Real estate investors know that the multifamily syndication business is where they want to eventually end up. The good news is you don’t have to hope that “eventually” comes and you will be in the multifamily business. In this article I will uncover 5 ways you can creatively get into multifamily and skip the single family home business all together.
Here are 5 way to get into multifamily:
1. Underwrite Deals
2. Find an Off-Market Deal
3. Raise Capital for a Deal
4. Secure Financing
5. Property Management
It is important to have an understanding and have knowledge in all areas of the business. However, it does not mean you have to be an expert in all of them and take on syndicating a deal by yourself! Each of us have special talents and gifts. Your first job is to discover what those are and how to apply them to an area or two of this business. Once you uncover your super talent, you then are an asset to a lead sponsor and will be into your first deal before you know it.
In more detail, here are the 5 ways to creatively enter the multifamily business:
#1 Underwrite Deals
If you are more of the analytic guy who obsesses over spreadsheets this could be your super power. Many lead sponsors have significant deal flow and simply cannot underwrite everything brokers send them. If you are able to create connections with a lead sponsor and show them you are knowledgeable in underwriting deals conservatively, you have now become a great asset to their team. Underwriting 80% of a deal and handing it over to the lead sponsor for final touches is something they will greatly benefit from and will earn you a spot in a deal they close on.
#2 Find an Off-Market Deal
Before you go out and start finding off market deals you need to know where your going to bring it. Start speaking to a few lead sponsors now and make sure the deals your are looking for align with deals they have done in the past. Many sponsors are willing to pay $10-100k for a true off-market deal that they can capitalize on. Not interested in the one time pay out for finding the deal? You can ask for equity in the deal instead of a finders fee and create the cash flow that you’ve always wanted.
#3 Raise Capital
One of the most common ways today is raising capital for other lead sponsors deals. Pairing with a company who has a proven track record is a great way for you to place capital in excellent deals. When raising capital, the SEC mandates that person to be apart of the general partnership (GP) side of the deal. In return, you will then have an equity stake in the deal and most of the time be paid and acquisition fee on the amount you have raised.
#4 Secure Financing
If you are a high net worth individual who does not want to deal with the headaches of day to day operations this could be your avenue to creating cashflow and joining the general partnership side of the deal. Sponsors whose balance sheet does not cover the debt of the loan typically bring in a loan guarantor to secure the financing on the deal. This is very common unless the lead sponsor has thousands of units already. In doing so, the loan guarantor receives a small percentage of the deal.
#5 Property Management
Do you have extensive knowledge in the property management space? Or do you own a property management company? If you’ve answered yes, then this could be an avenue for you to jump into the next multifamily deal in your area. You can offer a syndicator your services in exchange for equity in the property. By doing this, not only will you benefit by the ongoing cashflow from the property but it will also help the sponsors when pitching it to their investors. When they bring their deal to investors and they can leverage that the property management company wants equity instead of a fee, it shows an even greater alignment of interest in the deal.
So the question is, have you discovered where your talents are strongest? If the multifamily syndication business is where you want to be then your first step is to find where your strength is.
For those already in the multifamily syndication business, how did you first crack into the space? What is your advice for investors out there who have been wanting to get into this business?
