Certain amount: looking for investment opportunity
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Melanie P.Pro Member
Rental Property Investor · Member since 2023 · 1k+ posts · 922 votesDO NOT listen to the advice in this thread from syndicators to invest in syndication deals. These are investment promoters and the investments they market are highly speculative, difficult to evaluate and there is a high likelihood that you could lose your entire investment. Be very careful about sending money to anyone who claims to be an expert in one of these forums or who has a website that seems to talk a lot about the "easy investor life" without much discussion of the very serious risks involved in the investment.
As to your money, I would say to stand by. There will be opportunity in the next year or two as real estate prices adjust to meet economic reality.
31 Replies
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes2y
Quote from @Evan Polaski:
This thread is borderline comical.
The moral is: if you don't know real estate, it is risky to invest directly and it is risky to invest passively.
"Passive" from a lifestyle definition is very subjective. To some, owning rentals directly is too active. To others, it is "passive". To me, owning rentals directly was more work to manage my manager than it was to manage the rentals (and I was making less money due to management fee and inflated repair costs).
Syndications: you need to know how to really read people, read financial statements, and understand many of the risks of real estate. As other's have noted, there are a lot of sponsors on these forums, running Facebook ads, etc that this current downturn is their real headwind they ever faced. "Syndications", at least most of the ones visible on these forums are marketers first and foremost. There are syndicators out there that are operators first (and yes, they do need to market when they are raising funds) but unlike many on these forums, they are not constant marketers. Unfortunately, the groups that do the least marketing are the hardest to find (clearly), often have very long track records, and their minimums are much higher (commonly $250k+ stated minimums).
Owning directly, OOS: depending on your involvement, willingness to travel to property, you are in many ways facing the same risks as syndications. You still have to vet and trust your team of agents, property managers, contractors, leasing agents, etc. You still have the vet the deal and understand the risks. To me, real estate agents and property managers are basically the same as syndicators, in that they are financially incentivized to get you to buy a deal and/or use them for property management. Yes, you can decide to sell unlike a syndication. But OOS investing is still very much a trust issue. You do get to make more decisions, like which PM to use, how to finance, whether you do the capex project or continue to defer, but that is all work you are doing, which may or may not be too much.
Owning direct locally: well, you live in one of the highest cost of living areas. As you note yourself, appreciation has been through the roof. Hopefully, that continues long term. But I will note (and admittedly I am only familiar with the CA markets from a distance), but for every true foreclosure/investor loosing everything in a syndication, I have read just as many stories about CA tenant that stayed in unit for 12+ months without paying. So, while I know this is probably not the norm in CA, it is also not the "norm" with the well run operators.
At the end of the day, there is no better way or ideal way. Every option has its own challenges and upsides. It all comes down to where you balance your personal perception of risks to the potential reward.
But, in hindsight, I sort of align with Melanie. I have never lived in CA, but man, do I wish I was buying in LA/Orange County/San Diego back in 2010 instead of Cincinnati, OH, where I live. Cincinnati, average price in 2010: $165k. Feb 2024: avg sale price $240k. Similar data points in LA: $330k (2010) to $1.2mm (2024). 45% total average appreciation in Cincinnati. 264% total average appreciation in LA.
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes2y
I think the question is how involved do you want to be in the investment @Gene Jung!
If you want to be completely passive find a syndication to invest in...if you want to be involved find a partner and figure out the best strategy for you all i.e, fix & flip, STR, MTR, LTR, wholesale etc.
What city are you in?
Quality Builders4.966 Reviews - 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Quote from @Jonathan Klemm:
I think the question is how involved do you want to be in the investment @Gene Jung!
If you want to be completely passive find a syndication to invest in...if you want to be involved find a partner and figure out the best strategy for you all i.e, fix & flip, STR, MTR, LTR, wholesale etc.
What city are you in?
Syndications are not appropriate investments for someone "just starting out," in real estate. There's no way to know whether George is accredited. But just from the standpoint of being able to do basic due diligence - to be able to verify that the syndicator owns the properties he says he owns would be difficult for someone without any real estate experience.
There were just guilty pleas in a syndication front that was actually a Ponzi scheme. There are stories posted here every day about capital calls, loss of principal invested, loss of promised distribution payments. This was a corner of the universe one had to be careful in before it was overrun with scammers and inexperienced operators over the last 10 years.
If one wants to be completely passive there are highly regulated stock market offerings they can put their money into. Ever hear of a REIT? I don't know why syndicators are pushed so heavily in these forums.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Melanie P., because REITs are BAD!!! Didn't you know that? :)
As you note, being able to vet sponsors is one of the hardest parts (although I don't actually agree with this). There are some great marketers out there posing as real estate operators. But, there are also some great operators out there, who happen to raise money for their deals from outside LPs.
I do think we have witnessed/are witnessing a lot of investors that will forever be turned off of syndications. Some just got in at the peak with otherwise honest, good operators. Others got sold snake oil by a good marketer. Unfortunately, like most things, if your first foray into anything new goes poorly, you are likely to label everything about that thing as bad.
But back to your REIT comments: while I do acknowledge both the strengths (generally more robust companies, highly liquid, lower risk investments and overall structure), there are some trade-offs. I.e. if you are an LP that can benefit from pass through losses, those can create a significant financial benefit when fully understood and handled appropriately. Also, if you are looking for more value-add deals, REITs often don't play in the space (for better or worse).
And before anyone brings up volatility, the only reason syndications are not as volatile as public REITs is because syndicators never perform mark-to-market NAV, net of fees and carry, on any interval, let alone minute by minute. I see this as a neutral, but both REITs and syndications are subject to the overall market volatility, but only one is reflecting it in a public way.
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes2y
Quote from @Gene Jung:
I have 500k to allocate into real estate. Assume that I have taken care of retirement account and general stocks contribution. Also, assume a regular job so I do not need extra income. I want to invest 500k real estate somehow to protect against dollar devaluation. Please recommend/share ideas on where and how to do something. thank you
I don't think you can use real estate as a hedge against dollar devaluation other than taking your $500K and investing in assets that are throwing off cash. It's really not a hedge against the dollar collapsing, it's just your assets working for you to produce more $. The value of those dollars however will still be less no matter what you do.
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Quote from @Crystal Smith:
Quote from @Gene Jung:
I have 500k to allocate into real estate. Assume that I have taken care of retirement account and general stocks contribution. Also, assume a regular job so I do not need extra income. I want to invest 500k real estate somehow to protect against dollar devaluation. Please recommend/share ideas on where and how to do something. thank you
I don't think you can use real estate as a hedge against dollar devaluation other than taking your $500K and investing in assets that are throwing off cash. It's really not a hedge against the dollar collapsing, it's just your assets working for you to produce more $. The value of those dollars however will still be less no matter what you do.
if dollars are worth less rent and real estate prices generally are going up too but can be much slower to catch up.
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