fbpx

Edited transcript from the teleseminar ‘Mistakes Rookie Syndicators Make’

With special guest Vinney Chopra

Originally broadcast in April 2017

 

Listen to the teleseminar

 

Kim Lisa Taylor:

Welcome to Syndication Attorneys, PLLC’s monthly free teleconference, where we talk about issues related to syndication that we think are of value and interest to our audience and our potential clients. We want you to be informed so that you can confidently go out and raise all the money you need to buy all the real estate you want and to do more deals and bigger deals. And we certainly have some clients that have used the syndication process to do just that. My name is Kim Lisa Taylor. I am the managing attorney of Syndication Attorneys, PLLC. We are a Florida-based firm. We have attorneys licensed in Florida and California and also in Utah.

We are very blessed today to have with us Vinney Chopra, who is a long-term syndication client. Vinney came to the U.S. with $7 in his pocket. He came here from India in 1976. He syndicated his first multifamily property in 2009, and he has gone on to syndicate 26 multifamily properties ranging from 14 to 267 units. His company has currently controlled 2300 units. Vinney and his investment team have successfully raised more than $70 million from private investors. So I’d like to welcome Vinney to talking to us today.

 

Vinney Chopra:

Thank you, Kim. Thank you so much. It’s such a pleasure to be here with you on the interview and the conference. I really appreciate you inviting me to your show. I’d love to bring some value to your audience. I live near San Francisco and I’ve been a California broker since 2004 and have been doing syndications for the last eight or nine, 10 years now. It’s been really a pleasure to be working with Kim and we have done 26 syndications, like she said, but at the same time for the new company that I started about three years back, almost two and a half years, we have done 12 property syndications in just two and a half years. Very, very excited about that and some great pocket deals and so forth. Thank you so much, Kim. I appreciate you.

 

Kim Lisa Taylor:

Thank you. Well, our topic today is “Mistakes Rookie Syndicators Make.” And the intent of this call is to be able to impart some of your knowledge and some of my experience that I’ve gained from my other clients to the listeners to help them not make those same mistakes. So you have given me a list of things that came to the top of your mind when I proposed the subject to you. Can you go ahead and give us a couple of your rookie mistakes?

 

Vinney Chopra:

Sure, Kim. I remember when we got our first deal, 14 units and then 109 units and 101 storage units, very first deal. We were very excited to get our underwriting numbers work and bought the deed, but had lots of challenges in raising the money. That’s what I find a lot of times the syndicator investors, they are able to underwrite and start building relationships with the brokers, but don’t really do the other things like getting their list going of the investors, cultivate them so that they can bring them on the table toward the closing.

The other thing is, to establish the credibility with the loan broker, where they’ll be able to make sure how much they can get the loan on, or they have to get a loan sponsor maybe. Many times I’ve seen syndicators feel like, “Okay, I’ve got this great one big investor and they can take it down. They can take the whole deal down.” And I vividly remember one time we had a deal and last-minute, I think the closing was on Friday and Monday of that week, one sponsor — he was a pretty big one, actually — just walked out. He said, “No, I’m not going to do it. I need to control the deal.” And we didn’t want to give the deal. So I remember we had about $250,000 hard money. We would have lost it if we didn’t close that week by Friday afternoon, five o’clock.

So I remember pulling the rabbit out of my hat and talk to one of my very good close friend. He has a very high network. I talked to him eight o’clock in the morning, and then he was very nice to send his financial statement to our loan broker at that time and in one and a half hours we were able to get him on the loan and everything. And we had to give him quite a high percentage, I remember 25% of the deal. So he made out like a bandit, which is great, but he saved us also, at the same time.

The other thing I find lot of syndicators, they need to have enough funds. We can talk about it. So I think the key thing is not to put the cart before the horse and really do systematically so that we can find out our buying power. If we have liquidity or getting loan sponsor to finance and be on the loan once the property is locked in and also even look at the emerging markets where they are going to be going and also warming up investors.

