October 11, 2021
Joe Fairless

JF2596: Becoming a GP in Your First Syndication with Hendra Tambunan


Although Hendra Tambunan has been in real estate investing for 15 years, he officially made the switch into multifamily two years ago for higher income potential. Today, Hendra is talking about how he became a general partner in his first syndication, what value he brought to the table to earn that title, and why he’s looking to diversify his asset classes even further into commercial properties. Bonus: Hear Ash’s top tips for anyone entering the commercial market. 

 

Hendra Tambunan Real Estate Background:

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Hendra Tambunan. Hendra is joining us from Hayward, California. He is a full-time technology CRM consultant and a syndicator, as well as an LP in multifamily and short-term rentals. Hendra, thank you for joining us, and how are you today?

Hendra Tambunan: Very well, Ash. Thank you for having me, though.

Ash Patel: It’s our pleasure. Before we get started, can you give the Best Ever listeners a little bit more about your background, and what you’re focused on now?

Hendra Tambunan: Certainly. Just like everybody else, I read Rich Dad Poor Dad, [unintelligible [00:01:26].23] into passive income, started to buy and hold a single-family rental about 10-15 years ago, build up a portfolio of about 10-15 single-family homes, but after looking into it more and more – it’s not scalable fast enough. You have to wait for every other year to buy the house or refi, depending on the market condition.

So my wife and I start looking into multifamily, thinking – the grand vision, if I have one unit, give me a few 100 cash flow then, if we’ve got like multifamily, like eight, then it’s going to solve the problem, right? It’ll be easier. So that’s when I started looking into that family, about two and a half years ago, and started jump into it about two years ago, and that’s how I got started with multifamily pretty much.

Ash Patel: And you’re a CRM consultant. Is that in real estate or is that just CRM in general?

Hendra Tambunan: That’s just CRM in general though, that’s pretty much my career. That’s what I do, implementing CRM.

Ash Patel: Alright. You know real estate, people are dying for good CRM systems, right? We all use them and we all need them.

Hendra Tambunan: Yeah, pretty much. That’s why we solve the problem. Because a lot of people think buying multifamily is like an investment. But think about – this is actually a real business; especially when you’re a syndicator, you are basically mediating with the broker, which is bringing in deals to you, and also mediating with the investor, who’s actually going to be your partner. So in a way, you need to be able to keep track of that. That’s where, Ash, I’m going to be coming in really handy.

Ash Patel: Can I ask, what CRM do you use as a syndicator?

Hendra Tambunan: I use a portal EquityTree, that’s what I use for that one. And obviously, for managing the relationship, we use ActiveCampaign.

Ash Patel: Okay. Hendra, can you talk about your first syndication that you invested in as an LP?

Hendra Tambunan: Yep. This actually was one of the deals that we came across while networking, me and my wife. We actually found an LP—we were actually fortunate enough to come in as a GP, because there need to [Inaudible [03:25] help with the buffer for the CapEx. So that’s how we come in. This is about 348 units in Dallas, though. So to be perfectly honest though, a lot of people think getting in with larger units sounds pretty exciting, but for us, it’s pretty nerve-wracking. And come to think about it, the larger the size, the more complex the deal is going to be. We are fortunate enough we’ve found a great partners that we can grow together with them, and we’re able to learn a lot from them. They took us under their wings and then grow, and understand the business better that way, too.

Ash Patel: What value did you add that made you a GP on this deal?

Hendra Tambunan: So I’m helping up with the investor relations by bringing in additional fund for the CapEx in this case here for the project.

Ash Patel: Do you know what percentage of the funds you raised of the total ask?

Hendra Tambunan: I would say, probably about 5%.

Ash Patel: Okay, and is that deal still in the works, or have they solved that?

Hendra Tambunan: It’s still in the work right now though. Yep.

Ash Patel: How’s it going?

Hendra Tambunan: It’s pretty good. We just refi’d and then were able to reposition now. Originally, the acquisition came in through the bridge financing. We’re able now to refinance under agency debt now. It’s almost stabilized at this point.

Ash Patel: And have you done syndications of your own?

Hendra Tambunan: Yep.

Ash Patel: What was your first syndication?

