How Apartment Syndicators Make Money

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Live on Money Monday$ with Ben Suttles and Feras Moussa!

Today we are walking through how apartment syndicators make money.

VIDEO TRANSCRIPTION

00:00
we’re back we’re back we’re back a few
00:02
pounds everywhere from thanksgiving
00:03
absolutely absolutely a lot more uh
00:06
turkey
00:06
we were talking about it yesterday it
00:07
didn’t really feel like a vacation
00:09
we had some good food yeah it didn’t
00:11
feel like a vacation just because me and
00:12
you were always working on different
00:13
things but that’s half of that
00:16
thanksgiving
00:16
we worked all friday but i did have
00:19
saturday and sunday off had my
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my daughter’s birthday which was you
00:22
came over with your daughter yep so that
00:24
was kind of the highlight of my weekend
00:25
you know she really enjoyed that
00:27
so yeah it was good it’s good mellow
00:30
weekend but
00:30
yeah it’s kind of mellow it’s monday
00:32
it’s busy busy day as usual
00:34
what are we talking about today ben how
00:36
what are we talking about how apartments
00:38
indicators make money right
00:39
so i think that there’s and this maybe
00:41
that doesn’t even have to apply
00:43
necessarily
00:44
just to apartments indicators i think
00:45
commercial real estate we’ve seen some
00:47
of these fees that we’re going to talk
00:48
about
00:48
today some of the structures that we
00:50
were going to talk about today across
00:51
pretty much all commercial real estate
00:53
so
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you know we’re apartment guys so we
00:55
always kind of focus a lot more on that
00:56
side of things but uh
00:58
you know for people that are kind of new
00:59
to the industry what to expect right how
01:01
do we get paid
01:02
right how how do you know the uh the lps
01:05
and the gps how do they structure a deal
01:07
right where it’s a win-win
01:09
right and i always kind of tell people
01:10
regardless of the fees yeah whoever’s on
01:12
the other side of the transaction
01:14
if they think that that’s a fair deal
01:16
and they’re willing to invest their
01:17
money
01:17
then i say go for it right because we
01:19
know some people on the east coast and
01:21
some of the other coasts
01:22
right that might structure their deals a
01:24
little bit differently than we do here
01:26
in texas and uh we’re not here knocking
01:28
on it for
01:29
for in any way shape or form right it’s
01:31
their lps are totally fine with their
01:33
fee structure and the way that they
01:34
structure their deals yep there’s a
01:35
million ways to make money
01:37
we’re just going to go through maybe
01:38
some of the basics but that said money
01:40
mondays use every monday 3 30 central
01:42
yep right we’re going through you know
01:43
different presentations just this week
01:45
we’re talking about how apartment
01:46
indicators make money
01:47
at the very end kind of the last 10
01:48
minutes we’ll do about kind of a 10
01:50
minute q a where people can ask any
01:51
questions
01:52
you know including our topic including
01:54
other topics so yeah it doesn’t have to
01:55
be like ben
01:56
said we’re going to go through kind of
01:57
the key things what are the common
01:59
metrics that you can expect the norms
02:01
and then from that maybe we’ll talk
02:02
about some different outliers right like
02:04
that is kind of alluding to right in the
02:05
end of the day
02:06
as a buyer you can buy any deal that
02:08
makes sense as long as your equity is
02:09
okay with it yep
02:10
similarly right you could probably
02:12
charge any deals the record is okay with
02:14
it right
02:15
so um you know but that said you know
02:16
some people are more investor friendly
02:18
than others i think we’re very investor
02:19
friendly
02:20
but again it’s just all in the eye of
02:21
the beholder so yeah no absolutely and i
02:23
think that’s that
02:24
if you get anything you know if you take
02:26
away anything from
02:28
from this uh you know this this webinar
02:30
webcast whatever we want to call these
02:31
things that we do every time
02:32
our money fantastic money mondays many
02:34
mondays right
02:36
all right um is that you can you can
02:38
structure a deal a thousand different
02:40
ways folks so don’t take how we do it or
02:42
some of the examples that we’re gonna
02:43
provide as the be-all end-all of how you
02:46
could structure a deal right
02:47
once again the thing that farrah said is
02:49
if the person on the other side of that
02:50
transaction is all right with it
02:52
and you can be you can create a win-win
02:54
then go for it right
02:55
you know so some of the types of fees
02:58
that we
02:59
that we see in multi-family and i’m
03:00
going to start off with a couple of the
03:02
the real more i would say customary ones
03:05
i’d say the most customary one that we
03:07
see in apartment syndication is asset
03:09
management’s
03:10
asset management fee now that’s usually
03:12
anywhere from one to three percent
03:14
of the total income that the property
03:16
had taken in the previous month
03:17
right so what is that and just to be
03:19
more specific right we’re probably gonna
03:20
