So far in 2021, we have been featuring new opportunities in the property management industry. One area not yet explored on the show is Real Estate Syndication. As a general definition, real estate syndication is a partnership between several investors. They combine their skills and capital to purchase and manage a property they otherwise could not afford. If you’ve got an eye for a good deal and good partners, this might be a great opportunity to explore in 2021, either as the syndicator or as an investor.
On this episode of Property Management Brainstorm, Bob discusses the topic of Real Estate Syndication with AJ Shepard of Uptown Property Management, Portland Oregon. He and his company are expanding their business by syndicating real estate, pooling money from investors to buy larger, more profitable, and more stable projects. We are excited to hear what he has to say and how he views this area of opportunity for investors and property management companies.
Below is a time-stamped transcript of this episode.
Topics Covered
[2:40] AJ introduces himself, his company, and how he got started in Real Estate Syndication.
[6:30] AJ gives explains the term “real estate syndication”.
[9:00] What are the possible legal and financial structures for real estate syndication arrangements?
[12:25] When identifying a real estate syndication project, what comes first, the chicken or the egg?
[16:05] Building an investor network for funding real estate syndication projects.
[17:15] Bob and AJ discuss the various steps and sequence of putting a project and deal together.
[22:10] Communicating with investors and sending a Private Placement Memorandum to present the financial structure of the project.
[23:40] AJ provides his definition of Return on Investment, Cap Rate, and Internal Rate of Return (IRR).
[28:25] As a syndicator, hiring yourself as the property management company.
[32:50] Communication and information shared by the syndicator to the investors.
[36:25] AJ shares a story of a family property located in Mexico that has been passed down through generations.
Connect to Uptown Property Management and Syndication
AJ Shepard on LinkedIn
Connect to the Westside Investor Network Podcast
Connect with Bob Preston
Property Manager in San Diego
https://www.ncpropertygroup.com
This episode is always available for listening, sharing, or download at Property Management Brainstorm. Subscribe to Property Management Brainstorm on Apple Podcasts, Google Podcasts, Stitcher, Spotify, TunedIn, iHeart Radio and YouTube.
Bob Preston: 01:04 Hello, and welcome to all you brainstormers who are listening in today. This is Bob Preston, your host of the show broadcasting from our studio at North County Property Group in Del Mar California. If you're new here, please subscribe. So, you have ongoing access to all of our great episodes. And if you like what you hear, please pay it forward with a positive review. I've been on a bit of a roll here so far in 2021 and looking at new opportunities in the property management industry. So, today's episode is a continuation of that property management industry opportunity series, and one area that I've not yet explored on the show is real estate syndication. As a general definition real estate syndication, or you could call it, I guess, property syndication as a partnership between several investors, they combine their skill and capital and manage a property they otherwise could not afford. If you've got an eye for a good deal and good partners, this might be a great opportunity to explore for your business in 2021, either as a syndicator or perhaps as an investor on the show today, I have a friend of mine who has done many of these sorts of deals and transactions. AJ Shepherd of Uptown Property Management in Portland, Oregon. He and his company are expanding their business by now starting to syndicate real estate, pulling money from investors to buy larger or profitable and more stable projects. So, I'm excited to have AJ on the show and to hear what he has to say and how he views this area of opportunity within the property management industry. AJ welcome to the brainstorm. Great to have you here.
AJ Shepard: 02:38 Bob. Thank you so much for having me really appreciate it.
Bob Preston: 02:40 Sure. Now we know each other through the NARPM organization, but I always like to start each show by asking my guests to kick us off, introduce yourself your business. And in your case, maybe how you got started in real estate syndicator.
AJ Shepard: 02:53 Sure. You bet. So, uh, AJ Shepherd, uh, my brother and I own Uptown Properties, which is our property management company, Uptown Syndication. Uh, we're also hosts on the Westside Investors Network Podcast. Uh, we run a construction company and a little-known fact about us is we actually own a brewery and bottle shop. Uh, that's called uptown beer co and then binary Brewin. Um, and my brother and I first started getting in, started getting into real estate. Our dad really pushed us. Uh, he was, he was in real estate. So, um, way back when, uh, he did a bunch of like rent to own contracts and just did that. He would, uh, buy a property on contract, kind of rented out for a few years and then do a rent to own contract for the next person. And, you know, that was a huge win-win deal.
