How to Build Your All-Star Apartment Syndication Team
We’ve worked through finding the best markets for real estate investing, as well as other aspects that lead up to completing your first apartment syndication deal. Today, Theo is covering the first part of building a great syndication team. In this particular part of the four-part series, we’ll hear about the four core team members, who they are, and how to find them. He’ll also cover the question, “Do you need a partner and a mentor?”. If you enjoyed today’s episode, please subscribe in iTunes and leave us a review!
Best Ever Tweet:
Free document for this episode:
Benefit from even more apartment investing advice when you subscribe to our Best Ever Newsletter.
Best Ever Listeners:
During a number of successful deals, my clients and I have worked with Marc Belsky from Eastern Union Funding and Arbor Realty Trust for debt, equity, and more. It’s possible that he could help you too.
Start Reaching Out to Potential Syndication Team Members
Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process but how to actually do each of the things, and go into it in detail… And we thought, “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the apartment syndication school, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.
Each week, we air a two-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, spreadsheet, or some sort of resource for you to download for free. All of these free documents and the Syndication School series, past and future, can be found at SyndicationSchool.com.
This week is the start of our second four-part series. This will be part one, and the series is entitled “How to Build Your All-Star Apartment Syndication Team.” As the name implies, we are going to be talking about building your team. If you have followed the previous eight series, essentially we’ve built to the point where you are now ready to start actually reaching out to various team members in order to bring them on and are one step closer to actually looking for deals. So you’ve got your education and experience on lock, your goals are set, market selected… Next step is to start building your team.
In this episode, we are going to go over what the core and the secondary team members are, and then we are going to have a conversation around how you find these team members. Some team members are found a specific way, but in general, you’re gonna find these people in a similar way… And then we’re going to actually talk about the process for hiring two of your team members in this episode; that would be the business partner and a mentor. Over the next three episodes, we will go over the process for hiring the remaining team members.
Why Your Syndication Team is Important
If you remember, in episode 1527, when we discussed the market evaluation strategies. If you remember, we posed the question, “What’s the most important factor in real estate?” Obviously, in that episode we went over how to select and qualify a target market, but what I said is that the overall MSA or city is not as important as the actual neighborhood or submarket, and the neighborhood and submarket are not as important as the actual deal, but all of those things are trumped by the ability to execute the business plan. So the market is not the most important factor, nor is the deal, nor is the cap rate or anything else. The most important aspect of real estate, and in particular apartment syndications, is the ability to execute the business plan. Because, if you can’t execute the business plan, then the best deal and the best market really means nothing.
We said that one way for you to build up your ability to execute the business plan is obviously gonna be your education and experience, but the most important piece is going to be your team… Because, when you are first starting out, you’re not going to know how to execute the business plan properly, and that’s kind of the catch-22 because the best way to learn how to do it is to actually do it, but you can’t really do it until you’ve done it before. So the way to get around that is to surround yourself with an incredible, experienced team who has experience executing the business plan in the past successfully. So that’s what we’re going to talk about over the course of this next four-part series.
Who Are Your Team Members?
I just wanted to start off by mentioning how important your team actually is because your team is gonna be the one that’s gonna be helping you implement the business plan. With that being said, who is on the apartment syndication team? I’ve broken it into two different categories. The first is the core team members – these are people that you are essentially working with on a daily or weekly basis and are pretty heavily involved in the process… Whereas the other team members are more deal-specific or maybe you have meetings with them once every quarter or once a year; those are your secondary team members.
The four core team members are gonna be a business partner, a mentor, a property management company, and a real estate broker or brokers. Those are gonna be the four most important members of your team.
The secondary team members are going to be the attorneys, so the real estate and securities attorneys); as well as a mortgage broker or a lender; and then, finally, an accountant. Essentially, there are a set of companies that you’re going to need to bring onto your team.
In this episode, we’re going to talk about the first two, the partner and the mentor. In part two we’re going to talk about the property management company. In part three we’re going to talk about the real estate brokers, and then, in part four, we’re going to talk about those secondary team members. For this series, there is going to be a free document, of course, and it’s going to be a Building Your Team spreadsheet, so it will be a place for you to log the contact information of all the various team members that you need… Kind of like a checklist to make sure that you’ve got all of your bases covered. To download that document, you can find it in the show notes of any of the four episodes in this series or at SyndicationSchool.com.
How to Find Syndication Team Members
Before we dive into the process for hiring a partner and a mentor, I wanted to discuss how you actually find these team members. Again, for some of them, it’s gonna be a very specific way to find them or you might have a different strategy in mind or have heard of ways to be able to find people in the past… But, generally, you’re gonna find all of these team members through one of six ways.
