RES 236 | Becoming A Syndicator

 

Krista Testani, the Principal and Managing Partner of Sharpline Equity, narrates how she transitioned from being an attorney to becoming a syndicator. As Krista recounts her jump into real estate which she realized was her true passion, she highlights the importance of getting the right education and the right mentor. Getting into her first deal, she recalls how it molded her confidence, leading to good results. Having learned the ins and outs of syndication, she outlines the characteristics that you should look for in a syndicator and reveals what has been the hardest part of the syndication business or process for her so far.

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The Road To Becoming A Syndicator with Krista Testani

Our guest is Krista Testani. Thanks for being on the show, Krista.

Thank you so much for having me, Whitney. I appreciate it.

I’m pleased to have you on. Krista brings a wealth of knowledge and experience from this industry. We’ve had one of her partners, Chris Jackson, on and they’re doing some amazing stuff in this business and crushing it. I see them all over the place. Krista was a lawyer by trade and transitioned into real estate in 2009 buying singles and then in 2012 buying multifamily. She’s involved in acquisitions on the East Coast including Alabama, Tennessee, Georgia and also Ohio and New York amounting to over $21 million. She owns and asset manages 230 units in Atlanta and a 40 single-family portfolio in Syracuse, New York. She’s the Cofounder of Multifamily Apartment Investing Unveiled, a networking platform where Krista and her partners dive into the details of their experiences and share all of their most critical learning moments. Krista, give them a little bit more about who you are and how you got into this business.

My name is Krista Testani. I live on Long Island. I was an attorney. I still have my license but having practiced for a number of years and given the demands of that industry, a lot of hours that you have to work and a lot of time spent away from your family, I wasn’t loving what I was doing. When you work that much, you should really love what you’re doing. I transitioned out in 2007, not knowing what I was going to do next. It was a recommendation by my husband at the time. He had always been interested in real estate and he was a retired firefighter. Him and a few partners, other retired firemen, got together and we all formed a company and decided to buy singles on Long Island and flip them. It was back in 2009. There was a lot of distressed assets and that’s what we did. I had realized very early on that I wanted to scale this business and I did not think buying and flipping single-family homes was a way to do it. I ventured off, joined a mentorship program and learned about multifamily. In 2012 is when I got into multifamily with 2013 being my first acquisition.

It’s a big deal to leave your law practice. You didn’t start that overnight.

It took a lot of work and I quit abruptly because it was one of those a-ha moments where the gentleman that I was working for a number of years, I was very close with him in the industry, had a heart attack and died. He was 42 at that time. It was a wakeup call for me, “What am I doing here spending all this energy and time working, spending hours away from my family and tomorrow’s not guaranteed for any of us. Let me figure out what I want to do.” I quit cold turkey, which was a shocking thing for both my husband and me to do but he was patient and very supportive. It took me a couple of years to figure it out. I was very happy that I jumped into real estate because it really truly became, what I learned to be, was my passion. I got there in a very bizarre way. It wasn’t as direct as most people’s paths into real estate.

I find though that numerous guests have a story, not exactly like that but somehow where they’ve burned a bridge and jumped in with both feet. It’s like you don’t have a choice but to make it happen.

Knowledge transforms into confidence. Confidence transforms into positive results. Click To Tweet

It’s sink or swim. I’ve always operated best under pressure and that sink or swim scenario has always propelled me to do my best and that’s exactly what happened here.

You said you joined a mentorship program. As far as deciding who that mentor was, how did you do that?

There are a lot of programs out there and there are a lot of people providing education. You’ve got to be careful. Obviously, the location was part of my choice. I wanted to physically be in front of that person. There are a lot of programs that you can do online and materials you can purchase online but I wanted a mentor that I could sit in front of, look at eye-to-eye and really get to know that person. Location was a part of the process. Sometimes, it comes down to the gut reaction you have to someone whether or not you feel you are being sold a program or whether you know that you’re dealing with someone who is doing the due. This is a piece, too, I wanted a coach that was also doing multifamily investing. Not just at this point coaching on it because I wanted to be able to see him in action doing his business and that’s how he modeled his actual program. It was diving in with him into what he was doing and learning what he was doing as he was moving through the process. It’s a very personal choice but those are some of the recommendations that I would put out there to people. Live in-person coaching is a good thing.

I don’t hear of too many coaches that will be that open about their current things they’re working on or doing right now in the business.

It is transparency and integrity.

Let’s talk about that first deal. Were you all formed as a company yet with your current partners at that time you did the 50-unit? Was that your first deal, the 50-unit?

