Disclaimer

The information contained in this overview and initial plan is considered confidential and is solely for the use of prospective investors solely for educational use. While the information contained in this overview has been compiled from various sources, we believe it to be reliable based on the data used. Neither Ben Suttles, Feras Moussa, Rock Stevens or its representatives make any representation or warranties as to the accuracy or completeness herein. All financial information and projections are provided for reference only and are based on assumptions relating to the general economy, market conditions, and other factors beyond our control. All prospective investors are encouraged to conduct their own independent due diligence investigation, review, financial projections, and consult with their legal, tax, and other professional advisors before making an investment decision.

Course Agenda

• What is a Deal Sponsor?

• Your First Deal as a Sponsor

• Partner with Other Sponsors

• How to Build the Right Team

• How to Structure Your Syndication

• Getting Deal Under Contract

• How to Raise Money for Deal

• Financing and Closing the Deal

• Asset and Property Management

What is a Deal Sponsor?

A Deal Sponsor is the person who puts together all the pieces of a deal and ensures the business plan is achieved. This is the leader responsible for making the asset perform.

Deal Sponsors are Responsible for:

• Finding and vetting a deal

• Lining up financing and insurance

• Raising money for the opportunity

• Handling the closing of the deal

• Finding property management

• Investor communications

• Executing business plan

• Managing the (Property) Manager

• Tax returns with CPA and investor’s K-1’s

• Cost returns with CPA, and investor’s K-1’s

• Cost segregation study, if needed

• Protesting the taxes, where applicable

• Working with the lender

• Construction management

• Executing the business plan

How to Do Your First Deal as a Sponsor

Find Partners and Investors

• Meetups, Conferences, Forums, Masterminds

• It’s best to partner on your first deal

• Referrals from other syndicators, get feedback from investors about other syndicators (partner with the best)

• Know what separates you from everyone else

• Law of reciprocity: for them to help you, you must also help them (usually first!)

• Questions to ask sponsors for partnership
  Vendor intros to other investors and deal sponsors, sponsor referrals to vendors

Add Value!

Identify your Niche

Identify your Criteria

• Which asset class do you want to be in? Class A, B, C, D

• Identify the geographical location you are interested in investing

• Outline the metrics that you are looking to invest in

• Create your personal criteria of what makes a good deal

• Never cross the line to make a deal work

• Use logic, not emotion

Set Personal Underwriting Criteria

Underwriting

• Underwriting metrics

• Aggressive vs conservative approach

• How to use data to decide on offering on a deal

• Know what investor type you can appeal to with your deal

• Determine a range that you will have to “raise”

• Consider the market, geographical area, economy, and overall “what’s the play?”

Broker Relationships

Build Relationships with Brokers

• Meetings with top producing brokers

• How to talk to brokers to get you off market deals

• Build confidence so they know you can close the deal when you say so

• Be consistent and follow up on the small details, send small gifts

• Remember important information about family and touch base to build rapport

• Practice in markets you’re not interested in!

Alternative Sources

• Mailers and Yellow Letters

• Strategic Skip Tracing for Owners

• Cold Calling Owners

• Networking at events

• Advertising

• Social Media

• Foreclosure/Court house steps

Pre-Contract & Underwriting Phase

Find a Deal that fits Your Criteria

• Receive OM, T-12, and Rent Roll

• Begin to discover the backstory about the deal

Underwrite the Deal

• Review and analyze deal to ensure the deal fits the numbers you are looking for

• Take the underwriting course to learn how to properly underwrite a deal

The Letter of Intent (LOI)

The LOI is a non-binding letter of intent to buy a property. The LOI is meant to give an overview of the key business aspects of the transaction, and can include the following:

• Price

• Due Diligence period

• Early access agreement

• Earnest money

• Closing timeline

• Financing terms

• Any other property specific things you want to include, i.e. occupancy requirements to close, seller will repair roof, etc

How to Get a Deal Under Contract

Making an Offer – LOI Process

• How to present an LOI to the broker professionally

• Numbers game, the more you submit the more offers you’ll win! This means higher chance of landing a deal.

Best and Final Offer (BAFO)

• How to get to BAFO, and best practices

Buyer Interview

• What to say during buyer interview to stand out

Accepted LOI

Purchase and Sell Agreement

Negotiating PSA

What is a PSA?

• Stands for Purchase & Sale Agreement and is the legally binding contract between the seller and the buyer of a piece of real estate

• It is meant to outline all key aspects of the transaction and will include all potential scenarios that could derail the transaction such as Covid-19, hurricane, war, etc. It will also include all the business points that had been agreed to on the LOI

• As this is a legally binding document it is highly recommended that you use an attorney that is experienced in real estate transactions

How to complete Due Diligence
Due Diligence

• Checklist for what to look for in due diligence

• How to prep team for DD, Unit inspections

• Exterior inspections, Site visit, Market survey

• How to study the area and learn a market in one day

• What to ask current management

• Secret shopping

• Lease auditing process

• Which vendors are needed for DD

• Construction team and Management team

• How much will due diligence cost?