Through Your Thought Leadership Platform
The first way to find potential team members is through your interview-based thought leadership platform. In last week’s series – it actually was a four-part series, so the previous two weeks – series seven and eight, we discussed the thought leadership platform and the importance of building a brand as an apartment syndicator… And one of those benefits was the networking capabilities of having an interview-based thought leadership platform. You are having a conversation with one real estate professional every week, bi-weekly or once a month, and that person, in particular, could be a potential team member or maybe they know someone who could be a potential team member.
For example, you could make it your goal to try to interview at least one person from each of these four team member categories a month. Maybe one month you’ll interview a potential partner and the next month a potential mentor and the next month a potential property management company and so on and so forth… And you get the dual benefits of having a podcast or YouTube episode, but also you have the opportunity to meet with them, talk with them, get to know them, and see if they would be a good fit for your business.
Again, I’m just talking about how to find these people. We will go into particulars on what to do once you’ve found them in the later sections of this episode for the partner and the mentor.
Via Other Interview-Based Thought Leadership Platforms
Another way to find potential team members is through other interview-based thought leadership platforms. For example, you could listen to this daily podcast, so there’s seven different real estate professionals every week, 365 every single year, so maybe one of those people could be your property management company or a mortgage broker. Right now, our sponsor is actually a mortgage broker, so that’s the perfect example of a way to find a potential team member. Listening to the other podcasts, watching the real estate YouTube channels, reading blogs…
At Real Estate Meetups
The third way is to attend local apartment meetup groups; go there, network, talk to people, figure out who is doing what, and see if they could be a potential team member. I know at Joe’s meetup group, for example, there is a section of the meetup where people get to ask a question or have an ask… So, if you’re at this point in the process, your ask could be, “Hey, I’m looking for a mortgage broker. I’m looking for a real estate broker. Do you have any recommendations?” and build a list.
With the Help of BiggerPockets
The fourth way is through Bigger Pockets. There’s millions of active real estate professionals on Bigger Pockets. You can use the search function… For example, me in Tampa, I’d say, “Tampa Bay property managers”. Compile a list of all the profiles and reach out to them and ask them to set up a phone call to discuss a conversation about potentially bringing them on as a team member. Now, for the Bigger Pockets strategy, I recommend only contacting people that are actually active on Bigger Pockets. If their profile has been inactive for multiple years, or if they don’t have any posts, then that’s not as good as someone who’s actively posting multiple times per day because that’s the indication of that person’s business acumen and work effort and things like that.
Through a Basic Web Search
Another way is simply just to use the internet. You can Google the top property management companies in your market, top real estate brokerages in your market, compile a list of those, and reach out. Give them a call. That’s actually how I found my real estate brokers and property management company – I use Google.
Syndication Team Referrals
And then, lastly, but most importantly, the best way to find prospective team members is through referrals. The main source of your referrals could be a mentor – we’ll get to that person here later in this episode. Once you’ve found a mentor who’s an active apartment syndicator, who has a track record of success, obviously they’re tapped into the market, they’re tapped into the industry, and they should be able to provide you with connections to the various team members that you need.
Another approach is to bring on a property management company first, or a real estate broker, or a mortgage broker, and all three of those people will work with all the team members that you would need to bring on, so you can ask all of them for referrals as well.
Really, the best way to find these people is through referrals, and those first six steps, except for maybe with the exception of the internet, are kind of essentially referral-based. So that’s how you find these team members.
Again, there’s particular ways to find a certain team member that might not work for a different team member but, in general, those are going to be the top six ways to find your team members.
The Process of Hiring Your Syndication Team
Make of Note of What You’re Lacking
Now, let’s get into the meat of this series, which is the process for actually hiring these team members. In this episode, I’m going to talk about the partner and the mentor. First of all, not every single person is going to need a partner or a mentor. It really depends… For example, for the partner, if you want a business partner, it should be someone who complements your strengths and interests, first of all. And they make up for the areas that you are lacking in.
A few examples – for me, I have a strong operational background. I understand the acquisition process, I am very detail-oriented, and I have the strongest experience in underwriting, as well as managing deals in the back-end… Whereas something that I’m lacking in is access to private capital, the ability (or really the interest) to raise money. So what I did is, rather than attempt to do all that by myself, I decided to bring on a partner for the specific outcome of raising money. So I didn’t find someone who also liked to underwrite or someone who also wanted to be an asset manager; I found someone who was hyper-focused in the one skill that I was lacking in. That’s what you need to do.
