What would you tell an NFL player who’s considering Section 8 housing?
Developer · Nashville · Member since 2023 · 10 posts · 34 votes
What would you tell an NFL player who’s considering Section 8 housing?
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesFinancial suicide by a 1000 cuts.. your giving up 30% management fee on already a very slim cash flow model fraught with all sorts of headaches..
Just skip that asset class and move to better neighborhoods and assets. Find a very good PM to work with and do this yourself.. Or just invest with really good syndication or REITS.
Your talking about a very ill liquid asset that will only sell for what the cash flow is minus risk.
I have been funding BRRR investors in Cleveland for many years we have done our share of the low end stuff and its simply not worth the pain.. There are great neighborhoods in Cleveland that you can get market rents and market tenants just like any city .. The highly levered ( assuming they want you to put the debt and be responsible for the debt on these) is just way to risky for high net worth individuals in my mind who have all sorts of options out there. I thought the same thing back in 2012 and bought 300 Section 8 rentals and my PM's were partners and I sold out after 3 years Just not worth taking on massive debt for those assets buy yourself some very nice A and B class rentals that will actually appreciate over time and have realistic exit strategies. IE homeowners will buy them not just investors. Those that make the model your talking about work are Hands on locals doing it all themselves and pay cash for a lot of what they buy so they are not saddled with debt.
For you to tie up your purchasing power given your financial status on the cheapest properties you can buy in America to me makes no sense and taking on massive risk.
32 Replies
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Vince Biegel:
I love the bigger pockets community to bounce ideas off the group. Here’s the opportunity:
I’ve found an experienced operator (250 doors under his belt) who specializes in Home choice voucher program (HCVP) or section 8 housing.
The numbers are a 70/30 split. We forum an LLC together were in 70% owner. I hold majority to all key decisions. I'm providing all the capital while him and his team finds the deal, repairs property, finds tenants, and manages the property. I can be involved as little or as much as I'd like. (I'd like to since interested in this real estate asset class).
His main market is Cleveland, but also has Toledo, Memphis, and a little Jacksonville. Buys single family homes on the $50k - $75k range give or take $5k.I’m new to Section 8 housing. I’ve been doing a great deal of due diligence on the team and the asset class as a whole. What are your thoughts? I would love someone’s take who’s invested in HCVP. What are the pros/con? Tips? Any advice would be well received. Thank you all.
Your Question: "What would you tell an NFL player who’s considering Section 8 housing?"
Gear up, practice hard, run the play, get knocked down, get back up, get knocked down again, get back up and heal up monday thru wednesday. Then get traded to a winning team.Do a play by play comparing low income housing vs medium income neighborhoods (your CPA can do this for you) and see who fares better with lower risk. Oh heck, you're a tough guy that thrives on pain. Forget what I just said. Go for poor neigborhoods, just carry heat with you.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes2y
I'd tell them the same thing I tell everyone else.
There are pros and cons.
Then I'd go through the pros and cons. And I'd stress that not all S8 tenants are created equal.
Expecting this strategy to work in as a fail safe for not properly screening tenants is a huge mistake. Expecting it to work on extremely low-end properties is also a mistake.
Overall, I like the program but I don't believe in using it as the only tool in the box.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
Dream big: Makes it to NFL
Dream big: Buys $50k house in Cleveland
- Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes2y
Not all S8 tenants are great and respect their voucher program and the home in which they reside. S8 does have pretty strict requirements for the property. Just rented one out in a duplex and had to do an additional $2500 in work (after already making it rent-ready) to satisfy the government to make it S8 ready.
Be aware that their inspection will always nitpick and find something wrong so be prepared to do some extra repairs here and there.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2y
Quote from @Vince Biegel:
I love the bigger pockets community to bounce ideas off the group. Here’s the opportunity:
I’ve found an experienced operator (250 doors under his belt) who specializes in Home choice voucher program (HCVP) or section 8 housing.
The numbers are a 70/30 split. We forum an LLC together were in 70% owner. I hold majority to all key decisions. I'm providing all the capital while him and his team finds the deal, repairs property, finds tenants, and manages the property. I can be involved as little or as much as I'd like. (I'd like to since interested in this real estate asset class).
