The Wealth Elevator Syndication eCourse

Secrets of Syndications: Part 8

Video Notes

What Syndication or Private Placements Exist?

• Distressed property
• New development 
• Stabilized/Value-add
• Yield deals

What type of reporting do investors receive?

• Monthly reports include profit and loss statement, living log page
• Quarterly reports with contributions from third-party accountants 

Why invest in syndications instead of REITs?

• REITs are retail products, marketable securities
• GP and LP are aligned in the syndication
• Investing in syndication must go above a mom-and-pop investor
• Large institutions want to buy in, to put into the REITs/ big portfolios for retirement, retail buyers

Are returns guaranteed a preferred return?

• Returns are not guaranteed
• The reason why you invest in stabilized assets
• Don’t worry about the pref, worry about the deal

Can you pull out your investment?

• Reasons why inventors can’t pull out their investment except if a family member is in need of help 

In the syndication course you mentioned “capital stack”- Can you elaborate on this?

• The bank is the biggest partner, while the general partners are at the bottom, where they get to be paid last 

Do you have a commonhold time for syndications?

• Reason for having a common hold time, time shared period for our type of syndications
• The baseline is if we can get out before 3 or 4 years with a 20% plus return

If the main operator decides to leave or something happens to them, what happens to the deal? Is that communicated to the LP?

• Will be reported to passive investors
• Getting other operators on board  just in case something happened to the main operator

How do you evaluate a commercial real estate syndication as an LP? What criteria do you use?

• Why educating yourself is key 
• Invest in people you trust who have a good track record
• Why you should never share your course logins

Who is the competition for the HUI and the mastermind investment groups, is there a growing level of competition and what is the risk management plan for addressing that competition?

• A lot of competition (but didn’t mention any specifics)
• Other syndicators are simply boosting their marketing 
• Moving towards larger assets with 300+ units since it’s more robust 

Can you pull the curtain back a bit on 506(b) regulations/requirements? Specifically, why some syndicators are very strict on Accredited Investor verifications, and others do not verify Accredited Investor Status at all (self-verification). And yet other syndicators just require you to be a “sophisticated investor”. What is the syndicator/sponsor (like yourself) required to provide the SEC in terms of the Accredited Investor status of your LPs? I mean do you ever communicate with folks from the SEC?

• Explanation of 506B and 506 C
• Sophisticated investor etiquettes

I’m an accredited investor. I’ve got plenty of family and friends that want to invest in real estate syndications but they’re not accredited, which I think is kind of unfair. Seems like the best deals are only open to Accredited Investors. Do you anticipate the SEC relaxing rules on Accredited Investor status in the future?

• Prone to become victims of syndication deals in case SEC will relax the rules 
• Why best deals are open to accredited investors 

What are the main differences between a GP and a KP? How does the GP get paid?

• When getting a loan for a deal, the general partner signs up for the loan and is the guarantor of that debt
• Debt doesn’t go into any of  the passive investors 
• Having a straight split: you get paid and we get paid, if the deal does not do well then we don’t do well

Are there opportunities for limited partners to be more involved with syndications other than providing their investments (e.g., participating in meetings, or walking alongside the General Partner to learn more)?

• LPs are not encouraged to be involved rather than providing investment 
• Sponsors prefer passive investors who bring in their money routinely and then don’t say a thing

What is the time frame for you to find a deal before it gets offered to the LP investors?

• Deals getting from broker 
• Depending on the situation of the property possible for a month or two
• Better to join the family office group to get insider information

How far out do you communicate your exit strategy for syndication (e.g., when you’re ready to sell)?

• Briefing investors that we’re testing the market before selling 
• Same thing as multifamily, we can put it out in the market, test the market 

Can you explain how the clawback works if a deal goes completely south and liquidation needs to occur?

• Relevance of being an LP partner in having very little to no liability 
• No need to worry about the preservation of capital 

Live question: I have a friend. She’s just basically retired and she’s got almost a million and got 600,000 in her 401k. She’s non-accredited. Are these rules like hard and fast or not really?

• Needs to be educated first (going to syndication e-course)
• If they will invest, they need to verify and try for themselves 

How do you think about pacing your deals throughout the year? Is there an upper limit to the number of assets that you can successfully manage at one time?

• Capability of managing an infinite amount of deals since we hire people and delegate 
• A choke point occurs is there’s a lot of paperwork that goes especially in the closing

What Is the Minimum Investment?

• The minimum is $50,000, but depending on the situation, it can be $25,000

How do you determine the operating budget and the capex budget?

• Having existing profit and loss statement
• Having run rates for the last two years and checking what it is
• Realizing that we’re not the best at everything
• Hiring third-party professionals

If you’re invested in syndication as a sole proprietor and you pass away, how do you pass this down to your kids? Is there a way to set this up as a transfer on death (TOD)?

• Need to consult a lawyer 
• Set up a trust rather than a will

Do you do a GP course/program or just an LP? If someone were looking to become a GP, raise capital through investors, and partner with a GP with credentials/knowledge of the market to do a deal, how would someone go about starting that? What information/documents (other than a t-12) should someone be looking to retrieve from the broker to underwrite a deal?

• Why there’s no GP course 
• Why LoopNet brokers are not a good option
• Check track records when getting into real estate deals

Do you have a timetable for getting rehab on value-added properties done? Is it based on vacancy?

• On average tenants move out in 2-3 years
• Explaining the three goals of any project

Do you work with the same lender in the same markets? Do you use the same type of loan (i.e., bridge loan) for each deal? Or is it based on something else? On the exit, do you cash out refi or 1031? In your system, do investors get a certain preferred return on every investment? Do you split anything over that preferred return if so?

• Depends on what the deal calls for
• Use long-term Fannie Mae and Freddie Mac deals for more yield-type deals
• Do a bridge loan on value add deals
• The reason why we do not cash-out refinance or 1031 on exit 

Can you explain how depreciation recapture works in syndication deals?

• Paying taxes on capital gains
• Consult a CPA for tax and legal advice
• In the year 2022, getting a hundred percent of the bonus depreciation

Have there been any issues with the Property Management companies you select growing to accommodate taking on new properties?

• The reason why there’s a change in the property manager at one point 

Could you go over “return OF investment” versus “return ON investment”? On someone else’s call, they really called out that their refinance was a “return OF investment”.

• Some syndicators are creating confusion about these terms
• Others call this returning back your money (principal) plus gains or 200% earning

As a follow-up to the “phantom income” question, the LPs would obviously have to pay taxes on whatever was paid out to them. Would the business/syndication pay the taxes on the other half of the 50% profits? Or would the LPs be responsible?

• If your investment made money, you need to pay a tax
• Phantom income explained