go through these in the order of we
03:22
hadn’t really talked about this before
03:23
the show
03:23
but probably go through them through the
03:25
most common fields yes
03:27
where every like every deal has an asset
03:28
management you almost never see a deal
03:30
without it right yeah that will start to
03:31
go into kind of less common less company
03:33
yeah that’s maybe a good way to do it so
03:35
so i’ll i’ll i’ll use round number oh
03:36
yeah so what is
03:37
asset management fee what what does that
03:39
role do because i think a lot of people
03:40
ask
03:41
well hey what’s that asset management
03:42
fee what are they doing what does it
03:43
cover so you want to kind of go yeah i
03:45
don’t want to get too far in a rabbit
03:46
hole because we only got 30 minutes but
03:47
an asset manager is essentially what we
03:49
are right we
03:50
are the person that is implementing that
03:52
business plan right so we’re the
03:54
the go between between the investors and
03:56
the property management companies so
03:57
really what our job is is to make sure
04:00
to manage the manager right
04:01
make sure that property management
04:04
company or that construction
04:05
company is essentially getting the
04:07
business plan implemented and getting it
04:08
done right
04:09
and if not we have the power to shift
04:12
and pivot as needed right so if the
04:13
property management company is not doing
04:14
a good job
04:15
right we could come down hard on them or
04:17
we can fire them and we go in another
04:18
direction we get another property
04:19
management company
04:20
right if that gc isn’t doing a great job
04:23
right we pivot and we go with another gc
04:25
we have the power to implement that
04:27
business plan and that’s what the
04:28
investors are giving us that power right
04:30
you know and for that that’s a lot of
04:31
work right so what we do is we take
04:33
what’s called an asset management fee
04:36
right and like i said it’s usually one
04:37
to three percent of the total income
04:39
so to make it easy for folks right if
04:40
the property’s taken in 100 000
04:42
you have 1.5 percent asset management
04:45
fee we would clear 1500 bucks for that
04:47
property
04:48
and trust me folks that does not cover
04:49
all of our costs
04:51
but it defrays some of them right and
04:54
that’s the reason why we charge them but
04:55
the high level things that asset
04:56
managers do
04:57
right you know it’s managing the
04:58
property doing distributions with the
05:00
lender
05:01
paying out distribution to investor
05:02
fielding questions dealing with monthly
05:05
monthly financials and write-ups dealing
05:07
with annual
05:08
taxes so there’s a lot that goes into
05:10
that right that’s really what that asset
05:12
management fee is for
05:13
no there’s a ton of stuff like i said i
05:14
could spend a whole 30 minutes and maybe
05:16
people would do very
05:17
management supplements yeah it’s going
05:18
to give people the high level yeah the
05:19
high level right is
05:20
like you said right you’re managing the
05:22
property management company you’re
05:24
also managing whatever the lender
05:25
requires right you know to do
05:27
distributions or do
05:28
uh disbursements when it comes to your
05:29
your lender draws that’s a ton of
05:31
paperwork right
05:32
they expect you to do all that stuff as
05:34
well as working with your investors
05:35
fielding any questions and doing
05:37
distribution i just said all that you
05:38
want to tell me
05:39
why you’re going again i’m trying to
05:40
encapsulate the most important three
05:43
things and those aren’t that’s what
05:44
we’re running out of times but here are
05:45
the 50 things that are due
05:46
it’s only three and i was trying to get
05:48
the highlighted three all right
05:49
all right all right so that’s asset
05:50
management right so i think i’ve been
05:52
crap that’s really my right now you’re
05:54
always posting my jobs man
05:55
so let’s keep going so i would say the
05:57
second most common one that i’ve seen
05:59
is gonna be an acquisition fee um i
06:01
would actually say let’s talk about the
06:02
splits and then come back because that
06:03
was
06:04
splits are always there and then
06:05
acquisition fees kind of third but i
06:06
agree well i guess now that you mention
06:08
it let’s go ahead and just talk about it
06:09
let’s do a couple of the fees and then
06:10
we can come back to the structures right
06:11
yeah i guess there’s always a structure
06:13
i’ve never seen a deal with that and if
06:14
you’re doing a deal where it’s just an
06:15
acquisition for you you got to ask
06:16
yourself
06:17
is there any opportunity in that deal
06:18
because as a
06:20
sponsor right the real opportunities
06:22
getting in the in the splits and the
06:23
fees and the absolutely right
06:25
you know it’s all about the upside right
06:27
you know i mean you should not be
06:28
you should not be getting in bed and
06:30
investing in deals that you know the
06:31
sponsor is only just taking a fee right
06:33
you gotta be a little bit leery of that
06:35
why are they doing the deal right are
06:36
they just doing it just to make a little
06:37
bit of quick money
06:38
you know or is there some skin in the
06:40
game down the road right you know but