 

Kim Lisa Taylor:

Let’s kind of go a little more in depth. You’ve covered so far three different topics here, and I think these are all excellent rookie mistakes. So the first one that you talked about is, what I call, the “whale” investor. You go to Vegas and they have a whale coming in. Who’s going to spend all this money gambling and that’s how the name came around, I guess. But when you think about getting that single investor, what I’ve seen happen again and again, is exactly what Vinney said. One, they pull out at the back end, right at the 11th hour, and then you can’t close on the deal. Or two, they start extracting terms from you that by the time they get done and the terms seem to get more and more onerous as you get closer to closing, by the time you get done, it’s not worth it for you to do the deal.

The third thing about these whale investors is that they control the deal and they really don’t need you once they own the property. So they can just hire a property manager themselves and they can find a way to get rid of you. And they sometimes do that. They have probably a lot more money to just tell you you’re out and they probably can hire more attorneys and better attorneys than you can. So you might just get left out of the deal. So whenever I have investors and potential clients come to me and say, “Oh, we’ve got one investor who’s going to take on our deal.” I always say, “That’s too bad.”

And my other advice to them is keep looking for investors. … And the more money you can raise outside of that whale investor, the less power they have over you. And if you ultimately get to a point where you have enough, you don’t need them any more then you can just say, “No, thanks. That’s all right, don’t need it.” And you can walk away from them. That puts you in a much better bargaining position.

So when you’re thinking of whale investors, I’d like you to remember the tale of Moby Dick and the wake of destruction that was left behind after that whale got ahold of that boat and that Captain Ahab. So just think that through. The clients of mine that have been the most successful have been the ones that have raised money $50,000 or $100,000 at a time from individual investors. And those deals almost always close; the other deals frequently, most of the time, do not. So that whale investor, I think that was a really critical big mistake.

The other thing you said was building your list. Your job as a syndicator is to … you’re a marketer. You’re no longer in the real estate business, you’re in the money-raising business. You’re a marketer, you’re marketing your company and you have to always be building your list, going to events, gathering business cards, talking to people about what you do and building a list of people who might want to invest with you. And it’s not good enough just to gather a business card and never talk to them again. You have to gather a business card and then have a system for following up. Tell us, Vinney, what kind of follow-up system you use.

 

Vinney Chopra:

Sure. Kim, I remember when you just said the list, I remember going to rehab meetings and putting together lunches and even dinners low-key in the Bay Area, inviting investors that we met at a meeting to come and see our presentation and so forth sometimes. And for the bootcamp and all, we had a list of 350 people, investors or potential investors into our companies at that time. So the best thing is to have a CRM, if you would like to do that, or Excel worksheet works pretty good. And that’s what I’ve been able to keep up with my investors, to design the Excel worksheet with their names, their companies, where did I meet them, one column there for that. And then the dates I met them and then phone number, email address, and then several other columns. Contact one, contact two, contact three, comments, things like that.

So very simple Excel worksheet can also do because that way once we are talking to them, we are recording because of the SEC regulations and you taught me well, Kim, thank you so much. My foundations are better because how you showed me and told me, and I just designed the systems. I’m a systems guy. So that has been a very good. Just the Excel worksheet has been amazing for me.

 

Kim Lisa Taylor:

That’s great. Well, so then you said another thing. You said something about needing to have a loan guarantor or a loan sponsor. And so I think that’s a critical piece that a lot of new syndicators don’t really understand: That if you’re buying commercial property where you’re going to be getting institutional financing, then you need to have somebody who can qualify for that loan. Even if it’s a non-recourse loan, then you still probably need to have somebody with the net worth to cover that carve-out on that loan. So the carve-outs even on non-recourse loans, pertain to environmental conditions that are later discovered at the property or in the event that the property is lost in the … goes to foreclosure because somebody did something illegal or a bad act at the property. And they’re talking about people in the management team that did something wrong, not what your tenants are doing. Unless you’re allowing them to do that.

So you have to be able to have somebody who still has the net worth so the bank will look at them and say, “Yeah, okay. In the event, one of those things happen, we could still get some recovery from that person because they have the net worth to be able to do that.” But in a non-recourse loan, those are the only times they would go after versus a personally guaranteed loan, which would mean that the loan guarantor has to sponsor the entire loan. And if it goes bad and the bank forecloses for any reason, then that personal guarantee would come into play and that loan guarantor could be responsible for any deficiencies.

