081: The Anatomy of a TERRIBLE Apartment Syndication Partnership
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Have you ever been in a terrible partnership and it has been haunting you for years?
[Check out this clip from the movie: Ted]
Did that bad partnership cause you to stop trusting people in general? You bet it did! We are SO fortunate to have many great apartment syndication partnerships – both as general partners and as limited partners (AKA passive investors), but there were many close calls.
Like a lot of relationships, it took us almost partnering with a terrible one, to truly find a great partnership.
Today we’re going to talk about the anatomy of a TERRIBLE apartment syndication partnership, 😨 the things that we lean on and the things you can do to score the right partnership and build your own DREAM team no matter if you’re an experienced apartment investor or if you haven’t yet invested in an investment opportunity.
Have you heard of James Clear? If you haven’t, look him up or read his amazing and award-winning book, Atomic Habits. We love James Clear, and one of his recent articles talked about this really cool and a little strange critical thinking tactic known as inversion. Let’s talk about what that means.
Ancient philosophers used to envision all the bad and negative things that could happen like losing your job, becoming homeless, experiencing some kind of really bad trauma – and they would use worst case scenarios to help them not only overcome their fears, but also to plan for the future. Think of it like extreme reverse psychology.
Let’s channel some James Clear because he seems to know a thing or two, and let’s tackle how our mistakes can help you avoid the anatomy of a terrible partnership. Bear with us all the way to the end because you’re going to want to learn from our mistakes, so you don’t have to learn the hard way. Let’s get into them!
Take a step back for a second to the movie Ted that was linked above – in case you’ve never seen it, Ted was the magical teddy bear that John Bennett (Mark Wahlberg) wanted more than anything in the world. Young John made a wish and luckily for him, the wish was granted. But now that John is all grown up, his boyhood dream has become a nightmare.
We love ❤️️ enthusiasm, and wealth has a need for speed, but be sure to first take a moment to really drill down and find a great partnership. As motivational speaker Jim Rohn said, “Show me your friends and I’ll show you your future.” A bad partner can alter the trajectory in all the wrong ways.
You need to take the time to do your own due diligence on the humans behind these incredible investment opportunities, and you have to vet and find the right partnership. Our favorite question to ask when vetting someone is: would we want to drink wine and share a charcuterie board with them?
You simply have to find those partners who can help you disconnect income generation from your time and not just invest in any deals that jump into your inbox. Take the time to make a wise decision.
The Basic Anatomy of a TERRIBLE Apartment Syndication Partnership
1️⃣ Bad Vibes
Bad energy 👀 can be emotionally exhausting. If the vibe isn’t right, then it isn’t worth it.
It’s like you met someone online and they showed up and you instantly got bad vibes. You wouldn’t go on a second date with them. Same thing here, just a different kind of relationship when it comes to choosing your apartment syndication partnership.
2️⃣ No Knowledge
Imagine that you invest with someone who is somewhat new and has no knowledge, no market intelligence, and no track record in apartment investing. 😰
You wouldn’t want to have an open heart surgery with someone who just watched a YouTube video, right? It’s the same thing here: you want to invest with someone who has done what you are trying to achieve, who has gotten results for their passive investors. Don’t let yourself be someone’s guinea pig! 🐹
3️⃣ Misaligned On Time/Not An All-In Commitment
Make sure the team has made a time commitment and is all in. 💪 While you as passive investors are working on your genius zone, the general partners should dedicate their time and effort into running the apartment complexes. If someone is doing this part time, how do you think a multi-million dollar deal can run itself?
In no way are we criticizing the side hustle game, but when it comes to multimillion dollar projects you do need someone full time who has the experience and know-how to react and pivot as needed.
Another area where time can kill a partnership is if you are seeking to spend all your time and energy on sourcing, securing the loan, hiring the property management company, and managing the asset and you have the ability to fork out millions of dollars of your own, then you may not need a general partner. Be self-aware and know your needs.
4️⃣ No Capital
While passive investors bring in substantial capital in the deal, it would be terrible to invest with a partner who can barely get by. If they are going to be full time, the team should have sufficient cash flow to cover their living expenses.
Along the same lines, money misalignment can complicate any partnership. In multi family syndication, the limited partners’ role is to come in with the capital in the form of passive investment. For the general partner team, we are also expected to have skin in the game, meaning that we have to also put money into the property. If there’s a loss, it will hit us just as hard, if not harder. The general rule of thumb is around 3-5% of the amount raised.
5️⃣ Different Expectations
Set expectations and document them. NO PPM – A private placement memorandum – JUST HANDSHAKES, because we’re old school. That doesn’t fly anymore, and you need to make sure that the PPM is aligned with what you can expect of them.
Typically, our PPM will outline our roles and responsibilities for that particular investment opportunity. Document what it says. We use the agreement as a vehicle to facilitate dialogue and have shared expectations in a way that general partners and passive investors alike can understand and agree to them. It comes down to basic communication, clearly outlined. The purpose of the PPM is to have clear expectations and clear expectations on agreements. 🙌🙌
To recap, if we’re making sure that we don’t have a terrible partnership: no bad vibes, check for knowledge, align on time, make sure they have capital, and set expectations.
If that feels like a lot, it is, but these are important, and we have just a few more checkpoints left in our journey. Next, we want to make sure that we don’t have misaligned vision, mission, and values.
All these really mean that you don’t actually want the same thing.
6️⃣ Misaligned Vision
Vision is SO important. 🧐 There are a million general partners that you could potentially partner up with, but what will make a terrible partnership is misaligned vision.
Some investors purely invest for the extraordinary tax benefits, some are looking for cash flow, while there are many who just want to participate in the equity build up.
This may sound odd to you, but you would be amazed at the amount of partners that, after investing in the deal, get so mesmerized by the shiny object that they forgot their initial investment criteria.
Another thing about vision is if a passive investor is expecting 200% return while the general partners only see 100% as possible and conservative. Clashing expectations can spoil the partnership in a big way. This is why for general partners it’s very important to set up conservative expectations from the beginning.
7️⃣ Misaligned Mission
We’re definitely here to make an impact, ✨while striving for never ending growth, and we know you are too. Trust is everything to us. Without communication, there is no relationship. Without respect, there is no love. Without trust, there’s no reason to continue.
We are straight shooters and will never sugarcoat anything that isn’t right for you. We are definitely not for everyone. We are high energy, eternal optimists, with a kind-hearted streak, we don’t believe greater output means a fulfilled and vibrant life.
We work under the doctrine that our money should be working 24/7, 365 while we sleep, travel the world, and/or spend time with our family and friends. We believe this is not our work life, but our lives’ work. And lastly, we’ve got your back. There are some people in life that make you laugh a little louder, smile a little bigger, and live just a little bit better. Anything we recommend is because we truly genuinely believe in it.
8️⃣ Misaligned Values
For us, while we love 😍 apartment investing because of all these amazing benefits we created for our passive investors and ourselves, it’s also very important to us to provide a safe and affordable community for our residents to grow their families.
9️⃣ No Communication
This one is such a deal breaker for us. You signed the subscription document and funded your investment, but this will make a terrible partnership if you didn’t hear from them for months and months.
Sadly, 😔 this happens a lot. As a matter of fact, our good friend invested in a deal that was recently sold, but the general partnership team didn’t inform them about the sale. After two months, they informed the passive investors and returned some of the initial investment and then went silent. No one knew how the investment did, or if and when they will get the balance of their initial capital back. Not knowing is a scary place to be, and we would never want you, Cashflow Multipliers, to ever find yourself in a similar position.
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