His main market is Cleveland, but also has Toledo, Memphis, and a little Jacksonville. Buys single family homes on the $50k - $75k range give or take $5k.I’m new to Section 8 housing. I’ve been doing a great deal of due diligence on the team and the asset class as a whole. What are your thoughts? I would love someone’s take who’s invested in HCVP. What are the pros/con? Tips? Any advice would be well received. Thank you all.
First of all, nice marketing chops dropping the NFL status to get attention on your post, it's why I clicked.
Secondly, don’t do this deal. Just buy the properties yourself. Maintain 100% ownership and have a Property Manager handle everything for you. There is no good reason to give up equity here. If you don't like how the Property Manager operates you can replace them. Don't get married after the 1st date playa.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2y
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Financial suicide by a 1000 cuts.. your giving up 30% management fee on already a very slim cash flow model fraught with all sorts of headaches..
Just skip that asset class and move to better neighborhoods and assets. Find a very good PM to work with and do this yourself.. Or just invest with really good syndication or REITS.
Your talking about a very ill liquid asset that will only sell for what the cash flow is minus risk.
I have been funding BRRR investors in Cleveland for many years we have done our share of the low end stuff and its simply not worth the pain.. There are great neighborhoods in Cleveland that you can get market rents and market tenants just like any city .. The highly levered ( assuming they want you to put the debt and be responsible for the debt on these) is just way to risky for high net worth individuals in my mind who have all sorts of options out there. I thought the same thing back in 2012 and bought 300 Section 8 rentals and my PM's were partners and I sold out after 3 years Just not worth taking on massive debt for those assets buy yourself some very nice A and B class rentals that will actually appreciate over time and have realistic exit strategies. IE homeowners will buy them not just investors. Those that make the model your talking about work are Hands on locals doing it all themselves and pay cash for a lot of what they buy so they are not saddled with debt.
For you to tie up your purchasing power given your financial status on the cheapest properties you can buy in America to me makes no sense and taking on massive risk.
- 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Vince Biegel you've got more capital and fame than the average investor here on BP, but all the same challenges.
Do NOT buy into the HYPE of S8 properties!
Have you signed up for Tom Brady's nutrition & exercises TB12 program? Why not?
He's the best football player ever, so it MUST be worth the hype!Get the point?
Understand your hope of investing in something like this. It's probably no different than what Jordan, Magic, Shaq, etc. did to get started.
IF you pursue something like this, you should try 1-3 properties to start and micro-manage the he** out of EVERYTHING! You should understand everything about the PROCESSES, not all the details - the only exception being the Profit & Loss numbers. Those you need to understand 100% and are what you'll NEVER stop micro-managing.
Why?
Because even if you can trust your partner 100%, we're all human and can make mistakes - sometimes fatal ones. There's also the issue of risk - someone with only 30% at stake, may gamble a LOT more than you would gamble with your 70%.Also, strategize and think through worse-case scenarios for fraud. Look what happened to the Jaguars and how they got scammed for $22 million by an employee! What systems can YOU put in place to avoid something similar?
If you decide to do this on your own, you may want to consider your own "backyards" - either Wisconsin, where you grew up, or Baltimore where you reside now(?). Then you be more hands on and learn faster and also verify more easily using your personal relationships. You could also leverage your fame in those areas to get exposure to more deals & before others AND get even more PR to help your business by promoting a "giving back to the community" angle.
Hope this all helps!
Logical Property Management4.9464 Reviews - Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2yNo positive PR would come from this. The Baltimore media is not gonna prop up any landlord as the good guy. Ain't gonna happen. That part of the plan is a no gooder.
Quote from @Michael Smythe:
@Vince Biegel you've got more capital and fame than the average investor here on BP, but all the same challenges.
Do NOT buy into the HYPE of S8 properties!
Have you signed up for Tom Brady's nutrition & exercises TB12 program? Why not?
He's the best football player ever, so it MUST be worth the hype!Get the point?
Understand your hope of investing in something like this. It's probably no different than what Jordan, Magic, Shaq, etc. did to get started.