06:42
we’ll get into structures here in a
06:43
minute so acquisition fee would probably
06:44
be
06:44
i’d say the second most customary one
06:47
right i’d say yeah
06:48
it’s pretty customary and you can you
06:50
can do this this
06:51
this fee a little bit differently it
06:52
just depends on the person right you can
06:54
do it off the equity that’s raised
06:56
or you can do it off the purchase price
06:57
right and anywhere it’s usually anywhere
06:59
from one to three percent
07:01
so if you do a ten million dollar deal
07:03
it’s one percent
07:04
that’s a hundred thousand dollars that’s
07:06
an acquisition fee that’s paid out
07:08
at closing to the entirety of the gp
07:10
right so that’s the feedback
07:12
you know it’s a way to make it
07:13
attractive to bring on other partners to
07:15
help with the various aspects of the
07:16
deal well and you got to realize folks
07:18
you know just to just to find a deal it
07:20
could be three to six months worth of
07:21
work we’re putting up at-risk capital
07:23
we’re going through application fees a
07:24
lot of stuff can be
07:25
lost along the way in terms of money out
07:28
of our own pocket right so just like any
07:29
other
07:30
mortgage broker or real estate broker or
07:32
insurance agent or
07:34
lawyer they all get paid at closing so
07:36
you know that’s what the acquisition fee
07:38
is you know
07:38
it’s it’s a way for us to continue to
07:41
you know
07:42
um you know keep the lights on and keep
07:43
moving forward and getting and putting
07:45
together great deals for our investors
07:47
so acquisition fee would be one
07:49
i would say construction management fee
07:51
would probably be managed fees another
07:52
one
07:52
right you know and that’s that’s to
07:54
manage the construction that’s
07:55
actually a very fair fee to be honest
07:57
that’s a lot of work too right you know
07:59
i mean i would say between
08:00
value ads that our investors have home
08:02
run on but on our side we’ve had to do
08:05
10x more work for that deal than other
08:06
deals yeah and all we took was the asset
08:08
management fee
08:09
and i did to be fair i’ve done one deal
08:11
that had a construction management fee
08:12
and it really wasn’t even that hard of a
08:13
heavy lift
08:15
but you know that once again can be
08:16
anywhere from i’ve seen it as high as
08:19
five to ten percent and as low as one
08:20
percent
08:21
of the rehab amount right so say it’s a
08:24
million dollar rehab you’re taking one
08:26
percent
08:27
right that’s ten thousand dollars right
08:29
and so you know that’s probably i would
08:31
say third on the list of things
08:33
um you know talk to me about some other
08:35
stuff right you know you’ve got so
08:37
there’s disposition fees
08:38
disposition fee yep so that one is
08:40
basically where the sponsor takes a fee
08:41
on the sale which you know
08:45
again it’s in the other hole there’s a
08:46
difference so there’s other yeah there’s
08:47
arguments on both sides basically
08:48
they’re taking a fee on the back end
08:50
one to two percent is probably what i’ve
08:51
seen customary yeah right i’ve seen
08:53
situations people do a refi fee because
08:55
there’s a lot of work that goes into a
08:56
refi
08:57
the refund i think is more justified
08:58
because on the disposition fee really
09:00
where where we should be getting paid is
09:02
what on on the
09:03
the sale well the sale that we have
09:05
right we’ve got all these i mean
09:07
what we’re getting paid is the fees that
09:09
we have the splits
09:10
yeah the splits right the structure
09:11
that’s that’s really our incentive right
09:13
yeah so if you’re getting uh
09:14
if you’re home running a deal you get it
09:15
on the splits and just for the fact of
09:17
selling it
09:17
mm-hmm it’s kind of different so but
09:19
well okay we’ll once again
09:22
on anybody’s fees right so disposition
09:24
fee is you know another one
09:25
right i’d say finance fee um
09:29
what else are we missing i’ve seen loans
09:31
guarantor fees loan guarantor fees
09:33
i’ve seen that that’s a fair one you
09:35
know so that’s probably it right yeah
09:37
see those are probably the
09:38
the most and what’s a loan guarantor
09:40
right let’s contact a person that is
09:42
basically you know in order to
09:43
take down the debt for these deals right
09:44
there’s a lot that has to go into place
09:46
including basically people on the
09:47
balance sheet and the liquidity
09:48
requirements that the lender requires
09:50
so you bring in someone that help with
09:51
that there’s fee associated with that
09:54
all right so let’s let’s let’s dumb it
09:55
down a little bit because he went really
09:57
really fast with this
09:58
basically someone that is so you got a
09:59
10 million dollar loan right what do you
10:00
need
10:01
i don’t want to go into the details too
10:02
far but long story short
10:04
like ben was saying 10 million dollar
10:05
loan you need to show a combined net
10:07
worth of 10 million dollars
10:08
yep and liquidity of you know 25 to 30
10:11
percent right
10:12
for 10 10 to 30 different loans
10:14
different lenders who different things
10:15
and so you know with
10:30
we’re nowhere close so you know
10:33
sometimes you have people that are worth
10:35
that and we do know