Hendra Tambunan: That was 68 units in one of the smaller property in the Midwest though, that’s what we do. So the deal came across off-market. Originally, it was a little bit challenging, because it’s a loan assumption process, but the way we structured, looked into it – it is very stabilized property, very minimum value-add that we needed to do. But the market upside for rent is pretty tremendous though; we were able to raise about 10% within the six months after acquisition, and pretty much right now it’s been stabilized.

Ash Patel: Hendra, a lot of people go from just being an investor in their own deals or an active manager in their own deals to a syndicator. Or they go from actively investing to maybe an LP, to a syndicator. You had the benefit of being a GP, and then a syndicator. What did you learn while you were a GP that helped you to syndicate your own deals?

Hendra Tambunan: One thing that I really learned is understanding the business model of the syndication. Like I said, a lot of people think investing in real estate is just like buying real estate; especially when you’re coming from single-family home, most of the model’s just buying and praying, pretty much. Hopefully, the market will appreciate and then the cash flow going up, and a lot of times they do.

But in the multifamily, the aspect of the business is pretty crucial; understanding what is the business plan, what you can do out of this, how can you structure it and make it more appealing for your Equity Partners coming in? And also still the deal makes sense for you, and still work well for you. Because having a syndication is not just you put the money in there and then make it to work, or having a property manager take over and doing it. You’ve got to know, with the business plan, what if the Plan A doesn’t work? Do you have a Plan C, or a Plan D? Because again, it’s a business that you have to do it. So it’s a real business, and it’s become almost like a full-time job by itself. That’s the reason why you’ve got to have a team, work together.

So one thing that I learned – understanding about the business, and also understand about the team of sport, because you can never do it all by yourself; you’re going to — at the very least, you need equity partners, and people within the managing partner also… You cannot do it all, because — you’re going to be asset management, somebody’s going to be boots-on-the-ground that can help you and add value together and grow together.

Ash Patel: Hendra, can we dive into the numbers of the 68 unit property?

Hendra Tambunan: Yup.

Ash Patel: What year was that purchased?

Hendra Tambunan: We started that late 2020 and we just closed it in this March of this year.

Ash Patel: Okay, what was the purchase price?

Hendra Tambunan: It was purchased for $4.1 million.

Ash Patel: 4.1?

Hendra Tambunan: Mm-hmm.

Break: [07:27] to [09:28]

Ash Patel: What was the raise on that?

Hendra Tambunan: That one, since it’s a loan assumption, we needed to raise a little over two.

Ash Patel: So a 50% raise. Why so high?

Hendra Tambunan: Because this is a loan assumption that we have to bring up the balance of the loan that we assumed, and then also with the difference with the purchase price, and a little bit of reserves that we have to bring in.

Ash Patel: So with a raise that high, I would imagine that impacts returns significantly.

Hendra Tambunan: Yes, so—

Ash Patel: How soon can you refi that?

Hendra Tambunan: Since it’s a loan assumption, we are able to take it through the duration of the six years. That’s the caveat. However, because of that, we can stabilize it within a year, and we can just take a supplemental loan as a part of the return.

Ash Patel: Will the same lender give you a supplemental loan?

Hendra Tambunan: Yep.

Ash Patel: Okay, so that’s part of the plan there.

Hendra Tambunan: That’s correct.

Ash Patel: And what are the projected returns to investors?

Hendra Tambunan: That one, an average cash-on-cash, it’s about 11%.

Ash Patel: And that’s including sale, or without sale?

Hendra Tambunan: Without sales. Including all the sales and everything, we are projecting it is going to be somewhere approximately, like 1.85 multiplier.

Ash Patel: In what period of time?

Hendra Tambunan: It’s about six years.

Ash Patel: Okay. What’s the value-add here? How are you going to improve the property?

Hendra Tambunan: The property is actually in a very good condition, except it was not managed properly. And given that the seller is ready to move away – [unintelligible [00:10:50].24] licensings. So they just have no interest in managing [unintelligible [00:10:57].03]. So that’s the reason they were ready to dispose of that property. And the property management that handled that previously wasn’t really knowing that’s going to be happening, they were not really taking good care of them.

One of the impacts that we saw that nobody’s actually on site to receiving a phone call, and then the property itself, the moment that we took over, the property had a vacancy of about 5% to 6%, which is very unusual for the area. The week that we took over, we immediately put a property manager on site. And we know that we did make the right decision, because on an everyday basis, we got like about at least eight phone calls asking about that property.

