How to Ace Your First Syndication Deal
One of the more popular episodes from our Real Estate Syndication Show podcast was my interview with real estate investing expert and best-selling author Michael Blank, where we talked about the how-tos of deal-making in multifamily syndication. It was a hit and it’s easy to see why. Many people from all walks of life are seeking the path to financial freedom and are exploring real estate investing in multifamily as a route to reach that lifelong goal.
In this blog, I’d like to go back to what Michael shared and let you in on his not-so-secret formula for acing that crucial first syndication deal that can lead to a succession of more deals. Never mind that you have zero investing experience and no cash of your own because Michael teaches that you can still get into the game. You just need a healthy dose of enthusiasm and determination to learn, and a willingness to put in the effort to succeed.
Let’s dive in and get you on the right track to your syndication goal. If you want to listen to the full podcast, click here.
NO EXPERIENCE, NO CASH, NO PROBLEM
Michael says that the first step to becoming a syndicator is to overcome your limiting beliefs. More often than not, people carry the baggage of “I don’t have the experience” and “I don’t have the money” that stops them from pursuing their financial goals. Michael also observed that even experienced investors can be saddled by this limiting mindset, confining them to small-scale or single-family home investing, landlording, and flipping. This leaves them afraid and uninformed about how to move up and grow their investments.
“When most people hear “apartment buildings” they immediately assume they need years of investing experience and money saved up to be able to get into the game. This simply isn’t true,” assures Michael.
So, how can you be taken seriously by investors without a track record? Why would brokers talk to someone with no experience?
NO EXPERIENCE? BUILD A COLLECTIVE TRACK RECORD
Here are the initial steps to building a collective track record.
- Educate Yourself
“There’s a unique language that’s involved when you’re doing commercial real estate investing. Learn the language,” advises Michael. As with any industry, there is a set of terms or expressions that are used in the real estate profession that may be difficult for outsiders to understand. It is crucial to learn and become skilled at using this jargon in order to navigate the real estate industry effectively.
Educating yourself is also about being well-informed about what’s going on in the industry. There are many ways to stay up to date – most notably, there are plenty of free options on the internet including websites, podcasts (such as ours!), social media accounts run by industry professionals and government agencies, and news updates from reputable news sites. There is also plenty of real estate investing books available. You may also sign up for online courses offered by online education platforms. When you dedicate time and form a habit of learning, you’ll soon gain the confidence to talk to brokers and investors.
- Build Your Team
“I met a young very motivated, enthusiastic guy who’s trying to get into syndication. He showed me his deal package and it was great! But there was one mistake. In his bio, he talked only about himself. So, I told him – even with a glowing deal package but with no experience behind you, you are a nobody. No offense, but who are you?” tells Michael.
Your lack of experience may set you back but a team of people with proven track records will collectively build you a stronger reputation and improve your standing in the industry. Team up with experienced individuals who will bring in expertise to elevate your status so that you can bring not only yourself but a well-rounded if small, staff of experts to the table.
“Work together with people who bring to the table the qualities that you lack. If you lack money, bring in a person with money. If you want a track record then bring someone with a track record,” advises Michael.
Who do you need on your team?
Here’s a list of people essential in your operation:
- A property manager who’s experienced in managing multifamily properties
- A real estate attorney
- An accountant (CPA)
- An advisory board composed of your coach or mentor, other experts in the field (who may or may not be paid), and more experienced investors that you can call up and consult with every now and then
“When presenting to brokers or investors, list your team and advisory board with you as a member. Highlight the collective experiences, the worthy accomplishments, and successful deals of the team members. As a company, you will be able to project a strong reputation. Then you’ll be taken seriously,” affirms Michael.
NO MONEY? FIND INVESTORS
“A lot of people didn’t know it’s possible. Even some successful real estate investors were unaware that you can buy properties without your own money. How? By raising money from other people,” says Michael, relating that he himself was astounded by the experience he had when he first raised capital from his first investors.
He adds that initially, there’s discomfort and fear in taking other people’s money because of the possibility of losing it. But, he quickly assures us that the probability of losing someone else’s money in a multifamily property (if you’ve been educated and if you have a good property manager) is close to zero.