10:36
a lot of people that are worth that much
10:38
right and and some of those folks to
10:39
incentivize them because there is a
10:41
level of risk even though it’s a
10:42
non-recourse loan for the most part
10:44
right there is a level risk they say
10:47
well i’m going to charge
10:48
one percent of the loan amount or
10:50
whatever it might be right and it’s
10:51
usually once again most of these fees is
10:52
one to three percent folks
10:54
it’s just what are you charging the one
10:55
three percent on this would be on the
10:56
loan amount
10:58
yeah so those are probably the most
10:59
customary fees that we see
11:01
absolutely so you know you know and so
11:03
yeah let’s so before we keep going right
11:05
monday mondays we do this every monday 3
11:07
30 central so you know basically for
11:09
those of you tuning for the first time
11:10
basically we’ll spend about
11:12
20 minutes going over different topics
11:13
today’s topic is about how promise
11:15
indicators make money
11:16
but we’re welcome to go over any topic
11:18
people want so if you have ideas
11:19
suggestions for future episodes let us
11:20
know
11:21
and we’ll spend the last 10 minutes on q
11:22
a and just kind of just to point out
11:24
right
11:24
we always talk about apartments because
11:26
we’re apartment guys but we’ve seen
11:27
these on commercial real estate across
11:29
the board too so
11:30
these fees are are pretty standard in
11:32
our industry it’s just you know how do
11:33
you which ones do you throw into the mix
11:35
right so
11:36
wait before you keep going ben always
11:38
wants to keep talking uh
11:39
so let’s just try to look at the
11:41
comments that we’ve got so chat says
11:43
happy thanksgiving you guys i was out of
11:44
town
11:46
hope all as well yep doing good
11:48
jefferson says uh how was your
11:50
thanksgiving ben and ferris belated
11:51
happy thanksgiving
11:52
happy birthday to you too as well thank
11:53
you savion says what’s going on guys can
11:56
you explain how pref
11:57
works in the deal my understanding the
11:59
80 20 70 30 split doesn’t take place
12:02
until the pref is meant
12:03
maybe really high level uh or actually
12:06
that’s fine let’s go ahead and answer it
12:07
really quickly
12:08
so yeah get to the structure right talk
12:09
about it here in a second because we’re
12:10
about to go over the splits
12:11
yeah we’ll add it into the splits in a
12:13
second yeah split structure of how do
12:15
you structure a deal
12:16
really there’s two different things
12:17
right there’s fees and then how do you
12:18
structure the the split of the deal
12:20
right between you and your investors and
12:22
we’ll get into the previous so iggy says
12:24
hi how’s it going iggy hi
12:25
mr alex cogan i’m your man i can help on
12:28
the kp absolutely
12:30
um iggy says hi chad and then yeah
12:33
someone okay we’re good to go so let’s
12:35
keep going so
12:36
all right cool cool call we’re moving
12:38
fast so
12:39
why will fees vary between offerings man
12:41
you know i mean we we’ve seen
12:42
we’ve seen fees all over the back
12:46
right you know i mean why have you
12:47
typically seen them differently do you
12:48
want to talk about splits and then come
12:49
back to that
12:50
maybe you want to move on well because
12:52
the splits are tied to that so it’s
12:53
really the
12:54
fees and the splits right so they all
12:56
change depending on the sponsor
12:58
their experience right if someone is
12:59
brand new they are probably going to
13:00
give up more of the deal
13:02
to show people look i’m not motivated to
13:04
make money right now i’m here to just
13:06
learn get educated you’re taking a bet
13:08
on me understand that right
13:09
versus someone very experienced long
13:11
track record reputation they might take
13:12
more
13:13
right yeah and it’s also kind of
13:15
partially about how much meat is on the
13:16
deal
13:17
as well i would say that’s that’s and so
13:18
if there’s a deal that just you know
13:20
let’s say i’m buying the deal across
13:21
street for a dollar
13:22
guess what i’m going to take significant
13:23
fees on that deal but yeah because
13:24
everybody’s
13:25
even even if you did a 90 10 in your
13:27
favor they’re still going to make a ton
13:28
of money
13:29
right you know so yeah i totally the
13:30
real question is why do i need to
13:31
syndicate a dollar but that’s a
13:32
different question
13:33
that might be a problem and so i got 99
13:36
cents brother you got the other penny
13:37
yeah all right cool cool all right so
13:40
let’s talk about structure because that
13:41
is important right there’s two once
13:42
again folks there’s two different ways
13:44
and this is probably
13:45
the biggest way good sponsors make money
13:47
right yes
13:49
so what does it mean right most deals
13:52
have a split with their investors
13:54
right to keep it simple right what it
13:56
really means is let’s say we’re doing a
13:58
deal with a 70 30 split
14:00
right that basically means that after
14:02
you sell the deal you give investors
14:04
back their money
14:05
yep then you as a sponsor are splitting
14:07
the remaining profits
14:09
right meaning after you gave them back
14:11
their initial investment money right yes
14:13
70 30. 70 to the investors 30 percent to
