The Syndication
History
Along Comes“ Frank”
The Syndication
Introduction
This is the story of the property in Fig. 1, which is a 3,800 square foot Victorian house that was built in 1898( i. e., age 120). Some years ago, it was converted into five studios and three 1bedroom apartment units. The purpose of this story is to illustrate many lessons that can be learned about rehab,“ flipping”, and syndication.
History
The property was owned by a woman who lived outside the country, an“ absentee owner”. She“ milked” the property for the cash flow, allowing maintenance to be deferred, and keeping rents low to sustain a steady occupancy. The management company performed to her low standards.
Along Comes“ Frank”
( pseudonym)
Frank was a newlyminted“ real estate entrepreneur”, who had recently completed training in“ Apartment Rehab and Repositioning” by a national trainer. Being a bright fellow and a smooth talker, Frank decided to form a syndication to raise the money needed. He didn’ t have any money of his own.( Actually, he was living
Fig. 1 with relatives!) 53
According to title records, Frank raised nearly $ 600,000 from six partners in a Limited Liability Company( LLC) structure. He gave each partner a security interest in a deedoftrust that was secondary to a private first loan of $ 465,000 from a group of dentists who owned“ Novocaine LLC”. Frank didn’ t care if his partners were“ accredited” or not, as long as he got the money for the project.
Some Real Estate Lessons