The Wealth Elevator Syndication eCourse

Secrets of Syndications: Part 7

Video Notes

Have you ever heard of XYZ?

• I do not make any comments on other operators. Trust factor and proven track record is the way to go
• As a newbie, do a trial investment first. Jump into deals starting at a minimal cost first and observe how it goes. 
• Get to know the operators of the deal since everybody will seem nice (maybe they’re looking to cut deals)
• Ask the following question: Have you invested with the operator in the past? Have you gone full cycle with this person? How long have they been doing syndication deals? (not just buying some single-family homes OR not just investing passively) Are you still working at a day job? 
• Make sure to look at the reversion cap rate, their business plan, etc.
• Build relationships with other peer passive investors to get their unbiased insights on deals and strategies.
• Be cautious when giving referrals.

I was looking for some of the investments signed up with you and I have a question on larger sums of investments. One of your investments was as follows: Class A presents a fantastic cash flow opportunity at a fixed rate of 11% annually with NO equity upside. The minimum investment for this class is %75K.

• The reason why we do pref equity is that it helps us get that initial boost at the beginning of the deal
• Class B and C are equity investors. There are fewer admin fees, fewer headaches.
• Note that letters in classes don’t mean anything. It all depends on the operating agreement spelled in the PPM.
• If you have a deal, ask yourself: How do I want to play in this deal? And assess your personal situation. If your net worth is under $1- $2 million, then you should be on the equity side. Better to be on the upside. If your net worth is $4 to $5 million (end game), there’s a possibility that you don’t need more money. You just want an income stream.

Class B will enjoy an amazing uncapped 75/25 equity split with the Sponsor group. The total investment profit is conservatively projected at over 105%. This class of investors will also enjoy a preferred cash-on-cash return of 7% annually for cash flow. The minimum investment for this class is $250K.

• Ultimately, build relationships first and then come up with an understanding so both are on the same page. Then all agreements must be well documented so both relationships will be untouched. 
• Loyalty plays a huge value.

Class C will enjoy an amazing uncapped 70/30 equity split with the Sponsor group. The total investment profit is conservatively projected at over 100%. This class of investors will also enjoy a preferred cash-on-cash return of 7% annually for cash flow. The minimum investment for this class is $75K.

There’s an option of loaning money for the hard money, and deal-signing your debt alongside us, because in order to get a loan, there have to be key principals who are within the general partnership.

What if someone were to give you $500K or 1M for the investment would you still just give him Class B shares?

There will just be assigned shares from the general partner side to that person’s side. Others call this a side letter agreement and some lawyers don’t like these types of agreement because it’s enforceable.

What is the strategy to make money for us passive investors? Just keep investing in these deals year after year?

• Depends on the kind of deals ( if it’s higher risks, hairier deals), and that’s why it’s better to diversify the portfolio
• In my personal situation, I’m still in the growth stage. So, just keep on pulling it. It’s going to be slow in the beginning and then when there’s traction, redeploy. 
• Constantly building relationships with other people and finding new opportunities. Maybe in the future, we’ll go to Wall Street with the operations and not deal with sponsors.
• There might be a constant battle for passive investors. Talking a lot about the infinite banking concept, having that as a way to invest the money and make the money tax-free.
• Syndication deals use good leverage, which is why your return on equity is in the double digits compared to when you’re owning your own. And then you don’t have all the headaches, not a managing member. This is why the syndication model shifts more in this direction.
• As you start to diversify your portfolio into many different projects, diversified over geographic areas. This is what you gain by going down into this model.
• The end game depends on your goal as an investor/syndicator.

What happens if the market turns, and you cannot sell the property for the desired multiple, or worse, it drops below its value?

• Yes, we’ll just be on hold and wait. And it will still be profitable since its cash flow. Note that these are stabilized assets (apartments, mobile homes), stabilized assets that are already making money. 
• Worst situation that can happen in this investment: Decrease in occupancy rate, so make sure to establish a break-even point of 50% – 70%. For this to happen, people might be losing their one house, their jobs, and they will still consider a value-based apartment.
• No one knows what’s going to happen, that’s why it’s always better to diversify. There will always be cash reserves and working capital in case something happens.