My very first deal was a twenty-unit. It was a smaller deal but I syndicated. I had a company formed with the partners at that time. I since have a new partner, Chris Jackson. I formed my company in 2016, but we’ve formed an LLC and we did syndicate the deal and go out to our network with that very first deal. I knew from the get-go, syndication was what I needed to do. I went into multifamily to scale. You’re not going to scale that type of business by using all your own money because eventually, you run out. I syndicated from day one.

RES 236 | Becoming A Syndicator

Becoming A Syndicator: Sometimes, deciding on a mentor comes down to your gut reaction to someone, whether or not you feel you are being sold a program or dealing with someone who is doing the due.

 

What gave you the confidence to syndicate that first deal? You took some training or maybe the mentor, what was it?

I truly believe that to be able to do this because the first deal is the hardest, for all the obvious reasons and I believe that knowledge transforms into confidence and that transforms into your results. That gets you your results. You have to arm yourself with knowledge. The mentorship program was huge. Whether it’d be a mentorship program or classes that you take or some type of education platform, you have to go out to your network. Even though it’s your first deal, you still have to know what you’re talking about and you have to make the people that are listening to you feel comfortable that you know what you’re talking about. Knowledge was huge.

I leveraged my mentor and his experience. I invested in two of his deals. Right away, I was able to go out to my network and say, “I passively invested in two deals. I did what I’m asking you to do,” because it was my mentor, I was also more involved in those deals. I called myself an equity investor with what I was but I was more pactive. I called myself pactive. It was a passive investment but I was more active because I was working with my mentor on those deals. That was huge to be able to do that because, from my very first presentation, I got feedback from my investors, ultimately, they invested, “Even though this is your first deal, it doesn’t sound like it’s your first deal.” That’s important. You really have to know what you’re talking about.

That’s a new term for me, pactive.

Passive and active, that’s a well-used term that we use all the time.

You’re talking about how you leveraged your mentor’s background and experience. That’s how I got started. Numerous people I talk to every week ask, “How do you get started in syndication business? How do you start raising capital? What does that look?” However, that’s a big part of getting started is partnering with somebody that’s way ahead of you.

I actually used some, too. I had a presentation of all my team members. I have an accounting team. I have a legal team. He was a coach and a consultant for me that I put up on the screen and I said, “This is someone who has my back. I’m not reinventing the wheel. I am learning from someone who’s been doing this for many years prior to me and he’s someone that I’m running things by. I’m getting feedback from him. I’m getting opinions.” That was important because they knew that even though this was my first deal, there was someone else in the background helping me through the process.

You have to know what you're talking about. You have to arm yourself with knowledge. Click To Tweet

Tell us a little about that opportunity and what you learned from that first syndication? What you’ve applied from that one to the rest of your business?

I’m going to go with my second because this is very important. My first deal went very well. It has nice returns. It was a good deal. My second deal, I did not hit my projections. I held onto for a few years. If you ever asked me what’s my worst deal, that would be the one so far. Many things went wrong during those whole, unexpected things. One of the things that I did from the get-go and I will always use going forward and it was a learning experience is I was transparent from day one, every time something happened in that deal. Reporting and transparency are a huge part of syndication because you don’t have a syndication business if you don’t have your investors. You need to be really diligent in recording on a consistent basis and transparent.

Things went wrong during that deal during that five-year hold, when I ultimately sold the deal, I gave them the returns and I did not hit my mark. There was no surprise there. They knew everything that was going on when it was going on, what I was doing to mitigate damages, how I was maneuvering and why I was selling early. When they got those returns, they were less than what was expected but nobody, absolutely no one had negative feedback from that deal. Those same people have invested in other deals. People thanked me for my honesty and they said, “Good job. You did the best that you could do with the circumstances that you were dealing with,” and no one walked away that deal feeling bad. Even though I felt bad, I couldn’t deliver my projected returns but I didn’t feel bad about how I handled it and neither did they.

I appreciate your transparency here. Not many people would get on and say, “We had a deal that didn’t meet the projected returns.” It builds credibility for you and it did with your investors as well.

Every deal can’t be a screamer. It’s real estate. There’s risk involved.

As with any investment. Help us to be transparent or have proper reporting like you’re talking about. How did you report that? How often were you reporting? How were you being as transparent as possible with investors and communicating with them through these problems?

After the deal was now solidified and you’re in the deal, I started out doing quarterly webinars and we provided PowerPoint screens that actually showed performance and how we were performing and assumptions and future projections. The webinars are nice because they can hear you talk and they can ask live questions. We’ve since implemented doing monthly reporting and we’re also sending out a monthly newsletter to our investors. “We do webinars but we’re also going to bring you up-to-date with monthly snapshots of what’s going on.” That’s super important too at the beginning of a deal when there’s a lot going on. What we realized is a quarterly webinar, three months has gone by. When you’re doing a heavy lift and you’ve got a lot of projects going on, there are a lot of turnovers, those investors deserve more frequent reporting.