AJ Shepard: 03:45 So my dad's always taught us like find win-win deals, uh, fast forward a little bit. My brother and I started buying properties in 2007, 2008. Um, we got really lucky time to market really well. Um, we've we kept buying through all the way until through now and we were still buying. In fact, we're under contract for like 69 units right now. So, um, yeah, but, and, uh, I guess that's what we're going to talk about today is how, how we're under contracts for so many units. Uh, we we've been doing that recently through syndication. So, my brother and I came to this like situation where like we find good deals and we, it was hard to find the funding for it. Um, we had been using our own capital. We use the burn method, the buy rehab refinance, rent out repeat method. Um, we, we, we were doing that before.
AJ Shepard: 04:37 It was even coined that. Um, and so we would just kind of move our capital and just keep buying the next property. And we, we started out with single family homes and then kind of went to duplexes and then the fourplexes, and finally in 2018, I think we had bought, um, eight units and we're like, man, it would be nice if we could just do like five of these deals a year. It'd be, it'd be great. And, uh, you know, that, that project takes like six months to do with eight units, especially if we're doing all the rehab. So, you're talking about a multi door apartment building or something like that, right? Yeah. Yeah. It was two buildings, uh, actually two, two separate tax lots. So, two fourplexes right next to each other. Um, we were able to get residential financing on both, both properties.
AJ Shepard: 05:23 Um, but if we could just buy it as one property, we started to find out that the commercial lending atmosphere is a lot easier than, uh, once you start getting up into like 10 loans per, uh, 10 residential loans per person is, uh, is kind of the cutoff. So, we kind of ran into that wall. And so, there's a multitude of things that kind of like push us into this syndication. Um, so really in like 2018, we, we set out, uh, 2019, we set out a yearly goal. We're like, Hey, let's do at least one syndication. Um, so we did that. And then, uh, 2020, we ended up doing, uh, two, two syndications. And then in the first quarter of 2021, we have under contract we've, we've raised $1 million for one syndication. And we're, we're about to put out another one here shortly.
Bob Preston: 06:16 I gave a brief description of the concept during the episode introduction here, but how about for our listeners who might not be familiar with that term or thrown around real estate syndication, I think is the term, can you give a definition from your perspective? I mean, you seem to know a lot about it, you know what you're doing, be really great if you could define it for our audience.
AJ Shepard: 06:34 Yeah. So, there's, there's two different types of syndication out there. Uh, the, the first one that, that we do is project based. So, we, we go out and we find a project and then we, everything is applicable towards that project and it, they come up intermittently in time. Uh, the other type is a fund, uh, and a, and a fund. They, you can raise capital and capital can kind of move in and out of the fund. And then they use that. Some of them do like hard money lending. Some of them do notes, some of them do, you know, smaller single-family homes and then kind of rinse and repeat, and they do multiple assets. So, we're, we're focused on like a single assets syndication. Um, and generally its syndication is like the pooling of money to buy a, uh, asset. Uh, and typically those are they're, they're usually raised under like the, with a private placement memorandum is very common to see. Um, and typically they're, uh, either companies or partnerships or kind of however the sponsor or syndicator wants to, to elect to do it. Okay.
Bob Preston: 07:48 Or the term sponsor and syndicator used interchangeably.
AJ Shepard: 07:51 Yeah. So typically, like when you're buying a $10 million asset, you need someone that qualifies for that loan. Um, and the sponsor is typically that person that will, is able to qualify for that loan because all of the investors that invest along with it, they're not, they don't need to be on the loan as long as they own less than 20% or 25% of the company. Um, so it's the, but somebody who's got somebody who's going to put their name on the loan. It's not necessarily a guaranteed loan, but the bank or whoever is financing, it wants to know that someone's in charge that knows what's going on and knows how to do it.
Bob Preston: 08:29 And is that you or your brother individually, or is that the corporation or the company?
AJ Shepard: 08:34 It's both. So, my, my brother and I both put up our, our names as guarantors and us also, uh, the uptown, uptown syndication is a separate company also, uh, guarantors.
Bob Preston: 08:47 Okay. And you mentioned, uh, some sort of a partnership, are these then LLCs or are they limited partnerships? What's the structure that's most commonly used today?
AJ Shepard: 08:57 Ours are our structure. We use LLCs. And I think that that's a lot of what people use. Uh, so it's the, the financing that we get and most of it requires a separate LLC per asset. So even just every, every syndication ends up being its own LLC. Uh, and that is owned essentially by the investors. So, every, every investor has a certain portion. So, if you know someone, if there's a $500,000 raise and someone puts in $50,000, then they're going to own 10% of the company.