• 3rd party inspectors vs in house

• How to read reports and decide what to rehab

Raise Equity and Fund The Deal
How to Raise Money Effectively

• Private investors

• Self directed IRA’s

• Crowdfunding

• Peer-to-peer lending

How to Pitch the Deal

• Income upside potential

• Great cash on cash returns

• Purchase price below market value

• Clear and focused exit strategy

• Streamlining expenses

• Value add play

Closing the Deal!

• LOI, PSA, early access agreements, initial cash deposits, arrange new bank accounts

• Title company, survey, verify all leases/property assets are in the seller’s name

• Rent roll, lease audit, tenant files, outstanding and overdue leases, receivable reports, transfer all security deposits, review payment and tenant credit history

• Transfer historical and proforma financials, copies of utility bills, most recent tax statements, expense list, any current litigation on the property

Deal Structures and Splits

• Straight Split (eg. 80/20)

• Preferred Return + Split (eg 8% pref + 70/30)

• Waterfalls at IRR Thresholds

Advanced Concepts

• Catchups

• Clawbacks

SEC Structures

Reg D – 506(b)

• No advertising

• Accredited and Max 35 Sophisticated Investors

Reg D – 506(b)

• Advertising and Solicitation Allowed

• Accredited Investors Only

Reg CF – (Crowdfunding)

• Maximum aggregate amount

• Limits investors across offerings

Reg A+ Tier 1

Reg A+ Tier 2

Private Placement Memorandum

• How to pick the right attorney

• What to ask an attorney

• Investment objectives

• Management team (GP)

• Subscription agreement

• Capital calls

• Deal structure

• Projections

• Voting rights

• Distribution schedule

• To outline the risks involved in the investment

Investor Questionnaire

• General contact information

• Determines your investment objectives

• Outlines your investment experience

• Necessary investment knowledge

• Gives an expected time horizon

• Weighs in factors like risk tolerance

• Your current financial status

• Your current net-worth

• Corporation, partnership, or sole investor

Subscription Agreement

• Investor’s application to join limited partnership in business

• 2-way agreement between the company and the subscriber (investor)

• The company agrees to sell a pre-determined number of shares at a specific price

• The investor subscribes to a certain number of shares at the pre-determined price

Company Agreement

• Outlines financial decision-making structure

• Lists membership, interests, and securities

• Capital contributions and accounts

• Allocations of profits and losses

• Managers actions, terms, and vacancies

• Member meetings, voting, and proxies

• Tax elections and tax returns

• Books, records, and certificates

Exhibit A

• Sponsor is responsible for keeping track of the investor roster

• This information is required by the lender prior to closing

• Important document that lists out the ownership shares and percentages of each investor

Follow Up Process After Meeting an Investor

• How to vet investors to get into your multifamily deals

• How to get investors to invest repeatedly

• Follow up process from meeting for investors

• How to convert friends and family into investors

• Build loyal investors who ask for upcoming deals

• Begin to gain referrals from current investors that bring their friends and family

• This goes full cycle and gains momentum to have the capital to deploy

Finding Your Passive Investors

How to Find Passive Investors

• Referrals from existing investors

• Connect with passive investors through local meetups and conferences

• Build a solid follow up process

• Build a genuine relationship with investors and stay in touch through the events in their lives

• What questions to ask an investor to fully vet them

• Build online congregations to share ideas

• Host monthly meetups either online or in person

Communicating during the Raising Process

Webinars

• What systems to use to host the webinar

• How to make a clean investor deck

Email Blasts

1:1 Coffee Meetings, Lunches, or Dinners

506C Only Options

• Social Media

• Online Ads

• Billboards, events, etc.

Best Practices

• Be conservative, under-promise and over-deliver

• Never be deceptive, always be transparent

Funding Timeline

• Investor Completes Paperwork

• Sponsor Reviews and Approves Paperwork

• Wire Instructions provided

• Investor confirms account and wires funds

• Sponsor confirms receipt of funds

• Sponsor captures all details, including wire info, in Exhibit A

• Sponsor returns counter-signed paperwork with ownership info after closing

Reasons How to Find the Right Vendors

Your team is critical to success. Identify and vet your team well before closing.

• Commercial Mortgage Broker

• Construction – General Contractor

• Commercial Real Estate Attorney

• Commercial Real Estate Broker

• Commercial Property Insurance

• Commercial Property Management

• Commercial Title Company

Vetting Your Mortgage Broker

Helps match the best debt option to the deal and coordinates the lending paperwork and process during the closing period.

