Summary: This past weekend we attended the Best Ever (Real Estate Investing Advice) Conference in Denver, CO. In this article we summarize the key insights gained from the conference. We also briefly cover syndications and discuss some of the active roles that physicians can play as general partners in syndications.
Over the weekend we attended the Best Ever Conference in Denver, Colorado. The conference is aimed at multi-family real estate investors, and, more specifically, at investors who are leading syndications.
While we have never invested in a syndication, let alone led one, we found this conference to be extremely valuable. It really delivered in terms of facilitating phenomenal networking, including with a surprising number of physicians. It also provided educational lectures and sessions with experienced panels of investors.
In the end, we walked away from it having made great connections. We also left far more knowledgeable about the leadership roles that physicians (and by extension we) can play in syndications. And, perhaps more importantly, we came away having been challenged in ways we had not expected.
So, let’s jump right in and cover the key takeaways from the conference and explore what we (and perhaps you!) might consider doing in the syndication space.
Networking: Who We Met
This conference was packed full of syndicators and would-be syndicators.
People ranged from those with little or no real estate experience to those who had been raising capital and leading syndications for 20+ years. The attendees came from a variety of backgrounds. Some had previously held jobs in the tech, hospitality, and legal industries. Some were serial entrepreneurs and others were former real estate agents. Many were still working full-time on their day jobs.
We also met several doctors who had chosen to pursue syndications as their side hustles. This was surprising to us since most of the physicians we know only passively invest in syndications.
Besides those working on syndications, we connected with other investors who invest directly in rentals like us. We met people who hadn’t yet taken that first step to those who were well on in their journey to financial freedom. We exchanged ideas and learned from each other during the networking events sprinkled throughout the day and extending well into the late night. As is the case with all conferences we have attended, people gave us ideas and inspiration.
One of the most memorable interactions for me was when an investor shared his cost segregation/bonus depreciation plan and announced his goal of not paying any taxes until well after 2023. I might have high-fived him and stolen the idea for myself!
Finally, we found the speakers and panel members to be very accessible after their sessions and even at the after parties. We had a chance to meet Brandon Turner from Bigger Pockets, and Kenji had a great conversation with Joe Fairless, the conference organizer.
Brief Primer on Syndications
Before we attended the conference, we had a vague idea of the various syndication structures, the associated fees and payouts.
In case you don’t know what a syndication is, it’s when people pool their money to buy large real estate investments such as apartment complexes, mobile home parks, storage facilities and retail complexes.
The people who identify the investment properties and do all of the leg work to put together the deal are called sponsors or general partners (GPs).
The people who put their money passively into the deals as investors are called limited partners (LPs). In order to invest in a syndication as an LP you must be an accredited investor. To be accredited, you need to make at least $200,000 for the last two years as an individual and $300,000 if you are married OR a you must have a net worth exceeding one million dollars.
Because the Best Ever conference is aimed at educating and promoting sponsors/GPs and not passive investors, the next section will focus on the sponsorship side.
Key insights from the conference
There are more passive roles in leading a syndication than you might think
For top syndicators who lead numerous syndication projects a year, syndications are a full time job.
However, many members of the syndication team have more passive roles. As a result, many still have their full time jobs (this includes some of the doctors we met).
We have identified at least three different types of roles that range from more active to passive. Each is associated with varying levels of GP shares. The more active you are, the greater your portion of the GP shares.
- Fundraiser/investor relations: This is the most active of the passive roles. As a broker, you bring in passive investors (LPs) who want to invest in syndications. You educate them about syndications, you talk to them about a syndication project and you get them to invest their money. Once they are invested, you are then responsible for keeping them updated on a regular basis throughout the life of a project, which is generally five or more years.
- Fundraiser only: This is similar to #1 with the primary difference being that you only bring the investors, you don’t do any of the investor relations. Because you aren’t doing any of the ongoing investor management, your GP shares are less than #1.
- Guarantor on a loan: Many of the loans require guarantors. The guarantors need to have a net worth that matches the amount being borrowed and a certain percent of that net worth has to be liquid. For example, if the loan is for $9 million, you would satisfy the requirements if you had three guarantors with a net worth of $3 million. If the liquidity requirement is $900,000, you have to have this amount in liquidity among the three guarantors. The guarantors are taking on the risk and as a result, you can get GP shares for signing as a guarantor.
These roles can be highly lucrative
While we knew that sponsoring a syndication can be highly lucrative, we didn’t know just how lucrative some of the more passive roles described above can be.
This just speaks to how important fundraising is to a syndicator. It also speaks to the value attached to the person who is willing to take on the risk of a guarantor of a loan.
While we didn’t nail down the exact range for the ownership share, we did learn that the share is significant (and negotiable).
