SS155: How to Find Real Estate Syndication Deals

SS155: How to Find Real Estate Syndication Deals

Some real estate syndication deals are advertised all over the internet, and social media; however, many are not. In this episode, Charles discusses how real estate investors can easily find syndication deals.

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Talking Points:

  • When I speak to a new investor who is looking for real estate syndication deals to invest in; I try to guide them instead towards finding and interviewing sponsors first. Once a potential investor has successfully interviewed and vetted a sponsor, a major piece of due diligence has now been completed. So, when a new deal becomes available, the investor is now primarily focused on reviewing the deal, not spending time reviewing the deal and the sponsor.
    • Every time we send out a new syndication deal to our investors, there will be at least a couple of potential investors, who are now trying to vet our company and the deal at the same time. Not that there is an issue with this approach but, once a deal goes out, we will have dozens of soft commitments coming in and calls being set up by prospective investors whom we need to speak with to answer any of their questions as well. The investors who have already vetted us, have an advantage since they are able to finalize their investment before our raise is filled.
  • The first step is determining what type of investor you are; are you an accredited or sophisticated investor?
    • What is an accredited investor?
    • An accredited investor, in the context of a natural person, includes anyone who:
      • earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, OR
      • has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence), OR
      • holds in good standing a Series 7, 65 or 82 license.
    • In this context, a sophisticated person or non-accredited person, means the person must have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment.
  • Once you have determined your accreditation status, you can begin to search out syndication sponsors. Accredited investors will have the ability to invest in all real estate syndication deals. Accredited deals are typically advertised online, on social media, etc., and they will state that it is a 506 C offering, in other words, a deal only for accredited investors.
    • Deals for sophisticated and accredited investors will be denoted as 506 B deals but, you will not see these advertised anywhere since it is against the SEC rules to advertise 506 B deals. To find these deals, you will need to begin a relationship with a sponsor who offers 506 B deals. Once you have a relationship with them, they will email their 506 B list, their 506 B deals.
  • So, where do you find sponsors?
    • You can find sponsors; all over the internet, online forms, podcasts, social media, crowdfunding websites, local meetups, networking with other investors and real estate investing events.
      • I personally have never invested in any real estate deals through a crowdfunding platform. I prefer to build my relationship with sponsors for passive investing or if we are going to partner together on a deal as co-sponsors, mainly 1-on-1 after I have researched them.
    • As you are finding sponsors, I would set up some sort of sheet that allows you to easily track their firm, the types of deals they do, 506 B or C or both, what types of properties they focus on (multifamily, self-storage, mobile home, etc.) and other information you find relevant.
      • I track and reach out to sponsors that I feel are solid, even if I am not planning to invest in their asset class anytime in the near future. I like seeing what sponsors are doing, what they are changing, how they are editing their business plans, or re-focusing their niche to deal with the markets they are in or the overall economy.
    • Make sure to track sponsors who do both accredited and non-accredited deals, even if you are only a sophisticated investor now because one day you will be an accredited investor.
  • You now know what type of investor you are, and you have a list of potential sponsors.
    • I would start getting on some mailing lists. Maybe start with your favorites and go from there.
    • Next, I would start listening to their podcast or YouTube channel (if they have one) while also searching out podcasts where one of the partners is being interviewed. Usually, there is one partner who leads in content creation and does interviews on other shows, for our firm, that would be me.
    • You will learn a bunch of valuable information from their mailing lists, and from the podcasts they are on. The next step is making actual contact with the sponsor, and setting up a call.
      • One side note is that most firms that do 506 B deals (deals for accredited and sophisticated investors alike), might not advertise that on their website. You need to reach out to verify that.
    • After you have connected with some sponsors, the interviewing process begins.
      • Schedule calls with the different sponsors, and start asking questions. I am not going to go through how to fully vet a sponsor in this episode, we have a number of Strategy Saturday episodes on evaluating deals, sponsors, what happens after you invest in syndication, etc. but I want to talk about a few things I would focus on the first call versus other less important factors.
      • I always feel that discussing fees, and syndication structures is kind of a waste of time. For us, like other sponsors, each deal is different. Some deals have lower fees than others. It all depends. When fees are brought up right away on a call, I now wonder if their investor will be the one that complains about a 2% acquisition fee. They see a big number for the acquisition fee only, and do not see the 150 deals we reviewed before doing this one deal.
        • Another less important factor that comes up sometimes on calls is the splits. I was recently on a call, and the potential investor asked if the split readjusts after the deal hits a 20% annual return. Honestly, if a deal you are investing in hits a 20% annual return, does it really matter if you are now receiving 50% or 70% above that number? I am more concerned with not losing my investment, and how fast I can recoup the majority of my capital, not if a deal that has a gross annual return of 25%, pays me a net return of 17% or 20%.
        • When you are on the call with the sponsor, request that they send over some of their previous deal offerings. We usually send out 4 or 5 previous deal offerings, which will allow you to drill down into the details. You will see their usual fees, splits, etc. I would rather pay higher fees, or receive a lower return, to know my principal was safer.
      • What I want to talk about is the partners, and their business and real estate investing experience. Syndication experience is important but, I want to know that they have been investing in their focused asset class for 15+ years.
      • The goal of the first call is to start the conversation. Find out a little about the partners, their business plan, what makes them different, their experience, what type of deals they do, and how often are they closing deals. What their team looks like, etc.
      • After the call, review the information they send out, and make a list of new questions for the next call or email.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how to find real estate syndication deals.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
When I speak to a new investor who is looking for real estate syndication deals to invest in, I try to guide them instead towards finding and interviewing sponsors.