Starting out, that might be a little different for you because you might have no experience or no credibility or strength; you actually might think you do… But you’ve gotta be a little creative. Based off of your educational background and your experience background, what do you have to bring to the table? What is it exactly? It’s gonna be something that you are good at and want to do and then, once you’ve identified that, you want to find other people, other partners, to complement what you’re able to do.
Find People Who Fulfill Specific Roles on Your Syndication Team
What do I mean by “do”? What exactly do you need on the general partnership side for the apartment syndication? Because you’ve got your passive investors who are investing in the deal and you’ve got your outside third-party team members who are finding deals for you, they’re managing the deals afterwards, but at the end of the day, apartment syndication is a business and you’re gonna need to have a team of people who are actually fulfilling the roles of that business.
There’s actually five parts to the general partnership. The first part would be someone who funds the upfront costs. This is the person who funds the costs from contract to close, although they’re usually reimbursed; you’re gonna need someone on the team that does that. There’s also gonna be someone that does acquisition management; they’re gonna find the deals, underwrite the deals, submit offers on the deals, manage the due diligence process, secure the financing, oversee the closing process… Essentially, everything from start to close.
You’re also gonna need a sponsor, also known as a key principal or a loan guarantor. This is someone who meets the liquidity, net worth, and experience requirements set forth by the lender, and they sign on the loan. There’s also going to be the investor relations person; they’re the ones who find the investors, secure the commitments once there’s a deal under contract, and is responsible for the ongoing communication with the investors.
And then, lastly, you’ve got the person who’s the asset manager. They’re the ones who manage the business plan and the management company after close. All five of those could be done by one person. One person is gonna be responsible for each; it could be really a combination of those two. And, usually, when you’re starting out, it’s probably going to be at least two GP’s.
For example, you might have one person that’s responsible for acquisition management and asset management; another person is responsible for investor relations. They’re a sponsor and they fund the upfront costs… But, more than likely, there’s gonna be a lot of GP’s. You might have one person who’s funding the upfront costs, you might have multiple people who are finding and underwriting deals, so they’re responsible for acquisition management; you might have ten sponsors to help you qualify for that loan, and you might have ten more people who are helping you raise money for the deal, and then a few people doing the asset management.
For each of these parts, there is a general compensation or general percentage of the general partnership assigned to each of these, so that’s how you know how to compensate your partners, as well as how you’ll be compensated. If you remember, in episode 1513, we discussed all the different ways the general partner makes money; that essentially goes into a pot, and if there’s one GP, then they get 100% of that pot. If there’s multiple GP’s, then the percentage of the pot that they receive is based off of the role that they’re fulfilling.
For the person who is responsible for the upfront costs, they’re getting reimbursed; there’s a little bit lower risk so, typically, they’ll receive maybe 5% of the general partnership, or there might be some other agreement that they make with that person, and then they’ll get any percentage of the general partnership. Maybe they get interest rate while the money is being held, or something like that.
For the acquisition management, that is obviously a much bigger role because you’re finding the deals, offering the deals, managing due diligence, and so on. So that is typically around 20% of the general partnership. The sponsor, key principal, loan guarantor, that person who signs on the loan – that could be anywhere between 5% and 20%. Now, why such a wide range? Well, it depends on the risk level of the deal. If it’s a turnkey property, it’ll probably be on the lower end of the range, whereas, if it’s a highly distressed business plan, then they’ll have to give them a little bit more because the risk level is increased.
It also depends on the type of loan. For example, if the loan is recourse, which means that the loan guarantor is personally liable, then you’re gonna have to offer them a little bit more than if the loan was non-recourse, which means they aren’t personally liable, unless a carve-out is triggered.
It also will depend on your relationship with this person. If you have a personal connection, a trusting relationship, with the sponsor, then they’ll likely charge you a little bit less, whereas, if they have no idea who you are, they don’t know your abilities, they don’t know you personally, then you’re gonna have to give up a little bit more of the general partnership to bring them on.
Other examples of ways to compensate this person is you could just give them a percentage of the principal balance at closing. On the low end, that could be 0.5% to 1%, on the high end that could be 3.5% to 5% of the loan balance, one lump sum paid to them. That could be in addition to or instead of the percentage of the general partnership.
Next, the investor relations person. That is also, obviously, very important, and it could likely be multiple people. That could be anywhere between 30% to 40% of the general partnership. And then, lastly, you’ve got the asset manager who would get 20% to 35% of the general partnership.
