How To Start Your Own Property Syndicate (Part Trois)

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Note: This is the third part in our “How To Start Your Own Property Syndicate For Fun And Profit”. Check out the first two parts here and here.

Brian continued talking while I poured him some green tea. “Believe it or not, now that the Malaysia property market is going slightly south, it’s a good time to form syndicates.”

“How so?” I asked.

“There are so many good deals out there at the moment, and we can afford to cherry pick. The usual big syndicate boys are out. We are no longer in the heydays of property. It’s getting harder to get financing these days, even for the big boys. And as such, with fewer players competing for the same deals, you can get pretty good bargains even if you’re not that big. It’s really exciting time for my little syndicate, and 2014 is shaping out perhaps to be our best year ever, despite the doom and gloom that you see reported in the media these days.”

I smiled. “Now let’s go back to the basics. Once you’ve got your initial group of investors, then what do you do?”

 Step 1: Nail Your Syndication Strategy

“It’s important to get the foundations right,” Brian explained. “Make sure you’ve nailed down your syndication strategy from day one, and that everyone in your syndicate is aligned to the strategy.”

“Syndication strategy?”

“Yes. Your strategy will have to have these components at the very least.” He reached out for the notepad and drew this table –

Syndication Strategy Template

ComponentDescription
Investment amount"Spare cash" type among friends and family, or "serious cash" type with a professional group?
TimelinesShort (1-3 years), mid (3-7 years) or long (>8 years)?
Level of involvementActive or passive?
AreaKL/PJ only? Iskandar? Penang? Urban vs suburban?
TypeCommercial or residential?
StageDevelopment, new launch or sub sale?
Exit strategyCash flow or capital appreciation?

“OK, makes sense. Can you give me some real world examples on how different syndicates may operate?”

“Sure thing,” Brian answered. “Here are a couple of examples –

  • Syndicate A has a “7.5% yield” filter, and will only consider projects with that criteria. Individually, members chip in $50,000 to $200,000 with returns when the property is flipped. The group targets stratified properties.
  • Syndicate B is a “mom and pop” group, going for small amount of residential units (usually two to three) in choice locations to be rented out permanently. This is part of a larger “buy and hold” strategy with a timeline of 10-15 years and beyond. Rental yield is an important filtering criteria.
  • Syndicate C (not in Malaysia) invests in development land in the fringe locations in Klang Valley. These deals are typically out of reach for the common (individual) investor, but with pooled capital they are accessible even to mid-sized syndicates. Development land deals can be as “left-field” as it gets in Malaysia property.

“Interesting.”

Brian said, “Those are straightforward ones. I’ve never really been an innovative guy, and if you look closer, it’s your plain bread-and-butter property investing at a bigger scale. There are some newer, really funky sounding business models which have surfaced recently. Stuff that us Malaysians are not familiar with… like wholesaling and stuff.”

I nodded. “Yes. In fact recently I had a visitor who claimed that she could flip a property in an hour. Sorta like high frequency trading, but in property. Frankly, I thought she was nuts.”

RELATED: Read about Melanie’s “anti-investor” business model here.

Brian shrugged. “Who knows if her method works? I’d rather stick to the stuff that I know works. Like I said, I’m hardly innovative. Your readers may not like to hear this, but innovation doesn’t pay if you’re in Malaysia, period.

I chuckled. “The jury is out on that one. I’m a believer in new ideas, but I’ve seen some pretty hare brained ones surfacing recently. But still, it’s sad to see innovation getting rewarded especially in property. You just need to see how stale the property portals have become. A shakeout is looming in the horizon.”

 Step 2: Recruit Your Members

“Now here comes the tricky part,” Brian continued. “Some likes to get together a band of members first before crafting the syndicate strategy. Being the syndicate leader, I like recruiting people who are completely in line with the syndicate’s strategy. So, the strategy must be firmed up first before recruiting begins.”

“Makes sense.”

“The worst thing that can happen to your syndicate is if you recruit all the wrong people. You want clear-minded investors who are completely aligned to your syndicate’s investing philosophy. Also, expectations must also be set correctly to avoid future complications.

Brian leaned back. “I use this list of disqualifier questions that I have when I interview a new member. When I ask them about the questions that they have, these are what I sometimes get…

Brian’s “Red Flag” Disqualifier Questions

  • “What’s the promised return after a year?” (Honest answer: none.)
  • “What’s the promised return, period?” (See previous answer.)
  • “How are you different from other syndicates?” (Nothing.)
  • “Why can’t Syndicate Yabba Dabba Doo copy what you’re doing and completely destroy you?” (They can.)
  • “What if we don’t make money?” (We put on our big boy pants and move on.)

“When I hear those questions then I move on. Those are the newbie, wannabe types who won’t be suitable for my syndicate. I am not running a Wall Street fund. I make no promises of return.”

I laughed heartily. “Yesterday, I received a call from a self-proclaimed “tech investor” who came to know that I had turned down $1,000,000. He told me that he could cut me a cheque as long as I could guarantee him a 5% return year on year. I politely declined him, and he sounded genuinely bewildered.”

“That’s the reason why I never go on a recruiting spree and go advertise my syndicate everywhere. People will find you if you’re doing well. If you blatantly advertise your syndicate and how much money you make, those who turn up at your door are typically the ones that you want to avoid.”


 

 Next Week: How to structure your deals, do due diligence and craft the perfect exit strategy for your syndicate.

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

Comments

  1. So, how do I join your syndicate? I think I should fall into your Syndicate A category. Hehehe

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