December 6, 2018

JF1556: How to Build Your All-Star Apartment Syndication Team Part 4 of 4 | Syndication School with Theo Hicks

Build Your All-Star Apartment Syndication Team with a Real Estate Investment Attorney

Today, we’re discussing three huge parts of your team. We’ll cover when, why, and how to hire a great real estate investment attorney, an investment property mortgage broker, and an investment accountant. If you haven’t listened to the first parts of this series, you should get caught up there first. Those were episodes 15481549, and 1555. Once you have all of these team members in place, you’re one giant step closer to closing your first apartment syndication.

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The Process for Hiring a Real Estate Investment Attorney, Broker, and Accountant

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 Or, to learn more about the apartment syndication school, go to 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 podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, a spreadsheet, or some sort of resource for you to download for free. All of these free documents, as well as past and future Syndication School series, can be located at

This episode is going to be part four of a four-part series entitled “How to Build Your All-Star Apartment Syndication Team.”

So far, in part one, you learned the six ways to find the various team members, as well as the process for hiring team members number one and two, which are the business partner and the mentor. In part two, you learned the process for hiring team member number three, the property management company; in part three, which was yesterday, you learned the process for hiring real estate brokers, so team member number four.

In this episode, we will be discussing the process for hiring team members five, six, and seven, which are your attorneys, the mortgage broker, as well as the accountant. Then, lastly, we will discuss what order to actually hire these seven team members in.

The Four Documents Your Real Estate Investment Attorneys Will Help You With

Team member number five is going to be the attorneys. In particular, there are two attorneys that you need to bring on your team – the real estate attorney and the securities attorney. Now, the main purpose of these attorneys is to help you with the creation and the review of the various contracts required to complete a syndication deal.

The Purchase and Sale Agreement

There are essentially four major documents that the attorneys will help you create or review, the first being the purchase and sale agreement (PSA), which is the contract between the seller and the buyer outlining the terms of purchase. Usually, how it works is you’ll get a deal, and when you submit your offer, you submit it in the form of an LOI, which is a non-binding agreement that just shows your intent to buy at these specific terms. Then, they’ll review the LOIs, they’ll have either a best and final sellers call or they’ll just select the best offer, and you’ll be awarded the deal… At which point, the process of signing the PSA begins.

Usually, the PSA is going to be created by the seller’s real estate attorney, but make sure that, if you are the buyer, that you have your real estate attorney review the terms of the PSA as well.

The Operating Agreement

Once you sign the PSA, you move on to the due diligence phase and, at that point, you will need to create document number two, which is an operating agreement. Now, there’s going to be two different operating agreements. The first operating agreement is going to be for the general partnership (GP), so it outlines the responsibilities and ownership percentages of the GP members.

If you remember – maybe it was part one – I’m not exactly sure which episode it was – we discussed the fact that the GP is likely not going to be just one single person. There’s likely gonna be someone who is the acquisitions person, and maybe that person also does the asset management, but then someone else does the equity raising, but then maybe that person who’s equity-raising has four or five people helping them raise money, so that’s six people, and they might have two loan guarantors, so that’s eight people on the GP. So you’re gonna need an operating agreement between those eight members to determine who does what and what percentage of the GP do they actually own.

Then you’ll also need to create an operating agreement between the general partnership and the limited partners (LP). That outlines the responsibilities of both parties, as well as how much of the deal the GP owns and how much of the deal the LP owns and how does the compensation work and things like that. Both of these operating agreements are created by a real estate attorney.

The Private Placement Memorandum 

Now, the third document is the private placement memorandum (PPM), which is a legal document that highlights the legal disclaimers for how essentially the LP can lose money in the deal. It includes a summary of the offering, a description of the property that’s being purchased, information on the investment min and max amounts, the key risks involved with the offering, a disclosure on how the GP and LP are paid, as well as other basic disclosures like information on the general partnership and a list of all the risks associated with fee offering.

Usually, these PPMs are going to be at least 100 pages long for a 100-unit apartment building, and it’s jam-packed with a lot of information. This is going to be created by your securities attorney. The first two – the PSA and the operating agreement – are the real estate attorney, and the PPM is where your securities attorney comes into play.