Bob Preston: 09:33 Perfect. And I'm assuming then that you've got to have a good attorney, who's scrubbing these agreements and, you know, probably a really strong CPA in your court as well, to make sure that this is not only under the guidance of a good real estate broker like yourself, but also, you know, legally and financially, you've got the structure in place, correct?
AJ Shepard: 09:50 Yeah. We've got professionals behind us that are looking at everything and really just going over it with a fine-tooth comb. Um, one of the things that we do as well with our syndications is, we form cost segregations and that's, that's been, uh, a really big help with, with taxes. So, if you're not familiar with cost segregations, they are, it allows you to front load the depreciation. So, the IRS code says that you should appreciate stuff over a certain amount of time. And you just appreciate, you know, very evenly across the years and actuality, that's not how stuff like depreciate. It's like you have to replace your windows every 15 or 20 years. And so, there's different schedules for different items. And, uh, when you go out, go through the property and itemize all those items and then, uh, put them on a different schedule.
AJ Shepard: 10:40 What happens is, is you get more depreciation upfront. And typically, we're only holding these properties for like five to seven years. So, if we can capture most or all of that depreciation over that first five to seven years allows the investor to write more off on their taxes. And then if you, don't not paying taxes now, that means that, you know, if you have to pay those taxes, it's not, not paying the taxes is just deferring the taxes until later. So, if a dollar now is probably worth more than a dollar in five years, is what we're betting on.
Bob Preston: 11:13 Also counterbalances the cashflow that you're distributing from the rent, right?
AJ Shepard: 11:18 Yup, yup. Yup. Exactly. Typically shows a fairly large loss. Uh, if you're a real estate professional, you would be able to offset some other income in the first year, most likely. And I just do want to say, like, I am not a tax advisor and I'm not an attorney and I can't give legal or tax advice, but in common practice, this is what I've seen
Bob Preston: 11:40 Nor am I right. I'm not an attorney or a tax guy either, but I am a limited partner in a couple of, uh, limited partnerships now LLCs mostly in commercial properties. Right. And so, you know, it's interesting, the, the, of the group that I'm involved in is long hold, right? It's Santa Barbara, California property continues to go up for the past a hundred years probably. And they're sort of like.
AJ Shepard: 12:05 Never.
Bob Preston: 12:06 Never are we going to sell. And so, some of those tax benefits have over the course of time, got to the point where now I've got to claim this income. And so, it's of kind of interesting. Okay. So, from a project identification, what comes first? The chicken or the egg, if you understand what I'm talking about here,
AJ Shepard: 12:23 Oh man, this is this when you're getting started out, this is the hardest thing, right? Like as well, we'll do I find the investor first? Or do I find the deal first? Or like how, how does that work? In all honesty? What we did is I, I think I mentioned that eight unit that we had a, so the reason I mentioned that is I think the best way, if you're, if you want to get started in syndication is to mockup a deal, like any business that you're going to start costs some money to get in. So, you know, getting the attorney and getting the other stuff, but mockup a deal as though you were going to sell it to an investor. And I've given this advice before, and I think I've probably even heard other people give advice, but what it does is it lets you go through those steps.
AJ Shepard: 13:09 It goes, you know, steps one to 10 on how you actually put together something like, you don't know what you don't know until you actually like do it. And so really mocking up a deal. So, we mocked up this eight unit as though we had sold it by syndication or kind of like, you know, set it up that way. So, we set up the LLC, we set up the subscription agreement, we set up the marketing material. We even did a webinar on it, you know, like all these sorts of things to be able to talk to investors. So, then what we did was we use that, and we said, hey investor, is this something that like, if you saw, like, if you see another one, it is, and maybe the numbers are changed a little bit or the units are different, but like you see this like template, you know, it's a 60-page document or something.
AJ Shepard: 13:57 I was like, you know, I'd appreciate if you'd be able to like, take a look at this. And then in the future, if this is something that you might be interested in, then, you know, maybe we can, we can keep talking and if not, that's okay too. We can just kind of, you know, I can, I can take you off my list and that sort of stuff. So really having kind of a marketing piece or some way to like talk to someone, some investor and have them like really see and understand what you're trained to do. And the only way to do that is to really kind of have something already developed. Um, so that, that is, that's how we got started and I've, um, you know, listened to a lot of education on syndications and that sort of stuff. And I believe that I, I got some of that advice somewhere else and having something tangible to be able to really converse with another person is pretty key. Because if you're, if you're just sitting here, you know, like on this podcast and we're just talking about something it's hard to really kind of really grasp and understand the gravity of like what it is that we're talking about. If you haven't seen it before.
