@Ned Carey - the general partner is reimbursed out of the raise, but only if the deal closes. I've lost some money in the past when the deal did not close...But as Sam says - yes, the float to get things off the ground is personal money.

This is one area where there is a fair amount of moral hazard. Obviously nobody wants to loose $150K, and one could say that with this much money hard, the sponsor can "feel committed".

The thing is - I wouldn't do a bad deal if I know it's a bad deal. This is where the moral fiber of the sponsor is crucial. The cognizance of fiduciary responsibility in the sponsor is above all else... Good thing Sam and I are bullish as all hell on this deal, so moot point...

As to your questions around returns - there is typically no or very little cash flow left for the sponsor after the pref paid. For us it's a fee model. A little on the front, and a lot more on the back if we can execute the plan. And if not, we are **** out of luck. Basically - long game.

We do get some management fees during the hold, but not enough to mention. And, frankly, not enough for the work we do. For us, this is all about the exit! But, it's the kind of money that is worth waiting for, working on, and executing :)

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

Originally posted by @Ned Carey :

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

 Yes, Ned - this is not a cash flow play for me. I have cash flow coming from property I own individually, as well as business. The syndication model for me simply balances things out and creates big pay-days down the road. Additionally, because the projects are large, my percentage of ownership allocated to me vast amounts of passive losses, which for a real estate professional do the job of shielding things...

In short, I am more than happy to give away the cash flow to my partners.

Originally posted by @Ned Carey :

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

The distinction on larger properties is between a sponsor and an investor. An investor can get cash flow. A sponsor gets their payday on the exit. Now, once the property is repositioned, there's usually enough cash flow for the sponsor if they don't exit the property. However, the highest returns for all involved are when you exit after repositioning (assuming there's another investment to move your cash to after the exit). 

@Ben Leybovich

First off congratulations on the deal very impressive 

But I have to say This peaks my interest ..... I always thought of you as the guy who has said all the smart money has already made the big moves back in 2013 or whenever it was in your original few podcasts 

Why are you going so big this late in the cycle esp with mf which many have said is very overheated... also if there is a previous post on this I apologize for redundancy I have not read it

Maybe it’s an add value force equity play or something?  I personally don’t do large mf but I am very interested and will possibly be working with a lot more capital this time next year so I’d love to hear your thoughts 

Originally posted by @Alex J. :

@Ben Leybovich

First off congratulations on the deal very impressive 

But I have to say This peaks my interest ..... I always thought of you as the guy who has said all the smart money has already made the big moves back in 2013 or whenever it was in your original few podcasts 

Why are you going so big this late in the cycle esp with mf which many have said is very overheated... also if there is a previous post on this I apologize for redundancy I have not read it

Maybe it’s an add value force equity play or something?  I personally don’t do large mf but I am very interested and will possibly be working with a lot more capital this time next year so I’d love to hear your thoughts 

Alex - good question.

I tend to learn in real time, and since 2013 I've seen people making money hand over fist. I mean, there I was saying - you are buying at 8 cap - what? Are you stupid?! And then, they weren't so stupid...

So I started asking myself questions, and doing research. Doing my best to get into the heads of smart folks.

I've come to several realizations:

What we experienced in 2010 - 2013 was brilliant, but also a once in a lifetime opportunity. That's likely to never, ever, ever happen again. Just based on this, if you are waiting for those conditions to occur again, you'll not be a buyer ever in your lifetime.

Additionally, the economics today are more favorable in so many ways for multifamily than ever before, from cost of new construction, to home-ownership levels, to mortgage financing, to attitudes, to pure and simple demographics.

I don't look at real estate in the same way I did in 2012. I've evolved. Am I wrong? Could be, but I don't think so, and I believe my desire to buy large-scale assets is rational.

Originally posted by @Ben Leybovich :

Originally posted by @Alex J.:

@Ben Leybovich

First off congratulations on the deal very impressive 

But I have to say This peaks my interest ..... I always thought of you as the guy who has said all the smart money has already made the big moves back in 2013 or whenever it was in your original few podcasts 

Why are you going so big this late in the cycle esp with mf which many have said is very overheated... also if there is a previous post on this I apologize for redundancy I have not read it

Maybe it’s an add value force equity play or something?  I personally don’t do large mf but I am very interested and will possibly be working with a lot more capital this time next year so I’d love to hear your thoughts 

Alex - good question.

I tend to learn in real time, and since 2013 I've seen people making money hand over fist. I mean, there I was saying - you are buying at 8 cap - what? Are you stupid?! And then, they weren't so stupid...

So I started asking myself questions, and doing research. Doing my best to get into the heads of smart folks.

I've come to several realizations:

What we experienced in 2010 - 2013 was brilliant, but also a once in a lifetime opportunity. That's likely to never, ever, ever happen again. Just based on this, if you are waiting for those conditions to occur again, you'll not be a buyer ever in your lifetime.

Additionally, the economics today are more favorable in so many ways for multifamily than ever before, from cost of new construction, to home-ownership levels, to mortgage financing, to attitudes, to pure and simple demographics.

I don't look at real estate in the same way I did in 2012. I've evolved. Am I wrong? Could be, but I don't think so, and I believe my desire to buy large-scale assets is rational.

That’s awesome!  Wishing you nothing but success 

I look forward to hopefully connecting in the future 

Sounds like you did a great job and even better is that you are happy with the outcome. Congrats! Keep up the good work. Real Estate - It's not just a job. It's an adventure :-))

@Ben Leybovich and @Sam Grooms that is so awesome that you guys closed on this multi-unit here in Arizona. I am looking forward to you sharing the details of your story about it at our meet up in Mesa on September 19th. https://www.biggerpockets.com/forums/521/topics/604730-investor-meet-up-in-mesa-arizona

Great job guys!