RES 236 | Becoming A Syndicator

Becoming A Syndicator: Investors deserve more frequent reporting. It’s very important to keep them engaged.

 

We have implemented a monthly newsletter in addition to quarterly reporting. We always do a year-end report where we’re summing up the entire performance for the year. It’s discretionary in what format you want to provide that reporting or how often. I would say lean towards more often than not because it’s very important to keep them engaged, never to feel like, “I haven’t heard from you. What’s going on?” The worst thing you ever want to get is an email from an investor that says, “What’s going on with my deal?” You really don’t want that email or that phone call.

Do you do mostly emailing? Do you do any calls and how often or there’s something specific that an investor needs to know? How do you handle that?

Always respond to an email or a phone call. If an investor emails us and is asking us a question or if an investor picks up the phone, we will obviously respond. We don’t do our main communication through emails. Our last deal was 174-unit, $10.8 million buy and we have 50 investors. We’re not picking up the phone calling people. We’re doing newsletters and email blasts to notify them of our quarterly webinars so that they can get on. You have to handle it that way when you’re dealing with that many people. We would, of course, always respond to an individual email or phone call.

Maybe give me some examples of what you would have in a monthly newsletter? The syndicators who are reading this are trying to have a more professional business and trying to be as transparent as possible with their investors as well. Even with passive investors, they want to know what to expect from a syndicator. If they’re potentially looking to invest with somebody, they want to know, “What should they expect?” What do you all include in that? Is it specific to the company? Is it specific to a property? What does that look like?

When you have a property, it’s specific to the properties. Our monthly newsletters are updating from the prior month. What has happened since what we reported last month? When we go down to the property, that newsletter often will include a link for pictures as well as videos. We do live videos all the time and walking through whatever projects we’re reporting on at the time. People love that because they see real-time what physically is going on with the property. That’s something that we’ve added in this particular deal. We never did that before and we were like, “Why haven’t we ever done this before?” People really gobble that up because they can see live what’s going on with your property. That monthly newsletter is often an update from the prior and then we’ll have quarterly reporting that’s giving you a snapshot of every quarter as well. That’s a lot of numbers, showing the performance, the assumptions and where our actuals are hitting every single quarter. That’s what you’re doing on a deal-specific basis.

As for general investor communications, for those investors who are not in any of your deals but you want to keep them engaged, it’s important to send out an email blast every now and then. I’m going to say once every couple of months so they do not forget who you are. You’re sending out an email blast, letting them know what you’re doing, letting them know of any prospective deals coming up in the pipeline or any tidbit of information you want to share with them that you think they’d be interested in as a passive real estate investor. You want to be doing that in parallel to your own deals. You want to constantly be out there marketing your brand to your past investors or potential investors.

Krista, if you have 30 seconds with somebody, what do you tell them when they say, “I really want to get started in this syndication business.” What’s your best advice for them? Most people probably have a W-2 and they’re looking to transition into real estate.

Being a real estate syndicator means getting out of your comfort zone and networking to your warm market as well as your cold market. Click To Tweet

I’m going to say to cut their learning curve way shorter than mine and people are coming from all different backgrounds into real estate and very few went to school to be a real estate syndicator. You need to get out of your comfort zone on day one. You need to not only network to your warmer market, your friends and family, which some people have no problem. I had no problem going out to my friends and family from day one. Some people have a lot of problems doing that and they’d rather go to the cold market. My advice is you have to do both. You have to get in front of your family and friends. You have to start talking up what you’re doing, your vision of where you want to go and to gauge their interest level. You have to start networking and building up relationships in this business that will lead you to other partners in your deals as well as other investors. You need to do that from day one. I didn’t do it from day one and it stalled the growth of my business for years because I was really comfortable networking to my family and friends. I had a real mental block about going out there and networking with strangers and building up that part of the business.

Get out of your comfort zone and if you’re not comfortable talking to your mom or your spouse about the real estate industry, how are you going to feel when you get in that room of strangers?

It could be inversely. I’ve had people say they would rather be in a roomful of strangers but they don’t really want to bother their friends and family. I said, “You’ve got to do both.” You especially have to do what you’re most uncomfortable with so that it gets comfortable. The idea is that you’re not always in your uncomfortable zone. Eventually, that discomfort becomes comfortable and becomes normal.

What would you say has been the hardest part of the syndication business or process for you so far?

