Learn while receiving a return on a passive investment. - (Be sure and express interest with the Syndication group on the project that you want to learn or be involved.)
Capital invested serves two purposes ROI and learning.
Risk and Responsibility of the project is not on the passive investor. - Learn with less risk/mistakes.
Firsthand experience on a syndication project
Ability to utilize the unit count or assets under management as credibility for future projects of your own.
Access to templates, legal documents, learning videos, etc. as provided by Syndication group.
Access to Network and connections of Syndication Group
Cons :
Dependent on aligning and trusting a good syndication group who will teach or provide knowledge. Not all groups will enjoy this arrangement.
Requires Due Diligence on the investment, team and market are required. Again alignment with correct project needed.
Capital is tied into the project for 5-7 years. Again alignment with correct project needed.
In Final
There can be a variety of methods or paths that investors or aspiring syndicators can enter the commercial syndication space however the above three options are most often seen. We recommend aligning with the method that will best complement your style of learning and specific situation. Most important is simply taking action and working toward the chosen goal. As always, Invest Smart!