Bob Preston: 15:05 I mean, I could say to you, Hey Jay, I've got this idea. I'm thinking about this project. Are you willing to invest, you know, 50 K or whatever I'm asking for whatever they ask us? But if you don't see what it is that I'm specifically talking about, and I don't prove to you my understanding through a casual conversation, it's kind of hard to build that credibility.
AJ Shepard: 15:21 Yeah, absolutely. And like even looking at pro formas and maybe on that deal, we could actually show like a report of like what a report would have been like, because we actually had redone the property and we could show pictures from before and after and say, this is kind of like our style. This is what our construction looks like and our value add. And you know that sort of thing becomes very tangible and allows for someone to be like, all right, these guys really do know what they're doing. Whereas, you know, if like you said it for, we're just talking here, like everybody's got a deal.
Bob Preston: 15:57 How do you build your network? Then it sounds like you started approaching people. How'd you find that group? Were they from your property management business, maybe people who you already manage their properties? Did you go out beyond that? How did you cast that net?
AJ Shepard: 16:10 We keep casting that net as, as wide as possible. Uh, you know, we, we definitely started the podcast in order to reach more people. Uh, so that has been a big help. Um, very recently. And we started that just in January. Uh, but originally it was family and friends. Uh, it was, it was people that we knew, uh, some of our family, like our dad invests with us, for sure. He's been doing that since like 2007, but I mean, a lot of people knew that we were in real estate and like some of our property management clients did, uh, some of their friends, uh, did, you know, uh, I've been in the NARPM community for a long time and, you know, reaching out to some of those people that has, that has helped get to get to know more people in the industry. And honestly, like it's a, it's a great investment for a real estate professional, uh, because of the professional status allows you really to take those losses and write it off on your income. So that's kind of cool,
Bob Preston: 17:08 Sort of go through the sequence or the steps. Maybe that might be great for there for the listener. So, you identify a project, right? You scour the market, you identify maybe an apartment building, you think, Hey, this could be a good project. There's room for rehab. We can take it from a, I don’t know, I'm assuming you buy low and turn it into something better. Maybe you buy a class C or class B. Nope,
AJ Shepard: 17:26 You are exactly right. Like the first one that we did, it was so bad. It was probably like class C minus like jet skis and broken-down cars out in front. But it was in like a fairly good neighborhood. It was just the dog in the neighborhood. Like we, we actually had two, two lenders back out on us. Cause they're like, this, this isn't going to work. Um, we ended up having to get a hard money loan for it, but got a little bit more money, the contract and turned it around in six months refinanced it got our investors like 20% of their money back and then not cashflows, like even better than what we projected.
Bob Preston: 18:00 Okay. So, you identify the project and then do you, you go into escrow first, make an offer, go into Esker and then do you look for the investors or do you start looking for the investors before you actually make an offer? I mean, I'm sort of trying to understand the timing of these different steps.
AJ Shepard: 18:15 Yeah. So, when we first started out, we had that question too. It's like, well, you definitely got to get it locked up in contract. So, then you have this like inspection period. Right. And so, it's like, well, what happens over the inspection period? Because you know, the price could change. You're working with lenders and they're not giving you a straight answer on like what the loan is going to be. So, it's like this question of like, how, how are you going to, how are you going to communicate to the people that you need to communicate to raise money and still have enough time to do that. But then also have this, like, you know, certain thing of like what it is that you're going to offer. Um, so we've started typically like getting through the inspections, like physicality of it and getting through that portion and then doing all the paperwork, developing the PPM, kind of like during that time.
AJ Shepard: 19:05 So we're probably like we get it under contract and with a commercial contract, typically the is like 30 days long and then closes like 60 to 90, if we're, if we're lucky. And what do you mean by commercial contract? Well, like in a, in a residential contract, if you're buying single family home or duplex or four-plex like, typically they want like a 30-day close. Gotcha. So, you're, you are kind of under the gun. Right. And with, with when you're buying multifamily larger, larger buildings, there's more to do. You've got, you know, if you're inspecting 21 units, like it takes a little bit more time to like put together everything. So, they do understand that. So typical close is like 60 days, I want to say. Um, and we usually put in like a financial extension, uh, if not two for like another 30 on another 90, another two 30-day extensions, uh, typically we'll have some money to go hard at that point. So, it's like, we're not tying up the property and, you know, just tying it up for, for nothing. Like we, we, we usually got to pay for that.