14:16
the sponsors
14:16
it could also be 30 70 right and it
14:19
could be 60 40. so there’s a lot of ways
14:21
to structure that
14:22
but essentially you’re splitting how
14:24
much the profits on the upside is
14:26
now a couple of caveats that a that’s
14:30
assuming there’s no pref i’m about to go
14:31
into pref here in a second
14:32
right here but then b you know we’re
14:34
talking about a flat
14:35
simple split but there’s also what’s
14:37
called the waterfall
14:39
right waterfalls you add another layer
14:41
so you’re saying look i’m going to give
14:42
you
14:43
70 until you make x amount of money and
14:45
then after that i’m going to take 50
14:46
percent
14:47
right so just be aware that’s what a
14:48
waterfall is and that’s what you know
14:49
splits are
14:50
and those are the most common way
14:53
sponsors make money
14:54
right i mean the biggest amount of money
14:55
that you make is on the splits if you do
14:56
well on your deals right so we’ve had
14:58
deals that home run that i wish we had a
14:59
waterfall because we you know we did
15:01
too well on those deals but that’s
15:02
really it and maybe to kind of go over
15:04
the normal like what’s what would you
15:05
say is normal splits
15:06
kind of you know right now give a little
15:08
bit of a range right we’ve seen anywhere
15:10
from 80
15:10
20 to 70 30. that’s probably where
15:12
you’re going to be 20 oh no we’ve seen
15:13
the 50 50 60 well
15:15
i’m saying yes i’m getting into the
15:18
outliers here in a minute right i’d say
15:20
most common right is 80 20
15:22
to 70 30 in favor of the investors right
15:25
you know so 20 to 30 percent would go to
15:27
the gp
15:28
the syndicators the managers on the deal
15:30
which would be me and ferris in this
15:31
case right
15:32
and the rest going to our investors but
15:34
you pointed out a good thing right
15:35
you got to you got to realize folks this
15:37
is they’re getting their money back
15:38
first right and all loans everything is
15:40
paid back at closing
15:42
then the net proceeds after that is then
15:44
split right
15:45
so you know really it’s it’s pretty good
15:47
for the investor side because
15:49
now they’re gonna have all their money
15:50
has been paid back now they’re getting
15:52
70 percent
15:52
or 80 of the deal right you know and
15:55
once again we are
15:56
we have completely passive investors all
15:58
they got to do is fill out four pieces
15:59
of paper and wire in some money and
16:01
that’s all
16:01
that’s all they’re expected to do so
16:03
it’s pretty good on their part
16:04
yeah so now let’s keep going though so
16:06
now if it had a preferred return
16:08
though right let’s talk about that now
16:09
what that means is it adds another layer
16:11
of complexity right yes
16:12
what a preferred return says is that hey
16:14
mr investor
16:15
you will get an eight percent annualized
16:17
return on your money if i had an eight
16:19
pref right
16:20
so eight percent annualized return on
16:22
your money before
16:23
splits take into effect yeah meaning you
16:26
know on the sale let’s say what does a
16:27
sale look like
16:28
let’s say if we had a deal and i didn’t
16:29
distribute anything we sold the deal
16:31
i first gave the investors back their
16:33
investment then i give them eight
16:35
percent return on their money annualized
16:37
yep so whatever is calculation is owed
16:39
then whatever money is left over
16:41
that is considered the profit the upside
16:44
and then you’re splitting that
16:45
70 30 60 40 or whatever so why a pref
16:48
right a couple things it for an investor
16:50
it helps them get almost the closest you
16:52
can get to a guarantee
16:53
right you’re getting into the gym yeah
16:55
it’s closing you get basically an eight
16:57
percent
16:58
return on you know on your money before
17:00
the sponsor gets a dollar so as a
17:01
sponsor
17:02
it’s really meant to show the investor
17:03
look i’m very motivated to get above
17:05
that eight because that’s whenever i
17:06
make money yes
17:07
yes right that’s the thing and then as a
17:09
sponsor it’s attractive because again
17:11
you show your investors that
17:13
and because you’re giving them that kind
17:14
of bottom line right arguably gives you
17:17
a chance to
17:18
take more of the upside right that’s
17:20
kind of how i look at it that’s kind of
17:21
how that’s how you should look at it
17:22
right you know so you’ll see
17:24
instead of a 90 10 or an 80 20 right
17:26
you’re gonna see usually like a 70 30
17:28
with an eight percent preferred return
17:29
right because
17:30
the the investors themselves are getting
17:32
their money back plus eight percent
17:34
every year right that’s better than
17:35
stock market right and so
17:37
you know and then on top of that they
17:38
get all the the benefits of just
17:40
investing in commercial real estate
17:41
so and for that the sponsor usually will
17:44
take a little bit more of the
17:46
you know the net proceeds is what i like
17:47
to say right yeah now if you’re an
17:48
investor the other thing to keep in mind
17:50
right
17:50
is that there are things such as
17:52
catch-ups and clawbacks
17:54
go look those up yourself those gets
17:55
really complicated right
17:57
but you know long story short it might
