Large apartment investors please chime in

Multi-Family and Apartment Investing
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Large apartment investors please chime in

Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

For those investing in large apartment syndications - what percentage of deals make money, what %age about break even, and what %age lose money?

Of course sponsors vary, but wanted to get your experience and feedback. Thanks guys!

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Bruce Petersen
Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
9y

I've never lost money. I won't do a deal where my investors don't make at least 7-9% COC from the beginning.

I'll be shocked if someone admits to losing investor money on this public forum.  Many have, bad operators and uneducated syndicators have and do.  The next widespread correction will show this very clearly.

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  • Diogo Marques
    Financial Advisor · Cascais, Lisboa · Member since 2015 · 199 posts · 83 votes
    9y
    Andrey Y. Deals work when you buy right, finance right and manage right. At this time most stuff is too pricey.
    0Reply
  • Bruce Petersen
    Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
    9y

    I've never lost money. I won't do a deal where my investors don't make at least 7-9% COC from the beginning.

    I'll be shocked if someone admits to losing investor money on this public forum.  Many have, bad operators and uneducated syndicators have and do.  The next widespread correction will show this very clearly.

    5Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    I don't know if there are statistic out there for that information, since they are private offerings. My guess would be 90%+ make money or break even. My company has 100% returned it's investors their principal and profit. I have done a few single family flips that I raised private funds on that performed poorly. I still paid out my investors their preferred return of 7% and I received almost nothing. On Multi-family, I have exceeded expectations on returns so far. Hopefully that can continue into the future. The key is to prep your investors. They need to know all the risk factors involved and you should under promise on returns. 

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    Andrey Y. I am new to the Mfh space but picked up 434 units in the past year. From what I see it does not really matter but it ranges from 50% to 10%. What matters is the deal usually returns from 15-25% IRR. Of course you can be conservative or not and you won't know unless you can read the rent rolls and t12 P&L for starters. Imho the sponsor is trading their time for dollars if the deal goes ok. If it goes well we they deserve everything they get.
    1Reply
  • Chris Tracy
    Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
    9y

    @Lane Kawaoka- 434 units in 1 year?  Wow!  That's pretty impressive.  Are you doing so via syndications or just buying them personally?

    1Reply
  • Ingrid J.
    Investor · Tromsø, Norway (Europe) · Member since 2015 · 431 posts · 194 votes
    9y

    @Andrey Y. Thanks for posting this topic! I've been wondering the same myself.

    Is there some statistic out there which can support the claims made in here? 

    0Reply
  • Robert ChurchPro Member
    Investor · Payson, AZ · Member since 2016 · 19 posts · 1 vote
    9y

    Is there any syndications where I could 1031 into.  I am selling a muti-unit building and trying to 1031 into either another property or RE syndication (if possible).  I have over $500K to 1031 into.

    Thanks

    0Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Robert Church:

    Is there any syndications where I could 1031 into.  I am selling a muti-unit building and trying to 1031 into either another property or RE syndication (if possible).  I have over $500K to 1031 into.

    Thanks

     Not very likely. It's a complicated thing to do and very situationally specific.

    2Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Robert Church, Almost all syndications are set up as LLCs or LPs with the syndicator being the managing member or general partner.  In these instances you are buying a security or a share of a business entity and not real estate itself so it does not qualify for 1031 treatment.  To be a valid 1031 you must sell investment real estate and buy investment real estate. 

    However, if passive is your goal then there are products that are specifically allowed by the IRS to be 1031 compatible by virtue of an actual deeded interest in the asset itself. Called TICs (Tenants In Common projects), DSTs (Delaware Statutory Trusts) and NNN Leases or Ground leases. These all offer passive investing and 1031 compliance. Few will match the 10 - 15% returns offered by syndicators. But most of these are backed by the security of a "national traded tenant". So some return is sacrificed for security.

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  • Ivan Barratt
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    9y

    @Andrey Y. my worst deal to date (where everything that could go wrong went wrong) will still return ~8% (annualized) net to the investor if/when it sells.

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Ivan Barratt:

    @Andrey Y. my worst deal to date (where everything that could go wrong went wrong) will still return ~8% (annualized) net to the investor if/when it sells.

    8% annualized return on cash invested, or 8% annualized IRR including the sale of the property (I'm guessing the latter). If so, 8% IRR is a very low return considering the risk undertaken by the investor, IMO. Thank you for the comments guys, keep em coming.

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    Hey Andrey.  I have been vetting what a well diversified 100% passive syndication portfolio would look like and recently took a straw poll from my syndicator and passive investor network.  I asked them what passive (cash only...no value add included) returns they would expect from this type of portfolio during an economic downturn and the average came back in the 7-8% range.  IMO, this is on the high side, the population is too small to have any statistical validity, and many of the members of the poll were sponsors.  Regardless, it's better than no data.  If the returns are at or below the preferred return, the sponsor is performing a mountain of work for very little compensation.

    I'd recommend checking out podcasts with Jeremy Roll, For Investors By Investors, and Cash Flow Connections.  I have no involvement with these groups...just been listening to their free content on passive syndication investing.  Jeremy has over 70 individual passive investments.

    1Reply
  • Ivan Barratt
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    9y

    @Andrey Y. yes it's IRR and I would say that there's almost no investment that can still return 8% IRR when so many things go wrong. Most vehicles would not only deliver 0% but would likely also destroy principal. It was also a great learning experience for my partner and me. He's still an investor today and I'm happy to report our current projects are performing quite well.

