It's been frustrating to find good multifamily deals lately. Despite best efforts, your first (or next) deal remains elusive.
Are apartment buildings really the ticket to passive income and early retirement? Or maybe it's you: others can do it (maybe), but can you? Do you have what it takes?
And so you begin to question your strategy, and even yourself.
In my previous article “5 Tips From Expert Real Estate Investors For Handling a Lack of Good Deals” I polled 3 experienced real estate entrepreneurs how to handle the waiting game. All three had good advice, from pursuing multiple strategies, patience & persistence, and trying different things.
I'm not sure if abandoning the multifamily strategy is the right lesson to be learned here. I'm more of the mindset that commercial real estate has worked for generations to produce massive wealth and that rather than abandoning the strategy I need to consider and try different approaches to make it work.
One thing I'd like to propose is to compromise your compensation as the syndicator. Don't compromise how you underwrite the deal but consider lowering your fees and/or equity to make the deal work. If you're raising money to do deals (as you should) then you should pay yourself at least an acquisition fee at closing, and possibly other fees while you own the asset and when you dispose of it.
While those fees are fair and reasonable, they do put pressure on the returns for your investors, forcing you to acquire assets at a lower price than investors using their own capital (for example).
What can we do to become more competitive?
One thing we can do is to decrease or even forego our fees. Maybe take less equity than we normally look for.
“What?!?”, you say, “that is outrageous. What? Am I to work for free?”
Well, maybe. Or at least for less.
You would only consider doing that to get into your first deal.
Once you've done your first deal, the game changes. You now have track record. Deal flow. A network of investors. Your ability to raise money and get deals more competitively increases dramatically.
I remember speaking with another syndicator several years ago. He got himself into a good sized deal that he syndicated. When asked about how he structured the deal he was sufficiently vague, citing confidentiality etc, but reading between the lines, the deal was decidedly in favor of the investors and the syndicator's compensation was questionable at best. I'm sure I politely voiced my disagreement with the arrangement.
But while it appears that this syndicator was clearly taken advantage of by his well-heeled investors, he now controls well over 300 units.
Was it worth the sacrifice to get into the first deal?
I'm just saying.
In an environment right now where there's a lot of cash chasing deals, you ask yourself the question, do I sit this out for the next 7-10 years or is there something else I can do to become more competitive and get in the game?
And one of the things we should consider is paying ourselves less to get into our first syndicated deal to get into the game.
What do you think? What are YOU prepared to do to get into your first deal?