The non-recourse loans are usually government-backed loans that are backed either by Fannie Mae or by Freddie Mac. Freddie Mac, small-balance loans start at $750,000. And the Fannie Mae loans start at a million dollars. So if you’re working with a property that has a loan balance of $750,000 or above, then you’re likely going to be able to get one of those Freddie Mac loans. And if the loan balance is above a million, you can maybe get a Fannie Mae and then you can get that non-recourse loan with those limited carve-outs. Anything below that, you may be looking at a property that requires a personal guarantee and you may be getting a loan from a local bank.

And my experience when my husband and I bought our own property in Ohio is that we talked to 26 different banks before we could find one that took on our property. And then when we wanted to refinance the property, nobody wanted to refinance it because we weren’t Ohio residents. We actually ended up buying a single-family house in Ohio, and then we were able to get a refinance loan. So it’s just crazy rules when you’re dealing with those smaller recourse loans.

So wrapping that up is that you need to have someone on your team that has the financial ability to do that. So when you’re out meeting potential investors, you also want to be looking for someone that you can bring into your management team that will agree to sign on that loan with you or for you if you don’t have the means or ability to do that yourself. And you’re going to give them, in exchange for doing that, some piece of the manager’s earning on that property. So is that how you do it, Vinney?

 

Vinney Chopra:

Yeah.

 

Kim Lisa Taylor:

Or how you did it?

 

Vinney Chopra:

You’re right. The 10 loans that I did for 10 properties in the Texas market … I had two Fannie Mae loans and then eight of them were the local banks. And it’s good to have a good loan broker on your side, who can tell your story, who gets excited about what you are doing. For example, mine — I don’t mind telling their name; Brandon has been amazing — he gave my story to nine banks, I think in the Houston area. And eight of them wanted to give me loan, local banks. And the one that I just finished in Atlanta, a $22 million one, was Freddie Mac loan. And one was Fannie Mae loan. So right on the money there.

One of the other things I’m thinking is, as I talk to my students who are trying to reach me and all, not having enough funds do stock the process. The earnest money, the due diligence fees, the syndication attorney… loan origination fee, real estate attorney fees for the LLCs formations and all expenses, the third-party reports, inspection reports, all that. So, that’s the other part that our syndicators who are starting the very first syndication need to have all that money available.

Then I think the other thing I would like to mention to all the prospective syndicators, is the time frame to keep that in mind, from the date that the property LOI is accepted, that you have to start filling out this money right away. And we have about 60 to 75 days time span to do everything right from the start to get the property until the closing, which comes in 75 days or 90 days maximum. That means all the money has to be raised. And we cannot actually touch the money until a minimum is raised. So maybe, Kim, you can talk about that, too. And the exciting part is we have, in my case, closed on every single property, 26 of them, 100 percent closing, never ever had to return any money back to the investors and never had to tell the seller, “Hey, we are going to back away.” So that has been a good one.

 

Kim Lisa Taylor:

Yeah. Well, that’s a pretty remarkable record, Vinney. I think we can applaud you for that. But you bring up a really good point, is that you may not have to invest your own money long-term, but you’ve got to have some money to get you deals to the closing table. And so again, when you’re building your management team, if you don’t have, $20,000 to $50,000 to close on a big commercial deal, then you might need to do some smaller deals that don’t require such big closing costs. Or bring somebody into your management team, again, that is willing to put up some of that money to get you to the closing table. All of those funds will be reimbursed after you close on the property once you’ve raised enough money from investors to close on the property, and to reimburse those expenses. So the legal fees, the due diligence costs, the loan broker fees, anything you have to pay out of pocket, the deposit, all of that can come back to the person that put up that money.

And once you get to the closing table, it’s reimbursed by money raised from your other investors. Or that person who’s in your management team could leave their money invested in the deal, to ride alongside the other investors. So you do need to have access to some money. You do need to have someone on your management team that has the financial ability to guarantee the carve-outs on those non-recourse loans or to personally guarantee those smaller loans. And you’ve got to just have that team in place. We see people build teams like that all the time. Now the good part is you’re not going to need those people forever because eventually after you do two or three deals, you will be able to sign on your own loans and you will have some money in the bank where you can do your own deals with your own money. Is that right, Vinney?

