March 11, 2020

JF2017: How to Underwrite an Apartment Syndication Deal With No LPs | Syndication School with Theo Hicks


In this episode, Theo shares how he would go about underwriting an apartment syndication deal when there are no LPs or maybe as a joint venture. He uses a simplified cash flow calculator to help him through this process and walks you through what he is doing along the way. Download the FREE calculator so you can follow along with Theo. 

FREE DOCUMENT: Simplified Cash Flow Calculator: 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit Thank you for listening and I will talk to you tomorrow. 

Best Ever Tweet:

“Syndication School is a free resource to teach others how to do apartment syndication” – Theo Hicks


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-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes; we also release some in video form on YouTube, and they focus on a specific aspect of the apartment syndication investment strategy. For a lot of these series, including the episode today, you’ll get a free document. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, things that will help you along your apartment syndication journey.

In this episode we’re going to talk about underwriting. We’ve already done an eight-part series covering the entire process for underwriting a value-add apartment syndication deal. So if you wanna check that out, go to and you will find those episodes there.

This is going to be a continuation (kind of) on that series. We’re gonna talk about how to underwrite apartment deals when there are no LPs, so there’s no one that’s actually passively investing in the deal, and when you are going to be doing a joint venture.

A lot of people aren’t necessarily going to be buying apartments through syndications. Maybe they are just learning about syndications, they wanna asset-manage the property themselves and acquire property themselves… Maybe they plan on just doing  a joint venture with certain people, where you’ve got 4-5 people who are bringing the money and doing all the work… So this  episode is gonna focus on those people.

I’ve got the simplified cashflow calculator up, and that is the free document that we gave away for the first series I mentioned earlier, about how to underwrite a value-add apartment deal… So there’ll be a link to that again to download that in the show notes.

Basically, what you wanna do – because right now the cashflow calculator is set up so that the equity is coming from passive investors; you offer them a preferred return and/or a profit split, and then based on the profit split you (general partners) get paid. Then it will project up to 10 years, but the cashflow would be to the limited partners based on their investment, based on their preferred return, based on the profit split. Then once you sell the property, it’ll calculate which sales proceeds go to them based on, again, their investment, and the profit split, and then the hurdles you have… And then it’ll calculate an IRR based on all the cashflow and all of the sales proceeds distributions.

So the first thing you’re gonna want to do to adjust this cashflow calculator so that you can set it up for either a JV or having no passive investors – which I guess it’s the same thing; when you’re doing a JV there’s no passive investors… But if you are the sole person doing the deal and bringing all the money, or you’ve got multiple people coming, the first thing you’re gonna wanna do is go to the LP/GP returns data table, which starts in row 66 columns B and C, and you’ll wanna set the preferred return to 0%, and  you’ll wanna set the LP split after preferred return to 100%. That way the cashflow calculator thinks that all the profits, all the cashflow go to the limited partners, the people who are bringing the equity. And since there are not LPs, it says LP but actually this is you.

So if you are the person who’s doing this deal by yourself, and you’re bringing all the money, then the cash-on-cash return, the cashflow, the IRRs for the overall project and to the LP on the cashflow calculator should be equal. That’s the first thing you’re gonna wanna do.

The second thing  you’re going to want to do is  you’re gonna go to the IRR calculation tab and you’re gonna want to change the Equity due at sale equal to the original equity amount… Because right now the cashflow calculator is set up so that anything above the preferred return is considered a return of capital, and it reduces the capital balance, it reduces the amount of equity that the LPs have in the deal… So that reduced amount is what is returned first to the LPs at sale, and then the remaining distributions are split. But since there’s no LPs, there really is no capital reduction… Because yeah, sure, it’s actually being reduced, but for the purposes of this, you don’t wanna have it reduced, because you want all the proceeds from sale to go to you, the one investor.

Now, once you’ve done that, the outputs of the cashflow calculator are set, and if you are funding the deal yourself, you  don’t need to do anything else. The cash-on-cash returns, the cashflows, the IRRs, the sales proceeds – those will all be what you are getting for the deal.

Now, this is a little bit different if you’re doing a joint venture, because for joint ventures it doesn’t automatically mean that all five people on the JV are bringing five equal amounts to the deal. So you’re gonna have to approach it a little bit differently and do some extra calculations offline.

The first thing you’re going to want to do is to determine how the ongoing profits are going to be distributed. A very simple breakdown would be you’ve got five LPs, and each of them get 20% of the cashflow. So you’ll go to your cashflow calculator tab, you’ll go down to the Cashflow in row 60, and you’ve got the total cashflow and the cash ROI… For the total cashflow you wanna copy those five years, ten years, however many years it is, into a different Excel calculator, and then multiply each of those by 20%, and that is the amount of cashflow projected to go to each of the JV partners.