Originally, when we underwrote it, we put the rent bump about 3% to 5% in year two, during COVID, because nobody wanted to raise their rents during COVID. But right now, after 6-8 months, we’re able to bump it up to 7% to 8% now, just because of the demand is so high in the area.

Ash Patel: Why did it take so long to close this deal?

Hendra Tambunan: Well, one thing or the other, because like I said, when you assume a loan in a multifamily, typically, the lender is looking at the performance of the asset, for 30, 60 or 90 days, just because of the property management know they’re already under contract, and they’ve been sluggish into maintaining the occupancy, and obviously dips and then hit the performance on the property. So we have to work together with the seller, with the property manager, trying to figure out a way to bring it up to the level that we need to be to be presentable to the lender, so we can proceed and close the deals. So that’s one of the challenges that we have over there.

Ash Patel: So playing devil’s advocate, why not just get traditional financing, versus raising $2 million?

Hendra Tambunan: We were looking into it. Actually, the deal that was presented to us, we were looking into it if we can just take it as this, but there’s a yield maintenance that—almost a million dollar, that basically you have to pay on top of that. So the number doesn’t really make sense anymore the moment you incorporate the yield maintenance, or prepayment penalty in this case here.

Ash Patel: Got it. That’s a tough one. Have you done other syndications?

Hendra Tambunan: We got a few deals, but that’s the only thing that I run as—I’m a lead sponsor on that one.

Ash Patel: Would you do loan assumption in the future?

Hendra Tambunan: Well, as long as the number makes sense, I think there’s some opportunity over there.

Ash Patel: And how do you find deals?

Hendra Tambunan: Mostly networking, and then also whether we’re going to be fellow investors, then how can I add value to them, or networking with the broker that’s bringing in deals, after having some relationship with them after some time.

Ash Patel: And Hendra, 68 units – is that a pain point and being able to hire a full-time property manager? Do they have enough work?

Hendra Tambunan: So 68 units is somewhat a little bit grayish area. I think for us, we have a part-time property manager over there. So I think the good rule of thumb typically is 100-plus units; that is my recommendation to get a full-time property manager over there, on site.

Ash Patel: And then a maintenance person as well, with 100 units? Is that right?

Hendra Tambunan: Correct. That’s going to be the number that you’re you aiming for.

Ash Patel: What does your next deal look like in the ideal world?

Hendra Tambunan: So right now, I started looking into — as you probably know, the condition of the market these days is very competitive, the cap rate is very compressed… So for me, syndication is one aspect of the business. For me, also the other aspect you can always look at for JV is smaller deals. So there are quite a few deals that I’m looking into, and also this actually smaller deals. It’s a little bit more like a BRRR model that way, that you can buy and then the upside is so high that we can just come in and maybe just bring the class grade from C to B, or from B to A, that kind of thing. That’s the thing that we’re looking into it right now. It is just smaller units, so it’s not really fitting for like a syndication model per se, but there’s some opportunity, some pocket area that you can still do upgrade the property class that way.

Ash Patel: Hendra, raising $2 million on your first syndication seems like a challenge; especially on a loan assumption, total value of the property at purchase was about $4 million. What challenges did you face in raising that money?

Hendra Tambunan: Well, number one, the challenge, I think, is the location. Because these properties are actually in Midwest. And as you know, the frenzy of the hot market these days, we’re talking about all the Sun Belt, right? You’re talking about Arizona’s, Texas, Georgia, Carolina, Florida. And anything outside there, people’s like, “Yeah, do I really want to go outside there when the hot market is really hot over there?” So that’s become like a challenge by itself, right? So you’ve got to really, really understand the market, why this property’s going to be doing really well, and what kind of data points that can support you, that help us presenting that deal to our prospective investors. And also, secondly, we’ve got people in the team that can help us in focusing on investor relations to help us throughout the way. So those are the two learning points that I learned from raising $2 million.

Ash Patel: You built a team for your first syndication? You didn’t try to do it all yourself?

Hendra Tambunan: No, we go to the networking together; just going to be on the fly, like, “Okay, now I’ve found a deal. Now, let’s build a team.” It’s going to be on the way, grow together. It’s a team effort.

