How To Start Your Own Property Syndicate – Part Deux

Amy Yap at GoodPlaceHQ

In our previous home buyer’s guide, we have talked about the good and bad about forming your very own property syndicate for fun and frolic (if you’ve missed reading that, go here). But before that, I’d like to share with you a rather interesting (and anonymous) email that I received almost immediately after I posted the “I-hate-spam” rant which preceded last week’s article –

Agent confession

Trust me, I know how hard an agent’s life is (I had experienced this first-hand when I interned at an agency two years ago), and I really hope that home buyers give them more credit for the very important job that they do (buying and selling homes is a hardly trivial matter). Having said that, agents must realize that there’s always better ways to get good leads without resorting to low brow “marketing” like spamming (cue: insert plug here). There’s always a better way although there’s no shortage of (legit but) crappy methods either.

Home buyers are also getting savvier than ever and with the Internet literally in their pockets, agents can expect the buyers to be well informed about their prospective purchases. At the same time, buyers know that they have got more bargaining power than ever (in this down market), and it’s only natural for investors to start pooling their money and forming small syndicates of their own.

 Enter The Ringleader

Brian (not his real name) told me that “property investment is all about scale.” “Unless you want to do it to make side income,” Brian said, “the only way to do this is through scale. It’s all about massive capital. And we are talking massive.”

Stella's demonstrating what's massive

“That’s quite of the question for most people, Brian,” I had reacted.

He laughed. “Everyone needs to start somewhere, but whoever who think they can make it by flipping one property at a time is delusional.”

“Fair enough.”

Brian leaned forward. “Don’t get me wrong, man. I started small. Not sure if The Mentor had told you, but I started when I was living in Taiping. I remembered that my mom used to have all these kutu sessions where her mahjong friends would pool money to lend out for interest.

“I then realized that I could do the same for property. First it was just me and my cousin brother as well as a childhood friend. We started on small projects on tiny tracts of land right outside Taiping town. When more projects came up in Taiping and also in Ipoh, we expanded to include a few others. Mainly my ex-schoolmates and my mom’s kutu gang.”

 iProperty’s Right… There’s Power In Numbers

When you’re in a syndicate, you can have the benefits of sharing the rewards while spreading the risks,” Brian told me. “And as you get to invest in bigger projects, you’ll get to earn more, too.”

“This sounds good on paper, but what’s the catch? What’s your edge?” I probed.

Brian smiled. “Well,  there was this dude I knew tried to immediately jump into the big leagues by pooling twenty million bucks among his friends and tried to en bloc a small apartment in KL or PJ. I won’t tell you how it all ended, but he didn’t make it.”

“So the trick is to start small?”

Brian nodded. “But I bet your readers don’t want to hear this. Everybody wants to go for the jugular and flip an entire condo. Of course, I can’t judge, but there’s a learning curve in everything, and if you’ve not been a good solo investor then investing in a group can be doubly hard for you.”

“How did you get started?”

“Three of us pooled $350,000 and we bought three units of terrace houses. One of us is an interior designer, and he turned the places into exotic little gems with finishing touches rarely seen in Taiping homes. We have been renting the units out since 2007, and yield has been awesome. Just two months back we sold a unit off with about 70% capital appreciation.”

“What happened after?”

“That project gave us the confidence to tackle bigger projects. I’ll spare you the details, but we have since done commercial and residential deals in Taiping, Ipoh and Penang. For each of the projects, we individually invest between $10,000 to $100,000. Projects can be as small as two units or as big as 40-50.”

 Better Bargaining Powers With Developers

“OK, so you get the benefits of scale and also a reduction in risk. What else?”

“When you get bigger, you are in a better bargaining position with the developers. You no longer pay retail like everyone else. Even better, forget the long queues at hot launches… just hop on the phone with the developer and say you want twenty units!”

“This is your edge, I see. I get it.”

Brian smiled. “Yes, Khai Yin. Solo buyers can’t compete with me. Right now you’ll see this trend in KL and anywhere else. Remember the Vortex launch by Monoland? I heard that all the units were completely booked even before the preview event which was open exclusively to their previous buyers of Quadro and Vipod.”

I nodded.

“You can bet that even before their previous buyers had the chance to make their bookings, the choice units were possibly taken up by those even higher in the pecking order. As such, solo buyers are always in the bottom of the pyramid unfortunately. They pay full retail, and the units are leftovers if there are any.”

NEXT WEEK: Determining the syndicate’s optimal investment criteria, ideal exit strategies and making your first syndicate deal!

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About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

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