 

Vinney Chopra:

Totally. So true. In the last 10, 12 years, Kim, we have had one sponsor there and two sponsors — actually the last one I could have qualified myself for the $23 million one in Atlanta — but I do want to teach one of my students and he’s very strong financially. So I don’t mind having him come along and that way he’d be able to be my partner in the deal. So you’re right. Things happen. I do want to touch, before we go to questions-answers, something which really spends a lot of time early on syndicators do is they start underwriting the deals. So that is important. Of course, we want to underwrite the deals rightly in the emerging markets. That is the word. You need to figure out, “Okay, where will the investors like to invest?” So I try to soften the market, my investors, if I’m going from Texas to Atlanta, it took me one year to get my investors, to send them so many newsletters and information about Atlanta, why I need to go there.

So it’s very important that we start educating our base of investors to the market we are going to. Otherwise, it will be high and dry. If they do not buy into your new market, then it’s going to be tough, Kim.

 

Kim Lisa Taylor:

Right. Okay. Yeah, because you initially started in one state and then moved to another. And I remember seeing the emails from you where you were telling people about the exciting new market and talking to them about why you thought it was a great thing and sending out newsletters about that market. And that was how you made that transition. I think that’s a really important aspect of what you’re doing.

 

Vinney Chopra:

Thank you. And I was able to make like $6 million in one day. I couldn’t believe it. I thought $4 million. My target was $4 million in eight hours. And I was so happy that my investor base of only 84, they replied back and they said, “Yeah, put down 200, put down 150.” Of course, I cannot take any money. That’s the other thing I want to tell all the syndicators, they have to fill out the subscription agreement fully. And then acceptable for an accredited or non-accredited investor, sophisticated investor. And then the money has to go directly into the LLC that’s purchasing. So no commingling of funds. That’s a huge part.

 

Kim Lisa Taylor:

All right. Well, before we go to questions, I know we got started a little late and some of you might be on your lunch hour. So we want to be conscious of that. Vinney, I would like you to give out your contact information in case someone needs to get off the call when we’re in the Q&A session. How would people be able to contact you if they wanted to know more about your training program or just more about you in general?

 

Vinney Chopra:

Totally. Thank you so much, actually, everybody who wants to reach me — Vinney Chopra — I’m in San Francisco. You could Google me, actually. Just Google me with Vinney. V-I-N-N-E-Y. You could get a lot of information. Moneil IG is our company. So, vinney@monielig.com. That’s our kid’s name; Monica and Neil. M-O-N-E-I-L-I-G as in girl.com that’s for investment group. And the other thing is from your cell phone, you could actually text me. And my number is 384-703-8470. And just write the word syndication in the text message. And we’ll be able to get back to you right away and give you all the information and get to talk to you and so forth like that.

 

Kim Lisa Taylor:

We’ve mentioned in passing a couple of times that you have your own training program. How would somebody find out more about your training program?

 

Vinney Chopra:

Oh. Thank you, Kim. Because I’ve been getting lots of calls after my podcast, its other shows, we are building a very strong academy. It’s called MultifamilySyndicationAcademy.com. That’s like the word multifamily together. Then syndication academy.com, please go there and you can get all the information. We are building MultifamilyManagementAcademy.com and MultifamilyYouthAcademy.com, which is my passion now in this part of my life. I want to teach lots and lots of young entrepreneurs into real estate, right from high school onward, and also do a lot of charitable work as I’ll be hitting 65 this August. My goals have changed. And, we’re doing really well with syndication investment and all, but I’d like to do my, education part of my lifestyle.

 

Kim Lisa Taylor:

Very good. Well, thank you for that information, Vinney. So I hope that some of you will follow up with Vinney. He’s an invaluable resource and he’s very gracious with his time. And if anybody wants to contact me, they can send an email to, kim@syndicationattorneys.com or they can call me at 904-584-4055. Or you can go right to our website. It’s syndicationattorneys.com. And on that is a link to schedule a free consultation. Or also on the email that you got about this event. There’s a link to that as well, if you’d like to schedule a free consultation.

