094: How One Person Can Radically Change Your Investing Journey
Do you ever wonder how one small change can radically change your investing journey? 🤔🤔
Or, in this case, one person…
When you’re looking to get into the game of real estate investing or when you’re looking for a much more hands-off approach while still enjoying the benefits of real estate investing, one of the most important team members you MUST find as a real estate investor is your General Partner (AKA – apartment syndicator, operator, or sponsorship team).
There are a lot of good general partners out there. There are also a lot of bad ones out there as well. So doing your due diligence on the human behind the pretty slide deck and the amazing projected return is vitally important. 🙌
The reality is that you have to have a very eclectic and multifaceted set of talents to be really good at this business – and finding someone who has everything you are looking for means that you truly are seeking your unicron.
We absolutely are not doubting your ability to own and operate your own real estate portfolio, but we know that many of you who are reading this are busy high-level entrepreneurs who love ❤️️ economy of scale, doing bigger deals, and growing a bigger portfolio than you have now.
This all means that you want a piece of institutional quality apartment community while taking a hand-off approach.
Why your team makes a difference with apartment syndication
Many times in all investment opportunities things are not going to turn out like you expected. If you own your own single family home rental or even small commercial real estate, either you do all the work or you get someone else to do it for you all the way. If you invest in apartment syndication you take a hand-off approach where you get your general partners to do ALL the work for you!
If you’re all about leveraging and maximizing your money, you will definitely want a team who will handle all of those things for you. That key 🗝 teammate is your general partner, the one who has to make the rubber meet the road.
Your general partner really can radically change your investing journey. They could either grow your wealth or they could lose it all – that’s a pretty big responsibility.
The crazy 😜 thing is that when people invest in apartment syndication, 80% of your success rate has to do with your sponsorship team.
When there are problems, your general partners are the ones who deal with them and they’re your first line of defense. Sounds like a pretty big deal, right? You definitely want to make sure that your general partner is a good fit for you.
You also don’t want to pick general partners based on their investment opportunity fee structure. You would never pick your oncologist based on their fee structure. You want to be with the best doctor right? The same goes for your partnerships, you want the best, you deserve the best, and alignment of interest is vital so that you get the best possible outcome for all parties involved. 😉😉
The reality is that apartment syndication has a steep learning curve. It’s a tough business because you’re dealing with many moving parts – sourcing the deal, building relationships with brokers and sellers, and raising millions of dollars.
On top of that, you have to manage the property managers, even though we don’t prospect tenants or do the maintenance ourselves, we still have to make business decisions around them. 🙏🙏
The responsibilities of general partners in apartment syndication
In order to set yourself up for success, you probably need to know and understand some of the responsibilities of a general partner. Keep in mind that this is by no means comprehensive, and every situation is unique, but let’s discuss some of the responsibilities involved. 👇
So the first stage of being a general partner is really the pre-ownership stage. This is where all the groundwork takes place. In this stage, the GP selects target investment markets, evaluates target investment markets, and build relationships with commercial real estate brokers/sellers.
Not only are they doing all that, but they are also forming strategic partnerships with other co-GPs – AKA boots on the ground type of stuff. This means they are out there underwriting deals, finding, hiring, and verifying rent growth – all parts of developing a business plan with a property management team. 🤓🤓
There are so many other things that occur at this stage too. Think about all the things you might do when and if you are buying a home. The same types of things happen here, just as a business entity. This means the GP is out there getting insurance indicators and property tax estimates, submitting my LOI and negotiating PSAs, etc.
But the work still isn’t over! Then 3 days after a signed PSA, the GP wires earnest deposit, which you might have also heard called a good faith deposit essentially to show commitment to the transaction.
On top of all that, they still have more work to do at this stage, like hiring real estate and SEC attorneys to create legal documents, creating the actual LLC, and basic operational tasks like setting up operating bank accounts and investment portals and hiring a third-party due diligence team. 🧐🧐
One other part of the pre-ownership stage that might get forgotten about is the behind the scenes work like creating an investment opportunity webinar presentation deck, prepping all the materials to announce the new investment opportunity to passive investors, and hosting a new investment opportunity webinar.
Then, once all that is secured, the GP has to work with capital markets to secure financing, align the net worth and liquidity to secure financing, and raise all the necessary capital – typically for our size deals it’s somewhere around $30M+. Keep in mind too that how networth works is if you’re going after a deal slated at $50M, and you’re financing 70% of it, that means the GP team collectively will need to have $35M net worth and $3.5M liquidity. That’s a pretty penny! 💰
The GP then needs to meet weekly with the lender team to make sure all requested documents have been submitted, make sure all documents needed from the seller have been processed, and finally – close on the dang deal!
3️⃣ Ownership & Maintenance
Next is the ownership stage, where the GP notifies passive investors of closing, creates an annual budget, and sends a monthly newsletter, including all the financials, to passive investors. 📄
Not only are they doing all that, they are also sending K-1 tax documents to passive investors in Q1 of the following calendar year, asset managing the property management team and setting up weekly calls 📞 with them, as well as following up with the lender on CAPEX draws or anything that might require rehab.