IF you pursue something like this, you should try 1-3 properties to start and micro-manage the he** out of EVERYTHING! You should understand everything about the PROCESSES, not all the details - the only exception being the Profit & Loss numbers. Those you need to understand 100% and are what you'll NEVER stop micro-managing.
Why?
Because even if you can trust your partner 100%, we're all human and can make mistakes - sometimes fatal ones. There's also the issue of risk - someone with only 30% at stake, may gamble a LOT more than you would gamble with your 70%.Also, strategize and think through worse-case scenarios for fraud. Look what happened to the Jaguars and how they got scammed for $22 million by an employee! What systems can YOU put in place to avoid something similar?
If you decide to do this on your own, you may want to consider your own "backyards" - either Wisconsin, where you grew up, or Baltimore where you reside now(?). Then you be more hands on and learn faster and also verify more easily using your personal relationships. You could also leverage your fame in those areas to get exposure to more deals & before others AND get even more PR to help your business by promoting a "giving back to the community" angle.
Hope this all helps!
- Developer · Nashville · Member since 2023 · 10 posts · 34 votes2y
Thank you Jay and others for your insight and thoughts. I greatly appreciate everyone. I’ve done multiple syndications and LP deals. bur now looking to get more hands on. Understand the whole business.
- Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes2y
I think you would be better off with your own investing team and owning 100% as many have mentioned. If you don't want to deal with renovation, look for something move-in ready where the numbers still work. If you don't want to deal with the property management yourself, hire a good property manager. Even with paying extra for those things you will still likely come out ahead over having a 30% split to someone handling that for you.
Low value properties are often attractive to new people but can be risky. The cash flow might be high percentage-wise, but it's small in dollars, and a major repair or bad tenant trashing the place can erase that cash flow for many months. They also do not usually appreciate very much. Some people do very well with them though.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Vince Biegel:
Thank you Jay and others for your insight and thoughts. I greatly appreciate everyone. I’ve done multiple syndications and LP deals. bur now looking to get more hands on. Understand the whole business.
your welcome.. I also fund a pretty big player in Balt city.. section 8 rental rates are VERY high there but they need to be and if you ever want to hit me off Line I can give you some of the behind the curtains things that my borrowers have to go through to make these deals work.One Asset class you may want to try is High End STR there in South FLA .. A developer / home builder I know here in Oregon moved to S fla West side and has been building high end specs and just built two high end STR and from what I can see those are doing quite nice for him and then you have assets you could use on occasion and for sure could sell easily if the need arose. Lots of choices out there I am sure you will end up with what is right for your situation and risk tolerance. The same thing I would tell anyone who wants to get into Section 8 Rental. NFL player or not, there's a few people on here as equipped.
I'd recommend no section 8 unless you're okay with evaluating the exit options, understanding the headaches, and have a proven, guaranteed team in place. Then after all that, ask yourself is it worth then money wise.
I would recommend you take 60% of your allocation & buy houses cash or heavily less levered(20-40% LTV) in really good areas. Take 30% of your allocation and buy performing debt. Take 10% of your allocation and stagger t-bills. And as you enter this REI game, read and react how the markets are performing. You want to remain the capability of selling, buying, or re-fing at all times. And have funds to always be ready to play ball. If you're hitting big in fewer markets, you'll get the attention of the top people that'll show you good deals.
Quote from @Vince Biegel:
...The numbers are a 70/30 split......We forum an LLC together were in 70% owner.
...I hold majority to all key decisions....
...I’m providing all the capital ...
Hi Vince,
Re. partnering:
I would not partner with a new-bee (or a more experienced person) and give him/her majority on all key decisions.
But that's me, you guys may be different.
Also, if I were on the non work side, I would move slowly, one deal start to finish at a time.
Meaning one buy, rehab, rent up, asses the numbers, do it again,,,, if the experience is good and the personalities do not clash--(else shut it down).
Be watchful of rehab spending and renter SCREENING, as well as neighborhoods.
Go visit the property while it's being rehabbed looking at the quality of workmanship, and speed of finishing.