Bob Preston: 20:08 Okay. And so that money to keep the project alive, I guess, in the escrow phase, I'm assuming you've given some sort of a down payment. Are you guys then kicking in that money? Are you buying the property proposed in cash? Are you getting a commercial loan? Is it hard capital? What, what does that structure typically look like? Because at this time you still don't have your syndication in place.
AJ Shepard: 20:29 Right. Uh, so that, that's part of like that first, like two, two weeks to 30 days is like, you're identifying what's wrong with the property, you know, does it need a new roof? You're also like on the finance side is like, you've you kick it out to lenders? And you're like, all right, who wants to lend on this deal? Who's going to give us the best deal. And you're really selecting like who you work with, you know, we've, we've worked with three or four different kind of like banks or lenders that are more specialized in multifamily, or we've at least found that in our area. And I mean, there, a lot of them are out there. Right. Um, but we've kind of identified, I want to say like four different tiers. Like we've got the like hard money guy where it's like super expensive, but they can close in 15 days.
Bob Preston: 21:15 Yeah.
AJ Shepard: 21:16 They'll loan on pretty much anything. Um, and then we've got like a community bank that'll kind of give us like a two to three-year loan and it's like a higher interest rate. And then another bank that like has a little bit more underwriting and then like the creme de la creme is like the agency debt where you get its Freddie Mac. And I mean, it's, I think our last loan was like 3.06%. And they lent, lent up to like 78% LTV. So, wow. That's, I mean, it's, it's better than residential rates. Um, but I think that was when mortgage rates were fairly low. I don't know when this episode will air, but most likely mortgage rates will be a little bit higher. So
Bob Preston: 21:56 Yeah, for sure. So, okay. So, you obtained funding or you, you, you secure some kind of funding commitment, and then are you at that point then sending out some, you mentioned proforma sort of the 60-page document, is that a prospectus for lack of a better term?
AJ Shepard: 22:10 Yeah. So, it's a, we call it a PPM private placement memorandum. And that is a document that goes through in detail, like as much detail as possible, how the deal is going to work, like what we're going to buy it for, what the rehab is going to be, what the budget for that rehab is going to be, what we think rents are going to be like all the information and then how the partnership's going to work. And all that information is contained within the PPM. So hopefully that's like the one-stop shop for everything you need. Um, we also put together kind of like, uh, we have an Excel sheet that is our pro forma and, you know, we evaluate all of our deals on the same, same way. Like we have it highlighted on there, like which numbers we can change and modify. And then the other ones are calculations, which we leave alone.
AJ Shepard: 22:57 And so we really, you know, if we're looking at deals, we can compare like directly. So, our metrics and I think a lot of people's metrics are the cash-on-cash ROI, which is return on investment and then IRR internal rate of return. So, our particular syndications usually do like a, some sort of hurdle of IRR. So, if we, if we, as the sponsor get above a certain amount, then we're going to take a little bit more, more profit. Cause we, we, we, we did a good job for you guys, a good job for everyone.
Bob Preston: 23:32 You mentioned ROI, is that the same cap rate, some people talk cap rate, right? Kind of your rate of return over an annual period,
AJ Shepard: 23:41 ROI is typically like an equity multiplier. So, it's, if you an equity, multiplier or ROI, what we see is like if you put in $50,000 and the ROI is like two, then ultimately over the life of the investment, you're going to get back a hundred grand.
Bob Preston: 23:57 I see. And then how does that differ from cap rate cap rates? Like your annual return
AJ Shepard: 24:01 Cap is usually what commercial investors look at when they're buying a property or how they use to evaluate the sale of a property. So, it's typically off the NOI, which is a net operating income. Right. And what we find is that cap rate can be super subjective. So, it can be really tough, uh, just because like there might be more expenses in the operating of the property than should be a normal or maybe there's less expenses. Um, but, and then that elevates the price. So, cap rate is just a way that a lot of like, it's a very, very quick way to determine, you know, it's essentially a discount rate of like, what if you were putting your money down? Like what percentage you're going to be getting off of that?
Bob Preston: 24:51 Sure. Okay. So, you got ROI, you got cap rate and then you've talked about internal rate of return. How does internal rate of return different? This is great because we're getting some of these definitions out there for the, for the listeners.
AJ Shepard: 25:00 So internal rate of return is dependent on time. Um, and it's the amount of percentage. Like if you put your money in the stock market and it compounds at 8%, like that would be an 8% IRR internal rate of return, you would get that a year over year, over year. So, uh, that's kind of like how the calculation works, but what it does is it takes into account how long you have your money in place and then what sort of return you're getting over that period of time. So, we usually shoot for like an equity multiplier of like two and then like an internal rate of return of somewhere between like 17 and 20.