    0Reply
  • Robert ChurchPro Member
    Investor · Payson, AZ · Member since 2016 · 19 posts · 1 vote
    9y

    Thanks Dave,

    You seem to know more than most people. Actually, I am coming out of a TIC with my LLC intact. And I did come across one DSTs with ConC of 5-6%. But given capitol gains of around 40% (I live in Cal), it would very hard to compensate with much higher returns vs loss of 40% in cap gains.

    0Reply
  • Joseph Bramante
    Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
    9y
    Andrey Y. The problem is every syndication is a private company so it's nearly impossible to get an answer especially one that's accurate. That question is better asked to a group of passives who have invested in multiple syndications with multiple sponsors. As syndicators, we tend to only focus on our own performance and not our peers. We have nearly doubled the NOI on all of our properties.
    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Joseph Bramante:

    Andrey Y.
    The problem is every syndication is a private company so it's nearly impossible to get an answer especially one that's accurate. That question is better asked to a group of passives who have invested in multiple syndications with multiple sponsors. As syndicators, we tend to only focus on our own performance and not our peers. We have nearly doubled the NOI on all of our properties.

     Exactly. That is why it was an open question on an open forum :) So that anyone who would like to / had an experience could weigh in.

    The other question in, how many syndicators are willing to dip in THEIR OWN coffers to make their investors whole in the case of a bad market/bad property. The PPM does say that you could lose your entire investment, but I am fairly certain some syndicators have had that certain level of mortality/duty.

    0Reply
  • Sud Raj
    Investor · Fremont, CA · Member since 2016 · 10 posts · 4 votes
    9y

    I have spoken to a number of sponsors in last few months. I am always looking for the sponsors who have history of 10+ years (1 out of 5 do). If I see that they had history, I asked them how they performed during 2008/2009. One of them agreed that they lost investors money while other mentioned that they paid from their own pocket to survive for a couple of years and eventually returned IRR of ~3%. So, do your due diligence before investing, for sponsor as well as property.

    1Reply
  • Joseph Bramante
    Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
    9y
    I started in 2010 so missed that down turn fortunately. But I know several people who now have day jobs because of it. I was in a situation on my first property where we loaned the property 80k during its renovation for carry cost since we vacated the entire complex to convert the class D to Class A. Or most recently, we were pushing rents 200$ above previous rent and didn't respond quick enough when we finally got some resistance and dropped to 75% occupancy temporarily. We deferred our Mgmt fees until the occ and cash flow improved. I think most syndicators do the right thing and have good intentions since it's hard to be a crook in this industry. So if they make a mistake, they fix it quickly and put their investors money ahead of theirs. The last thing you want to do is piss off a group of investors.
    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Robert Church, You're exactly right. That's the dilema facing 1031 investors wanting to pursue an LP or LLC syndication. Even a 3-5% higher return doesn't offset that capital gains loss when you have to give up that 1031 benefit.

    Sometimes it can make sense to give up the 1031 and go with the LP if the 1031 string is relatively young, the amount of profit being sheltered relatively small, or you've got a tax return for that particular year that can absorb some capital gain.  It really just depends on your particular situation.

    Otherwise, right now there seems to be some normal market compression going in in sectors where for a little bit anyway good TICs, DSTs and NNNs can be found that are very competitive.   

    I reached out with a pm colleague request in case you want to deconstruct further.

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    8y

    @Chris Tracy 626 in 5 syndications

    1Reply
  • Dan Heimer
    Developer · CA · Member since 2017 · 21 posts · 30 votes
    7y

    @Robert Church

    Yes very easy - there is a company out there that buys from you on installment sales and resells sane day all cash - they pay you back in cash your cost basis all net and the capital gains is paid through a real estate fund via installment payment with steady interest

    This bypasses the normal and lame 1031 exchange and any of the trust account bs offers that cost so much - it also avoids opportunity zone investments which are in bad areas

    Best thing I have done and it has performed much better than anything else with better safety, cash flow and liquidity

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Bruce Petersen:

    I've never lost money. I won't do a deal where my investors don't make at least 7-9% COC from the beginning.

    I'll be shocked if someone admits to losing investor money on this public forum.  Many have, bad operators and uneducated syndicators have and do.  The next widespread correction will show this very clearly.

     Has anything changed in the last year? There hasn't been a huge correction but there's been softening for sure. Anyone seeing deals/sponsors going bad in larger numbers?

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Ivan Barratt:

    @Andrey Y. my worst deal to date (where everything that could go wrong went wrong) will still return ~8% (annualized) net to the investor if/when it sells.

     Has it sold yet?

    0Reply
  • Ivan Barratt
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    7y

    @Andrey Y. sold for a ~9% IRR on 5 year hold.

    sold another deal at 63% IRR on 3 yr hold and another for sale currently. it should sell around a ~25% IRR on 3 yr hold.

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Ivan Barratt:

    @Andrey Y. sold for a ~9% IRR on 5 year hold.

    sold another deal at 63% IRR on 3 yr hold and another for sale currently. it should sell around a ~25% IRR on 3 yr hold.

     Thanks for sharing. Would you mind describing any Lessons Learned, specifically between the deal that underperformed versus the deal that overperformed? I would love to hear how this has changed your underwriting and deal selection going forward, I'm okay with you sending me this by email. (you have my email I think)

    1Reply
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