I’m not going to say what everyone says and that’s raising money because that to me is obvious and I went through it about why that’s so hard. I am going to talk to you about what I touched upon. Managing the administrative part of client relations, the paperwork that’s involved, not only just the reporting and setting up your systems to reporting but even the paperwork involved in gathering their information. Whether if they’re doing a cash deal, that’s a whole separate thing from an IRA deal and IRA investors sometimes want a little bit of education about their IRAs and now you have to become somewhat, not an expert. Never hold yourself as an expert in IRA or accounting but you do have to arm yourself with enough information to walk them through that process and then refer them to their accountant or IRA custodian.

That whole admin piece of managing the paperwork involved, the reporting involved, the tax paperwork involved from tax filings for investors. When you’re syndicating, you can have anywhere from 2 to 52 investors in a deal. You can imagine the scale of paperwork you’re dealing with. That has been quite a challenge. I warn people that gathering up the investors is only step one. You have to manage that whole process and there’s work involved with that. This is doable stuff, you just need to set up your systems and line up your ducks all in a row so that it becomes manageable for you.

What’s the number one thing that’s contributed to your success?

RES 236 | Becoming A Syndicator

Becoming A Syndicator: There are a lot of things that are going to knock you down or slow you down. You have to be willing to not only pick yourself up and move on but do it quickly.

 

The number one thing is you have to stay so persistent and consistent in your action because you will get knocked down so many times. I did the mentorship program in 2011 and I graduated in 2012. I did not hit the streets for an entire year. I didn’t get my first deal until 2013. A lot of people that already would have given them pause to walk away, like a year later and they still didn’t have a deal or your focus and your intention and you get into a 100-unit deal. We got into a 100-unit deal and had to walk away on the 30th day because of something that was uncovered in due diligence. We had already talked up the deal to our investors. We already took on some expenses regarding the due diligence costs. We got to walk away on the 30th day because of a mistake that we made, something that we didn’t look at until the 30th day.

There are a lot of things that are going to knock you down or slow you down and you have to be willing to not only pick yourself up and move on but do it quickly and forge forward really quickly because the next deal’s on the horizon. You can’t be you sitting with your pity party because of what is going on. This is a tough business and it’s competitive. There are lots of people out there raising money and buying apartment buildings. Things aren’t cliché because they tend to be true and resounding amongst the mass population. You have to be persistent and consistent in your action.

How do you like to give back?

Multifamily Apartment Investing Unveiled is something that Chris and Sonia, our JV partners and I decided to start because not that we’ve been in the business that long but we’ve been in it long enough that we have so many learning moments. This is a free platform. There’s a Facebook group that you can join as well as a live meetup on Long Island in Westbury. We wanted to provide a networking opportunity, whether it be online or in person. Networking is part and parcel of this business. We do a monthly meeting, every meeting we share a learning moment, something that took us by surprise. Even with all the mentorship programs that you do, all the learning the, education platforms and the books you read, there will be something that takes you by surprise in every single deal. We wanted to share all of that because the more information we can put out there and those learning moments, it helps other people. It shortens their learning curve and hopefully, they don’t make the same mistakes. I’m also a board member of my church. I’m very active in my church and that’s a huge part of my life. I give back in that way and I give to Jesus in that way.

Tell them how they can get in touch with you and learn more about you, Krista.

Krista@SharplineEquity.com and www.SharplineEquity.com is our website. If you google Multifamily Apartment Investing Unveiled, you will be able to accept an invite into the Facebook group. If you’re not local to Long Island, you can join our group and you can also through that site join the Meetup and come and meet us in person every second Wednesday of the month.

Krista, you’ve been a great guest. I really appreciate your time and the value you’ve provided to us. I hope the readers would reach out to Krista. I’ve enjoyed having her and her partner Chris on the show. I look forward to having them back. I hope you all will connect with them. Also, go to Life Bridge Capital and connect with me and join the Facebook group, The Real Estate Syndication Show. I hope you’re sharing the show. We’ll talk to each of you soon.

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About Krista Testani

RES 236 | Becoming A SyndicatorKritsa Testani obtained her bachelor’s at New York University in 1990 and a law degree at Brooklyn Law School in 1994.   After practicing law for several years her attention was drawn to real estate in 2009.  She began her journey by acquiring single-family homes on Long Island, NY, and rehabilitating them for resale but then transitioned into multifamily acquisitions in 2012.

Her legal background has afforded her the skill set necessary to navigate the host of legal documents and issues that are involved when raising private capital to acquire and manage both single and multifamily properties.

Krista has been involved in acquisitions in Ohio, Alabama, Tennessee, Georgia, and NY valued over $21 million dollars.  Krista joined forces with her partner Christopher Jackson in 2016 and they formed Sharpline Equity Real Estate Investments.  Currently, they own and asset manages a 40 single family portfolio in Syracuse NY, and 230 units in Atlanta, GA.

Krista is also the co-founder of the real estate networking group “Multifamily Apartment Investing Unveiled” in Garden City, NY.

 

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