Obviously, that’s a simple example. Five partners broken apart in five equal parts. But if you’ve got two people and one person’s got 70% and the other person’s got 30%, whatever the share that that individual gets of the cashflow, you’re gonna want to multiply the total cashflow that’s outputted from the cashflow calculator by whatever that percentage happens to be. It’ll be the year one through five, seven, ten cashflow projected to go to those partners.

Now, for the sales proceeds it’s going to be  a little bit different, because if – continuing with our example of five JV partners – only two of them brought equity, then when you sell the deal and you’ve got your sales proceeds remaining after paying down the remaining loan balance, and paying the closing costs, whatever those sales proceeds are, you’re not going to split those into five equal parts, or whatever the breakdown happens to be… Because the first portion of that needs to go back to those people who invested.

So if you go to the IRR calculation tab, if you remember, in cell H2 we set the Equity due at sale to the actual equity… It’s unlikely that the cashflow given to the people who invested is going to be considered a return of capital… Although if it is a return of capital, then you’re going to reduce that number in H2 by whatever equity was returned, and that’s how much is due at sale.

So if the total investment was eight million dollars, and from the cashflow they received you decided that their equity was paid down by two million dollars, then they’re only gonna get six million dollars at sale.

So assuming that the equity is the same and they’re not receiving return of capital, then the equity due at sale is the original equity investment… So you’re gonna subtract that from the sales proceeds, and then those get distributed to the people who brought money, based on their percentage of the equity, so 50/50 in our example.

Then the remaining balance, so the sales proceeds  minus the equity due at sale, or the original equity investment – that difference will be split between the remaining (in our example) five JV partners. So if there’s five million dollars remaining after all the equity being paid back to the people who invested, that five million dollars will be split one million dollars to each of the partners.

From there, once you know what each partner gets at sale, you can go ahead and create your data table of return projections to each member. Continuing with the example of five people with equal ownership share, year one through five all five JV partners will get the exact same cashflow amount. Hopefully it increases each year, but all five partners will receive the same cashflow number.

Then at the sale at the end of year five, for example, continuing with our example of two partners bringing the money and the other three partners not bringing any money, then those two partners that brought money are gonna get more money at sale because they’re technically getting back the money that they invested, and then from there the remaining profits are split evenly between the five, and then  you’ll have your total amount of money received at year five. From there,  you can calculate the cash-on-cash return for the people who invested, although that cash-on-cash return isn’t gonna be really relevant here, because of the fact that most of the partners didn’t invest any money anyway, so it was gonna be an infinite return on investment.

Maybe you wanna see your infinite return on investment, so you can go ahead and put that in your data table… And then you can calculate an IRR in a similar way, but again, for those who didn’t bring any money it’s gonna be infinite, because IRR is based off of money put in, and then how much money you got back out for the money you put in based off of the time value of money. Since you’ve put no money in the deal, then it’s not gonna make a difference.

But the IRR and the cash-on-cash return – those are relevant for the people who are using the cashflow calculator for their own purposes, for their own deals, or they’re the only person who is bringing the money.

Now, as I mentioned in the episodes where I went over how to do the underwriting on a value-add deal – I’ll mention it again here – it’s called a simplified cashflow  calculator for a reason. So if you go to the Welcome tab, it’ll tell you what assumptions were made for this cashflow calculator. It says that renovation costs are excluded from financing, so they’re not included in the financing… So if you want to do that, you have to change some formulas up. The asset is stabilized after 12 months, so if your renovation timeline is 18 months, 24 months, you’re gonna do some manipulation as well… And  it also assumes a disposition at the end of year five. So those are three things you cannot change with the click of the button.

But as I mentioned in those episodes as well, you wanna use this as a starting point, and then from there you wanna add tabs like rental comps, you wanna add some project summary tabs, maybe make it so you input stuff in a different page; you can make it a little bit fancier, but this is just a great starting point for people, because there’s not a lot of free cashflow calculators out there for apartment syndications that include limited partners.

What you can do, as I mentioned in this episode, is easily use this and convert it to a cashflow calculator where you are the only person investing, or you and three, four etc. amount of people are doing a joint venture.

So make sure you download this simplified cashflow calculator, even if you don’t plan on doing  a JV or investing in the deal yourself. This is a powerful tool for anyone who wants to do apartment syndications, because this is Syndication School, but there are people that might start off by doing deals themselves, they might start off by doing a JV to get their feet wet, so that they can eventually use that experience to raise capital from passive investors.

So thanks for listening… As always, these episodes are available at, where we talk about the how-to’s of apartment syndications. You can also download this free document, as well as the other free documents we’ve given away in the past, at

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

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