“Back Door” Syndication Investments and $2,500 Minimums?

At a Glance:

• • • • Sometimes operators back-fill deals to wrap up the last round of renovations

      • That can reduce risk, since the operator already runs and knows the property inside and out

      • The downside: the cap on how much you can invest

Deni and I are constantly checking in with real estate operators and seeing what they’re working on.

One of the quirky trends we’ve seen this year is that when we reach out to them, sometimes they’ll respond “We’re holding out for spectacular deals right now because they’re out there – but we do have a little room still available in a property we’ve been operating since last year if you’re interested.”

When we hear that, our first question is “Why?” Why do you want more money for a deal that already closed?

Don’t get me wrong, there are some bad answers to that question. But there are also some good answers.

Many operators have been able to find great deals on distressed properties but have struggled to raise enough money to cover all the costs. Often they’ll close on the property and start renovating, even if they didn’t raise enough to cover 100% of the renovations. They know that the property will cash flow well, and that between their own cash on hand, cash flow from the property, and potential interest from investors like us, they’ll have the money to knock out the tail end of unit renovations.

“De-risked”: Known Property, Known Performance

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From there, we start asking more questions. How’s the deal performing? Where are you with occupancy? Cash flow? Renovations? Distributions?

Because after 8-12 months, they know what’s behind the walls. They’ve evicted any inherited deadbeat tenants. They’ve gotten into a rhythm with property management (or replaced nonperformers).

And in many cases, they’ve started distributions.

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That’s the case with two “bonus” deals we’re featuring in the Co-Investing Club over the next 6 weeks. We’re investing with operators we already know and trust, in deals they’ve already been managing for 8-12 months and have already ironed out the kinks.

Most of all, we prefer to only invest in “back door” deals with operators who we already know, like, and trust people we’ve already invested with before.

The Downside to “Back Door” Syndication Deals

The big problem? Operators don’t have much room left in these deals.

In both cases of deals we’ll be backing into, they operators can only accept around $300,000. We’ll have to cap our members’ investments, because we’ll almost certainly have more interest than we can accommodate in both of these deals.

That’s why we’re featuring them as bonus deals in the Co-Investing Club, and will also be offering another deal each month.

$2,500 Minimum Investment

To let more members into these deals, we’ll be letting members invest with just $2,500 instead of the typical $5,000. That makes it even easier to diversify.

At least, we’re going to try that for the first of these deals (that the Co-Investing Club is meeting today at 2pm EST to vet together). It’s the first time we’ve ever offered that, so we’ll see how it goes 

Curious about the Co-Investing Club and how we vet deals together? Join as a free member and come check out the group deal discussion this afternoon at 2pm EST!

And like we do every Thursday, we’ll host an Open Office Hours Zoom call today at 3:30 EST