Once all that has been put into place, there is a fair amount of maintenance that occurs at the ownership stage. These are things like making sure all insurance is up to date and renewed on time, tracking CAPEX and KPIs, and annually filing a tax return.
Even after all that is done, the work still continues. The GP is also responsible for frequently analyzing comparable rent, P&L, and the market in general to determine when to exit. They also ensure distributions are sent on time to passive investors and oversee the sale of assets if and when it comes time to sell the asset – all stuff we are guessing you probably don’t want to do. 👀
Apartment syndications allow passive investors to invest in assets that they couldn’t access by themselves (like, uh, apartment buildings). This is our FAVORITE part – it allows you to own institutional quality apartment communities without having to fork out millions (like upwards of $50M and above) yourself.
Institutional quality, large apartment complexes usually end up being more profitable because they have economy of scale and you’re working with a team of specialized professionals. 😊😊
The best risk-adjusted investment
You will enjoy being in the best risk-adjusted investment, while creating and preserving your wealth. All of this along with getting extraordinary tax benefits that helps you keep more of your money! Plus you’re investing passively, and getting 70%-80% of the profit without having to deal with rowdy tenants or lift a paintbrush!
In the apartment syndication world, you will also need real estate brokers, lenders, escrow, attorneys, and a due diligence team, but at the end of the day, it’s the general partner that makes the business work. And – as you saw above – they can do a lot of that work for you. It’s important to leverage the strong networks that your GP’s have. 😘😘
Finding the right general partner
But how do you find a good general partner who meets your needs? How do you just go out and find that right person? You want to invest alongside someone who really understands the local state, macroeconomics – inflation, unemployment rate, economic outputs and microeconomics – rent growth, popular growth, and economic drivers in the area.
The good news is that you’ve already taken the first step – there are a bunch of places to look for syndication sponsors, and you’re already in a great one here with us! 🥳️🥳️
If you’re still lost, Google is a start. As well as podcasts, real estate meet-ups, and personal referrals. For us, referrals are the best! Because people who you trust are already doing business with them and/or already have vetted them
Don’t forget you can also check out things like CrowdStreet, FundRise, and RealtyMogul. Plus, there’s always a huge benefit to meeting people in person. Network, network, network. It helps!
You also need to make sure they know local and state and national laws and regulations as they are changing by the second. Which brings us to the second step, go ahead and dig into their background, experience and track record, and references.
Are you still not sure what you’re really looking for? As a starting point, look for deal sponsors that are passive investors themselves, walk the walk AND talk the talk and have great references from their past investors.
Another bonus is that we live in the world of social media 🖥 these days, so check them out on social, see if they have a website 🌐 where you can learn more about them, and then once you get to that website, see if it’s powerful, authentic, and reputable and highlights who they are, what they do, and why they do it? It’s amazing what you can learn from some simple searching.
You might also want to consider if this is their side gig or full time job. There’s nothing wrong with a solid side hustle, but you want someone that does this full time – after all, they’re managing hundreds of millions of dollars in assets, right?
Take us, for example. At The Kitti Sisters, we personally have had ownership of over 5,000 apartment units, and we currently have deals in the full cycle and hold period, which gives our average passive investor average 2.85x equity multiple in 23.5 months.
As the third step, make sure you understand their roles, their strategy, their sponsor fees, and their overall alignment with investors. First off, do the deal sponsors ALSO have skin in the game? How much are they investing? We always invest our own capital in our deals, and you’ll want to look for someone who does the same.
Make sure you check out their fee structure too. Are their fees above industry average, or are they in line with what you’re looking for? What’s the acquisition fee? What roles will they play as investors and deal sponsors in the apartment syndication deal? What’s their investment strategy?
Do your due diligence here, and find a team with a great business plan and experience making money with a real estate asset. 🧐🧐
Here at the Kitti Sisters, seeing our passive investors’ succeed while doing what we love puts big smiles on our faces! Our strategy is simple – we focus on newer assets with a strong household income, risk mitigation methods, simple effective business plans, and investors’ profit first with multiple exit strategies.
Once you’ve done the leg work, make sure as a fourth step that you trust your guy or gal and make sure they’re professional and communicative. No matter how many real estate investments you may have made in your life, you can’t underscore the importance of communication from your deal sponsors. Make sure that the apartment syndication deal sponsors you’re choosing are proactive with their communication and transparent with what they’re doing. 🤩🤩
More than anything – trust your gut. Your gut knows more than you think, and it’s something you definitely want to pay attention to when you’re diving into the real estate industry. Author, speaker, activist, and badass Glennon Doyle refers to this in her book Untamed as the Knowing, with a capital K.
And, the last, but certainly not the least thing you need to look for is whether its a personality match. This affects everything you guys touch together frommission, vision, and values, to communication. Work with people who you actually like, and life will be a lot easier. 💪
Because after all the hard work upfront – vetting, getting, and trusting them, you can just sit back and get rich! You can scale with them, and reap the cash flow, equity builds up, and all the tax goodies with them.
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