Bob Preston: 25:38 Okay. So internal rate of return then is measured over a longer period of time. Is that kind of like the life of the project?
AJ Shepard: 25:43 Because it takes into account the life of the project. So, if the project is going to be four years, your equity multiplier may be lower, and your internal rate of return might be the same. But then if it's six years, your equity multiplier will be higher because you'll be getting back more money. But the internal rate of return will stay the same because your money is in the investment longer. So, it's like making 18% per year on your money. If she leaves it in there seven years, you're going to make more money back. So that equity multiplier then goes up. Okay, got it. Let me see what I'm saying. Cause you would be getting over seven years. If you're making 18% or 20% on your money, then you should be getting back ultimately at the end of the investment, more money in, in total.
Bob Preston: 26:27 So you've got the property identified, you've got the, uh, financing basically committed. You come to me, give me a prospectus. I say, okay, I'm in. I give you, I don't know, let's make up an amount of money, $50,000, whatever. What does that 50 K go towards you? You put in some sort of an account probably specific to this project. Does that go into the rehab? Does that help pay down the mortgage? The debt? Does it help with the Riva? Where does that money go?
AJ Shepard: 26:53 A bulk of it goes towards the down payment. So, we have all of our investors put their money directly into escrow. So, we just opened up the escrow account earlier. Uh, and then what we do is we even share like the closing statement with our investors on our first report. And we're like, this was the extra money. This is what's going into the management accountant. And that goes into the client's trust account. We're super transparent. And since we're first property managers, we're like very transparent with money. Uh, but so, I mean, it's, it's an investment, right? Like there's some sort of risk involved. Like we don't know down to the dollar, what the fees are going to be like, we, when we raise money, like we're saying like, well, it's going to be about $150,000 in rehab costs. Right. Well, I mean that figure when it comes out of escrow might be 148,000 or 152,000. Like there's no way to predict exactly what it's going to be. At some point, you just got to say like, you know what, like, it's it, it's not going to matter that much. Like when you think of a million dollars, like a difference in a thousand is less than 1%. Right? So, it's like, let's let you know, at some point we just need to like move forward and like make better decisions on the bigger stuff.
Bob Preston: 28:10 So let's jump forward. Uh, assume a deal is consummated, right? You've got your capital. You've you're your, your closed escrow. And then are you able to then hire yourself as the property manager?
AJ Shepard: 28:20 We do. And we have a disclaimer in there that, you know, we, we have our property management rates all lined out. We have our construction rates lined out too. And we're, we're super in, in tune with market, if not under,
Bob Preston: 28:35 That's fantastic for the property managers who are listening, because if they're thinking about doing this, I mean, it's an automatic, well, it's not automatic. It sounds like getting the project done and secured. Isn't a lot of work.
AJ Shepard: 28:46 It's a lot of work, but I mean, it's one way that we've grown our property management company a lot. I mean, we're, we're the biggest customer for ourselves by far like, uh, and you know, honestly being able to make your own decisions and not having to go to someone else. It's just so nice. Like if we're, if we're talking to a lot of property managers out here, like this isn't viable, it takes a lot of like, deal-making a lot of talking to people, you know, doing a lot of networking, but I mean, ultimately like if you're a good property management company and you know how to make money for investors, then this is a completely viable option of a way to get into more and larger properties.
Bob Preston: 29:25 Yeah. It's really interesting. I'm sort of on this series of opportunities for my podcast opportunities in the property management business. And this one really struck me as being hugely interesting because no, one's really talking about it except you,
AJ Shepard: 29:37 Hopefully I'm going to change that, right?
Bob Preston: 29:39 So it's a way to not only provide future financial, uh, gains and security for you personally and your family and your investors, but it's also a way to build your door count, you know, which is every property manager wants.
AJ Shepard: 29:51 We we've geared our property management company towards investors. I mean, because we are the largest client, like we have definitely wanted to keep the profits in the properties as opposed to through the property management company. So, you know, changing, we, we charge an asset management fee, which is different than the property management fee. So, you can have a little bit more on there for the particular syndication and not just for the property management.