Questions to Ask:

1. Experience with similar asset size and class.

2. Sample of past 5 deals closed.

3. Fee structure.

4. What type of debt do they specialize in? Eg. Agency, Bridge, HUD, etc.

5. Dig in to determine how accurate their term sheet is / likelihood of closing at those terms.

6. Ask for referrals.

Vetting Your General Contractor

Helps manage the rehab for your property, assuming it is a value-add and a rehab is needed. Critical to success, since lender provides strict timelines for work completion.

Questions to Ask:

1. Experience with similar asset size and class.

2. Timeline needed for work completion.

3. Fee structure.

4. Ask for Referrals and sample past work.

5. Can you structure contract in a way to minimize upfront compensation and penalize for missed deadlines.

Vetting Your Real Estate Attorney

Helps navigate the contracts as well as SEC requirements to ensure you keep your syndication legal and protected.

Questions to Ask:

1. Experience with similar syndication type and niche.

2. Fee structure.

3. Are they experienced with both contracts or just SEC paperwork?

4. Ask for referrals.

5. Do they charge fixed price or hourly?

Vetting Your Real Estate Broker

Helps manage the buy and sale of properties. Critical to managing both buyers and sellers and can help ensure a deal gets done with quality buyers and sellers.

Questions to Ask:

1. Experience with similar asset size and class.

2. Fee structure.

3. Understand who their buyers and sellers are.

4. Determine how transparent they are with revealing information.

5. How big of a team they have operationally, and how compensation works internally.

Vetting Your Insurance Broker

Helps place the right type of insurance on the given asset. Critical to helping maximize coverage and reduce costs, which in-turn helps improve loan terms.

Questions to Ask:

1. Experience with similar asset size and class.

2. Fee structure.

3. Location / Markets of expertise

Vetting Your Property Manager

Manages the day to day operation of the property, and critical to success of business plan.

Questions to Ask:

1. Experience with similar asset size and class.

2. Fee structure.

3. How big of a team they have operationally, and how compensation works internally.

4. Ask for Referrals.

5. Understand what their reporting expectations are, and what the role of an owner is.

6. Do they offer other misc services – construction management, asset management, etc.

Vetting Your Title Company

Manages the title and closing process. Critical to ensure a smooth closing transaction.

Questions to Ask:

1. Experience with similar asset size and class.

2. Fee structure (fairly standardized).

3. Ask for Referrals.

Make Sure to Get the Right Financing

How to pick the Right Loan Program for your Specific Deal

• Find a program specifically for your area

• Shop around to find the best rates

• Use a mortgage broker when possible

Mortgage Broker vs Direct to Lender

• Mortgage brokers do not actually make loans, they help facilitate the process for the best debt.

• Going direct doesn’t guarantee you’re getting the best deal, where-as a broker has a good pulse on the market and appetite of lenders.

• Mortgage broker can offer loan and rate options that you may not be aware of, such as local banks, etc.

Fannie Mae (FNMA)

• Can finance rehab deal

• Home Ready Loan

• Step down vs yield maintenance

• Supplemental loans

• Created to allow banks to create more mortgages

• Buys mortgages from large retail banks

Freddie Mac (FHLMC)

• Can’t finance rehab (in most scenarios)

• Home Possible Program

• Created to resell loan packages on the secondary market

• Buys mortgages from smaller banks

Bridge Debt

• Rate cap

• Short term with usually high interest rates

• Helps to finance assets quickly

• Bridges the gap between short-term loans and the future permanent financing

HUD Loan

• Construction loans are a major component

• Refinancing or acquiring section 8 housing

• Helps with subsidized or low-income housing

• Will also finance traditional multifamily too

• Usually 40 year amortization, low interest rate.

Sample Term Sheet

• First expression of lender’s interest in the transaction

• Summarizes terms and options

• Identifies the primary lender and borrower

• Very specific details showing how the bank will extend credit

• Term sheet is not binding

• Transition to full and final underwriting analysis

• LTV = Loan to Value

• DSCR = Debt Service Coverage Ratio

• NCF = Net Cash Flow

The Best Financing based on Your Criteria

• Net worth and liquidity requirements

• Personal Finance Statement and REO Schedule

• Bank loans

• What’s the right leverage?

• Interest only period

• How to work with a lender who is aggressive

• Term sheet

• Loan assumptions

Taking Over the Property (Some are Optional)

The Property Takeover

• Notify all tenants and vendors

• Change of name (billing address) for gas, electricity, telephone, council, taxes, water, etc.

