When considering to make the transition from either a corporate job or another smaller real estate niche (i.e. SFR rentals, fix-and-flipping, etc.) to apartment syndication, one important question, and one in which I myself had to answer, is how do I know I am ready?
Simply put, based on personal experience and more so based on interviewing hundreds of investors, you first need to address your education, and then you needed establish a track record in either business or real estate. Getting the proper education and having a track record in a similar field is a requirement to successfully switch to apartment syndication.
However, after a recent conversation with James Eng, who’s currently a partner in 2,500 multifamily units and arranges financing on over $100 million in multifamily properties every year, there are two additional criteria the aspiring investor needs to address prior to moving into the syndication business.
James also believes that education and experience are both foundational to successfully shifting to the syndication model, but he takes it a few steps further. He said, “Depending on where you want to be in 3-5 years, I want to understand sort of where you’re going. The education piece is important, so that when you start looking at deals… A lot of people, we will review their personal financial statement today, and then we we’ll lay out ‘Okay, based on your financials and based off of your experience and based on the amount of time you have, is it better for you to be a general partner or a limited partner, or maybe a key principle on someone else’s deal?’ and understand that piece of it so that you can start taking steps in the correct direction. That’s usually how we start – education, and then understanding what your personal financial situation is today.”
Related: 16 Lessons from Over $175,000,000 in Multifamily Syndications
The two added factors James provided are time and money – what is your personal financial situation and how much time can you dedicate towards this? The answer to those two questions will not only determine if you are ready for apartment syndication, but also what role you should assume when you begin. James said, “Let’s say you come to me and you say ‘I want be a general partner, but I also have a full-time job (time) and also I have limited capital to even put down earnest money (money).’ That’s going to be very difficult for someone to get started, so I might recommend somebody like that to build your education piece, build your capital, and then let’s go try to get some deals under contract.”
In the example above, the individual doesn’t have the time to get a general partner – how are they supposed to manage the project, find deals, bring on investors, etc while working all day? Also, they don’t have capital, so they can’t invest their own funds in the deal, which means there isn’t an alignment of interest – investors prefer it that the general partnership invests their own funds in the deal. Therefore, for the time being, all they can do is work on their education and financial situation (or follow one of these 6 creative ways for breaking into the multifamily business).
Basically, the aspiring syndicator should rank themselves on all four factors – time, money, experience, education – to determine which role, if any, is the ideal starting point.
Only have the money, but no time? One option is to start off as a limited partner by being a passive investor in the deal in order to gain experience and education.
Have experience (real estate or business related), time and education, but no capital? Those were my circumstances when starting out, and I started as the general partner by bringing on private money investors to fund the deal.
Lacking in all four areas? Read some books, listen to investing podcasts, get hands on experience in either business or real estate (learn how do accomplish this for free here), and/or start building up capital.
The goal is to take some form of action to start heading in the right direction, towards becoming an apartment syndicator.
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.