The Subscription Agreement

Then the fourth major document is going to be the subscription agreement, which is essentially a promise by the LLC that is the purchaser of the property – because, typically, you will create an LLC that will buy the property, and then your investors will buy shares of that LLC. So the subscription agreement is a promise by this LLC to sell a specific number of shares to the LP at a specific price, and it’s also a promise by the limited partners to pay that price. This is going to be prepared by the real estate attorney as well.

How Often Will You Create These Documents with Your Securities or Real Estate Investment Attorney?

For these four documents – for the PSA you could probably work with your real estate attorney one time to create a Purchase and Sale Agreement template, and then just have blanks for the property name and due diligence periods and things like that… So you’ll likely only need to do that one time.

The operating agreement – you’re only gonna need to do the operating agreement one time for the GP, but you’ll need to create a new operating agreement for the GP and LP for each deal that you do. Again, that’s with the real estate attorney.

The private placement memorandum – similar to the PSA, you can probably make that once and then just do some slight changes for each deal. And then, for the subscription agreement – again, that’s gonna be prepared for each deal, but you’ll likely have them create a template one time and then kind of pay them for their time to fill in the blanks.

Those are the four documents that those attorneys will help you create.

Advice You’ll Receive From Your Securities and Real Estate Investment Attorney

Other things that attorneys could do for you is to advise you on the best structures for your operating agreements. For the general partnership, they’re gonna advise you on how to structure that, as well as how to structure the LP and GP. And, usually, they’ll send you a questionnaire and you’ll fill it out, and then, based off of that, they’ll create the operating agreement.

They might go back and forth and ask for questions on certain things they don’t understand, or certain things they need more clarification on, and get more explanation on your background, your business partners’ background, what you’re trying to do with the deal so they could help you create the best structure possible.

Then, of course, you can consult with them on an as-needed basis. If things come up legal-wise, then you can call up your real estate attorney and have a conversation with them about that.

Securities and Real Estate Investment Attorney Compensation

Now, each of these documents obviously cost money, and that’s how the attorneys are gonna be compensated. Typically, all of these will likely be made between putting the deal under contract and closing. They might make the operating agreement for the general partnership before you put the deal under contract, but the PSA, the PPM, and the subscription agreement are things that are likely going to be created once you have the deal under contract, so you have to keep in mind how you are actually going to fund these legal fees before you close on the deal because you’re not gonna have investor money yet. So, it’s gonna have to either come out of pocket, or someone else is gonna have to cover it. But you will get reimbursed at closing, so at least you’ll get your money back, as long as you do close.

These are ballpark numbers how much is it gonna cost for these four documents… And, again, it’s basically gonna depend on how complicated the partnership is or how complicated the contract is going to be… Because I’m going to give you some pretty big ranges.

Payment Via Document Fees

For the purchase and sale agreement, it could be anywhere between $1,000 to $5,000. For the operating agreements, I’ve seen as low as $350 and as high as $5,000.

For the PPM, this is the one you’re gonna pay the big bucks. This could be anywhere from a few thousand dollars – but that’s gonna be unlikely – up to $40,000. So you’re gonna be somewhere in the $10,000, most likely. But, if you’re doing a super-complicated deal, then expect to shell out 40k-60k for this private placement memorandum. Maybe a great way to break into the apartment syndication industry is to become a securities attorney and, if you partner up with some investors, you can make a ton of money by creating these documents.

Lastly, the subscription agreement is gonna be similar to the operating agreement, so it could be a few hundred bucks to a few thousand dollars, depending on how complicated the structure is.

Qualifying a Securities and a Real Estate Investment Attorney

In order to actually qualify the attorney — these last three team members, you’re not gonna qualify them and sell yourself to them the same way that you did for the property management and the brokerage, because they’re more providing kind of a service that you just pay them money and they do it for you; you don’t need to win them over with your experience and background. You show them the money, and they’ll create these documents for you.

