The Truths You Need to Know If You Want to Start a Multifamily Syndication Firm

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Running a business sounds cool until you get into the weeds. As the saying goes, “The devil is in the details.” When talking to people about JP Acquisitions (“JP”), I never want to paint a picture of sunshine and rainbows. Typically running JP sound pretty interesting or fun before the brutal honesty kicks in after the dreaded word “but.” That said, the upside of having a real estate business is fairly obvious. There is an opportunity to make a lot of money, be on your own timeline, pick and choose who you want to work with, etc. The downside is what is less talked about and in this blog post that’s exactly what we’ll be diving into. By the end of this post, you may think I hate real estate. Don’t misinterpret this post for me thinking that, I enjoy real estate, and perhaps most of that enjoyment comes from working with such a great team, but I digress. Let’s get into this post.

Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.

Patience

Real estate is a very slow game. In reality, the real money doesn’t come until about a decade into your journey. At the start of running a syndication firm, you’ll probably be working a day job and grinding your free time in the afternoon looking for deals, connecting with professionals in hopes of raising capital, educating yourself, and many other things. It’s not exactly the sexy part of the game, but it’s necessary. Almost needless to say, everyone’s journey is different in the beginning. Some people start very early with little professional experience such as our team, while others worked at real estate firms and gained the resources, network, and knowledge that make things a bit easier when starting off. Regardless of the starting point, you’ll likely find yourself giving up more equity in your earlier deals than you’d like because you need to leverage others. Once you have a few deals under your belt and somewhat of a track record, that’s when you’ve found your niche or blue ocean strategy, raising capital becomes easier, and you’ve gotten into the grove of things. The money is really then made after having gone full circle (I.e., buying a property, implementing the business plan, and selling for a profit) a few times. If you’ve managed to still be in business enough to have gone full circle a few times, that’s something to be proud of.

Raising Capital

Raising capital is a stressful process, especially in the early years. Being comfortable asking friends, family, and eventually, people you are less familiar with for money is a skill. You have to know 95% of what you are talking about and what you don’t know you should certainly look up to be better prepared for the next meeting. Once people do commit capital, there is still no guarantee that they will follow through with their promise until the time comes when a check needs to be cut. Once their money is in the deal, you can breathe a little easier. The good news is that the capital raising process becomes easier the more you do it and the more money you require as a minimum investment. This is true because wealthier people who understand business know to ask certain key questions that make them comfortable with the inevitable risk of doing business. Be able to answer those questions well and your odds of being cut a check are pretty good. However, this takes a few years of investor meetings to get good, unless you happen to be naturally talented. The point is, that patience is key.

Property Management (PM) and Construction

The teams that make the numbers move (property managers and contractors) are by no means easy to deal with. A good third-party PM company and general contractor are so important in this game and should be cherished. If you’re lucky enough to have a solid internal PM team like we do at JP Acquisitions, then business plan execution can be a bit easier in certain ways but you must remember you’re still dealing with people. At the end of the day, almost all of your problems stem from other people and that’s in life in general, not only business. So while it may be easier to execute a business plan in certain ways with an internal PM team, the set of problems you experience simply shifts as opposed to lessens. Regardless of if you’re vertically integrated with a PM team or use a third-party, you will run into people promising one thing and doing another. For example, a contractor or maintenance person telling you they’ll do a job on one day but end up getting it done three days later is quite common. More so, it’s highly likely you’ll end up being over budget at one point or another. A simple cosmetic renovation project you thought would cost you $7K could very well end up being $10K. The point I’m trying to make here is that one of the biggest lessons to remember in the real estate game is to expect things (construction, leasing, etc.) to take longer and cost more than you expect them to. That lesson will save you numberable headaches. Additionally, and this deserves to be echoed, a good PM and construction team is so vital in real estate.

Conclusion

I hope I didn’t scare you away from starting a firm too much with what I wrote about in this blog post. I would rather be upfront with the truth and talk about many of the things our company has experienced than paint a rosy picture and have your dreams crushed. The takeaways from this post is that patience is key, raising capital is a skill to be developed and gets easier over time, and that a good PM team and contractor are very important.

If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, messaging us on LinkedIn, or signing up for our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!

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About the Author

Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.

Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.