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For real estate syndicators, the process of finding suitable properties can be complex, requiring a keen understanding of market dynamics and investment criteria. You must adopt a methodical approach to efficiently identify prime investment opportunities.
Understanding the types of properties that meet your syndication’s investment vision is just the first in a 4-step process that ensures the properties selected align with the group’s goals.
This article explores each step of this proven system.
Step 1: Define the Investment Vision for Founders
In your real estate syndication’s search for properties to invest in, consider the three pillars of the Founder’s Investment Theory:
Strategy
Depending on the focus of your syndication, one of these strategies can be your plan of action:
- Development
In this strategy, investors focus on constructing new properties or substantially improving existing ones to meet market demands. These could be building residential communities in underdeveloped areas or creating mixed-use developments in bustling neighborhoods. Thus, you must be on the lookout for raw land or underutilized real estate.
- Value-Add
If your syndication prefers to purchase properties whose value and appeal can be boosted by improvements, you need to implement the value-add strategy. Investors might upgrade the interiors or enhance common areas of an older apartment complex to attract higher-paying tenants. To this end, you should target realty types with high vacancy, deferred maintenance, or untapped potential.
- Stabilized Value-Add
Targeting properties with existing stable income streams falls under this strategy. Here, the syndication aims to make moderate enhancements to further increase returns. For instance, renovate units in a well-occupied building to justify rent increases. To fulfill this objective, you search for chattels with expiring leases or below-market rents.
- Undervalued
Another approach is to seek out assets priced below market value or replacement costs due to factors like poor management or deferred maintenance.
- Cash Flow
Here, the syndication prioritizes holdings with strong and consistent income, often through long-term tenant leases, appreciation potential, or rent escalations, which provide a reliable revenue stream with minimal risk.
Niche
This requires honing in on the specific segment of the market you wish to target. Are you drawn to luxury apartments in metropolitan areas, affordable housing in emerging suburbs, or specialized commercial spaces like medical offices or warehouses? A good example is a syndication that specializes in revitalizing historic buildings in downtown areas, aiming to attract businesses looking for unique, character-rich spaces.
Risk Profile
Assess the level of uncertainty you are prepared to face in your investments. Are you comfortable with properties that might require extensive renovations but offer higher returns, or do you prefer more stable investments with predictable income streams?
An investor with a low-risk tolerance might focus on well-established neighborhoods with a history of steady appreciation. On the other hand, a more risk-inclined individual might invest in up-and-coming districts with higher potential gains.
By consistently referring back to these pillars of the Founder’s Investment Theory, you can create a cohesive and effective investment approach tailored to your goals and comfort level.
Step 2: Develop Your Property Owner Database
If you’re already working in the real estate industry, you likely have a database of contacts. If not, you can build one over time through consistent outreach efforts, attending industry events, and searching on online platforms. Networking with other professionals and establishing a system for referrals can also provide a steady influx of valuable information.
Within your database, start compiling a list of properties that align with your clearly defined investment vision based on the Founder’s Investment Theory. Focus on the most promising opportunities and allocate your resources efficiently.
Next, reach out to the owners of your shortlisted properties and see if they are open to offers. Then, in your criteria for ranking, add the owners’ willingness to sell. Keep in mind that these conversations with owners can lead to more listings than you initially anticipated, even if they aren’t interested in your current offer.
The next step is following up with the interested offers until you gather all necessary information, such as the register of tenants, the amount of rent they pay, and the operating expenses. Based on this data, conduct a thorough financial analysis.
And finally, make an offer. Try to avoid making multiple ones, especially if you don’t expect them to be accepted, as it would be a waste of time and resources.
Step 3: Partner with Other Real Estate Agents
Establishing strong partnerships with other real estate agents can significantly expand your access to valuable property opportunities. This step might seem counterintuitive, but agents tend to form a community that can work together as well as compete.
Relationships with major players in the property types that align with your Founder’s Investment Theory open doors to insights into market trends, off-market deals, and listings that are not easily accessible.
To begin, focus on identifying agents who are active in your target markets and understand your specific investment criteria. Effective collaborations are built on trust and reciprocal value, so start by sharing your syndication’s vision. In subsequent meetings, share your own market insights, suggest property leads, or even co-invest in deals.
Pro Tip: At first contact, avoid discussing fees, but be clear that you are a syndicator. And if they’re interested in representing your syndication at finding properties, they can either include their fees or you could pay them a commission.
Once they give you the perfect property to syndicate, do the same due diligence as you did in Step 2 and make an offer.
Building a robust network of real estate agents creates a support system that can lead to exclusive deals and valuable market intelligence. By fostering these relationships, you position yourself to take advantage of a wider array of investment properties, ultimately enhancing your real estate syndication efforts.
Step 4: Take Advantage of Commercial Information Exchanges (CIEs)
CIEs serve as centralized repositories for commercial property listings, offering detailed information that can significantly enhance your search efforts. Through these platforms (Catalyst, Loopnet, Costar, MLS), you can access a broader spectrum of property options, including off-market deals that don’t appear in traditional listings.
To fully utilize CIEs, familiarize yourself with the search tools and filters. Tailor your searches to match your Founder’s Investment Theory and save them. Consistently search for new opportunities, ask agents what they have available, and ensure everyone knows what you’re seeking. Regularly review your saved searches and follow up on promising leads.
By leveraging the comprehensive data and tools offered by CIEs, you can streamline your property search process and identify lucrative investment opportunities with greater efficiency.
Final Step: Implement the Blueprint
Following this four-step system gives you a solid strategy for identifying valuable real estate investments to add to your syndication firm. Remember to start by clarifying your investment vision, as it will serve as the foundation of all your subsequent efforts.
Also, leverage the efficiency offered by technology, whether in building a database of property owners, cultivating relationships with other real estate agents, or accessing off-market deals and valuable market insights.
Lastly, always focus your resources on specific actions that would achieve the objectives as outlined in your syndication’s Founder’s Investment Theory. Implementing these steps will improve your efficiency and position you as a knowledgeable and effective syndicator ready to capitalize on lucrative opportunities.
Need legal counsel for your real estate syndication? Shams Merchant is the leading real estate private equity and syndication attorney, representing clients in award-winning real estate projects. Specializing in real estate syndications, fund formations, securities law, and private placements for commercial property investments and development, Shams has been featured in publications like Law360, the Business Journal, BisNow, and The Real Deal.