17:59
mean that after the investors get eight
18:00
then
18:01
the sponsor gets eight percent to catch
18:03
up and then it’s split after that so
18:05
anyways
18:05
i’m not going to go into that but just
18:06
know that those are terms that you
18:07
should look in your ppm and make sure
18:09
and you’re usually going to have that on
18:10
more sophisticated operators right maybe
18:12
you know private equity some of these
18:14
guys that are a little bit more you know
18:15
been in the business for a long time
18:17
they’re gonna they’re gonna
18:18
try to get real crazy with how they
18:19
structure deals right but as long as
18:21
you’re going over with your financial
18:22
advisor
18:22
with your lawyer and maybe you’re even
18:23
your cpa they’ll explain all those
18:25
concepts to you so you just need to
18:26
understand what you’re getting yourself
18:27
into right
18:28
because what one guy or gal might think
18:30
is a great deal the other person might
18:32
not so you just need to make sure that
18:33
this kind of aligns with your risk
18:34
tolerance and where you want to invest
18:36
in right
18:37
so you know i would say the other
18:39
question we kind of got in fees you
18:40
should look for
18:41
look out for or you know maybe that are
18:43
considered
18:44
maybe not as customary you know once
18:47
again we went from most customary to
18:49
least customary
18:49
i wouldn’t say that any one of those if
18:51
i saw that on a deal i’d be like oh no
18:53
way
18:54
but we’ve seen a couple where you’ve
18:56
seen all of them
18:57
yeah but yeah but which which is a fee
18:59
that you think is not really customary
19:02
uh you know i would say i would say lone
19:04
guarantor fee
19:05
is less common it’s less common right um
19:08
i would say refinance and disposition
19:11
are probably the three least
19:12
what about which ones have we not talked
19:13
about like a broker fee that was one
19:14
that came to mind mine right
19:15
well yeah but remember you know the deal
19:17
i’m talking about we saw all those on
19:18
one deal
19:19
right you know where somebody had an
19:20
in-house broker and we were also paying
19:22
his fee
19:23
on top of an acquisition fee on top of
19:25
all the other fees
19:27
and then we were fees all the way down
19:28
it was literally like six different fees
19:30
and i was just like
19:31
no way anybody makes any money on this
19:33
right and so
19:34
you know i wouldn’t say if i saw one or
19:36
two of those on any deal that would be a
19:38
red flag
19:38
it’s more so if somebody’s doing all
19:41
those in one deal
19:43
either they got a smoking hot deal and
19:45
maybe they did i’m not gonna i’m not
19:46
gonna
19:46
rule that out but more likely they’re
19:49
either
19:50
way way got a great track record and a
19:52
great resume and maybe they can back
19:54
that up with you know hey even with this
19:55
i’ve made all this money for everybody
19:57
or they’re just being greedy right so
20:00
there’s a time and a place for each fee
20:01
and i don’t think it’s on every single
20:02
deal you need to charge every single fee
20:04
right you know that’s but that’s our own
20:06
personal opinion we’re not gonna
20:07
we’re not gonna poo-poo on everybody
20:08
else’s way that they do deals but
20:10
um so we talked about the structure
20:13
talked about the fees
20:14
and like we one thing that we want to
20:16
take away from from this 30-minute web
20:18
webinar here or webcast is that you can
20:21
structure your deal in any way
20:22
shape or form and there’s not a there’s
20:24
not a right or a wrong way to do it
20:25
folks
20:26
so you know and we love we love
20:28
everybody comment like what’s the
20:29
what’s their preferred structure right
20:31
you know tell us what you think it is
20:33
because we’re just shooting from what
20:34
we’ve seen in texas for the most part
20:36
but then
20:36
we we’re part of a couple masterminds
20:38
and we know people you know outside of
20:40
our kind of texas bubble
20:41
and they structure it way better and if
20:43
people have questions about other fees
20:44
let us know right we’re happy to go
20:45
through the one thing that i’ll point
20:46
out right we’ve seen people where
20:47
they’ve almost structured it like debt
20:48
right you know where they have no upside
20:51
or no equity
20:52
you know um in the deal and they’re
20:54
essentially just you know they get an
20:55
eight percent
20:56
preferred you know um return on
21:00
it’s almost like debt they have they
21:01
don’t get any of the upside and we’ve
21:03
seen it
21:03
structured 50 50 and 60 40 in favor of
21:06
the
21:07
of the sponsor and every which way shape
21:09
or form after that
21:11
so um but yeah no let us know
21:14
ask questions that’s what this is all
21:15
about we’re just all learning together
21:17
yep yeah so with that said you know if
21:19
anyone has any questions comments go
21:20
ahead and leave them we’ll go ahead and
21:21
answer them live
21:22
i’m going through a few more comments
21:25
ronnie says what’s up guys
21:26
no plot today no plaid today hey
21:30
semi-professional dress shirts you know
21:32
i’m trying to
21:33
wear the i wore that we were the
21:34
disruptive equity colors ben wore the
21:36
dark blue i wore the the barking i
21:37
always
