August 30, 2019

JF1822: How To Sell Your Apartment Syndication Deal Part 2 of 2 | Syndication School with Theo Hicks

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We’ve looked at all the factors to help us decide if we should sell, and decided that it is time to sell our first apartment community. Now what is the process to sell it? Theo explains our 8 step process for selling your apartment deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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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 to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks.

Each week we air two podcast and video episodes that are usually a part of a larger podcast video series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these series we offer a document, PowerPoint template, Excel template, some sort of resource for you to download for free. All of these free resources, as well as past Syndication School series can be found at

This episode is a continuation of a two-part series entitled “How to sell your apartment syndication deal.” If you haven’t done so already, I recommend listening to part one, where we discussed the thought process for determining when it is actually time to sell, and some of the factors/variables you should consider when determining if it’s time to sell your deal early, or even at the end of your business plan.

In this episode we’re going to talk about what to actually do once you’ve made that decision to sell your apartment community. We’re gonna go over the 8-step process for how to do that, so let’s jump right in.

As a refresher, one of the duties that the asset manager – you or your partner – should be doing is analyzing the market on a frequent basis. The purpose of doing that is to determine the current, as-is value of your property, so that you can do some return calculations to determine if it makes sense to sell your property early, as well as taking into account the six variables we discussed in yesterday’s episode.

Even if your plan is to sell at the end of five years, seven years, ten years, whatever your projected sales date was when you initially underwrote the deal, it doesn’t mean you should wait to do an analysis until that time. You should be doing it a few times a year, to determine if you can achieve a higher return to your investors by selling early.

Again, I went into extreme detail on that in yesterday’s episode, in part one of this series, so if you wanna learn more about that and the facts that go into determining whether it’s time to sell, definitely check out that episode. The rest of the episode we’re going to assume that you’ve already made the decision to sell, and these are the things you need to do in order to successfully execute that sale.

Number one is to be mindful of the sale. Once you’ve made that decision to sell, then there’s a few things that you’re going to want to do in order to maximize your chances of selling the property, and maximize that sales price… Keeping in mind that the value of the property, and therefore the sales price that you’re likely going to get is dependent on the market cap rate, which is effectively outside of your control, or you can decide at what cap rate you wanna sell at based off of a time and point you decide to sell; I guess that’s in your control. But if I wanted to sell right now, there’s really not much I could do to change the cap rate… So the other end of that calculation is the net operating income, and that is something that you do have control over… So in order to maximize the value of your property, you want to maximize the net operating income, which means you want to maximize the income and minimize the expenses.

So once you’ve made that decision to sell, one thing you should do is not start certain projects if the payback period extends past the sales date. For example, if you plan on selling your property in three months, then it doesn’t make sense to spend $5,000 to renovate a unit if you’re only going to get $100/month rental premium… Because you’re investing $5,000 and you’re really only getting back $300.

Now, of course – and I mentioned this in yesterday’s episode – you’re gonna want to determine… Because it’s not just the rental premium, you’re also increasing the value of the property as well. So you wanna take into account whatever cashflow you would get, as well as whatever that equity you’ve received at sale. So by increasing the NOI by $1,200 per month – will that equate to an increase in value, and is that more than $5,000? That’s a specific example; this could be applied to really any of the amenities at the property as well, not just the interior renovations.

You should also consider spending a little bit more money on marketing if your occupancy level is a little bit low. You can offer more concessions than you usually would, to increase your rental revenue. You could pursue collections a little bit harder. Those are examples of things you could do to increase your occupancy, because more paying people that are living at your property, the higher that income is going to be, and hence the higher the property value is going to be.

So overall, a good practice would be to take a look at your profit and loss statement and see which income and expense line items can be improved over a few months period, and have a conversation with your property management company as well, because they’ve likely – if you hire the right company – gone through this process before and should have some best practices on what to do when you are selling the property. That’s number one.

Number two is going to be to send your letter of notification of disposition to your lenders. Once you decided to sell, you need to let your lender know, so they can start the process of releasing the loan. And to do so, you need to send them an official notification of your disposition. Typically, you’re going to want to do this a few months before the closing date, and you’ll likely want to work with an attorney to draft this letter, and then send that to the lender.

Depending on the loan program that you used – I mentioned this in part one as well – you might have some sort of pre-payment penalty. Make sure you’re keeping that in mind as well when you are sending this letter of disposition, requesting what that pre-payment penalty is going to be, or if you already know what it is, then subtracting that amount from whatever your projected sales proceeds are going to be.

And since this is Syndication School, we give away free stuff all the time, so the document that we’re gonna give away for free for this series is going to be “How to create a letter of disposition.” I’m not gonna go over that on the episode now, but the free document will just probably walk you through what should be included, and there’ll be a little template that you can use to create your own letter of disposition… Making sure that you run it by your attorney first, to make sure that all the i’s are dotted and t’s are crossed. So that’s number two.

Once you send the letter of disposition, you also want to request a broker’s opinion of value. So you’ve done your analysis and determined what you think you can get for the property. The next step is gonna be to find a listing broker to actually list the property for you, and have them get you a value… Because it’s easy for you to just write down “10 million dollars” based on your NOI and what you think the market cap rate is, and that makes me feel happy to sell… But you wanna get a second opinion before you go through the  process of listing the property, putting it under contract, or even before that, spending money on getting an appraisal yourself, a full appraisal, which is like a few thousand dollars.

So find a broker that is a good fit for the type of property that you’re selling. Loyalty is pretty important in this business, so you’re probably just gonna use the broker that represented you when you purchased the property in the first place, so that’s likely the person who actually listed the deal for sale… But there might be reasons why you wanna go with someone else. Again, it’s really up to you, but that’s just one way.

Another one would be to reach out to a few of the best brokers in the market and let them know that you’re selling the property, and that you want a broker’s opinion of value.

Once you do that, they’re gonna request information from you – probably T-12, rent roll, maybe a few other financial documents as well… And then they’re gonna send you their broker’s opinion of value. The BOV typically will be a high, a low and a medium price. They’ll say “I think you’ll be able to sell the property between this range and this range, but what I think the sales price will be is this.” Obviously, the range is a low and high, and what they think it’ll actually go for is that medium range.

Once you’ve received a few of the brokers’ opinion of value, you’ll wanna ask the broker a few follow-up questions. You don’t wanna just take it for face value. A few things to ask them so that you’re confident that they can sell your property at that price would be to ask them what valuation approach did they use, so how did they actually calculate the value. Ask them what types of buyers they typically sell to; the characteristics would be what’s the size of the properties, the number of units, what’s the price range that they look at… So kind of get an idea of the types of buyers that they have. Ask them why they feel confident that those buyers will buy this property at whatever price they stated in their broker’s opinion of value, and then ask them if they sold similar assets in the past.

Based on whatever values you’ve received and based on their answers to these follow-up questions, you can select a broker to list the property. Those are just a few questions to ask them, but again, the whole entire idea of the BOV and the follow-up questions are to determine “Okay, what value do they think they can sell this property at? What evidence do I have that they can actually fulfill that commitment to sell it at that price?” That’s gonna be based on how they determine the value, what types of buyers they work with, do those buyers buy this type of property usually, are they confident that based on the buyers they have, they could sell it to them, and then have they actually sold properties of this size and quality before in the past?

Step four is to start a bidding war. Over the next six weeks or so, your broker – once you’ve selected the broker – should be working on creating the offering memorandum and then marketing the apartment to the public, to whip up a lot of interest. The interested parties will visit the property, and essentially follow the exact same approach that you followed when you initially purchased a property. So they’ll talk to the property management company, they’ll tour units, they’ll inspect exteriors and interiors, they’ll analyze rental comps, they’ll run the numbers, underwrite the deal and then submit an offer to you.

The goal is for your broker to create a bidding war, because that will push the price higher and higher. You’ll wanna make sure that they’re implementing the best practices, and they’re attracting and generating as much interest as possible, and getting you as many offers as possible. Typically, they’ll have some sort of a timeline, like “Offers are due by this day. Hey, here’s an open house that we’re doing”, continuously send updated financials, that are ideally better than the ones that were received before, and things like that.

Again, all the things that you saw when you were looking at deals, and are continuing to look at deals when you’re reading through offering memorandums. What things are attracting you to deals, and then making sure that your broker is doing those things when marketing this deal to the public. So that’s step four.

Number five is to screen out any newbies with a best and final call. Once you’ve stopped accepting offers, you’ll review all of the submissions and then you will want to set up some sort of best and final round. So you might go back to people and say “Hey, submit your best and final offer”, and then based on that they’ll take a few of those and actually have a conversation with them; if you’re stuck between three different offers, you call them up on the phone and have a more personal conversation with that buyer, to get a better understanding of their capabilities of taking down the asset.

We discussed when you were preparing for the best and final sellers call the types of things you should be prepared to answer, so you wanna make sure you go back and listen to that episode, because you’re gonna wanna ask those exact same questions to your buyers, to determine essentially “Do they have the capability of actually closing on this deal?” Because at the end of the day, the purchase price obviously is important, but if you have a newbie who has the best offer but they don’t end up closing on the deal, that’s time and money wasted on your end.

The things you’re gonna wanna know is what is their track record, what are their funding capabilities, so how are they going to fund the equity, how are they going to fund the debt… And then what’s their proposed business plan – what are they gonna do with the property once they actually take it over? All that is used to gauge their ability to actually close on the deal. If they have no idea what their business plan is going to be, they’re probably not gonna close on the deal. If they have no idea where their money is gonna come from, they’re probably not gonna close on the deal. If they’ve never done a deal before, they’re probably also not going to close on the deal.

Ideally, you sell to someone who has a large track record, has their equity and debt not necessarily lined up, but they know where it’s coming from, and they actually have a sound business plan for once they take over the property… Because again, you don’t want to have someone backing out after you’ve put the deal under contract, because they can’t fund the deal, they didn’t know how to underwrite it, things like that.

So after you’ve done the best and final seller’s call and you’ve selected who you want to go under contract with, then you’re gonna negotiate a purchase and sales agreement, which is the PSA. And again, you’ve gone through this entire process before; it’s literally the exact same thing, but from the other end. So all the things that you need to do to show the seller that you could close on the deal – you’re gonna want someone to do that to you. The whole entire process that you went through when you were buying the deal – as a seller, that’s the process your buyer is going to be going through as well.

So for the PSA, make sure you have your experienced attorney draft the PSA. Don’t let the buyer draft the PSA, because you want to start the negotiations on terms that are closest to where you need them to be, not the other way around.

Obviously, you’re going to want to use their LOI for certain terms like due diligence period, inspection period, things that they requested, the purchase, and then you can change any of those things that you want and then send that PSA to them, for them or their attorney or their broker to review. Most likely, there’s gonna be some back and forth negotiation. You want due diligence to be 30 days, they wanna do 45 days; they want these certain documents requested by a certain date, but you want them to provide them at this date… Things like that.

There’s gonna be some back and forth negotiation, but the main terms are gonna be set by that LOI. You’re not gonna be able to change the sales price or the down payment equity, things like that. It’s gonna be these smaller terms that you’re gonna be negotiating. And then hopefully, at the end of the day, they sign it, and you sign it. This could take  a week; sometimes shorter, sometimes longer. And then eventually they sign it and you’ve got a fully executed purchase and sales agreement, which takes us into step seven, which is for you to fulfill your obligations during the due diligence period.

During the negotiation process, once you came to the conclusion on what the due diligence timeline is going to be – once that contract is signed, the timeline essentially starts… So they have a certain number of days to do due diligence, they have a certain number of days to close, they have a certain number of days to make the earnest deposit. All those terms we outlined in the PSA. So whatever they agreed to in the PSA, they are going to be doing. But then also whatever you agreed to, you need to be doing as well. So maybe the terms are that they can come to the property within 24 hours’ notice, they can look at your bank statements, financials, your leases, your marketing materials… Any documents that they requested in the PSA, you need to provide to them, in the timeline that was set in the PSA.

Best-case scenario for you as the seller – nothing comes up during the due diligence period, and you sell the property at the price and terms defined in the PSA. However, just like when you were buying the property originally, you know things come up. And if something does come up, there may be additional negotiations back and forth with the seller on the terms, the purchase price, or both. And again, making sure that they are adhering to the schedule and you are adhering to the schedule. So if they still have time to do due diligence, then you have to give them time to do their due diligence. But if that period expires and they aren’t allowed to do due diligence anymore, they’re not allowed to use that contingency to back out of the deal – well, that’s set in stone on their end as well.

So once that due diligence process is completed, all the contingencies have been signed off on, then the buyer will be in the process of working with their lender and the title company to finalize the things in preparation for the closing.

Then step eight is to actually close on the deal. You know how it works from the buyer’s perspective, as we’ve talked about this before, and you’ve already gone through this process if you’re at this point in the business plan, because you’ve bought the property yourself… But for you, a few days prior to the official closing date you’re gonna assign all the documents, and then on the day of closing you will be wired all of the sales proceeds. Once you receive those sales proceeds, you will distribute those to your investors based on what you and your investors agreed to during the initial structure, so whatever that profit split was after they’ve received their initial equity back.

A good process for approaching the sale with your investors is once you know you’re going to sell, you wanna continue to send them the monthly recap emails, but just mention “Hey, we’re no  longer doing renovations because we are selling.” And then whenever you know the actual sales date, just make sure you include that in your email to investors. Then you’re going to want to send an email to them, letting them know how much money they should expect to receive, and how they will receive it. There also might be some documents that you need for them to sign after the fact in order to cut off any ties to the LLC that owned the property.

But effectively, you want to keep them up to date on what’s going on, and then any info you need from then on how they want their distribution, obviously you need to request that before the closing date, so that once you’ve closed, you can have your property management company wire or mail out the checks for those distributions. At that point, your investors are gonna be super-excited because they got their money back, and they got a huge profit, ideally. And you should be really excited, because you’ve sold your first deal… And now the process essentially starts all over again. You go back to the drawing board and find  a new deal, and kind of rinse and repeat, either after selling, or most likely you’ve already bought a few more deals at this point.

That concludes this episode on how to sell your apartment community, it concludes the series on how to sell your apartment community. This is the end of the main structure for the apartment syndication process.

We started all the way back in series one with education, and now we’re all the way at the point where you’ve sold your first apartment deal. What we’re gonna do moving forward is we’re gonna go back over some of the previous Syndication School series and go over those in more details, and kind of fill in the grey areas that we missed. Until then, make sure you listen to part one of this series, and make sure you download the free document on how to create the letter of disposition that you need to send to your lender.

Check out all of the other Syndication School series, one through twenty, as well as download those free documents. All of that is at

As always, thank you for listening, and I will talk to you soon.

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