What a full cycle LP syndication deal looks like from entry to a 1.6x exit

Six months into research with nothing done, so the question I actually have: how did you find this sponsor at a point where you had zero deals of your own and no way to judge one? The reference call idea is good, I just don't know how anyone gets to the point of having a sponsor to ask references from.

$8,500 a unit for a 1998 build interior is a real budget, not a lipstick number, so I'll believe the $185 premium. What I want to know is whether the last 12 they deferred came out of the exit price. A buyer touring 84 renovated and 12 classic units prices the 12 as work to do and usually charges you more than your own cost to do it.

Also 71% on insurance and payroll over. Which line was actually bigger in dollars? Payroll overruns on a 96-unit are usually a management problem and they tend not to fix themselves.

Working out what my first deal costs, so I'm interested in the cash timing rather than the multiple. $8,900 over 42 months on $50k is about 5% a year while it was invested, and the rest arrived in one lump at the end. Did the final $72,100 land as one wire, and how long between the closing and the money hitting your account?

Also, and forgive me if this is obvious, did the tax bill in the sale year eat into that number in a way the 1.6x doesn't show?

Taking these together. @jordan_ellis2 A common path in is sideways: a year of local meetups and reading everything a handful of sponsors publish, then asking several of them for their full track record, projected against realized, for every deal including the dead ones. Most won't produce it. A marketing deck followed by silence after a follow-up question is useful information on its own. Reference calls only make sense once someone actually sends the real numbers. @omar_haddad payroll was the bigger dollar overrun on a deal like this, about $70k a year against budget, tied to a staffing turnover problem at the site that took two attempts to fix. Insurance ran around $58k of increase. On the deferred units, a buyer's broker will often use that in negotiation, though the exact cost tends to show up only in the final number, not the line items. @carlos_nunez That's the reason to read the projections before the loan terms, though the debt being assumable is a benefit that's easy to underweight going in. Without an assumable loan, a deal like this reads more like a five to seven year hold that ends near where it started. @aliyah_b One wire, roughly a month after closing, is typical for a clean full-cycle exit, and the tax side of a sale year is genuinely a CPA conversation rather than something that generalizes. A 1.6x multiple like this is usually quoted pre-tax, and that distinction is worth stating explicitly.

The reference call to the worst deal is the single most transferable thing in this thread and it costs nothing. Stealing it.

How many deals did you look at and pass on before this one? It's common for someone to spend months building a spreadsheet of forty rows before wiring anything, and it's worth asking whether that pace is careful underwriting or just avoiding the decision.

What did the reporting actually look like month to month? I'm curious about the service side of this, meaning who produces the investor updates and whether a sponsor with good reporting is telling you something real about their operations or just employing a better writer.

Your 2023 story suggests the phone call mattered more than the document.

@carlos_nunez I'd split the difference with you. Assumable low fixed debt bought you the buyer pool. Trailing NOI of $605k against a going-in around $510k is still a 19% lift in three years on a 1998 build, which means somebody actually pushed rents and held expenses well enough that the number survived a 71% insurance renewal. Both things happened.

@chriswalton8 the thing I do on every position now is track quarterly distributions against the original pro forma in one column, and the gap tells me whether the story I'm being told matches the money. Yours would have shown a red 2023 and a recovery. Did the sponsor ever explain in writing how they intended to make up the suspended pref, or did it just get settled at the waterfall?

The exit cap is where I would push. Buying at 5.2 and selling at 5.0 means caps compressed 20 basis points on a 1998 build in a mid-size market between 2021 and 2024. That is not a normal outcome for that period, and it is the assumable debt showing up in the cap rate rather than in the price line. Strip that out. Sell at a 5.6 cap on $605k and that is $10.8m, minus 2% costs and a loan balance around $6.15m, leaving about $4.4m of equity on $4.2m raised. After promote and distributions, that lands at roughly return of capital. The entire profit lives in 60 basis points of cap that a buyer paid for the loan. Underwriting question for the room: how do you price assumable debt at entry without assuming rates stay high enough for it to be worth something at exit?

Asking the thing I'd be embarrassed to ask out loud: what does full cycle mean exactly? I've now read it four times in this room. Does it just mean bought, held, sold, everyone paid out and the entity closed?

And @chriswalton8 when the distributions dropped to 3%, was there any point where you could have gotten out, or was the only choice to sit there and watch?

$8,500 a unit for interiors on a 1998 build is tight but doable if the plumbing and panels are sound. On a 96-unit of that vintage I'd have expected at least one surprise in the mechanicals. Did anything hit outside the interior budget, or did the 1998 age hold up?

Was the accredited check just a form you signed, or did they want documentation? Trying to work out what actually gets asked for at the subscription stage.

Starting from nothing here and the number that stops me is $50,000 as a minimum. @chriswalton8 did you get to that from one place, or was it years of saving toward the one check? I'm asking because most of what I read about passive real estate just assumes you already have the fifty grand, skips right over the part where you have to come up with the fifty grand, and I'd rather hear how someone actually got there than read another explanation of a waterfall.