21:37
i’m usually going to have blue on most
21:39
of the time that’s usually or like a
21:41
gray or
21:41
a black all right savion says good stuff
21:44
keep staying consistent see you guys
21:45
next monday you too
21:47
you’re consistent as well my friend so
21:48
thank you we appreciate that man
21:51
all right if anyone has any more
21:52
comments questions go ahead and leave
21:54
them otherwise let’s just keep rolling
21:56
so
21:56
what else we got what else do we have to
21:57
talk about right open q and a
21:59
okay so what do we have coming up so you
22:02
know
22:03
and what two months a little over two
22:04
months yeah a little bit more
22:06
february 27th 2021
22:10
right we’re gonna have our next
22:12
multi-family investor network conference
22:13
we’re really excited about it we’re
22:15
gonna we’re gonna bite the bullet we’re
22:16
gonna do it right
22:17
kovid’s safe but we’re gonna get back to
22:19
doing some networking and we’re gonna do
22:21
it right here in houston texas
22:22
yes and so what did we our last one was
22:25
in houston we had to cancel the other
22:26
two due to covid yep yeah we will do it
22:28
again in february
22:29
right everybody get your vaccine shots
22:31
beforehand
22:32
we’ll be spaced out they’ll be cleaning
22:34
it’s looking good we got masks
22:35
we’re gonna do it right you know but you
22:37
know i mean in our business folks it’s
22:38
all about networking
22:39
it’s a relationship business you know
22:42
we’ll still do our you know our monthly
22:43
webinars and all that stuff too and
22:45
we’ll still continue to do money mondays
22:46
but
22:47
you know we really wanted to kind of get
22:48
back to throwing on this conference
22:49
because we love it
22:50
the conference is fun to work we lose
22:52
money on every one of these stupid
22:53
things
22:54
but it’s a lot of fun and it’s putting
22:56
together
22:57
people in a good environment to learn
22:59
educate network and you know that’s
23:00
where you
23:01
that’s how you’re growing this business
23:04
we had the mayor houston last time i
23:05
always like to point that out we were
23:07
really really lucky to have sylvester
23:08
turner
23:08
we’re going to try for that again this
23:10
time shooting for the stars we’re going
23:11
to see if he’s available
23:12
um obviously a lot of things have
23:13
changed iggy i expect to see you there
23:15
this time all right
23:16
you got to plan it we’re giving you the
23:17
date in advance i see your comment nice
23:19
kathy hey again sure appreciate these
23:20
you’re welcome yeah
23:22
and you know it’s uh yeah so you know
23:24
it’s the cheapest tickets ever right
23:26
absolutely
23:27
yeah if we could go ahead and push it
23:29
over to the next slide here there we go
23:32
now what are you doing maybe next slide
23:33
this slide man come on next slide i know
23:36
we switch screens we didn’t have it on
23:38
we didn’t have yeah you know
23:39
ben’s terminology s and slide both
23:41
screen and slides start with the same
23:42
letter so
23:43
i know we’re gonna give you the benefits
23:44
of that out there all right get confused
23:46
easily
23:46
so no it’s early bird special this is
23:48
the best pricing we’re going to give
23:49
folks
23:50
you know so check out mfin
23:53
investornetwork.com
23:55
mf investor now mfinvestornetwork.com
23:59
um and check it out we got 100 off there
24:01
and that’s uh that goes through december
24:03
4th
24:04
so check us out we’re going to have ton
24:05
of speakers ton of opportunities to
24:07
network
24:08
once again we’ll have some cool keynote
24:10
speakers that are going to probably talk
24:11
about all kinds of crazy stuff
24:12
yeah so check it out so let’s get back
24:14
so if anyone has any more comments
24:15
questions chime in i know
24:16
iggy has a good question for a heavier
24:18
lift or shorter hold would you charge a
24:19
higher asset management fee
24:21
not usually the asset management fee
24:23
right that’s kind of a fixed right you
24:25
don’t really see that one change
24:26
if i was doing a heavy let’s say i’m
24:27
doing a deep value adder right i would
24:29
you know you’re going to make sure
24:31
well construction management for sure
24:32
but just take higher splits if it’s a
24:34
deal you’re having to do a ton of work
24:36
on
24:36
yeah right you got to be compensated i
24:38
mean you really look at it from my
24:39
perspective
24:40
if i could spend i’m just making up
24:42
numbers right if i spent
24:43
20 hours a month on one deal and the
24:46
other deal took me 90 hours a month
24:48
and they both netted me the same well
24:50
clearly
24:51
it doesn’t make sense i’m going to be
24:52
more motivated to just you know not do a
24:53
90 hour a week
24:55
a 90 hour a month deal and just keep
24:56
doing deals i feel like we’ve done now
24:58
if you’re making oh yeah we’ve done a
24:59
couple of those 90 our investors loved
25:00
it right
25:01
but you know again it doesn’t make sense
25:03
versus being compensated
25:05
appropriately for the heavier lift and
25:07
but it needs to make sense too for your
25:08
investors right
25:09
from their perspective if they can
25:10
invest in both of them and you know
25:12
you’re you’re they’re making the same
25:14
why would they go on the riskier deal so
