Multi-Family Investing Made Easy! Using Syndication to create long term wealth with Reed Goossens
What We Will Cover Real Estate Syndication Basics - What is Real Estate Syndication? - Why do people engage in RE Syndication? - Who is involved in a Syndication deal? - What is the Syndication process? - How do I make money using Syndication? - How do I structure the Syndication? - What are the Risks? - What are the 4 biggest mistakes? - What are the legal requirements of a Syndication? - How do I raise money from investors? - Example deal: My first syndication deal
Who am I? Background: - Founder of RSN Property Group - Structural Engineer – 8 years - Lived in the U.S. for 3.5 years now - NYC and LA - Real estate for 8 years as a professional and 5 years as an investor! - Developed my own cashflowing portfolio here in the U.S. - Completed my first major syndication 2015
Cash-flowing Portfolio of Duplexes and Triplexes First large syndication – 250 Units Houston Texas Flipping Properties in Philadelphia
What is Real Estate Syndication? Simply: 1) Type of Financing for your deal 2) It offers money a place to invest RE ¡Deals ¡ Investors ¡ ¡ PARTNERSHIP
Why do people engage in RE Syndication? Syndication = LEVERAGE
Who is involved in a Syndication deal? 1) Syndicator (aka “Sponsor”) - Individual or company - Finding and managing the deal - Typically have a history of REI experience Investors ¡ ¡ ¡ - Underwrite and carry out due diligence on the property - Oversee negations with seller and broker - Create legal paperwork to form partnership with investors - Perform asset management duties Syndicator ¡ ¡ - Oversee day-to-day management of the property 2) Investors - Individuals who invest their own capital into the deal - Own a percentage of the deal - Benefits of owning RE but not involved RE ¡DEAL ¡ ¡ - “Hands Off” investing (aka PASSIVE Investing) - Return on their investment 3) Equity Partner - Typically has access to large number of investors - Connects the syndicator with the investors
The Power of SYNDICATION? Using other people’s To build long term money (OPM) wealth!
What is the Syndication Process? 1. ¡Find ¡a ¡deal ¡ Syndicator ¡ ¡ RE ¡DEAL ¡ 2. ¡Create ¡Syndica6on ¡ 5. ¡Buy ¡the ¡Deal ¡ Syndica6on ¡ ¡ 3. ¡Raise ¡ ¡ Partnership ¡ the ¡Money ¡ 4. ¡Fund ¡the ¡ Partnership ¡ Investors ¡ ¡ ¡ Investors ¡ ¡ ¡ Investors ¡ ¡ ¡
How do I make money using the Syndication Process? Syndicator – Services + Deal - Fees upon closing - Cashflow - Profits Investors – Capital for down-payment - Cashflow - Profits ¡ ¡ ¡ ¡ ¡ ¡
How do I structure the Syndication deal? Syndicator ¡ ¡ ¡ Typical ¡Equity ¡Split ¡ Syndica6on ¡ ¡ 20-‑30% ¡ ¡ ¡ Partnership ¡ 70-‑80% ¡ ¡ ¡ Investors ¡ ¡ ¡ Preferred return - Preferred return which will be paid out in quarterly payments (typ. 5-8%), based on the deal. Equity in the deal - Upside potential based on % ownership in the deal
What are the risks of investing in a Syndication? Same associated risks as owning any real estate investment: - Variable economic trends - Failure to manage property effectively reducing income potential - Unforeseen circumstances such as natural causes - Renovations run over budget - Failure to make repayments on debt - Interest Rates increase limiting cashflow - Unable to sell property at the end of the hold period - Etc ……… DO YOUR DUE DILIGENCE *This is not legal advice and is intended for information purposes only.
What are the 4 big mistakes syndicators make? Mistake #1: Buy a Mediocre Deal - BUY A GREAT DEAL! - Get investors excited, if you aren’t excited by the deal they won’t be! YOU MAKE WHEN YOU BUY, NOT WHEN YOU SELL! Mistake #2: Buying a deal that’s too big! - The bigger the deal the more money you need to raise - Nothing happens until you get your first deal done!