The GP share consist of income from numerous sources, and it really adds up. For one of these passive GP roles, it can be in the hundreds of thousands of dollars per deal. These include acquisition fees, annual asset management fees, annual cashflow in excess of the amount paid out to passive investors and the equity share after the property is sold or refinanced.
And imagine doing multiple deals each year and doing this year after year. Kenji overheard one syndicator tell someone, “if you’re OK with six figures that’s cool but you could be at seven figures with syndications….” Another syndicator told me that after two or three deals, someone can retire.
There are limited barriers to entry
As we mentioned, the syndicators in attendance had various backgrounds. We met lawyers, doctors, people working in IT, bloggers, you name it.
So assuming you can get your foot in the door, really anyone with the right connections and motivation can become a general partner in a syndication.
As we see it, physicians have a leg up given that they can often qualify as a guarantor given their high net worth, and they are surrounded by colleagues who are looking to invest passively outside of the stock market.
You can learn on the job
While there are numerous ways people can get started as syndicators, we learned that a common path to becoming a GP is to start as a fundraiser (described above).
As you gain more knowledge and experience through fundraising, you can then ask the lead syndicator to give you a chance to try other roles. Eventually, after filling multiple roles, a person can even become the lead sponsor.
Throughout this process of building your knowledge and skills, you are well compensated. It’s the ideal on the job training, assuming you want syndications to eventually become your primary profession.
How does all this apply to us?
Kenji and I have been wrestling with the topic of investing passively in syndications for some time.
If you have been following our blog, you will know that Kenji and I are strong supporters of direct ownership. We believe that direct ownership, harnessing tax savings through real estate professional status and controlling the growth of your own portfolio are the fastest ways to true wealth. Therefore, most of the topics we cover are about direct ownership.
However, many of you have asked us questions about investing passively in syndications or have asked us to refer you to trustworthy syndicators, and we have not been able to help because of our reticence to passively invest ourselves. Ultimately, without personal experience to lean on, we have just not felt comfortable sending you on to an unknown entity.
Quite frankly, we’ve been nervous about putting our money into a syndication with a sponsor who we do not personally know and trust well. We have a high bar for where we put our money and would only want to deal with a syndicator with a long track record. Ultimately, as someone at the conference said, you have to check out (and scrutinize) the horse and the jockey.
As a result of the conference, we have resolved to address our concerns head on.
We want to better serve our readers by providing you with the best information. This means, we need to vet and identify the best sponsors, understand what constitutes the most favorable deal terms for investors and identify the best asset classes (e.g, apartment complexes, mobile home parks, storage facilities, etc.). As part of this exploration, we plan to invest passively ourselves so we can report back with an insider’s view of investing in syndications.
But don’t worry! Our exploration of syndications and (more) passive real estate income does not mean that we will not continue to encourage all of you to actively invest!
Assuming we found the right team and the right deal, one thing we don’t have concerns about is being one of the main sponsors of a syndication. We see sponsorship as akin to direct ownership. As a sponsor, you have more control over the deal, and it comes with considerable financial upside over the passive investor (Author’s note: And with very little risk if you choose to not invest any of your own money in a deal or to sign the loan).
Also sponsoring deals might also be a good way for us to learn how to acquire and manage large apartment complexes. We can use gained knowledge and experience to help us achieve our goal of acquiring such properties for ourselves in the future.
In some cases, sponsors even buy out limited partners and hold on to an apartment complex beyond the allotted syndication duration. Can you imagine buying out your partners and obtaining an apartment complex that you’ve already been over-seeing and managing for five years? That’s going in eyes-wide open with very low risk.
At this time, we don’t know if we’ll become sponsors in any deals, but the conference (and our readers) have certainly pushed us in that direction. Who knows, maybe we can get together a group from our Semi-Retired MD community and fund an entire project together some day down the road!
How does this apply to you?
As for you, our readers, I hope that you now recognize possibilities for getting involved in syndications.
You can choose to invest your money passively as a limited partner, as many physicians who want a completely passive source of income often choose to do.
You could also consider a side-hustle as a general partner in syndications should it suit your personality, strengths and goals.
In either case, I encourage you to educate yourself about syndications by visiting sites like ours and the many amazing resources that are out there.
As mentioned above, it’s especially important to vet the sponsors of the deals and understand the terms of the deals. There is a lot of money moving around in syndication deals. Like in anything, there are good syndicators and bad syndicators. Find a good trustworthy syndicator and make sure their incentives are aligned with yours (ideally they have skin in the game in terms of their own money tied into the investment).
Though we cannot currently vouch for any syndicators, we will be working on developing these resources or partnering with others who have already done this work. And as always, we will continue to provide you with posts and updates about our own personal experiences.
And we look forward to you sharing your stories with us and our community as well. No matter where you are in your journey, we all learn from each other.