Bob Preston: 30:20 Well, I'm sure there's a fee structure. That's a little bit different perhaps like, like you meant
AJ Shepard: 30:24 What I've also what we've also found is that like, so the bigger syndicators, they're not going to look at anything that's like five or like eight to 50 units. Like they're all looking for on-site managers, so it's easy to manage. So, in our particular realm in NARPM, I'm like we have a great niche that we can be within that like 10 to 50 unit. Like if it's close to your office, if it's easy to manage, like that is a great opportunity. And honestly, that's where we've been focusing right now. I mean, we're hoping to get into bigger ones, but when you're starting out, like there's just not a lot of investors that are going to go out there. And then self-manage that sort of like investment and there's less people in that market buying because they, you know, they, they're not very, they have to have most of those people have all of that money themselves. And there's just not as many in the market for, for those type of, uh, properties.
Bob Preston: 31:23 I think California market, well, all of California's booming. I'm sure Portland's no different is, is the market is hot for these types of properties. Like, uh, I don't know, maybe a four day, you know, let's just pick a range for you four door to 18 door, 20 door apartments. Uh, is that as hot as it is for the single-family home?
AJ Shepard: 31:41 Uh, there's definitely way less investors like the one to four units. I mean, right now the one to four units are trading anywhere from, in Portland, from what we're saying are trading from anywhere from 175 to 400 grand a unit. Whereas it's like when we're buying, uh, 10, 15, 20 units, they're trading somewhere between 130 and 160, a hundred or so. So, there's a, there's a fairly large discount there, even though the rents are still the same, right? Like if you're buying a duplex that are two to ones, then you know, up in Portland rents for those, depending on the area are anywhere from like 12 to 1500. And in an apartment like with 10 or 20 units, those are still, the rents are still going to be 12 to 1500.
Bob Preston: 32:32 I mentioned I'm in a couple of limited partnerships and LLCs, mostly commercial property and two or three, I guess, three different general partners. Right? That's what you would refer to yourself, I guess once you form the structure and the difference between the general partners is substantial, right? One guy communicates like every quarter, we get this letter, right. And it's a three-page description of what went down and the properties and the challenges. That sounds like a good sponsor. Oh, he's great. Yeah. It's almost like to the point where I got another letter from Jim, you know, I like, I get so much information that I can absorb it, but Hey, at least he's communicating and then attached to that is usually a check. And then I've got this, these other guys and they don't tell us anything. You know, all of a sudden I noticed that my ACH distribution, the deposit went from $4,000 to $2,000. Well, what the heck's going on? You know, how'd that happen? And I got to call him to find out what, why the distribution changed. And so how do you, how do you approach that
AJ Shepard: 33:30 We have software that helps us out with that and it's, uh, it's, it's actually a portfolio investment manager. Uh, so it's an attachment to app folio, which then creates all the bills into our outflow system. So that's pretty awesome. I'll give a little plug for that polio there.
Bob Preston: 33:46 I've seen that, that module by the way. And, and I've been interested by it.
AJ Shepard: 33:49 Yeah. Happy to show it to you any time or, you know, kind of give you a demo of like what it looks like and what we're doing with it. So yeah, we're, we're able to keep track of people having that software as opposed to like Excel or some other means of keeping track as is a lot better. So, um, a lot of syndicators like start out more in like the commercial world, um, not as many come up through property management. So, I do feel like we have a lot of good protocols and systems and other things that allow for us to do, you know, put together a report. So, we typically do reports probably once a quarter distribute once a quarter, we do ACH payments, you know, all of it's electronic. The owner has a, just like a tenant or an aunt or owner and a property management. They have a portal that they can go into. They can see how much money that they've committed to certain different investments and where that money is at. I think I can even like update the investment to like, you know, show that the principal's been paid down a little bit and the assets like increased. So,
Bob Preston: 34:55 I mean, in property management, I'm assuming you err more towards the over communicating or communicating as much as possible. That'd be my guess. I mean, I would, if I was a syndicator, just because that's my nature, you know, I tell our property management clients like, look, we're going to be transparent. We're going to be honest. You may hear bad news every now and then, but you're going to get it from me.
AJ Shepard: 35:13 Good, good, good news. Bad news. It's better if it comes soon. Yeah.
Bob Preston: 35:16 And it's got to be communicated. Okay. And then I'm assuming once a year they get a K one from you guys.