“The worst that could happen is you not making that much money as you projected but that’s fine. The downside risk, if you do all due diligence, is fairly limited,” he assures.
How to Find Investors and Raise Money
“Start with your sphere of influence. It doesn’t really matter that you don’t know anyone with money because everybody knows someone. Create a mindmap of everyone you know. Every social group you’re part of: work, neighbors, church, synagogue, boy scout, sports, etc. Write down names of people under each group and plan to get in touch with them,” advises Michael.
When you get the opportunity to communicate with potential investors, share your enthusiasm about the city and property you’ve visited. If they seem interested, continue the conversation in the most natural way but begin to be more intentional – your objective is to get a series of yeses. Finally, make sure not to oversell.
Establishing Relationship With Investors
Michael says that an investor’s main concern is not making money but how not to lose money. So, address this by talking about how your team mitigates risks. It leaves the impression that you’re thinking about the potential risks and preparing a solution to minimize those risks. It’s a red flag to say “there’s no way you could lose your money” because it’s simply impossible to have zero risk.
Here are common questions from investors that you should be prepared to answer:
- Tell me how I’m not going to lose money?
- How long will my money be tied up?
- What’s the exit strategy, to sell or refinance?
- What are the returns? How much cash on cash? How much each year? What is the overall return?
Michael suggests that when scouting for investors with no deals yet under contract, it is helpful to prepare a sample deal package that can be presented to investors. This package detailing the property, location, terms, holding period, returns, and the property management company that will manage will help address investors’ major concerns.
Take the time to establish relationships with potential investors. Get them in meetings, and help them feel familiar and comfortable with you and the deal. Let them review the deal and get back to you with questions. Your objective is to obtain from them the verbal commitment to the deal. Having verbal commitment from investors will make you more confident to make that offer on a deal, assured of capital backing you.
HOW TO FIND DEALS
For house flipping, Michael recommends the use of postcards, direct mail, banner signs, probates, the MLS (Multiple Listing Service) to source deals. For multifamily property, on the other hand, the number one source is brokers.
“A broker’s job is to know all apartment listings. It’s their business to know all the apartment and building owners in a particular city. Brokers are constantly in touch with property owners, calling, sending cards, telling them about deals closed, taking them to lunch, offering free evaluation of property. So, if an owner is thinking of selling, brokers would know about it,” says Michael.
For a continuous deal flow, Michael recommends keeping two to three good brokers as sources. “For specific markets, use the 80-20 rule. Get to know the 20% brokers who do 80% of the work of finding deals then you will never starve for deals,” he suggests.
How Many Deals Should I Analyze Before Submitting An LOI?
Real estate is a numbers game. If you think that you can sign a deal by simply making a handful of offers, think again. It doesn’t work that way. Michael’s formula looks like this –
100 deals analyzed, 10 letters of intent (LOI), 2 under contract, 1 closed. Hence, you have to analyze a hundred deals to close one deal. That means that to land a deal in a year, you have to analyze two deals a week. Michael suggests using a deal analyzer to make the process easier.
Bonus Tip to Improve Business
“Build your brand by having a platform. Syndicators should think of themselves as marketers. Be an influencer so you can attract more people,” recommends Michael, stressing the importance of reaching out to larger groups of people in capital-raising efforts.
Here are some suggestions to build your platform: build a website, have an email list and send newsletters regularly, create social media platforms and be prepared to spend for advertising to drive traffic, start a podcast, and write/publish a book.
When people see you and listen to you, they start to know you and become familiar with you. You will earn their favor and trust and they will support your business for the long term.
Final Thoughts
Multifamily investing is one of the best ways to achieve financial freedom with real estate. The first deal is the most challenging but once you get past that, the journey will be easier. And the best part? You can get started today, even if you don’t have prior experience or your own cash. Take that first step today!
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Life Bridge Capital is here to guide you in the world of multifamily investing. If you’re interested, we’ll be happy to talk to you. You can email [email protected], and reach out, and we’ll schedule a call.