Talk to your tax pro about how to inject money into the LLC, and have an attorney draft the operating agreement.
Watch the movie "The Super' with Joe Pesci.
Good Luck!
- Developer · Nashville · Member since 2023 · 10 posts · 34 votes2y
Quote from @Michael Smythe:
@Vince Biegel you've got more capital and fame than the average investor here on BP, but all the same challenges.
Do NOT buy into the HYPE of S8 properties!
Have you signed up for Tom Brady's nutrition & exercises TB12 program? Why not?
He's the best football player ever, so it MUST be worth the hype!Get the point?
Understand your hope of investing in something like this. It's probably no different than what Jordan, Magic, Shaq, etc. did to get started.
IF you pursue something like this, you should try 1-3 properties to start and micro-manage the he** out of EVERYTHING! You should understand everything about the PROCESSES, not all the details - the only exception being the Profit & Loss numbers. Those you need to understand 100% and are what you'll NEVER stop micro-managing.
Why?
Because even if you can trust your partner 100%, we're all human and can make mistakes - sometimes fatal ones. There's also the issue of risk - someone with only 30% at stake, may gamble a LOT more than you would gamble with your 70%.Also, strategize and think through worse-case scenarios for fraud. Look what happened to the Jaguars and how they got scammed for $22 million by an employee! What systems can YOU put in place to avoid something similar?
If you decide to do this on your own, you may want to consider your own "backyards" - either Wisconsin, where you grew up, or Baltimore where you reside now(?). Then you be more hands on and learn faster and also verify more easily using your personal relationships. You could also leverage your fame in those areas to get exposure to more deals & before others AND get even more PR to help your business by promoting a "giving back to the community" angle.
Hope this all helps!
Great advice and i appreciate your thoughts. I'm very mindful of the operators I look at. These are often referred to me from former investors. I do most of the reaching out. I know that many former and current players have been taken advantage of. The reality is I want to be in real estate full time when I'm done playing football. Love everyones thoughts and perspectives.
Big take a way for me is if i want to do this do it on my own first.....
- Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes2y
Quote from @Vince Biegel:
I love the bigger pockets community to bounce ideas off the group. Here’s the opportunity:
I’ve found an experienced operator (250 doors under his belt) who specializes in Home choice voucher program (HCVP) or section 8 housing.
The numbers are a 70/30 split. We forum an LLC together were in 70% owner. I hold majority to all key decisions. I'm providing all the capital while him and his team finds the deal, repairs property, finds tenants, and manages the property. I can be involved as little or as much as I'd like. (I'd like to since interested in this real estate asset class).
His main market is Cleveland, but also has Toledo, Memphis, and a little Jacksonville. Buys single family homes on the $50k - $75k range give or take $5k.I’m new to Section 8 housing. I’ve been doing a great deal of due diligence on the team and the asset class as a whole. What are your thoughts? I would love someone’s take who’s invested in HCVP. What are the pros/con? Tips? Any advice would be well received. Thank you all.
It’s a relatively risky play, I’d put my money in something more stable, even if the returns were lower.
- 2ySean O'KeefePro MemberCPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
Depends on what NFL team they play for.
- Realtor · FL · Member since 2013 · 372 posts · 83 votes2y
I agree with @Jay Hinrichs, why give up 30% where you have majority of the risk/exposure. One could easily operate in high value but with more financial gain thus offsetting with tax filing (lose). While lower entry markets are attractive, I would advise considering markets that offer best of both worlds, cash flow and appreciation. The Florida market provides both cash flow and appreciation. There are 1000 ways to skin a cat.
- Real Estate Agent · Memphis, TN · Member since 2020 · 9 posts · 2 votes2y
@Vince Biegel
I would do the research on the team and city fully before executing. Memphis is great for real estate investing. Especially single family homes, been here since ‘08 and have seen things completely take a turn. Investing here can be tricky due to zipcodes.
- 2yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
I am not going to get into the HCVP program. There are certainly pros and cons but I feel this has been discussed at length in these forums. Here’s my thoughts:
Structure is more than just ownership percentages. You mention there is a 70/30 split but also mention the operator partner will be responsible for management and construction. What type of fees are charged? Is there an acquisition fee? What are the construction and maintenance fees? Is there a management fee? Is there a disposition fee? You have to look at the entire picture, not just the ownership percentages because fees can eat into any margin that may exist.