So we’re going to go to question-and-answer, and we’ll go as long as we have questions, but feel free to drop off if you need to. We understand that your time is very valuable and limited, and we love that you joined us and we’re sorry for the SNAFU that we had getting started. But we do really appreciate all of our listeners and all of you who want to learn how to do syndication, right and legally. So we’ll go to the question and answer now. In order to get in the queue for the question and answer, press *6, if you’d like to get in the queue. And while we’re waiting for some people with questions, if there are any, then maybe Vinney and I will just chat for another minute or so.

 

Vinney Chopra:

Sure.

 

Kim Lisa Taylor:

So Vinney, you said to me, when we were talking about this call, that there were a lot of plates to spin in the air when you’re a syndicator. Can you tell us about some of those jobs.

 

Vinney Chopra:

I would love to, Kim … As a syndicator, we have plates spinning with our, of course acquisitions, which is the emerging market. Getting to know the brokers, the top ones, trying to get good with relationship and get tax listings. Actually I say [inaudible]. That’s my new term in my book, [inaudible] is where the seller is sitting down with the broker on a map.

 

Kim Lisa Taylor:

Vinney, for some reason, we’re getting a bad connection. You’re fading in and out.

 

Vinney Chopra:

How about now? Is it better?

 

Kim Lisa Taylor:

Oh that’s better. Yeah.

 

Vinney Chopra:

Sure. I was saying, spinning the plate with the brokers, real estate brokers in the emerging markets. The second big plate that we have to spin is with the investors, the investor base, and talking to them, sending them newsletters and talking about their goals and where the money’s going to come. Is it in IRA, retirement or cash? That third plate we all have to spin is to build the due diligence team and the loan sponsor, the loan brokerage plate. So those three plates are very important. The fourth plate everybody has to spend is with the management side of the effect. See, us syndicators, we have fiduciary responsibility on a daily basis to make sure the returns that we are projecting for investors that we deliver on a monthly basis and quarterly, yearly basis.

And it all comes down to how we manage the asset that day we take over. So that’s the fourth plate, which in my case, we have actually built two companies in my old one and the new one, Moneil Management Group, which manages all the 12 assets that we have bought in the last two and a half years. So it’s acquisition and then management. Then we have the investors’ plate and the loan brokerage house plate and the real estate broker plates. So there are four plates.

 

Kim Lisa Taylor:

Well, I’m sorry, Vinney. But you missed the most important one: That is the legal team. So, alright. We do have some callers, so we’re going to go ahead and take some questions. Okay, go ahead, caller. You are the first in the queue. Can you state your name and give us your question? Here we go.

 

Speaker 1:

My question is: Is there a way to get smaller investors? There’s a bunch of people on Bigger Pockets that want to be syndicators. And if I’m a new syndicator is there any way to have a deal where all of the smaller guys can be a part of it to learn, to have the first deal?

 

Kim Lisa Taylor:

Well, yes. You can bring them in as part of your management team, if they’re trying to get experience of being their own syndicators. So you could have a group that you put to work and give them some of those jobs that Vinney was just talking about and let them participate and learn that way without contributing any money. Or you could let them come in as investors, too, … Usually the types of deals that we do, our clients are raising money from investors in multiple states. And they’re buying properties in states where they don’t live. So they’re usually qualifying under a federal securities exemption and that federal securities exemption that is the most often used is called Regulation D Rule 506, and under Rule 506, there’s two sub-parts to that.

One of them allows you to bring in accredited and up to 35 sophisticated investors. So it’s possible that some of the people that are on Bigger Pockets that have been following real estate trends and markets and investing techniques for a while may qualify as sophisticated investors. So you could possibly bring them in that way. But if they are members of your management team, then they automatically qualify under one of the definitions of an accredited investor. So that’s an option for you.

 

Speaker 1:

Okay. That’s awesome, thank you.

 

Kim Lisa Taylor:

Does that answer your question?

 

Speaker 1:

No, it really answers the question. Thank you so much.

 

Kim Lisa Taylor:

Thank you. Next caller. Hi, tell us your name and your question.

 

Joe:

Hi Kim, this is Joe.