Ensure Your Securities Attorney Specializes in Apartment Syndication

But there are a few things you wanna do. You don’t wanna just work with just any securities attorney or any real estate attorney. For the securities attorney, it’s really not going to be that big of a deal. You just wanna make sure that they actually specialize in apartment syndications and they specialize in the types of apartment syndication that you’re going to do. The two major ones are gonna be 506(b) and 506(c), which we’ll talk about in more detail in future episodes, but just very high-level – 506(b) you’re allowed to bring on sophisticated investors, so you don’t just need to bring on accredited investors… But you must have a pre-existing relationship with all of your investors. You can’t find someone one Bigger Pockets and have them invest in your deal; you need to know them and prove that you know them.

506(c) is kind of the opposite – accredited investors only, and these investors must be verified by a third-party. And you as a syndicator are allowed to solicit for this money. So you can create Facebook ads, you can post about it on the Bigger Pockets marketplace, you can drop fliers from the sky… You can really do whatever you want with 506(c) in regards to soliciting for money. So those are kind of the major differences between the two.

506(b), again – you don’t need accredited investors, but you must know your investors. 506(c), accredited investors only, but you don’t need to know them, and you can actually advertise for your deals. That’s for the securities attorney.

Make Sure Your Real Estate Investment Attorney Has Experience with Syndications

Then, similarly, for the real estate attorney, you wanna make sure that they have experience making operating agreements and subscription agreements for apartment syndications. You don’t want a real estate attorney that focuses on single-family, for example. Essentially, you wanna make sure that these attorneys know how to do exactly what it is you want them to do and they’re not learning on your dime.

Now, you don’t wanna pay the attorneys until you are for sure going to close on the deal because you don’t wanna spend thousands of dollars on the PPM and the PSA and the operating agreements if you don’t end up actually doing a deal. So what you wanna do is you want to first have an intro call. 30 minutes (it’s usually going to be free) just to qualify them to make sure that they actually specialize or at least have experience in doing exactly what it is that you wanna do (apartment syndications 506(b), for example). But you don’t want to, after that, have them create your operating agreements and PPMs. Wait until you start actually looking at deals and you’ve got a deal that you are interested in buying before reaching out to them and saying, “Hey, it’s go time”, to start creating those documents. So that’s the attorney.

Your Investment Property Mortgage Broker Will Provide Debt and Equity

Next, it’s going to be the mortgage broker. The mortgage broker, as the name implies, is going to provide financing for the deals. That’s their primary focus, and that’s what all mortgage brokers are able to do. Additionally, you might find a mortgage broker who is willing to help you with the underwriting. If you just find a deal that you’re interested in submitting an offer on, you can send them the info and they will provide you with the ballpark loan terms, and they also might actually provide equity.

A mortgage broker that I work with – they provide debt but they also raise money from institutions. As long as you need to raise more than a certain number of dollars, they can help you raise money for that deal, as well.

Compensating Your Investment Property Mortgage Broker

Primarily, they provide financing for deals, but they might have additional services as well. Like the property management company and the real estate broker, in order to earn these additional services, you’re going to need to prove yourself. We’ll talk about that here, in a few seconds, but how they are compensated first – they are usually paid closing costs and financing fees. That’s what comes out of your pocket, at least.

A good rule of thumb for closing costs is it’s gonna be around 1% of the purchase price, and the financing fees are gonna be around 1.75% of the purchase price. In total, around 2.75% – 3% of the purchase price is gonna go towards paying this lender or mortgage broker.

Qualifying an Investment Property Mortgage Broker

Now, in order for you to qualify them, to make sure they’re in alignment with what you need, there’s a couple of questions you want to have answered. And, again, don’t just ask them these lists of questions robotically; try to organically get this information out of them and do some research on them beforehand to see if you can figure out some of the answers to these questions.

How Many Deals Have They Financed? 

One thing you wanna know is how many deals they provided financing on in the last 12 months, to get an idea of how active they are.

What Types of Loan Programs Do They Offer?

Then you also wanna know what types of loan programs that they offer to someone like you, with your background. So explain to them your background, exactly what it is you’re looking to do, and then ask them what’s the best loan program that they have to offer.

Do they offer agency debt, do they offer bridge loans, do they offer interest-only loans? What type of loan-to-value can they provide? What are the loan terms? Three-year loans, twelve-year loans, thirty-year loans? Will the debt be recourse or non-recourse? If you don’t know what those things mean, I will definitely do future episodes on lending and financing and loans, but, for now, if you go to our website, and check out the blog, you’ll find different posts on agency versus bridge loans, recourse versus non-recourse… Or even better, just Google “Joe Fairless bridge loans” or “Joe Fairless recourse vs. non-recourse” and you’ll find information on that… But, again, I promise you I will do future Syndication School episodes focused solely on talking about debt.

How Do They Qualify a Deal?

You also wanna ask them how they qualify a deal. What do they need from you in order to qualify you for financing? Usually, if you have a deal, they’re gonna ask you for the rent roll, the Trailing-12 months profit and loss, as well as the offering memorandum and a pricing target, and then they will provide you with a quote based off of that information. Usually, they’re gonna provide financing based off of a loan-to-value or loan-to-cost.

What they’ll do is they’ll use the in-place NOI, or they might do some things differently, like they might use T-3 income (trailing three months income) and then maybe a combination of the 12-month income and the 12-month expenses, or maybe they might use the expenses that you’re going to project, but they’ll use some sort of NOI – they all calculate it differently, as well as the market cap rate, to determine what the value of the property will be, and then they will fund a percentage of that. That’s what the LTV is. An 80% LTV means that they will fund 80% of the property value. If the value of the property is a million dollars, then they will loan $800,000 and you’ll need to come up with the remaining $200,000.

Now, the cost is based off of the value plus the cap-ex costs. If the all-in price is going to be a million dollars, so the purchase price is $800,000 and the renovations are $200,000, and the loan-to-cost is 80%, then they’ll loan $800,000 and you need to come up with the remaining $200,000. Usually, loan-to-cost is for bridge loans, which are these shorter-term construction-type loans for properties that can’t qualify for agency debt.

Now, they might also take the debt service coverage ratio into account. Essentially, that is a ratio of the net operating income to the mortgage payments. They’ll obviously wanna see a net operating income that’s higher than the mortgage payments. The standard minimum is going to be 1.25 for agency debt and around 1.1 for bridge loans. Again, that’s based off of the in-place NOI, or however they calculate the NOI, and they will use that plus the minimum debt service coverage ratio to determine the maximum amount of debt service or monthly mortgage payments that you’ll pay, and then they’ll kind of back-calculate how much money they can lend you based off of the maximum amount of debt service the property can qualify for.

How Much Financing Will You Qualify For?

You’re also gonna wanna ask them how much financing that you will actually qualify for. Ask them how much they can loan to you personally. Again, they’re gonna base this off of the LTV, maybe debt service coverage ratio, but, at the end of the day, they’re gonna need someone to sign on the loan that meets the liquidity, net worth, and experience requirements… Which, if you don’t remember what those are, go back to listen to part one. That’s where I have the conversation about the loan guarantor. The loan guarantor is the person who signs on the loan to help you qualify.

Let’s say, for example, you are buying a million-dollar property and they’re willing to lend you $800,000. You’re going to need to have a net worth of $800,000, as well as experience with a similar-sized deal, and then some sort of liquidity requirements; it might be 10% or 15% of the $800,000. If you don’t meet that, then you’re gonna need to bring someone or someones on to help you sign the loan and then compensate them. Again, I’ve talked about the loan guarantor in part one of this series… But, to determine how much you actually qualify for, they’re gonna ask you to fill out a personal financial statement; you’ll fill out all your financials, credit history, net worth, things like that, and they’ll figure out exactly how much money they can lend you.

How to Qualify as an Investor with an Investment Property Mortgage Broker

Now, in order to win them over and, ideally, have them provide you with better financing, to provide you with estimates on financing when you’re underwriting, as well as, maybe if they’re equity raisers, they’ll trust you enough to have their investors invest in your deal… Here are a few things that you can tell them or that they’re at least going to ask you when you’re talking to them so that they can actually qualify you as an investor.