25:15
it needs to make sense
25:16
but usually you’re not doing on the
25:17
asset management finger you’re doing
25:18
better splits
25:20
right maybe a disposition so you know
25:21
waterfall right there’s other things
25:23
that you would do to
25:24
to kind of help move it in your favor
25:25
right where your investors are protected
25:27
and then you’re also protected we say
25:28
it’s opportunity cost right you know i
25:29
mean if i could make just as much money
25:30
doing an easier deal
25:32
why wouldn’t i do that right you know
25:33
versus spending a ton more time to make
25:35
the same amount of money
25:37
so we look at that same thing you know
25:39
we’ll still do those heavy lift deals
25:41
but i think we’d structure them a little
25:42
bit differently you know but we’re
25:43
opportunistic and ultimately everybody
25:45
knows we’re still looking for a deal so
25:47
you know throw us a deal we’ll look at
25:48
them even if they’re a little hairy
25:50
we’ve done deals that have down units
25:51
and
25:52
you know we’ve done lease-ups and
25:53
everything ben lost his hair so
25:56
because of those deals if you have hairy
25:57
deals let us know you know i still got
25:58
to pay for the hair transplant so you
26:00
know we might have to have a little bit
26:01
better split on that deal but
26:02
you know no i’m just joking so yeah that
26:04
you brought up a good point right
26:05
you know it’s all it’s all driven by
26:07
opportunity cost yep so
26:08
all right what else we got many more
26:10
comments questions like he says thank
26:12
you you’re welcome
26:13
yeah again you gloss over what i said
26:15
iggy i expect to see you february 27th
26:19
let’s come out here you know what what
26:20
where is he on the west coast east coast
26:22
so
26:25
[Music]
26:27
you know it’s been a while he probably
26:29
cringes at us drinking these coffees
26:31
every time we’re on the show
26:32
every single time this is a prop there’s
26:33
actually not any coffee in these
26:35
yeah yeah there totally is yes
26:38
all righty so if anyone has any more
26:40
comments questions
26:42
please go ahead and chime in otherwise
26:44
yeah there’s a lot of fees
26:45
i i think he said too funny yeah you’re
26:47
welcome no i’m surprised that more
26:48
people don’t want to talk about this
26:49
right because this is
26:50
this is how we get paid right you know
26:52
and that’s how if you’re wondering
26:54
under the rug honestly like sometimes no
26:56
we’re going to put it out there cycle
26:57
like
26:58
really rush over that information every
27:00
single time every webinar what’s the
27:01
question we get
27:04
acquisition you know how much is the
27:06
acquisition fee how much is the asset
27:07
management fee
27:08
they never ask about the deal or the
27:09
area
27:11
so as an as a syndicator you’re gonna
27:13
have to be prepared right and justify
27:15
don’t don’t don’t don’t shy away from it
27:18
own it
27:18
right you know we put a lot of work and
27:20
sweat and blood and tears into finding
27:22
these deals
27:23
and then operating them right there’s a
27:24
ton of risk that we put up
27:26
ahead of time so you know these are
27:27
customary in the industry right so don’t
27:29
be shy about taking them
27:31
when justified right don’t be greedy at
27:32
the same time it’s a fine line right
27:34
you know but i’ll just leave you with
27:35
that yep so with that said
27:38
let’s go ahead and wrap it up here
27:41
anyone’s any more comments questions
27:42
well what are we talking about next week
27:43
man hold on hold on we
27:44
are talking about what are the risks of
27:47
investing in real estate
27:48
syndication well we just talked about
27:50
that right you know there is definitely
27:51
some there is some risks right
27:53
you know and that’s that’s why you
27:54
structure deals differently too so we’ll
27:56
kind of we’ll tie the two together i
27:57
think that’s actually a good segue
27:59
you know because that’s why you might
28:01
have a higher fee or a different
28:02
structure
28:03
depending on the risks of the deal right
28:05
but we’ll also look at it from the lp
28:07
side which we are as well
28:08
right an investor and you know how do
28:10
you how do you size up risk
28:12
you know deal the deal absolutely so
28:14
cool i’m excited about that one
28:16
awesome that said oh wait we got a
28:19
question oh
28:20
you do a session on how to split the gp
28:21
portion between the gp partners
28:23
yes yes yeah that’s actually probably a
28:25
good one right yeah that’s a good one
28:26
we’ll do that no no thank you kathy
28:28
yeah that’s a good idea just kind of
28:30
different ways we’ve seen the gp get
28:32
slice and diced
28:33
yeah everybody has to have a role you
28:35
can’t just it can’t be all about equity
28:36
raised you know it has to be
28:37
you know some substantial you know
28:39
effort into it so we can kind of talk
28:41
about the legal ways
28:42
to structure a gp um as well yeah i
28:44
think that’s a good that’s a good point
28:45
yeah
28:46
all right well then with that said let’s
28:47
go ahead and call it a wrap so going
28:48
once
28:49
going twice monday mondays every monday
28:52
3 30 central
28:53
we will see you guys again next week

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