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  • Writer's pictureJohn Pearl

Apartment Syndication Failure!

Updated: Jan 3, 2023

For the past 3 years, since beginning my journey into multifamily investing, it had been my goal to be a lead sponsor on an apartment syndication.

I had been reading every book on the topic I could find, listening to all the podcasts, traveling all over the country for networking events, and doing everything I could to expand my knowledge base.

All that is just fine and an important part of the process, but eventually some real action

needed to be taken.


I had always heard that apartment syndication is a “team sport” and finding a good partner/team is one of the most important ingredients for success.

It wasn’t until I partnered up that things really started taking off. We met in an online networking group focused on investing in Multifamily, and more specifically on syndications.

We had been meeting weekly for a few months and started developing a good rapport with each other when we ultimately decided that we wanted to combine our efforts and try to take down a deal together.

There are many aspects to an apartment syndication, so it is important to partner up with individuals who have valuable skill sets that will compliment your own.

My partner was highly focused on deal acquisition and operations.

I was impressed by the systems he had in place for building relationships with brokers and getting deal flow.

His background in business strategy, unique ability to underwrite potential investments, and creative approach in problem solving seemed like an excellent fit to counter my skillsets and balance out the areas I lacked.

He would be taking the lead on the acquisitions/operational side of the house, while I was to take the lead on the capital raise/investor relations.

We eventually found out that we would both need to put in a significant amount of effort in all areas of the business despite the original plan.


The process we were using was straight forward and simple- find agents/brokers on websites that contain listings for multifamily properties (,, etc), reach out to the ones who are doing the most business, explain what we’re looking for, then follow up with analysis and critiques.

Most of the properties do not meet the criteria, but the key is to follow up with detailed feedback.


After a whole lot of back-and-forth, submitting a few conservative yet unsuccessful LOIs (Letter of Intent to purchase- this is a step taken prior to a purchase contract to spell out the terms that the buyer would like to have when purchasing the property), we finally found a property that met the criteria.

A LOI was submitted and accepted with favorable terms, so we began digging deeper and getting our ducks in a row. Shortly after the LOI was accepted, we came to terms with all parties signing a formal PSA (Purchase and Sale Agreement), and we had a 72 unit property under contract.

Our contract spelled out a 90-day escrow that included a 30 day “inspection period” where we would perform our due diligence and numerous contingencies that would allow us to back out of the contract if certain aspects didn’t play out in our favor.

The property consisted of 72 residential units, 32 storage units, and 1 commercial space (4000 sq/ft) which was vacant at the time of purchase and a significant part in our value-add strategy.


Our plan for this property was a classic multifamily value-add strategy. We would aim to create value through renovations, new revenue streams, and operational improvements.

  • Achieve Market Rents With Light Renovations: We would renovate unit interiors to market standard and refresh building exteriors to increase average monthly rents by $117+ over the three-year business plan. (+$94K total)

  • Rent Out Vacant Commercial Building: Large commercial space (4,000+ square feet) needing limited work to be rent ready. Agent reported to have tenants lined up to rent long term at $2,000+ per month.

  • Increase Rent Collections With New Property Management: We hired the market’s top property manager to improve collections. Current management lost 5%+ of annual rents to nonpayment last year. (+$23K)

  • Charge Tenants for Water and Gas: Start a simple ratio utility billing system to bill back tenants at a flat monthly rate for water and gas usage. This would have added up to approximately 50% of the total utility expense. (+$19K)

  • Stabilize Storage Units and Build Out More: At the time, the storage units were only 71% occupied. We planned to increase occupancy to 90%+ and convert 4 units being used by the owner into rentals. (+$6K)


This strategy would play out over the course of three years, and would ultimately lead to the following projected returns:

  • 12%+ Average Annual Return: This is the average return to investors over the life of the investment. It includes income from rent collection, proceeds from refinancing, and profits from the sale of the property.

  • 10%+ Average Cash on Cash Return: This is the average percentage of cashflow earned by investors on any capital which remains invested in the deal.

  • 5% Member Preferred Return: This is the percentage of the annual return that is distributed to the limited partners before the general partners get paid.

  • 1.85X EQUITY MULTIPLE: Invest $100K, receive $85K back on top of initial investment.


Our due diligence process consisted of multiple trips to the market for inspections and meetings with potential team members to confirm that our understanding of the property and our projections are correct. Our big-ticket due diligence items included:

  • Walking through each of the 72 units and commercial space with an inspector and contractor to confirm our renovation numbers.

  • Comparison of the rent roll vs the actual signed leases on file and the owner’s income statements.

  • Analysis of the property’s previous tax returns.

  • Analysis of the property’s insurance claims from the recent windstorm


Our due diligence period brought to our attention some major red flags that would ultimately lead to the demise of the deal.

Despite our best efforts to get through these issues and find workarounds so the deal would work, we were unable to make it happen. Major red flags we found:

  • Commercial space – Our intent was to transform this building from its current state to a blank slate for a new tenant. The sellers had reported that their contractors estimated a price of $75K to achieve this objective. During our inspection, we discovered some major foundational issues and the new estimate we got from our contractors were more than $150K. More than twice our original estimate.

  • Cost to turn the units – Original projections provided by the sellers: $4K per unit. Actual estimate provided to us by our contractors: $7.5K per unit. It should be noted that our estimates came at a time when lumber and labor were extremely expensive in the Eastern Iowa region due to a major windstorm and many repairs needing to be made around the area.

  • Taxes – The current owners were paying roughly $50k/year in property taxes. This is largely based on the assessed value/original purchase price of the property. The seller had purchased the property a few years back for a significantly lower price than we were looking to purchase at. In the state of Iowa, we learned there is a complicated tax formula that increases significantly over time.

  • The takeaway here is that we realized the amount we estimated paying by year 5 of our hold period was almost 2x as much as our original projection. Although this was not a total deal breaker, it added a challenge to get the deal to work. This falls on us for not knowing how to calculate this ahead of time and is something we have learned from.

  • Rent Roll Discrepancies and Delinquencies – To analyze the rental income, we went through the rent roll provided to us line by line and compared it to each individual lease the owners had on file. We found that roughly 20% of the lease agreements did not match up to the rent roll that was provided to us. Most of the issues were either expired leases or leases stating much less than the rent roll (rent roll states $625; lease states $500).

Additionally, the reported vacancy by the seller was right at 4%. After our analysis, we discovered that it was closer to 10% and that there was $10k+ in delinquent payments owed by the tenants.


These items played a major role in our decision to pull out of the deal.

To make our returns work we had to reduce our offer price, but the sellers were not interested in going any lower.

We were lucky to have such a favorable PSA that included buyer-friendly contingencies.

We ultimately exercised our financing contingency to back out of the deal.

With the sellers not being willing to budge on price, the financing we were approved for would no longer work.

The financing contingency stated that “this agreement and purchaser’s obligations hereunder also remain contingent upon purchaser being able to obtain a firm commitment for financing with a term, amortization, interest rate and fees acceptable to purchaser, in purchaser's sole discretion.”

Although we were confident in our logic and knew we had a strong argument to exercise our contingency, this was a nerve-wracking time.

We had $20K+ at risk in our earnest money deposit and we were not sure how the seller was going to respond.

We ended up receiving our amendment to end the contract, signed by all parties with no arguments, and the deal was officially behind us.

We learned a lot throughout this process and are eager to put our knowledge to use.

We continue to educate ourselves, network with more experienced operators, and expand our outreach so we can provide more opportunities for our family and friends to partner with us.

Thank you for reading!

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