Who Is Your Property Management Company

They’re gonna wanna know who your property management company is, they’re gonna wanna know the statistics on them. How many units do they manage? What size are these units? Are they local? What type of properties do they focus on? T

What Type of Property Are You Buying? 

They’re also gonna wanna know what your business plan is; what type of property are you buying? Value-add property? What’s the cost gonna be? What’s the number of units? What do you expect to pay for cap-ex costs? Is it gonna be a certain dollar per unit? How much do you expect to pay for exterior renovations? What’s your plan for when you actually take over the property? How long will it take to implement these renovations? How long will it take to increase the occupancy rates? Essentially, what’s your five-year proforma look like? Or seven-year, depending on how long you’re gonna hold on to the property, which is the last thing they wanna know about your business plan – what’s your hold period? Are you gonna hold on to it for one year, five years, ten years, indefinitely? They’ll want to know that as well.

How Will You Fund the Deal?

They’ll also wanna know how you’re gonna fund the deal. How much money are you personally gonna put in the deal and then how much money are you going to raise and then who are these investors and how do you know them?

How Have You Structured the Deal?

They’re also gonna want to know what the LP/GP structure is. Are you bringing on debt investors or equity investors? If debt, what interest rate are you paying them? What’s the balloon period? If equity investors, what’s the preferred return? What’s the profit split? They’ll wanna know all these things.

How Are You Funding Upfront Costs?

They’ll also likely wanna know how you plan on funding the upfront costs, so the costs between contract and close: earnest deposit, due diligence fees, the legal fees I just talked about earlier… How are you gonna fund these things?

What Is Your Experience Level?

They’re also going to want to know what your multifamily experience is because most lenders are gonna have a very vague experience requirement that they can’t necessarily communicate to you during the initial conversations, but… The best explanation I’ve heard is that you need to have experience with a similar deal in the past. If you don’t, then you’re gonna need to have a loan guarantor who does.

What Is the Experience Level of Your Team Members?

And they’re also gonna want to talk about your team members and their experience as well, particularly the property management company… Because they’re going to want to see the contract between you and the property management company to make sure that the company who is managing the property will take good care of it because, again, the lender wants to get paid every month.

What Do Your Personal Finances Look Like?

And then, lastly, they’re gonna ask you to fill out that personal financial statement to determine your liquidity, net worth, credit history, existing debt, things like that, to qualify you for financing.

The Duties of an Investment Accountant

Now, the last team member is going to be the accountant. The accountant will do your yearly taxes. They’ll create the schedule of K-1’s, the tax documents for your investors at the end of the year. Ideally, they help you with ongoing bookkeeping, and then they should provide you with general tax advice, as well as some tax planning services. And then, maybe if this is what you decided to pursue, they could help you with a 1031 exchange on the back-end.

Qualifying Your Investment Accountant

Again, similar to the lawyer, you don’t really need to win over an accountant. Just pay them money, and they’ll do what you paid them to do. But like all other team members, you want to qualify them to make sure they’re a good fit.

Do They Currently Work With Syndicators? 

One important thing to know is if they currently represent apartment syndicators because you don’t want them learning the apartment syndication business plan and the tax benefits for apartment syndications on your dime. They should already know what types of tax deductions you can take, and also know the apartment syndication business model.

How Are Their Fees Structure? 

You’re also gonna wanna know how their fees are structured… A good understanding of exactly how you’re going to be charged. Is there a fee each time you call them or do you put them on a monthly retainer and you can call them whenever? Do these ongoing fees include the tax returns at the end of the year? Is that separate? Do they do bookkeeping, and how much do they charge for that? Things like that.

Who’s Your Main Point of Contact? 

You’ll also wanna know who’s your point person. Are you gonna be communicating back and forth with a partner or will it be a mid-level accountant or will it be someone right out of college? Ideally, it’s at least a mid-level accountant, but even better would be the partner.

What Are Their Tax Positions? 