Ash Patel: Good for you. So you guys are from California, that’s what you think of the Midwest, huh? That’s not the hot market. There’s some great deals in the Midwest here.

Hendra Tambunan: There are a lot of great deals in Midwest right now. So for those people who are listening, don’t just listen—don’t just look at the market where everybody’s presenting, because you need to do your own research. There’s a lot of great markets right now.

Ash Patel: Yeah, I think the Midwest has just had a steady climb, versus a massive upside, and then later potentially a massive downside. So it’s always been pretty steady in the Midwest, nice rates of return. You’re not going to get the appreciation that you’re going to get in the Sun Belt states. But cash flow is there, you’re buying at great cap rates. So yeah, I’m a big fan of Midwest investing.

Hendra Tambunan: Yeah. And people forget that you can still do forced appreciation, as long as there’s demand over there, right? So there’s some opportunity over there on a single-family where basically, your appreciation is based on the comp next door, or within the same proximity. But with the multifamily, you can still do a forced appreciation by doing a little bit of upgrade, and that’s how you get your valuation increased.

Ash Patel: And where in the Midwest is the 68-unit property?

Hendra Tambunan: This one is in the state of Kansas.

Break: [17:21] to [20:17]

Ash Patel: Any challenges with remotely managing the property?

Hendra Tambunan: Yeah. Our business model, I always have a team member who’s boots-on-the-ground. So it’s never going to be “I’m in California, I have another apartment in New York, and then we invest together somewhere remote in North Dakota”, right? Because we don’t have any presence over there. It’s true that — people say like, you have a team and a partner with your property management. But I would feel more comfortable and be able to sleep at night if one of my team member who’s part of the GP is actually a boots-on-the-ground partner over there.

Ash Patel: And do you visit the property at all?

Hendra Tambunan: Yep, always. Part of the due diligence and checking out how the progress is going.

Ash Patel: Right. Well, Hendra, what is your best real estate investing advice ever?

Hendra Tambunan: I would say, keep learning. Because if I look back at the last two years, things that I learned—I mean, don’t get me wrong, education is so important, it’s so fundamental. But as you grow, market dictates differently. The way market dictated two years ago—I mean, look at this… The deal flow, you can work with broker, get an off-market, you can still do that. But it’s very competitive now that you have to figure out a way to get deal flow coming along still. So you’ve got to be nimble and then learn and then listen, and learn from others and keep learning, because you just need to adapt to what the market dictates these days.

Ash Patel: Speaking of adapting, would you consider investing in other asset classes and commercial? Retail, office, strips?

Hendra Tambunan: I’m actually looking into it right now, into a warehouse, but I haven’t [unintelligible [00:21:52].24] And originally, I’m planning to diversify my asset class this year. And then somehow I came across like a short-term rental is becoming another diversification method, through our partners, through networking and masterminding. And we’ve been doing deals together right now for two of them right now. So that’s part of the diversification plan that I’m implementing right now.

But going back, Ash, to your asset class and commercial, I’m looking into it right now. I haven’t [unintelligible [00:22:25].15] yet at this point.

Ash Patel: In my experience, the returns are significantly higher than multifamily. There’s just not as much money chasing other asset classes, with the exception of industrial and large warehouses. But you can get great deals on strip malls, office buildings, of course… So yeah, I encourage you, definitely look into that.

Hendra Tambunan: Well, interesting you said that, because I just came across someone who’s just doing the same thing, who was in the commercial space and triple net. He was able to get cap rate at 9% during acquisition, with a bank as one of the tenants. And this has happened last year too, by the way, during COVID. So it just opened up my eyes… “Wait a minute, maybe I should take a look into it deeper now, after speaking with him.”

Ash Patel: Yeah, I would encourage you. And then in addition to triple net, don’t be afraid of gross leases, right? You are responsible for taxes, insurance, maintenance, but you have long-term tenants in place, or you’ve got to stabilized property… It’s not as bad as people make it out to be. Management overhead on retail properties I think is minimal, if you have your system set up right and you have good tenants there.

Hendra Tambunan: So, Ash, let me ask you this one thing then… What are the three things that would you advise, that you give can give me as a newbie in the commercial space like that?

