How to Start a Syndication Business on a Budget
No matter what type of business you plan on creating, a business plan is the foundation of your new entity. A business plan is critical because it helps you outline your goals, pro-forma and projections for the coming years. It gives structure and focus to your new company, and you can always refer back to it to make sure that you’re meeting your stated goals.
There are many free templates and guides available on the Internet that can walk you through the process of creating your business plan. Hopefully you’re aware of how syndications work, and can easily plug in your projections where they are required. Developing your business plan will provide you with a “guestimate” of your expenses during the first few years. When it comes to income – syndication works differently than other businesses and is harder to predict. One of the reasons for that is the fact that some of the fees you can get are dependent on the performance of the property, which is partially dependent on the general state of the economy.
Tapping into the Freelance Market
Making a business plan is what separates syndicators from successful ones. Here’s something else to consider: if you don’t have the expertise or time to develop a business plan, you can always hire a freelance talent to create one for you. There are several online sources where you can find the appropriate talent, including www.upwork.com and www.guru.com. Both of these online resources have hundreds of individuals who specialize in just about everything you’ll need, from accounting and business plan development to marketing and writing. The goal is to use your knowledge, time and talent to foster investor relationships and find appropriate multifamily property deals to propose, while leaving the areas where you lack knowledge or inclination to those who can provide it to you at a very reasonable cost.
In addition to freelance talent, you can offer to trade your knowledge in your area of expertise, like syndication, to someone who can provide specific knowledge to you in another area, like marketing, for example. It’s a “quid-pro-quo” trade with no money exchanging hands. Finally, you can hire inexpensive interns to do certain aspects of the work for you.
The business plan should include, besides expenses and income, a detailed plan of growth, meaning what is your 1, 5 and 10 year goal and the steps you need to take to get there.
Putting Together Your First Syndication
As the lead investor (also called “sponsor”), you’re the one who will be syndicating the deal to other investors. You should be well versed in real estate terminology, particularly as it relates to multifamily properties and investments. However, when you’re just starting out, how do you showcase your knowledge and expertise to potential investors even though you don’t have a track record of successful deals, or a budget to produce materials?
One way is to create a sample “demo” investor package, which would include all the pertinent documents you would normally send to potential investors. This is crucial as it will give you an opportunity to begin honing your skills on developing materials that you’ll be creating over and over again to generate interest in your deals for investors.
Another way to demonstrate expertise on a budget is to create a thought leadership platform. If you don’t have a track record to share with your target investors, and you have little or no money to spend on marketing, this will help you develop a following using an online, interview-based network. It can help you overcome your lack of experience especially if this is your first deal.
You become a “trusted advisor” to your target audience by offering them valuable content that helps to expand their knowledge and understanding of multifamily investment deals, while positioning you as the “expert” in the field. You’ll need to demonstrate your confidence not only to passive investors, but to others that you will interact with including potential team members and business partners.
Your knowledge offerings can include blogs, podcasts, YouTube channels, white papers, meetup groups and other communication vehicles. Remember, you’ll need to demonstrate your knowledge in this arena, by conveying information on the economics of investing in multifamily properties. Your business and real estate background will come in handy in this area, while you provide information on topics like ROI, effective gross income, CoC, IRR and other terms that relate to measuring potential returns on real estate investments. In addition, you can use your prior passive investment experience to demonstrate knowledge to prospective investors.
But without a budget to work with and little knowledge of social media, what can you do? Once again, there are some no-cost and low-cost options available to you. You can hire interns who are well-versed in social media to help you run your podcast and YouTube channel, and assist with writing your blog in exchange for some valid on-the-job experience along with reference letters, or some type of monetary stipend. An alternative is to use the freelance talent available on Upwork and Guru.com, to write and/or produce the materials needed for your knowledge platform.
There’s no question that lack of money can present obstacles to getting things done when you’re first starting out, but by being creative and making use of available resources, you can accomplish what you want without worrying about how much money you need to spend. And don't forget to use social media when posting content – Facebook, Instagram and LinkedIn are all free.
Finding your Ideal Property:
Targeting your Market
There are a lot of cities in the U.S., and a lot of apartment buildings that are available to purchase and syndicate to investors. So how do you determine which market to select and present to your potential investors? Most sponsors starting out begin with the current city they’re in, as well as cities where they’ve lived before, as these are the markets they’re most familiar with. Another tactic is to explore the hottest real estate markets in other areas of the country for potential investments.
Once you’ve narrowed down your search, focus on determining which market offers the best upside potential. This should be based on a variety of factors that include analyzing population growth trends, job opportunities, income growth, unemployment statistics, availability of apartments and comparable property rents. All of these factors will provide a solid overview of a market’s potential and help you determine whether it’s the right market for investment.
Educating yourself on the real estate market can be free, if you know where to look. There are many reports available that provide statistics to help analyze whether or not a market is right for investments. One of the main ones to look at is a market forecast review of cities by Marcus & Millichap. Another resource is published by Zillow and offers an overview of renters, rental rates and other key statistics.
Get Expert Help:
Putting Together your Syndication Team
One thing that you’ll realize quickly when starting a syndication business is that you can’t do it alone. With all the details needed to be successful at syndication you need to assemble a professional team, with each member having expertise in a specific area. But you have to do this on a budget, so there are some ways to bring a team together without having to spend a lot of money.
When you’re first starting out, there are two key things you have to do: raise capital, and find deals to present to investors. They’re the two parts of any syndication business. You can either do one of these, or hire for both areas, but you can’t do both on your own. That means you’ll need to bring in someone to help with marketing or to help you find and analyze deals.
Hiring people to help you raise capital is challenging, since people will invest in you first, however, you can get help with finding, underwriting and closing deals. How can you do this on a budget? First, hire inexpensive or free interns. You can find them on university websites where you can post your needs for free. If you find someone who has extensive experience and he or she could really help you when first starting out, consider offering an equity position for their services. It can be a set percentage of your deals. Finally, there’s always the freelancers available on Upwork.com and Guru.com at a very reasonable hourly rate.
Finding Passive Investors:
The Key to Your Success
Your business background and/or real estate background means you have a network of friends, colleagues and other business associates that are the ideal starting point to find passive investors. The main reason is that you’ve already established some type of relationship with these people. They know you; they understand your capabilities and often they already trust your judgment. In addition, you can expand this network by asking for referrals to their colleagues and acquaintances.
Here is where you use your knowledge platform to demonstrate your expertise, and ask the team you’ve built for assistance in securing these passive investors. Your knowledge platform will also help to draw in passive investors as they hear and read about your background or get to know you at meetups and other industry gatherings.
Starting a syndication business on a budget is not as difficult as it may seem. There are a variety of resources and tactics available to you to help you accomplish your goals while working on a budget. You just have to know where to look and how to best leverage your business background, contacts and experience. When you feel that it’s the right time for you to venture out on your own and start your syndication business, build a business plan and follow it. Use free or cheap resources for knowledge, human resources and marketing.
About the author
Ellie is the founder of Blue Lake Capital, a real estate company that specializes is multifamily investing throughout the United States. She is also the host of a weekly podcast called "That REllie Happened?! Unbelievable Real Estate Stories with Ellie", a podcast that brings the true stories behind the deals, from the most successful real estate investors around the globe. Ellie started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100,000,000. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations. She holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.