Qualifying a Potential Partner for Your Syndication Team
Now, how do you actually qualify a potential partner? Here are a few things for you to think about when you are talking to either potential business partners, like straight-up 50/50, breaking this apart 50/50, or when you are bringing on someone for a particular duty, like investor relations or as a sponsor.
Take Their Track Record Into Account
Number one, you’re gonna want to know what their track record is, in real estate and in business, similar to why you need a track record in real estate and in business before becoming an apartment syndicator… And you’re also gonna want to get a little bit more specific and ask them what is their track record on the specific thing they’re supposed to do. If they’re supposed to raise money, what’s their track record on raising money?
Find Out How Much Time They Can Devote to Your Partnership
You also wanna know how much time they have to spend on the business. Do they have a full-time job where they’re working 100 hours/week and they can only dedicate a few hours a week to their duty or do they have a more flexible job that allows them to give their responsibility the attention it deserves?
At the same time, you wanna know, especially if you’re doing 50/50, if they have the same amount of time that you have because that might bring up issues in the future if they’re working 20 hours a week in the business and you’re only working 5 hours a week, or vice-versa.
Consider if They Have Complementary Skills to You
You’ll also want to know if they have complementary skills to you. You wanna know what they’re good at, and what they’re bad at or inexperienced at, and see if you are essentially the opposite. So what they’re good at, you’re not good at or experienced at, and vice-versa.
You also want to know if you have complementary personalities. Essentially, can you get along with this person, or are you both very stubborn? Do you both need to be in charge, in control? Kind of on a more emotional, personal level.
Discuss Your Goals
And then, lastly, what is your long-term goal? If your goals are too far apart, it also probably won’t work out. If you wanna make a billion-dollar company and they only wanna do a couple of deals before getting out then, again, that might bring up issues down the road.
Now, for the person who’s just starting out – and if you’re a browser of Bigger Pockets, you’ll see a lot of people asking questions about wanting a partner because they are inexperienced… And, if that’s the case, then obviously you’re gonna have to win them over. You’re gonna give them something to add value to them, or else why would they be working with you?
Reaching Out to Potential Partners and Syndication Team Members
A few strategies on how to actually be presentable when reaching out to potential partners who you actually need in order to help you complete the deal, whereas they don’t actually technically need you…
Number one is to have that strong business and real estate background. If you wanna know what that means, make sure you listen to episode 1499 and 1500 where we had a conversation about that. You also wanna make sure that you display your apartment investing expertise. While having a conversation with them, let them know that you know what you’re talking about, basically… Which means that you can answer their questions on what markets you’re investing in, your investment strategy… Essentially, the questions that you’re going to be asked by the property management company, real estate broker, other team members… We’ll go over that in the future episodes.
You’ll also wanna bring something that they need to the table. Figure out what they need and help them with that. Maybe you have a particular skillset that they need or maybe you have money, but you need help with everything else… You need to bring something to the table, rather than just wanting to do a deal and that’s really it.
Connect to Them on a Personal Level
Also, try to form a personal connection. I know a lot of people have success wining and dining, going out to the bars for a drink or at restaurants, playing golf, and kind of just building a personal trusting relationship with this person so that they trust you and they’re willing to work with you.
The last option is just pay them. Pay them money to be your partner. In that case, they’re essentially going to be a mentor, which is a perfect transition to the next section or the next team member, which is the mentor.
Your Syndication Team Mentor
The mentor is going to be a paid consultant, so I’m not talking about someone who is like a fatherly figure to you who you aren’t paying; this is someone you’re actually paying. A lot of people have different opinions on whether or not you need a mentor, and I’m not going to say whether you do or don’t need a mentor. Instead, I’m going to talk about what to expect or what not to expect from a mentor, and when you are ready to actually hire a mentor… And then the decision is ultimately up to you.
What to Expect From Your Mentor
Whether you need a mentor really comes down to your expectations of what a mentor will do for you, as well as why you’ll want to hire a mentor. The four things that you should expect out of a mentor is:
- An active, successful apartment syndicator; they’re currently doing it, they’ve been doing it in the past, they plan on doing it in the future, and they’ve been successful.
- You should expect a step-by-step system, as well as the personalized help for you to navigate the grey areas. They should have a system for you to plug into to replicate their success, but you actually have to do the work… And things that aren’t covered by that system, you should be able to talk to them about those grey areas.
- A mentor is an ally that you can call on selfishly about anything. Since you’re paying them, you don’t really have to worry about asking them about their day or how things are going for them, because you’re paying them to just talk about yourself.
- And then, four, you should expect connections. Again, since they’re active and since they’re an apartment syndicator, they should have connections to the people that you need to help you create your team.