Ash Patel: Educate yourself on different asset classes, don’t be afraid of buying a medical building, don’t be afraid of buying a warehouse, an industrial building… There’s a learning curve to each of them, but often the returns are much higher. And you know this, as a passive investor you can get returns in the high teens, right? So your benchmark for your own investment needs to be 25% cash-on-cash or higher; anything below that, it’s not worth your time. So don’t settle for properties, look for those unicorns.

Look for properties that a lot of out-of-state buyers are not attracted to. So if you find a suburban strip mall that doesn’t have any national tenants, the guys from New York and California are not going to want to buy that property. It’s going to be a local investor only. And those often sell at much higher cap rates, and the returns are north of 30% cash-on-cash.

Hendra Tambunan: Wow.

Ash Patel: Because there’s just less competition out there. If a multifamily building goes up for sale in Cincinnati… Man, there’s people from all over the country wanting a piece of that, right?

Hendra Tambunan: That’s right.

Ash Patel: If the neighborhood strip mall down the road goes up for sale – it’s crickets, man. There’s just not that many people chasing those deals. And if there’s any vacancy – even better, because you have upside potential. You often deal with unsophisticated sellers that don’t have all their P&L’s in order, they don’t have their tax returns readily available… So that puts a premium on the price as well, right? Because the buyer has to do more due diligence. I don’t know what number I’m on, but look for those niches. You don’t want to buy the Class A strip mall with the Whole Foods in it, because everybody across the country is looking at that strip mall. You want to buy the mom-and-pop smaller strip malls in the suburban locations, not in city centers. And in my experience, that’s been the highest returns.

Hendra Tambunan: Awesome. Great advice. Thank you, Ash. Absolutely.

Ash Patel: Yeah. I’m accessible, my email address should be all over the place. Email me if you have any deals, I’ll give you my opinions on them. But I really encourage you to look… I know a lot of people that have transitioned from single-family or multifamily into commercial buildings, and they often don’t go back.

Hendra Tambunan: I don’t blame them, right?

Ash Patel: Yeah. And you’re not managing residential tenants, right?

Hendra Tambunan: Yeah.

Ash Patel: Commercial tenants will often improve their own space. So a lot of times they’re given a white box, and they go in there and put their own spin on the space. So they’ll paint it, decorate it, put the flooring in, often on their own dime, whereas residential tenants – you’ll never find a multifamily tenant putting laminate flooring in; they’re going to put wear and tear. They’re not going to improve it.

Hendra Tambunan: That’s right.

Ash Patel: Obviously, I’m a big fan, man.

Hendra Tambunan: I can tell. Yeah.

Ash Patel: So, Hendra, are you ready for the lightning round?

Hendra Tambunan: Let’s do it.

Ash Patel: Let’s do it. Hendra, what is the best ever book you recently read?

Hendra Tambunan: I would say that The Go-Giver by Bob Burg. That’s been my philosophy of life that I’ve adopted though. Just basically learned — [unintelligible [00:26:53].01] pretty much your network, right? Learn to give to other people, and that’s how you grow your team, your networking, and then learn from each other.

Ash Patel: That is a great philosophy. Hendra, what’s the best ever way you like to give back?

Hendra Tambunan: I always try to help people in a way that I can… Meaning like, make myself available. That’s how I learned the last two years – the more I give, the more it’s actually I grow up together with them. Nothing held back — even though I may be invested in education before, but if people ask me, “How do I get multifamily?” I always spend time with them, together with them, and giving my perspective and vantage point, and helping to grow together.

Ash Patel: Hendra, how can the Best Ever listeners reach out to you?

Hendra Tambunan: So they can reach out to me through Facebook, Hendra Tambunan. I think I’m very unique there. And then the other way – I’m going to give you my cell phone number, too; people can text me or call me, 510-270-2920.

Ash Patel: Awesome. Hendra, thank you for sharing your story today. You’ve come a long way from reading Rich Dad, the single families, now doing your own syndications, looking into different asset classes… Hopefully, I’ve inspired you a little bit. So thank you again for sharing your story.

Hendra Tambunan: Thank you for having me, Ash. Thank you.

Ash Patel: Best Ever listeners, thank you for joining us, and as always, have a best ever day.

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