What are the 4 big mistakes syndicators make? Mistake #3: Lack of time to raise money - Develop an investor pool before you go under contract with a property! - Create a list of investors you can go to once you find a deal. - Develop a pitch book! - Negotiate enough time on your contract to close and raise capital Mistake #4: Lack of Investment Strategy - No plan! - Be specific with your strategy!
What are the legal requirements of a Syndication? - Raising Capital from public – Government views it as a “public offering” - Registration with the Securities & Exchanges Commission (SEC) is required, unless you satisfy exemptions covered in Regulation D - Reg D contains such exemptions from registration requirements. What are the requirements I must meet? - Must file From D with the state that the investment is in. - Meet exemptions stated in Rule 504, Rule 505, Rule 506. - Common Exemption Rule is 505: - Securities may be sold to an unlimited number of “accredited” investors and up to 35 non accredited investors. - No solicitation; ie, TV, Raido, Newspaper. - Establish a “common” knowledge of real estate investing with investors wanting to get involved. - Complete a Private Placement Memorandum (PPM). *This is not legal advice and is intended for information purposes only.
What is a Private Placement Memorandum? - To meet the requirements of Reg. D - full disclosure must be given to all potential investors related to the offering. - The document that contains these disclosures is called a Private Placement Memorandum - Reg D PPM: outlines everything about a company for the prospective investors; from how the offering will be set up and taxed, to outlining all associated risks involved with the offering. At the end of the day consult your real estate attorney regarding your individual deal! *This is not legal advice and is intended for information purposes only
How do I raise money from investors? What you can’t do: - Advertising/Solicit to the public via TV, Radio, Newspapers. - Cold Calling strangers you have never met before. - No seminars or meetings can be held regarding the offering unless each invitee is known and qualified in advanced. What you can do: - Network, Network, Network!!!! - Finding investors from building relationships and credibility with a wide range group of people. - They may not all be RE investors. - Look for sophisticated investors, High Net Worth individuals! - Go to investing clubs, attend as many networking invents as possible! - Meeting a lot of people before you find a “Angel Investor”. - The bigger your network is, the bigger your reach, the more money you can raise, the more deals you can get done!
QUESTIONS? Reed Goossens +1.312.519.1111 reed@RSNpropertygroup.com www.RSNPropertyGroup.com
Example: Woodglen, Houston, TX Purchase Price: $14,100,000 - Financing 80% LTC including - 250 Units Construction loan - Class B Asset - Rehab: $4,500 per apt. - Built 2,000 - Increase rents: $60-75/month - Strategy: Value Add - Multiple exit strategies ¡ ¡ - Raised over $3.3 mill. in private equity ¡ - 20% Down Payment ¡ ¡ ¡ ¡
Analysis: Rented As Is! The property current operates as follows: “As-Is” Monthly Annual Total Income $188,900 $2,266,800 Expenses $106,040 $1,272,480 NOI $82,860 $994,320 -‑ ¡ 7.05% ¡ CAP Rate
Analysis: Power of Increasing NOI! Value-Add Program Monthly increase in rents between $50-$65/month/unit. - Unit renovations and improved landscaping, - $4,500/unit on upgrades, (completed over 12 months) - $500,000 on exterior upgrades (completed over 12 months) - New property manager Renovated rents to match the market rents “Value-Add” Monthly Annual % Increase Total Income $220,400 $2,644,800 16.5% Expenses $106,040 $1,272,480 - NOI $1,372,320 38% Market CAP Rate -‑ ¡ 7.5% ¡ New Property NOI/CAP ¡ $ 18,297,600 17.5% ¡ Value
‘Add Value’ Summary: NOI (Year 1): Units Renovated within first 12-18 months $993,748 NOI (Year 2): increased stabilized rents $1,240,068 NOI (Year 3): $1,372,320 Market CAP: 7.5% New Value with increased rents year 3 = NOI/CAP = $18,297,600 Increase in property worth: $14,100,000 (PP) + $972,000 (Reno) + $500,000 (Exterior) = $15,572,000 $2,725,600 That’s 17.5% increase in property value through forced appreciation within 3 years!
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