This segways into my next point which is to be weary of these low and moderate income single family syndications and JV opportunities. It's a great narrative and a lot of money has been raised to advance this investment thesis. Nobody is going to question the need for more low and moderate income housing but I've reviewed a number of these single family portfolio opportunities and I find them to be nothing more than an opportunity for the sponsor or operator to collect robust fees without a viable exit strategy for the equity partners.
Here is a quick summary of how these opportunities tend to play out for the equity partner: The equity partners money is invested in homes in low barrier of entry markets which means high transaction volume (plenty of opportunities to collect the same fees I pointed out in my first point). Once “stabilized” these homes are often propped up on appraisals that rarely match reality. Single family portfolios, particularly in these markets are generally very inefficient and the cash flow is eaten up by management and maintenance fees. The equity partners see the equity in the appraisal reports and believe this will be their ultimate exit but fail to appreciate there’s limited opportunities to actually sell these homes to owner occupants given the locations where these homes were purchased and in the rare instances where it happens, the buyers are reliant on 5-6% seller assist and turn over costly inspection repair lists. These transaction costs kill the margins and you realize the death by a thousand paper cut disposition approach isn’t worth the effort and ultimately sell as a package to another investor discounted and you never see the equity translate to an actual gain. Meanwhile the sponsor/ operator has already collected their fees.
Of course there are instances where the underlying thesis is to purchase in locations which transition away from being a low/moderate income neighborhood but that’s not what I typically see. If you are going to buy into this investment thesis, do it on your own and hire a 3rd party GC and property management company.
If you are going to participate in a syndication or enter a JV as the equity, partner with a someone with a skillset that can bring to the table unique deal flow that you are unable to source on your own. Low and moderate income single family homes leased to HCVP voucher recipients doesn't check that box.
Quote from @Vince Biegel:
I love the bigger pockets community to bounce ideas off the group. Here’s the opportunity:
I’ve found an experienced operator (250 doors under his belt) who specializes in Home choice voucher program (HCVP) or section 8 housing.
The numbers are a 70/30 split. We forum an LLC together were in 70% owner. I hold majority to all key decisions. I'm providing all the capital while him and his team finds the deal, repairs property, finds tenants, and manages the property. I can be involved as little or as much as I'd like. (I'd like to since interested in this real estate asset class).
His main market is Cleveland, but also has Toledo, Memphis, and a little Jacksonville. Buys single family homes on the $50k - $75k range give or take $5k.I’m new to Section 8 housing. I’ve been doing a great deal of due diligence on the team and the asset class as a whole. What are your thoughts? I would love someone’s take who’s invested in HCVP. What are the pros/con? Tips? Any advice would be well received. Thank you all.
Really not sure of the question, Sec 8 and other govt programs, are just like any other rental except more paperwork. I have 100s of sec 8 props in the Cleveland markets and have done 1ks of move in and outs. I deal with CMHA daily. Just make sure you have a team in place. Do not even think about doing it without a team, it will not end well.
All the best
Why give up 30% when you can keep 100%?
Even the great Ray Lewis retired when he was 37; your career is winding down and based on what other ex-professional athletes have told me it's important to find a fulfilling profession after their playing days end (I knew a USC football player and he told me he and his fellow Trojans have a text thread and a lot of guys have trouble finding purpose in their lives after football ends - some of them never even played in the NFL and still felt incredibly lost after football).
You have the capital and it sounds like you've done deals prior. I would recommend buying a smaller multi-family and running it yourself. Of course, the more work it will need the sharper the learning curve.
Consider it a crash course in hands-on real estate investing. A property where you're going to learn a lot in managing it but it won't be too much to handle at present moment as it's not too many doors (of course, the correct number of doors depends on different factors).