 

Kim Lisa Taylor:

Hi Joe.

 

Joe:

Hi. Again on the question, I think a lot of folks, like myself maybe, we put the cart before the horse as Vinney mentioned earlier and we tend to look at real estate — I’m in real estate; I love real estate so I tend to focus there — but the effort needs to be more on finding accredited investors in the Southern California area. Vinney, can you maybe give us an idea of the profile of investors that you find for your deals? Are you typically using high net worth individuals or are you finding institutional capital for your deals? How do you go about targeting specific investors? And what might they look and sound like when we meet them?

 

Vinney Chopra:

Sure.

 

Joe:

People don’t wear a sign on their chest.

 

Vinney Chopra:

Right. I’m so glad; that’s a very good question. I always have felt that whoever you want to build your teams with the investors, you want to go in those circles. And to say that high profile net worth people are the best people for accredited investors who have over a million dollars net worth and all. So most of the clients are, Joe, like doctors. They are individuals who own companies, or they are high managers in the IT industry. Or they have retirement which they have already done well in life. And then a lot of my investor base has come because of the transparency of the business that we have been running. They feel very comfortable and they share with their friends, their family, their circle of influence. So the 84 investors have built together where a lot of them were referrals. I never had a website for eight years. I have website now.

But to answer your question, yes, you definitely want to meet with the Chamber of Commerce, Toastmaster groups, because these are the people who are really influential in your city, or where you are, so that you can build relationships with them. Charitable organizations are awesome because that’s where philanthropy — people who get involved in those are very high net worth people. And once the word gets out, you’ll be invited into more meetings and more clubs. That’s how you start. And with the top ones, I would love to let everybody know, please don’t go for $25,000 minimum. Never do it. If you start building your business with $25,000 investors, you will have a hard time buying larger properties. At this time, we started actually with $65,000 as minimum, 10 years back; now my minimum has been $100,000 for the last eight years, a hundred thousand. So by having that minimum hundred thousand really gets you to a larger, high net worth people.

 

Joe:

I see, thank you very much.

 

Kim Lisa Taylor:

Really good advice. Thank you, Vinney. All right, we’ll go on to the next caller. Oh, I think I skipped one. I’m sorry; something happened here. Or maybe someone dropped off. If you got dropped, please put yourself back in the queue by pressing *6. All right. We will go to the next question. Something has happened here. If you were just in the queue a minute ago, please put yourself back in the queue because for some reason, when I press the next question button you got dropped. So if you want to put yourself back in the queue again, be happy to answer your question. So because we got… There we go. Can you hear?

 

Steven:

Hi, yeah. Kim, Vinney.

 

Kim Lisa Taylor:

Hi.

 

Steven:

Hi, my name’s Steven.

 

Kim Lisa Taylor:

Hi, Steven.

 

Steven:

And I have a structuring question for you. I’m working on a deal right now and I’m pretty confident that we’re going to get it under contract in the next few days. And so I’ve got a partner who is going to help manage it with me, who can sponsor the loan. So between us, we’re going to manage the property. The question is we wanted to syndicate it. However, I’m not too clear on the rules because I have some 1031 exchange money and I wanted to put it into the deal. So my question is, as a co-signer, someone who’s going to be on the note along with someone else, can I successfully structure a syndication deal with my 1031 exchange funds?

 

Kim Lisa Taylor:

Vinney can answer that question. Can’t you Vinney?

 

Vinney Chopra:

Yes. Thank you. I’m just saying that because of the 1031 exchange, of course the person who’s bringing 1031 money, they have to be on the loan. They have to qualify along with you. We just finished a deal like that in December, but it’s a lot of work. Kim, as you know, they had to come through a TIC. Can you explain a little bit more to them?

 

Kim Lisa Taylor:

Yeah. So what happens when you have 1031 exchange money, is that you actually have to take direct title to the real estate. So if you’re, just as an example, if you’re buying a hundred thousand, let’s say you’re buying a property. You need to raise a million dollars. Right?

And you have somebody who has some 1031 money, that’s going to come in for $500,000 of that. Then they would actually have to take direct title to 50% of that property as owners on the deed. And so the other 50% would become your syndicate where you would raise the money from other investors for that second $500,000.