You’ll also wanna know how conservative or aggressive their tax positions are. That should obviously align with your preferences. If you’re very conservative, then you want a conservative accountant. If you’re very aggressive, you’ll want an aggressive accountant. But if you do get an aggressive accountant, you’ll also wanna know how that info will be communicated to you and whether or not you have the final say of whether you can deny or accept those tax positions.

How Will They Keep Your Information Secure? 

You’ll also wanna ask if they have a secure portal to transfer sensitive files back and forth, which they probably will… But that’s important because tax documents include important information, like your social security number, how much money you make, things like that… If it’s not a secure portal, then you might run into identity theft issues, so you wanna just confirm that they’re not just sending information back and forth via regular e-mail.

Are They Proactive When it Comes to Changing Tax Codes?

You’ll also wanna know how proactive they are with tax planning and how the tax planning services work. Obviously, you want them to be proactive and be up-to-date on the tax code, and then get some information on how tax planning works, and see if that aligns with what you’re looking for.

Do They File Tax Returns for All State and Local Governments?

You’re also going to want to know if they’re able to file tax returns for all state and local governments in the country because you might move or you might change markets and you still wanna work with this accountant and not have to start over with someone else.

What Are They Expectations for You?

You’ll also wanna ask them what they expect of you, just to set expectations earlier. What do they expect you to send them, when do they expect to send it to you, how do expect conversations to go? Things like that.

When Do They Send Out K-1’s?

And then lastly – this is a big one – you’ll wanna know when they will send you the investor K-1’s. A big thing that you’ll hear from passive investors is that the syndicators either don’t send the K-1’s on time or the K-1’s are incorrect. We pride ourselves on sending the K-1’s by March 31st each year. You’ll just wanna confirm with the accountant when they will get those to you by and what you need to do in order to stay on schedule.

That’s the accountant… Again, really the only way to win them over is just to pay them; whatever compensation structure they have, just make sure to pay them on time. And, obviously, when they tell you what they expect out of clients, you meet that and don’t go overboard.

How to Hire Your Real Estate Investment Attorney, Broker, and Accountant

Lastly, let’s talk about what order to hire your team members in. Again, your team members are gonna be a partner, a mentor, a property management company, real estate brokers, attorneys, mortgage brokers, and accountants.

Here’s the best path forward for someone who has none of these — but, at the end of the day, it’s really up to you. This is just what I found to be the best way because, again, if you remember, when you’re trying to win some of these people over to your side, you’re leveraging the experience of other team members. So, if you don’t have that team member yet, then you’re leaving a lot of leverage on the table. Here’s what I did.

Start with the Mentor

First, you wanna start with a mentor. Start very high-level. Find a mentor who’s an active apartment syndicator, who is successful; they’re doing deals that at least meet their projections and, ideally, exceed those projections. Then, from there, you should work on finding a business partner.

Next, Add a Partner

With the mentor, you’ll learn a lot about apartment syndications, and then you’ll learn what you like and what you’re good at and what you suck at. Then you can find a business partner to complement your strengths. Once you have a mentor and a business partner, next is to work on getting verbal commitments from investors, which is going to be the focus of the next series. The next series in the Syndication School is gonna be all about passive investors. I’m not sure how many parts it’s gonna be yet, but it’s gonna be a long one.

Find a Property Management Company and an Investment Property Mortgage Broker

Once you get your verbal commitments from investors, next is to start reaching out to property management companies and mortgage brokers. Then once you’ve got your property management company and your debt lined up and your equity lined up, a business partner and a mentor, that’s when you start looking for real estate brokers because, at this point, you’re ready to start looking for deals.

Hire Your Real Estate Investment Attorney and Investment Accountant Last

And then, lastly, as you’re looking for deals or after you find a deal, you can start reaching out to attorneys and accountants.

That concludes this series. In this particular episode, part four, you learned the process for hiring these final three team members, which are the real estate and securities attorney, the mortgage broker, and the accountant, as well as what order to actually hire these team members in.

To listen to part one through three of this podcast series, which is “How to Build Your All-Star Apartment Syndication Team”, and to download your free team-building spreadsheet document, as well as other Syndication School series about the how-tos of apartment syndications, make sure you visit

Thank you for listening, and I will talk to you next week. 

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