Ex-Multifamily fund analyst looking to create a first syndication, how do I start?

So a bit of professional background about me:

  • Bachelors in finance, top of my class - I have deep understanding in debt, equities, cashflows, business operations etc.
  • Worked for a year as an acquisition analyst at a fund that invests in US multifamily deals. Doing mainly $50M-$300M JVs with local PMs. I had my fare share of financial modeling, due diligence, and asset management and can say I know how to analyze deals and asset manage very well. But, I was not too involved in the closing phases of the deals (lawyers, reports, debt placement, contract negotiations, parts of the DD...) so I lack knowledge in those parts, which I make up for in reading ton of materials and listening to podcasts.
  • After that I worked for three years as a management consultant at McKinsey where I sharpened my business acumen, problem-solving, storytelling, and presentation skills. And also engaged with institutional investors on a regular basis.

I'm highly entrepreneurial and figured out that what I really want to do in my professional career is US multifamily investments.

What I've done so far is selecting the markets I'm interested in (in TX), building a comprehensive financial model to analyze deals, and creating a very detailed due diligence list. I also have an investment strategy in place (core/core+ investments, minimal to no rehab, aiming for 8%-12% IRR over a long holding period).
I even have some friends and family that want to invest with me. Together with my personal funds I can pull around $600K of equity for the first deal.

The thing is, I was never involved in the entire closing process on a property, from A-Z, myself. Not even on a SFH. I feel like I don't know what I don't know, and I feel that jumping straight to an investor-backed leveraged multifamily deal as a first timer might be a bit too much.
Yet, I see no other way to enter the multifamily space as the entrance barrier is high, and cheaper deals in tertiary markets are often cheap for a reason.

Would love to hear your thoughts on whether jumping straight to a syndication is reasonable, and if so, what would be the best path for me to make a deal happen in the coming months?

P.S, I'm not a US citizen/resident, don't have a credit score, and plan to manage my operations remotely if that matters somehow.

 

Significant hurdles. The citizenship status and location certainly matters for at least financing.

I’d recommend finding a partner(s) or a group that comps similarly to as if you were syndicating by yourself and aligns with your investment strategy. It’s hard enough to start when you have 10 years of experience, significantly more equity relationships and financing lined up.

 

Does this strategy work? Not trying to poke holes in your strategy as i'm genuinely curious if it actually works and would be curious to hear from other users who have either done it or work for a firm that does this. My understanding is that you plan to raise money to acquire stabilized properties with no value add potential and just collect rent and wait for your property to appreciate in value via rent growth and cap rate compression? Why do your investors need you? Once again, genuinely not trying to sound like a dick, but is the value you're providing simply just pooling investors together and acquiring properties? Couldn't your investors just hire a broker individually, buy a property, and use a 3rd party PM? I mean I guess by pooling funds together you can pursue larger investments, but ultimately, if I am an investor with $50k to invest, 8%-12% return on $50k is the same whether it is a 3 unit building or a 300 unit building right? But by buying the 3 unit building, I don't need to pay all the fees you may be charging. Also, is 8%-12% IRR attractive? I was just talking to my financial advisor the other day to start looking into reallocating more towards bonds since rates are so high and it seems like we could build a portfolio of bonds that generate a weighted average of 7%-8% return, obviously there would be a mix of investment grade, non-investment grade, and preferred stock to generate the 7%-8% return, but honestly I think doing this is waaaaay less risky than giving you my money to generate a measly 8%-12% IRR that I probably won't see until the disposition which, according to your long hold period, is like 5+ years from now and is also way less liquid. Also, don't lenders require at least a 1.20 DSCR? So for example, if I acquire a $10mm building, 75% LTV, at 6.75% interest rate, my NOI must be at least ~$700k and cash flow after debt service is ~$117,000, which comes out to a 4.5% CoC right? Are these deals possible right now? Because in my area, sellers barely let you make any CoC and if you are able to generate this type of CoC, how is the IRR only 8%-12%? I don't have a model in front of me, but I would expect it to be much higher once you factor in years of rent growth and cap rate compression.   Am I missing something? Cause fuck me if it is this simple, I want to get out of development and do this instead lol. If I am correct, then it seems like the hardest part of your job would be finding investors that are willing to lock their money up for 5+ years to earn a a measly 8%-12% return that they don't really see until the sale.

 

In some cases, it is that simple. Retail investors (often the ones investing in syndicates) don’t analyze as real estate investment professionals do. For many, many retail investors, their core belief is that real estate appreciates with time. Many, many Americans believe it is hard to lose money in RE. While your analysis is correct and how people should view it, you missed the bigger picture and failed to realize that many people lack such analytical skills. Your world view, although correct in this situation, is not representative of everyone’s. It’s important to step in others shoes and understand their perspective as well. It’s more than spreadsheets, my friend. And if you disagree, look at people like Nitya Capital and Grant Cardone (albeit who are dirty and fraudulent). Those folks are many times fold wealthier than you will ever be. Whether you want to or don’t want to conduct business like that is another story.