• Signage, Parking, Key register

• Gates and access codes

• Copies of any current warranty information

• Train and onboard current staff

• Begin the property rehab

• Consider changing the name of the property

Responsibilities of the Property Manager

A Good Property Manager Should

• Complete market surveys

• Pay all property vendors

• Manage work orders

• Manage payroll

• Lease units

• Strategically hire and fire staff

• Swift and efficient turnover

• Managing the budget

• Maintaining records

• Show property to prospects

Asset Management

Effectively Managing the Asset

• Investor communications

• Distributions monthly/quarterly

• How to keep the property management company on track

• How to communicate with lenders effectively

• Lender draws

• Construction management – how to keep rehab on schedule

• What systems to use

• How to keep track of work orders

• Follow up for completion of all work orders

Roles of Asset Management

Weekly:

• Calls with Property Management Co.

• Syncs with GC, tracking to business plan

• Report out to general partners/owners

Monthly:

• Review of financials prior to report out

• Investor Communications

• Lender draws and communications

• Reviewing of market survey, leasing

• Investor distributions

• Property Visits

Quarterly:

• Evaluating progress of business plan and any adjustments needed

• Replacement Reserve Draws

• Review of market – both rents and dispositions

Annually:

• Tax Returns and K1s

• Annual Reviews of Business Plan

• Property Tax Disputes

• Renewing insurance

One-time Tasks:

• Cost Segregation

• Selecting a PM and vendors

• Outlining path to business plan

What is a Disposition

The Power of Disposition

• The sale of the property and the winding down of the ownership entity

• Otherwise known as the act of selling an asset or security being “disposed of”

• This is the lingo to describe the sale

• The two peaks of a real estate investors cycle is the day he acquires an asset and the day of disposition

• When strategically time along with a well executed business plan, this is where wealth is created

Refinancing vs. Selling

RE-FINANCE

• To improve your rate

• To avoid a big balloon payment

• Adjustable rate mortgage near spike

• Tap into equity for purchasing power

• Another version of “selling”

• Cash out, while keeping asset

SELL

• Capture value increase

• When value far exceeds loan

• Capitalize on market spikes

• Take advantage of falling cap rates

• After a well executed business plan

• Cash out but not keeping the asset

On Market vs Off Market

On Market Deal Pros

• Clear reporting, metrics, and numbers

• Captures widest potential buyer pool through marketing the property broadly

On Market Deal Cons

• Higher competition and more visibility

• Everyone has details and good deals disappear quickly

Off Market Deal Pros

• Ability to avoid bidding war as a buyer

• Less competition and easier to get “strike price”

Off Market Deal Cons

• You’ll never know if your made too much/little

• Easy to ruin reputation with brokers if you don’t close

Close out After the Sale

Immediate:

• Review closing statement carefully with title company. Ensure escrow balances are accurate.

• Communicate closing to investors

• Pay all final outstanding taxes and invoices.

• Start process to get refund on balances – Security deposits with utilities, insurance balance, etc.

• Return investor principle to allow investors to use funds immediately.

• Calculate true-up with buyer to determine any remaining balances.

After Completion of Previous Tasks:

• Calculate final distributions for investors

• Communicate details to investors

• Do final tax return and K1s

• Return remaining funds to investors
  Terminate LLC and close bank accounts

How to Do Your First Deal as a Sponsor

Your First Deal

• Partner with someone who is experienced in what you want to achieve, and leverage sweat equity

• Add Massive Value!

Your Second Deal

• Leverage your experience from first deal to partner 50/50 on a deal

• Co-syndicate or JV on a deal to build credibility

Your Third Deal

• Fully syndicate your first deal as lead sponsor

• Put together the entire team yourself for success!

Identify Your Special Skill & Build GP Group

What Do You Bring to the Table?

• Net worth

• Liquidity

• Track Record

• Asset Management and operations

• Systems

• Underwriting

• Raising Equity

• Marketing
  Property Management

Mentorship Programs vs Solo

Understanding the Program

• Know how to vet a mentorship program

• Do you need a mentorship program to be successful in multifamily?

• Understanding the value from a mentorship program vs finding a strong partner.

Questions to ask a “guru”

• How many deals have you done as a sponsor, and how many do you currently own?

• How actively involved are you in asset management?

• How many deals have you done as an LP?

• How long have you been in multifamily investing?

The Recap!

• What is a deal sponsor?

• How to find deals and the closing process

• Deal structures for success

• Legal paperwork (cross your t’s and dot your i’s)

• Raising money to keep your pipeline full

• Vetting your team

• Lending deep dive

• Post-closing & property manager

• Asset management for smooth sailing

• Disposition – where you make the money!

• Building partnerships and relationships

Contact Us

Please reach out to us with any further questions about this course.

Ben Suttles (Instructor)
Ben@DisruptEquity.com

Feras Moussa (Instructor)
Feras@DisruptEquity.com