It will be your hands-on education and believe me - when you self-manage you learn A LOT in a short amount of time. And even if you don't like it and end up preferring syndications, limited partnerships or outside management (though you can train your own management team - it's not at all hard when you've self-managed) you can at least come to that conclusion on your own terms and at worst I promise you'll have learned a lot about managing (even if it ends up being something you never want to do again on your own).
You don't need to buy expensive real estate courses or give a huge hunk of equity to someone.
Take a step back - what is your goal? Wealth preservation? Growth? Cash flow? Define that first and keep it front and center in any decision you make.
Invest in newer, nicer assets in larger, more upward-trending markets.
Warren Buffett's strategy before he met Charlie Munger was walking around, looking for cigar butts on the sidewalk with one more puff left in them. Charlie got Warren to start looking for higher quality companies and that's when the business really took off. I see this investment model as looking for cigar butts.
Look for alignment of interests. You're providing all of the capital - Then what is their incentive to perform? What happens to them if they mismanage the deal? You're taking on all of the risk and giving up 30% of the deal for your trouble. No way!
I'd recommend you reach out to a gentleman named Josh Satin. He was a MLB player for the Mets and is now incredibly successful in real estate.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Every single partnership I have seen in this biz has ended in a divorce at some point, some of them very nasty. So if you want to partner, set it up as a limited time engagement with a defined goal and exit. And then go for a beer and still be friends.
Investors get into S8 because that's the only thing they can afford at the time and then they make it their thing. It can be done, but it is one of the hardest ways to make money in RE. The investment focus is cash flow, there is little equity to be gained, which BTW is the whole point of investing in real estate.
I have never invested in this asset class, but what really opened my eyes was when I agreed to help an OOS investor who was bleeding from 1000 cuts to sell off his 3 single family homes in a low income area of Milwaukee - one of the hardest and most frustrating deals I have done, had to sell 1 house 3 times, first buyer ghosted at closing, next one financing fell through, took forever, super frustrating.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Stuart Udis:
I am not going to get into the HCVP program. There are certainly pros and cons but I feel this has been discussed at length in these forums. Here’s my thoughts:
Structure is more than just ownership percentages. You mention there is a 70/30 split but also mention the operator partner will be responsible for management and construction. What type of fees are charged? Is there an acquisition fee? What are the construction and maintenance fees? Is there a management fee? Is there a disposition fee? You have to look at the entire picture, not just the ownership percentages because fees can eat into any margin that may exist.
This segways into my next point which is to be weary of these low and moderate income single family syndications and JV opportunities. It's a great narrative and a lot of money has been raised to advance this investment thesis. Nobody is going to question the need for more low and moderate income housing but I've reviewed a number of these single family portfolio opportunities and I find them to be nothing more than an opportunity for the sponsor or operator to collect robust fees without a viable exit strategy for the equity partners.
Here is a quick summary of how these opportunities tend to play out for the equity partner: The equity partners money is invested in homes in low barrier of entry markets which means high transaction volume (plenty of opportunities to collect the same fees I pointed out in my first point). Once “stabilized” these homes are often propped up on appraisals that rarely match reality. Single family portfolios, particularly in these markets are generally very inefficient and the cash flow is eaten up by management and maintenance fees. The equity partners see the equity in the appraisal reports and believe this will be their ultimate exit but fail to appreciate there’s limited opportunities to actually sell these homes to owner occupants given the locations where these homes were purchased and in the rare instances where it happens, the buyers are reliant on 5-6% seller assist and turn over costly inspection repair lists. These transaction costs kill the margins and you realize the death by a thousand paper cut disposition approach isn’t worth the effort and ultimately sell as a package to another investor discounted and you never see the equity translate to an actual gain. Meanwhile the sponsor/ operator has already collected their fees.
Of course there are instances where the underlying thesis is to purchase in locations which transition away from being a low/moderate income neighborhood but that’s not what I typically see. If you are going to buy into this investment thesis, do it on your own and hire a 3rd party GC and property management company.
If you are going to participate in a syndication or enter a JV as the equity, partner with a someone with a skillset that can bring to the table unique deal flow that you are unable to source on your own. Low and moderate income single family homes leased to HCVP voucher recipients doesn't check that box.
this is TRUTH:
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