What You Shouldn’t Expect
Now, the two things that you shouldn’t expect… Number one is a knight in shining armor. Don’t expect to hire a mentor and then magically have a multi-million-dollar apartment syndication business in a couple of years. Expect to go in there and actually have to do the work yourself. They’re just gonna give you a leg up. And, lastly, don’t expect that done-for-you system. Again, you’re gonna be doing the work yourself; you don’t want them to do everything for you. Number one, they probably won’t be doing anything for you, and two, even if they did, you’re highly dependent on them and they’re never gonna be able to break off on your own.
What Should a Syndication Team Mentor Do?
Now, what does a mentor actually do for you, besides those four things to expect… 1) Providing you with a step-by-step system; helping you navigate the grey areas. 2) Being an ally to call upon. 3) Connections. 4) Them being the active, successful apartment syndicator…
You will also have the ability to leverage their credibility when talking to team members and to potentially passive investors, as well… Because you’re gonna say, “Hey, on my team there’s a board member who has done multiple millions of dollars in deals; they’ve been doing it for 20 years”, and then, also, you’ve got the potential for alignment of interests. Just the fact that they’re being on your team, you can leverage their credibility, but they also might have some sort of stake in the deal, whether it’s a sweat equity stake of actually working on the deal or they have their own money in the deal. Those are the things that a mentor could do for you.
When Should You Hire a Mentor?
How do you know you’re ready to hire a mentor? And not everyone is at that point right now… The two things that you need to do in order to be ready to hire a mentor – number one is to have the accurate expectations, which now after listening to this episode you actually have those expectations. And number two is to have a defined outcome. What is it exactly you want to get out of the mentorship? You need to know exactly what it is. Is it to find deals, is it to bring on team members…? It just can’t only be an apartment syndicator; it has to be something specific so that you can leverage that person accordingly.
If what you really want are connections, then the expectation is that the mentor should offer connections. So, when you’re talking to mentors, ask them about their connections and then, once you’ve actually hired them, make sure that’s your focus, at least at first.
How to Compensate Your Syndication Team Mentor
Now, how a mentor is compensated is really based on their compensation structure for their program… But I would expect to pay at least a few thousand dollars for a high-quality mentor. But, again, since we’re dealing in a hundred-thousand, multi-million-dollar industry, what’s a few thousand dollars if you’re able to close on a deal?
Qualifying a Mentor
Now, the thing to think about when you’re qualifying this person – number one, are they an apartment syndicator? Number two, are they still active? And three, do they have a successful track record? By successful – did they meet or exceed their return projections on their deals? You don’t want someone who just teaches apartment syndications but hasn’t actually done it before or isn’t still doing it because, like everything, it’s an evolving industry. And, if they were successful in the past, it might have been because something that happened in the future that didn’t affect them because they were buying the deals at that point in time. So make sure that they’re actually an apartment syndicator, that they’re still active, and that they have a successful track record.
Win Over Your Mentor
Now, I did say that the mentor is a paid person, so obviously, your way to win them over to your side is to pay them money… But once you’re actually in their program, there are still a few things that you can do to set yourself apart from the other people in the program in order to hopefully get extra help from them, and ideally, have some sort of stake in the deal… And the best way to do that – and it’s very simple said but harder in practice – is to actually make sure you remain active in their program and actually do the exercises. Once you get into the program, they’re gonna have some system for you, and it’s probably gonna start off by you getting educated and then kind of going from there… Make sure you set time each day to actually perform those exercises. Don’t just pay the money and then disappear. Make sure you’re active, actively asking questions to show that you’re serious about closing on a deal.
And then lastly, you can listen to episode 1507, “How to Break Into the Apartment Syndication Industry”, to learn another tactic for how to win over a mentor. In this specific strategy, it’s technically not a mentor because you’re not paying them money. You’re paying them in a different form… So I would definitely recommend checking out that episode (1507).
That wraps up this episode, the part one of the four-part series about forming your apartment syndication team. In this episode, you learned about the four core team members and the three secondary team members that make up your seven-man team, or seven-woman team, or seven-company team. You also learned the top six ways to find your prospective team members and then, lastly, you learned the process for hiring a business partner(s), as well as a mentor.
In part two, we will discuss the process for hiring a property management company. The fact that we’re dedicating an entire episode to just the property management company should tell you how important they are to your success.
Until then, to listen to other Syndication School series about the how-tos of apartment syndications, and to download your free team-building spreadsheet document, visit SyndicationSchool.com.
Thank you for listening, and I will talk to you tomorrow.