Partnering With Multiple Investors – Syndicating for Investment
Ever since my team posted the Self Storage Investing “Six Step Process to Private Lending” we’ve gotten a boat-load of folks asking us all types of questions about how “private money” works, especially in Self Storage, but also in all other types of real estate investment.
Honestly, it works like this: if you can borrow it, you can use it.
Simple as that.
Of course, there are far more effective ways to raise private capital as we’ve already seen so far, but this week, let’s talk about one of my favorite ways to raise private money – Syndication.
Personally, I consider syndication to be one of the smartest ways to raise the most money for any investment. In my Private Money and Syndication Summit on December 5, 6, and 7 in Austin, Texas, we’ll spend a great deal of time discussing Syndications, so if you find yourself really drawn to this type of investment and funding strategy, then a seat with me in Austin might be the smartest thing you’ve done all year!
Now, I’m not going to lie to you – Syndication is NOT something you decide to wake up one morning and do. You’ll have government oversight, loads of accountability, and the need to document and communicate with all your investors. To me, at least, this is far more critical than when you are only dealing with one or two private lenders and personal guarantees.
On the other hand, syndication is an incredibly effective way to raise large amounts of capital, whether that is to buy the premiere self storage facility in town or to redevelop a self storage asset. Due to the complexity, though, you are NOT going to be an expert in syndication because you read this blog post.
In fact, I don’t consider myself to be an expert on syndications, even though I partner in multiple syndicated deals annually. The real experts are the men and women on our legal and compliance teams.
Yes, it’s that important.
No, you can’t do it yourself.
With that said, though, syndication comes in three distinct phases, and for individuals with high levels of experience in certain areas, such as operations or management, or with substantial liquid assets to invest, syndication may offer the perfect alternative to traditional lending sources. It’s important to realize there are multiple legal and fiduciary obligations that will need to be met, but by teaming with the proper experts, you may find creating an investment syndicate can offer you an excellent path to Private Money.
Phase One – Management Setup and Organization
- Investor Recruiting – Using your personal and professional network to identify individuals ready and willing to invest in your syndication.
- Entity Organization and Structure – You’ll need to have certain SEC (Securities and Exchange Commission) documents and paperwork filed, so a top-notch attorney with this experience is a must. Failure to do this can land you in hot water!
- Understanding Your Contributors – Since you’ll be dealing with high net worth individuals almost exclusively, personal knowledge of those financial partners is mandatory.
Phase Two – Investment
- Locating a Suitable Property – Using your own knowledge and specialties, you’ll be locating the perfect investment to bring to your organization and investors.
- Acquiring the Property – Once located, you’ll be carrying out all the due diligence and valuation of the deal and, if those all pass your tests, you’ll be presenting the offer to your network of investors as a part of the syndication.
- Allotment of Shares – Each Accredited Investor will be allotted shares of ownership based on their financial contribution. You, as the managing partner, may or may not have a huge financial stake in the deal, but will have responsibilities that run through the completion of the deal and exit strategy.
Phase Three – Revenue Collection Phase
- Now is the fun part! Depending on the exit strategy, you may end up with an ownership stake in the asset or merely a seat at the table when the profits begin to come in. If you’re the managing partner for the syndication, you may or may not be responsible for appointing an agent for the syndication.
- Income may be distributed in several ways depending on the structure of the syndication, but in many cases, it will be at the conclusion of the long-term exit strategy.
The best part about Private Money – even Syndications – is you are able to deal with people on a personal level and bypass the silly rules of the banks and traditional lenders. It’s not as easy to set up and execute properly, but the benefits – the chance to keep your own money and credit out of a deal – far outweigh the challenges you’ll face in finding those investors. Of course, if you’re like a lot of people, you’d rather learn from an experienced guide with a system that works – over and over again.
If you find yourself nodding your head to this idea, then the perfect next step is to join me and my team at our Private Money and Syndication Summit. It’s taking place in Austin, Texas on December 5th – 7th.
Join me and a room filled with other savvy investors looking for the private money edge in their real estate investing…