Charles:
First, once a potential investor has successfully interviewed and invented a sponsor, a major piece of due diligence has now been completed. So when a new deal becomes available, the investor is now primarily focused on reviewing the deal, not spending time reviewing the deal and the sponsor. Every time we send out a new syndication deal to our investors, there will be at least a couple potential investors who are now trying to vet our company and the deal at the same time. Not that there’s a issue with this approach, but once a deal goes out, we will have dozens of soft commitments coming in and calls being set up by prospective investors whom we need to speak with to answer any of their questions as well. The new investors who have already vetted us have an advantage since they’re able to finalize their investment before our raise is filled.

Charles:
The first step is determining what type of investor you are. Are you an accredited or sophisticated investor? So what is an accredited investor? Well, an accredited investor is someone that’s earned $200,000 per year or $300,000 a year with their spouse and each of the last two years and reasonably expects the same for the current year or has a net worth of $1 million, excluding the value of the person’s primary residence. Or they can hold in good standing a series 7 65 or 82 license. Now on the other hand, a sophisticated investor is a sophisticated person or a non-accredited person. Means the person must have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment. Once you’ve determined your accreditation status. Next, you can begin to search out syndication sponsors. Now accredited investors will have the ability to invest in all real estate syndication deals.

Charles:
Accredited deals are typically advertised online on social media as well, and they will state that this is a 5 0 6 C offering. In other words, a deal only for credit investors. Deals for sophisticated and credit investors will be denoted as 5 0 6 B deals, but you’ll not see these deals advertised anywhere since it is against SEC rules to advertise 5 0 6 B deals. To find these deals, you need to begin a relationship with a sponsor who offers 5 0 6 B deals. Once you have a relationship with them, they will send you out 5 0 6 B deals as they do ’em, and they’ll send out as well to the rest of their email list. So where do you find sponsors? Well, you can find sponsors all over the internet, online forums, podcasts, social media, crowdfunding websites, local meetups, networking with other investors, and real estate investing events. I personally have never invested in any real estate deals through a crowdfunding platform.

Charles:
I prefer to build my relationship with sponsors for passive investing or if we’re gonna partner together on a deal as co-sponsors, mainly one-on-one after I’ve researched them. As you’re refining sponsors, I would set up some sort of sheet that allows you to easily track their firm, the types of deals I do, whether they’re 5 0 6 or five oh C, five oh C six B, or 5 0 6 C deals or both, and what types of properties they focus on. Multi-Family, self storage, mobile home, and the other information you find relevant. I track and reach out to sponsors that I feel are solid even if I’m not planning to invest in their asset class at any time in the near future. I like to see what sponsors are doing, what they’re changing, how they’re editing their business plans with the new market, refocusing their niche to deal with the markets and the overall economy.

Charles:
Make sure to track sponsors who do both accredited and non-accredited deals, even if you’re only a sophisticated investor at this time, because one day you’ll be an Incr investor, you now know what the type of investor you are, you have a list of potential sponsors, and I would start getting on some mailing lists. Maybe start with the favorites that you like the most and go from there. And I would start listening to some po, their podcast or YouTube channel if they have one while also searching up podcasts where one of the partners is being interviewed. Usually there is one partner who leads in content creation and does interviews on other shows. For our firm, this would be me and you’ll learn a bunch of valuable information from their mailing list and from the podcast they’re on. And the next step is really making actual contact with the sponsor and setting up a call.

Charles:
One side note is that most firms that do 5 0 6 B deals deals for accredited and sophisticated investors alike might not advertise on their website, and you really need to reach out to them and verify that they do offer these deals. After you’ve connected with some sponsors, the interview process begins, schedule calls with different sponsors and start asking questions. I’m not gonna go through how to fully vet a sponsor in this episode. We have a number of strategies, Saturday episodes on evaluating deals and sponsors, what happens after you invest in syndication, et cetera. But what I wanna talk about is a few things I would focus on in the first call versus other less important factors. I always feel that discussing fees and syndication structures is kind of a waste of time for us. Like other sponsors, each deal is different and some deals have lower fees than others.

Charles:
It all really depends. And when fees are brought up right away on a call, you know, you kind of now wonder if this investor is gonna be the one that’s going to complain about every fee that’s charged. Especially the acquisition fee, which we know is a larger fee that’s charged to investors. However, this is really justified by we going through a hundred to 150 deals before actually doing one deal. So another lesson for factors that comes up sometimes on calls is splits. And I was recently on a call and the potential investor asked if the split readjusts after the deal hits a 20% annual return. Now, honestly, if a deal you’re investing in hits a 20% annual return does, I mean, does it really matter? If you’re now receiving 50% of that or 70% above that number, I’m more concerned with not losing my investment and how fast I can recoup the majority of my capital.

Charles:
Not if a deal that has a gross annual return of 25% pays me a net return of 17% or 20%. When you’re on the call sponsors request that they send you over some of their previous deal offerings, we usually send out four or five previous deal offerings, which will allow you to drill down into the details. You will now see their usual fees, splits et cetera. I would rather pay higher fees or receive a lower return to know that my principal is safer. So by going through, you can see exactly how they structure it, what their loan to values are and how they value all their different fees and how they usually structure out the preferred returns and everything like that. That really is more difficult. When spoken about on the phone to understand what I wanna talk about is the partners and their business and the real estate investing experience that they have.

Charles:
I mean, syndication experience is important, but I want to know that they’ve been investing in their focused asset class for 15 plus years now. The goal of the first call is really to start the conversation, find out a little about the partners, their business plan and what makes them difficult, their experience, what types of deals they do, and how often they’re closing deals. I also wanna know really what their time, their team looks like. You know, all the different positions that they have, what they handle in house you know, kind of what their payroll looks like. You can kind of see that from looking at what their team is. After the call review the information they send out and make a list of new questions for the next call or email. So I hope you enjoyed, please remember to rate, review, subscribe, submit comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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