AJ Shepard: 35:22 Yup. Yup. Yup. I'm not going to lie. We struggled a little bit this year doing the K ones. Like in the, whenever you have a first-time syndication, like there's a lot of paperwork that goes into it. And the setup of taxes for a company is just a little bit harder. So we were, we were pushing the deadline of March 15th, but we did get them done, got them out to all of our investors on time. Uh, but kind of going forward, we expect to hopefully be done by middle of February. So
Bob Preston: 35:50 Interesting. That's another difference I've noticed with my GPS is that some of them are always like spot on time. There are some other guys, I haven't even gotten my K one yet. You know, and it's now, uh, almost the end of March. So, it's, uh, sometimes it can be, be frustrating when you're, when you're a passive investor, I guess that's the proper term. Hey, this has been fantastic. And as we head towards kind of wrapping up here, I prepped you for this in advance. I always like my guests to tell a personal story about themselves. Something that maybe defines them or tells a story about their career, their personal life, whatever it is you got, you got something.
AJ Shepard: 36:25 Uh, I do actually, I don't know if I've mentioned, uh, is this on film or no, it is. It is as well. So, I am actually looks tropical. It is I'm in Mexico. So, my, my grandmother bought this place back about 35 years ago and has held it in, in our family when she passed away. She passed it onto my mom and my mom, uh, as pass it on to us. So, I get to kind of come down here and hang out and clear my head sometimes. So, uh, yeah, that's, that's kind of my story. I, I last time my grandmother passed away, but prior to that, I was able to bring my mom down here and that's really special to me. It was her birthday, it's her birthday yesterday. And being able to like come down here and really see, you know, what my grandmother worked for in her life and was able to obtain. And then now I'm able to reap the benefits from it has been pretty, pretty awesome. Very cool. What part of Mexico? Puerto Vallarta. And so, we're in coach's Cheena is just like South of the Los Muertos pier and it's pretty awesome.
Bob Preston: 37:32 My family, uh, and I frequent Mexico. We're 20 minutes from the Mexican border. So, we try to go down as often as possible picking the safest places that we possibly can.
AJ Shepard: 37:43 Puerto Vallarta is very safe. It's really all great, great culture. I've been trying to hit all the restaurant, uh, rooftop restaurants, and still can't still, can't get them all in one trip. So
Bob Preston: 37:55 Able to take chunks of time down there. Like, are you there for a long period or just for the week or what's your, what's your?
AJ Shepard: 38:03 Well, I come down for like a five to seven days. This is the first time I've been down for; I've been down here for two weeks now and I still don't have my return tickets. So, we will, we shall see how long I can. I can last, my brother was down here a month earlier. So, uh, you know, with both of us being able to run the company, if one of us takes off for a little bit, it's going to be okay. There's still someone there to sign the checks.
Bob Preston: 38:24 I'm roping my son and gradually to becoming more of the, uh, you know, managing partner of the business. So eventually we'll probably get there. Hey, this has been a great episode. Thanks so much for coming on the show today. I'd love to continue, but kind of in the interest of time, we need to go towards wrapping up any last words or thoughts for our audience about real estate syndication.
AJ Shepard: 38:45 Yeah. It's, it's one of those things. You got to put one foot in front of the other. If you're, if you're interested in doing it, like don't be afraid to take the first step, really mockup a deal and go from there. Um, it's a great way to grow your doors if you're a property manager and if you're a real estate investor, it's a great way to scale.
Bob Preston: 39:04 And if someone wanted to learn more about your company, how you do it, how would they go about doing that?
AJ Shepard: 39:10 Absolutely. If you go to uptown syndication.com, um, there's a form there that you can fill out and that'll get to me. Or you can just email me to my email’s agent at uptown PM. That's for property management.com. Yep.
Bob Preston: 39:23 We have a lot of investors who listened to the show. So that could be for the investors listening and a good opportunity for you to talk to Aja about perhaps kicking in on one of his projects. Right. And one of his syndications.
AJ Shepard: 39:34 Yeah. And I should, I should also say you should tune into our podcast to Westside investors network. It's on every pod, every podcast player, just West side investors network. And you can hear my, my brother and I interviewed some, some guys, we interviewed a lot of people about syndication too. We have some, some good ones on there. We've got some authors that have come on and its usually good motivational stuff.
Bob Preston: 39:56 I just learned about it. So, I'm going to start listening. So, uh, that'll be great. Hey, thanks AJ for coming on the show.
AJ Shepard: 40:00 Thank you so much for having me on really appreciate it.
Bob Preston: 40:02 This has been fun. And as we wrap up today, I'd like to make another quick plug to our listeners to please click on subscribe, give us a like also pay it forward with a positive review to get more great guests like AJ who taught us about syndication to come on the show. AIG. I expect that a like button or whatever, to subscribe to my podcast and I'll do it for years. How's that, that concludes today's episode. Thank you for joining the property management brainstorm show. Until next time we will be in the field, working hard for our clients to maximize the rental income and maintain top tenant relations.
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