So what happens is you have to have your syndicate and all the documents that go along with that. That’s your private placement memorandum. You have to have an operating agreement for those investors in your syndicate, managers operating agreement and the entity, the subscription agreement and securities notice filing for just the 50% that’s going to raise money from investors. The other 50% is just you, okay? With your a 1031 money. And so whoever is the manager of that syndicate is only going to earn fees and distributions off from 50% of that deal. They can’t earn money off the full hundred percent because they’re only responsible for 50% of the acquisition. So it becomes a little more complicated. There’s additional documents that will add some costs because you have to have your syndication documents plus a tenant-in-common agreement and usually an asset management agreement. And it does diminish the amount that the syndicator is able to earn from the syndicate proportionally.

 

Steven:

What about if one of the managing partners is contributing 25% of the raise through the 1031 exchange, And that’s the only person that will contribute 1031 funds; is the 50% a rule?

 

Kim Lisa Taylor:

No. I just used that as an example. So in your scenario that that would be just … 75% of the money would be raised by the TIC and the other 25% owner of that property would be that 1031 investor.

 

Steven:

Got it. So it’s possible. It’s just complicated.

 

Kim Lisa Taylor:

Well, it’s not that bad. It’s a little bit more complicated. The person who’s doing the 1031, like Vinney said, is going to have to also qualify and sign on that loan. And you’re going to be explaining to the investors in the syndicate that, “Hey, we’re not buying a hundred percent of the property. We’re only going to buy 75% of the property, and we’re going to be in a tenant-in-common agreement with this other person. And that other person can really do whatever they want with their property. They can sell it, they can give it to their kids. And the syndicate doesn’t have any say over what they do with their deeded portion of that property.” So it does have a little bit of complications and generally you don’t want to do it with a deal that you’re going to syndicate unless the amount of money that’s coming in is significant.

 

Vinney Chopra:

That’s right, yeah.

 

Kim Lisa Taylor:

It’s not really something you want to do for a $100,000 investment or a $50,000 investment. You really want it to be a significant part of a raise that makes it worth it so that you can raise much less from investors.

 

Steven:

What percentage do you think that should be, Vinney?

 

Vinney Chopra:

Yeah, I would say that … Gosh, I think in my deal, it was only $750,000 for out of $3.4 million. So I would not do it unless million and a half comes in, about half comes in. Kim is right. It’s lot more hassle, a lot more problems in the whole day.

 

Steven:

Got it.

 

Kim Lisa Taylor:

And if you’re the syndicator and you have the ability to go out and raise all the money, then you’re really cutting yourself out of some of your earnings, because you don’t get that 25%, you don’t get management fees or distributions based on the 25% that’s owned by your friend. And so you really just did them a giant favor and you don’t get much out of it.

 

Steven:

Got it.

 

Vinney Chopra:

Right.

 

Steven:

That’s great. That helps me understand it quite a bit. Thank you so much, Kim and Vinney.

 

Kim Lisa Taylor:

You’re welcome. All right. Well, we don’t have any more calls in the queue right now. So I think we’ll go ahead and wrap up. We want to thank you all again for coming today. We will send out a recording of the call and we’d love to hear your feedback.

 

Vinney Chopra:

Thank you Kim. I want to take time for doing this for the prospective investors and syndicators. Thanks for inviting me. It’s such a pleasure. I just want to say thank you because I think my whole business is built on your foundation and you have done all my 26 property syndications. I value your opinion a lot, and you’re the best. And I appreciate you giving me all the time you do, taking care of … just so professionally and I owe a lot to you. Thank you.

 

Kim Lisa Taylor:

Well, thank you, Vinney. And I owe a lot to you and the rest of my successful clients, because I learned from every person that I talk to. My job is one of the greatest jobs in the world because I get to talk to really excited and fascinating people all day long. So I thank all of you for being part of the syndication world, and I wish you all the best possible success. So have a great day and look for our next call. I promise that we will do better and we will get you the right participant code next time. Thank you so much.

 

print
Book a Free Consultation

As a gift to you, we want to offer you a no-cost consultation with a team member at Syndication Attorneys. Click the button below to book a time on our calendar: