February 19, 2020

JF1996: Communicating With Your Investors When Selling Your Deal | Syndication School with Theo Hicks


In this episode, Theo explains the communication process with your passive investors when you decided to sell your deal. Theo first gives you the outline of the process and then dives into each step into detail with you to make sure you are prepared to communicate with your investors when you are selling your own deal. He also explains the email templates Joe uses when he has sold his own deals and makes them available to you.

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“Now it’s going to be a little different if you decide to do a 1031 exchange. That means the investor has the option to A. Cashout Profits, or B. Exchange their initial investment plus their profits into a new deal.”  Theo Hicks

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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 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, and welcome back 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 episodes, that are also released in video form on YouTube, and they focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes, including this one, we offer free resources for you. These are free documents, PDF how-to guides, PowerPoint presentations, Excel template calculators, things like that that will help you on your apartment syndication journey.

This episode is going to be about the communication process with your passive investors when you’ve decided to sell your deal. We’ve already done a Syndication School series on the process on your end, how to prepare and execute the backend sale of your property. This episode is going to focus more on the communication process with your investors… So how you let them know you’re selling, what information to include in those, and then we’re also going to provide you with a free document that has some email templates. Obviously, deal-specific information is removed, but the overall templates are what Joe has used when he has sold a few of his deals.

Overall, the process works like this – once you’ve gotten a deal under contract with a buyer, then you want to notify your investors, announcing the sale. After that, you want to limit your ongoing communication and only send them something if there’s some sort of update on the deal – if the closing is pushed back, if the contract is canceled… And then if you’re doing a 1031 exchange or not, you’ll have additional communication, which I’ll talk about in a second.

Then it’s up to you, but if you want to, you can send an email notification about a week before the scheduled closing date, just to let your investors know that you are on schedule to close, and then remind them of your process at close.

Then you wanna send them an email once you’ve received notification that the deal has actually closed, whether you’re there in person or it’s an email from someone letting you know “Hey, the deal is closed.” Then you will also want to send follow-up emails after that if you decided to do a 1031 exchange.

That’s the overall process. Let’s dive into the specifics. The first email will be sent, as I said, once you’ve gotten a deal under contract. You don’t wanna do it once you’ve listed the property for sale, you don’t wanna do it once you’ve received an offer; you wanna do it only when you’ve gotten a signed contract and the buyer has entered their due diligence. Just because someone sends an offer doesn’t mean that you’re gonna be able to negotiate a contract, and also just because you list it for sale, it might take a few months to get it under contract, and you don’t want to send things to your investors that are gonna confuse them and result in unneeded extra email sent to you.

So once the deal is under contract, you want to send them the sales announcement. In the free document we have, there are two templates that you can use when the deal is under contract. The first one is gonna be a general disposition email that you will send, and this is an email you will use if you are not doing any sort of 1031 exchange; your plan is to sell the property and then distribute the proceeds to your investors, and then that’s it, the deal’s done.

In that email – I’m not gonna read the exact template. You can see that by downloading it in the show notes of this episode, or at SyndicationSchool.com… But the information you wanna include in it is 1) letting them know that you have actually got the deal under contract; you wanna let them know what the projected closing date is. If the buyers have some sort of extension, then you wanna mention that… For example, “We’re projected to close on April 1st, but the buyer has two 15-day extensions that require an additional 100k each in earnest deposit, so the latest we would close would be May 1st.”

So just letting them know “Hey, we’re expecting to close on this date, but it could be pushed back.” So setting all the expectations upfront.

Another piece of information you’re gonna want to include are the projected returns to them. You want to let them know how much money they should expect to make on the sale. Typically, what we do is we’ll say a percentage, and then we’ll say the overall IRR for the project projected, and then we’ll give an example of what they would make at sale. So we’d say something like “At sale, expect to make a 30% profit for the entire deal. That equates to a 20% IRR. For example, if you’ve invested $100,000, at sale expect to receive your initial $100,000 investment back, plus an additional $30,000 on top of that.”

Then you can also let them know when to expect to receive that distribution. If you plan on sending it after closing, and then say “Hey, we’re sending it after closing. Expect to receive it within five business days.”

Now, it’s going to be a little bit different if you decide to do a 1031 exchange. That means the investors have the option to either a) cash out and get their profits, or b) exchange their initial investment plus their profits into a new deal. If you want to do that, you’re gonna want to present that option to your investors. So you can either say “We’re doing this. If you’re interested, let us know”, or you can say that you are trying to determine if it makes sense to do a 1031 exchange based on the interest from your passive investors.

In that disposition email you wanna include the same things you included in the other email, let them know the deal is under contract, let them know the projected closing date, let them know the expected profits to be received at sale, and then ask them to let you know if they want to participate in the 1031 exchange or not.

Then obviously, from your end, if you have enough people who are interested, then you can go ahead and send another follow-up email, mentioning that you are going to do a 1031 exchange. “If  you haven’t done so already, please let us know if you want to either a) cash out, or b) do the 1031 exchange.”

From that point, you can split the investors into two buckets. One would be the people who are participating, and the other one would be people that aren’t participating, just because the information they’re gonna receive moving forward is gonna be a little bit different.

Now, if you’re not doing a 1031 exchange, then I’ve already explained what to include in that email. The next email you would send would be if there’s any sort of update. If the contract is canceled, you wanna let them know. If the closing date is pushed back, you wanna let them know. You can send them an email the week before you close if you want, and then obviously the last email you’ll send them will be the closing email.

In that closing email, basically just reiterate what you said in the announcement video. You’ll say “We’ve just closed. This is how much money you should expect to make, and here’s when you should expect to receive that distribution check.”

For the 1031 exchange – a little bit different. If you decided to do the 1031 exchange, you split your investors into two buckets, you really can technically send the same email to all of them, and just say (in bold) “If you’re participating in the 1031 exchange, here’s what you need to know. If you’re not participating in it, here’s what you need to know.” For the ones that are not participating in it, the process is similar to if you weren’t doing one in general. You’ll let them know, “Hey, here’s the day we’re closing. Here’s how much money you’re gonna make, here’s when you’re gonna get it.” There’s a little bit of an extra step that they need to do for the 1031 exchange, but you can work with that with whatever consultant you’re using, and your lawyers.

For the people that are participating in the 1031 exchange, then you’ll obviously still notify them when the deal has closed… But in that email, rather than letting them know when they should expect to receive their distribution, you should let them know the projected timeline for that 1031 exchange. So let them know how long you have until you are required to identify a property, how long it is until you have to close on that property… There are specific rules for the 1031 exchanges; you’ve got a certain amount of time to identify a new property from the time of close, and then you’ve got another timeline, which is longer, where you need to actually close on the property. If you’re comfortable, you can let them know that these are just the maximums, but we expect to identify a property within a shorter timeframe.

Now, once you’ve actually identified a  property, then you’re going to want to let them know. Depending on how you are notifying your main investor list about new deals, you can mention in there that “This is the deal that investors who invested in ABC Property will be automatically invested in via the 1031 exchange.” Then you might also want to send a separate email to those 1031 investors, letting them know that this is the deal that their money will be exchanged into.

There’s a lot of different ways to approach it, but overall you  wanna make sure that you are providing your investors with the relevant information. If you aren’t doing a 1031 exchange, let them know that the deal is under contract, let them know when the projected closing time is, let them know if there’s any potential extensions for the closing time to be pushed back, and then what’s required on the part of the buyer to get those extensions, and then let them know how much money they should expect to make, making sure that you tell them that (if this is what you’re doing for your deals) this includes the return of their investment, plus the additional profits, and then let them know when and how they will receive those profits.

Then for the 1031 exchange, if you’re doing that, again, you can keep it in one email and send it out to all the investors in that deal… Or you can split them apart, but — you wanna make sure that you are asking them if they wanna participate, so that you have a list of the ones who are participating, the ones who aren’t participating… Just because, again, there’s a few extra things you need to do on the back-end after sale to make sure that the people who aren’t participating are officially exited from the deal and no longer have any obligations… And then the ones who are participating, that you are able to continually update on the status of the exchange. So the ones who are not, your disposition email will be very similar to the disposition email if you weren’t doing a 1031 exchange at al. Again, “We’ve closed. Here’s how much money you’re gonna make, based on a sample investment. We plan on sending it out on this day. Here’s how quickly you’ll get it (five business days etc.) It will be a check in the mail.”

Then for those who are not, you’ll be updating them when you’ve identified a property, and then again, when to close on the property. Then from there, you just add them to the ongoing update list for that new property that their funds were exchanged into.

Overall, that is the process for notifying your investors of the intentions to sell, as well as going all the way through the closing period. And then if you’re doing that 1031 exchange, the communication process you’ll have with those investors afterwards.

So again, we’ve got a free document that has the disposition closing email templates. The first one, again, is that general disposition email for when you’re not doing a 1031 exchange. The second one would be a disposition if you are doing a 1031 exchange, but you haven’t split the investors into two separate lists, you’re just sending out one email to people who are and aren’t, and you’ve just made sure you’ve highlighted the sections that are relevant to those who are and aren’t participating.

The third template would be if you decided to split off and you wanna send one specific email to those who are participating… And then template four would be the other side of the coin, which is those who aren’t – this is the email you’d send to them.

So again, you can download that for free at SyndicationSchool.com, and it’s also in the show notes of this episode, or in the description, if you’re watching this on YouTube.

Until the next Syndication School episode, make sure you check out some of our previous Syndication School episodes and series about the how-to’s of apartment syndications, and download today’s free document, as well as check out some of the past free documents.

Thank you for listening, and I will talk to you tomorrow.

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