Could his investors hire a broker, find a property, and get a 3rd party manager? Of course they can and you are correct for thinking they can. But, will they? Do they have the time to do so? Do they trust them elves to do as good of a job as their trusted real estate expert who will present himself in a favorable light? Again, you’re ignoring the practicalities of life. This is why people have and will Continue to invest in syndicates.

 

Got it. So it is just taking advantage of unsophisticated investors.

And if you disagree, look at people like Nitya Capital and Grant Cardone (albeit who are dirty and fraudulent).

And how are the Nityas, Grant Cardones, Tides, Rise48, etc... doing today? When I asked if this strategy actually works the unstated assumption was that it works as a sustainable/non-fraudulent strategy. The fact that you are referencing companies that may very well be on the verge of bankruptcy today and are possibly fraudulent doesn't really help your case. If we are including short-term, fraudulent strategies as strategies that "work," then Bernie Madoff's strategy also "worked."

Those folks are many times fold wealthier than you will ever be.

You seem quite certain about this despite not knowing who I am nor my background. Tell me. How much do they make? And is that before or after they hand back the keys, which would then likely turn into a class action law suit? And since you state "than you will ever be," then we must also factor in time. I'm more than 30 years younger than Grant Cardone. A lot can be done in 30 years especially when you have capital to invest.

 
 
 

Does this strategy work? Not trying to poke holes in your strategy as i'm genuinely curious if it actually works and would be curious to hear from other users who have either done it or work for a firm that does this. My understanding is that you plan to raise money to acquire stabilized properties with no value add potential and just collect rent and wait for your property to appreciate in value via rent growth and cap rate compression?

Yes you pretty much nailed it. I'd add that opportunistic value add can be done if the opportunity arises along the way.

Why do your investors need you? Once again, genuinely not trying to sound like a dick, but is the value you're providing simply just pooling investors together and acquiring properties? Couldn't your investors just hire a broker individually, buy a property, and use a 3rd party PM? I mean I guess by pooling funds together you can pursue larger investments, but ultimately, if I am an investor with $50k to invest, 8%-12% return on $50k is the same whether it is a 3 unit building or a 300 unit building right? But by buying the 3 unit building, I don't need to pay all the fees you may be charging. Also, is 8%-12% IRR attractive?

Good point, basically the folks in my country want to diversify with US real estate and have no clue how to do it, let alone buying themselves and having 3rd party PM. So many seek to throw 50-200K$ in a completely passive investment for the sake of diversification and modest returns.  

Also, don't lenders require at least a 1.20 DSCR? So for example, if I acquire a $10mm building, 75% LTV, at 6.75% interest rate, my NOI must be at least ~$700k and cash flow after debt service is ~$117,000, which comes out to a 4.5% CoC right? Are these deals possible right now? Because in my area, sellers barely let you make any CoC and if you are able to generate this type of CoC, how is the IRR only 8%-12%? I don't have a model in front of me, but I would expect it to be much higher once you factor in years of rent growth and cap rate compression. Am I missing something?

Sure thing, most deals don't pencil these days due to the crazy interest rates, but like the saying goes, good deals aren't found, they're negotiated. At the end of day it's all about the going in cap rate and NOI increase opportunities to make a deal work, it is harder to find good ones these days.

 
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Good point, basically the folks in my country want to diversify with US real estate and have no clue how to do it, let alone buying themselves and having 3rd party PM. So many seek to throw 50-200K$ in a completely passive investment for the sake of diversification and modest returns.  

Okay this makes more sense. I've also encountered foreign investors who are happy with what I would consider incredibly low returns because real estate in their countries are so expensive or foreign investors who want to get their money out of their home countries.

But as others have mentioned I think your biggest hurdle will be your lack of citizenship esp since you are the sponsor. I could see lenders having a tough time being comfortable lending to you. I think your best bet is to find someone who is a US citizen to partner with and ideally be willing to provide some guarantees. I only ever personally guarantee my loans, so i can't really provide any insight on getting loans with no personal guarantees. Alternatively, perhaps you could find a fund that is run by people from your home country. For example, if your money is from China, there are probably some funds in the US that are managed by people from China, who would be more understanding of your situation.

Also, if you haven't already done so, you probably want to talk to an attorney that specializes in entity formation especially for foreign investors as well as an accountant. There's a lot of legal and tax shit (mainly laws that protect against money laundering) when bringing foreign money into the US. I spoke with an attorney a couple years ago regarding bringing in foreign investment money and it involved setting up a shell company in the Cayman islands for tax purposes (sounds like a movie, but I'm actually serious lol).

 

Why not just buy public Sun Belt apartment REITs at 7 caps right now? Why take the liquidity risk and also operational risk for 8% IRR? Once you own it, who is going it manage it? Also apartments in Sun Belt have no pricing power right now and the easy returns of the past decade prior to 2022 were heavily influenced by record low interest rates that we will probably not see again. Why not just buy a T bill yielding 5% with no risk?

 

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