Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
Could you please give some inputs on the pros and cons of two types of investment opportunities and which one is a better choice overall?:
1.Invest in other investment companies’ projects, you got 18%-26% return on the investment.
2.Find your own property and then look for investors/partners for this project (if you don’t have enough capital).
The risk of Type 1 is to lose your initial investment, but the investment company seems pretty robust and has good credibility. The cons of type 2 is you have to do everything to ensure the project is going right and of course you are in control of everything. Any other risks of both types I should be aware of?
I also heard if you are new to the game, it is better you do Type 1 first so you will have something on your profile to establish your credibility.
So what is the best strategy: Do Type 1? Do both? Do just Type 2?
1.) You'll never get a risk-free 26%. I'd posit you'll never get a risk-free 18%. Not all of these kinds of projects have (or will) pan out. Otherwise you'd never have anyone buy bonds, you'd just throw your money into something with a 26% return into a sub-2% return.
2.) Becoming an investor (i.e. passive) might not do anything to help establish your credibility. I'm a limited partner in a round that a venture capital company raised, it doesn't mean that I'm qualified to be a VC. If I buy Apple stock it doesn't mean that I'm now an expert on mobile technology and you should invest with me if I found a smartphone company. Active is active and passive is passive.
3.) You have to decide where you want to be in 5, 10, 20 years. If you want to be active then the "feet wetting" could be the proverbial house-hacking that's a favorite around here. The down payments are low, you get to be a lovely property manager, you can start building actual financials, all sorts of fun stuff.
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
8y
Elle Bi this is what I tell sorta experienced investors. It’s a two part test
1) are you good at being an operator (it’s a loaded question because you don’t know your weaknesses)
2) do you enjoy/fun out of doing it. I think you will agree that you are plugged into a system to be financially free in 5-10 years. Start with the end in mind and start designing your life now.
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
Hi @Lane Kawaoka: I wonder statistically and especially if you are an investors who have invested in syndication deals, is it the case that if you pick the right private investment offerings, most likely you won't lose your money? Based on what I heard from these investment companies, they never lose money for their investors. Now I want to hear the story from the investors' side.
Investor / Syndicator · Austin, TX · Member since 2015 · 367 posts · 220 votes
8y
Yes, I do think you need to do your homework on the syndication. Follow "The Rule of 3" 1) Is the market right? 2) Is the team great? 3) Is the deal a good deal? Do your diligence in that order and you'll be ok. More details can be ascertained by the article David Thompson references above in how that's done. But the short answer to your question is a resounding, "YES".
I am interested in hearing stories from people who has actually done passive investment or participated in syndicated deals: how was the experience, what are the returns and have you ever lost your investment?
I have heard it from some syndicators' sides that their investors' never lost money (they might have less returns) because they find the right deals.
Elle, I have participated in a number of syndicated deals over the last 2+ years. I have written extensively about these, including quarterly updates, in what is now my 4 part BP blog series
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Larry Fried: I have read through your post! Thanks for the information you shared. So have you ever lost your investment in a passive investment opportunity. Is it believable these syndicators say they never lost their investors money (except the return might be lower than said) because they find the right deals?
@Larry Fried: I have read through your post! Thanks for the information you shared. So have you ever lost your investment in a passive investment opportunity. Is it believable these syndicators say they never lost their investors money (except the return might be lower than said) because they find the right deals?
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Larry Fried: No for both questions?: You never lost money in each passive investment opportunity and those syndicators do lose money for their investors
@Larry Fried: No for both questions?: You never lost money in each passive investment opportunity and those syndicators do lose money for their investors
Not sure what the second ? is. Are you asking if the syndicators I've invested with have ever lost money for their investors, then no, but I am only two years or so into these, and they are always co-owned by the sponsors. We make money together or no one makes money.
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Larry Fried: ok that is great to hear :) I guess you just have to find the right syndicators who find the right deals and know what they are doing then it wouldn't be a too good to be true scenario when they say they never lost their investors' money.
Investor / Syndicator · Austin, TX · Member since 2015 · 367 posts · 220 votes
8y
Remember that a syndicator business model has a lot to do with it too. A syndicator might be raising money for a development deal that involves ground up construction, etc. more risk and probably more return. But the sponsor or syndicator doing value add deals with class B properties in great areas in a great market, well, the risk there is much less. Find the sponsors who are doing the class B value add deals. The risk/return profile for those can be very attractive. From there do your diligence on the sponsor.
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
They say even if they don't sell the house quick enough, they would refinance and use that money to give the investors' money along with their returns. Is this typical for syndication?
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
Hi @Mike Krieg: Thanks for your information. How about A class property (brand new multi-million dollar houses construction) with good developer/syndicator?
Investor / Syndicator · Austin, TX · Member since 2015 · 367 posts · 220 votes
8y
Yep, you can get into that. I choose not to because 1) not my expertise, and 2) involves land development, lot's of city politics, and is thus more risky. I like to buy into Class B apartments in solid areas with history where the business plan is to update units, thus increasing the rents and NOI. The downside is limited with this approach and the returns are great! Others on BP have used the terms "The Perfect Investment", and "The Holy Grail" to describe this approach with apartment investing. I am at the bar sipping on that koolaid all day long! I like low risk and solid returns.
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Mike Krieg: A syndicator might be raising money for a development deal that involves ground up construction, etc. more risk and probably more return
- If the construction money is in place and the house is ready to be built, what are the remaining risks besides selling the house quick enough at a good price?
Investor / Syndicator · Austin, TX · Member since 2015 · 367 posts · 220 votes
8y
Capital drag. For example, I was invited to invest in a construction project last year. I passed. The projection called for the house to be sold last September. They still haven't finished the house and will be lucky to sell by the summer. So it's not that you lose your money in a lot of cases, but it's that a project can get held up for so long that your return get's pushed into the single digits. I don't like the drama. Involvement in large apartment deals is more predictable and less dramatic and very rewarding.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Elle Bi Not for nothing but you should look at the timelines around how long these syndicators have been around. If it's under 8 years they've never experienced a downcycle and it's (almost) hard to lose money when "everything" is going up. If you look at my 401K portfolio it has done awesome over the past 8 years as well. It doesn't mean that I'm a great stock picker or that you should give me your money to invest in the stock market. That's not to say that there aren't syndicators that don't do a great job. But I do discount the idea that 'we have never lost money for our investors' if they only have 5 year track record.
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Mike Krieg: Yeah I start pondering so too, which is why I posted the question. While it seems like they have gotten the money, and are ready to start construction now. But what if all kinds of circumstances causing delays in the construction etc. The syndicator has constructed many buildings before and has tons of experience, would that be enough guarantee things will be on time?
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
@Andrew Johnson: It seems they have more than 15 years of record.
They other thing is when you put say $10,000 into an multifamily deal (7% preferred return; then 60% profit sharing from cash flow and eventual selling to investors) vs a house (25% irr return). Which one gives you more $$$ in the end?
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
I am also trying to understand the return calculation for a multifamily deal (43 units, purchased for 4.5 million, renovation 900,000 and expect to sell for 7.5 million 2 years later):
Cash available for distribution by the Company will be allocated 100% to the Members until the Members receive cash distributions equal to a cumulative non-compounded annual return of 7% on their Capital Contributions (“Priority Return”), after which cash available for distribution from operations will be allocated 60% to the Members and 40% to the Manager, Advisor and affiliates. Cash available for distribution from the sale or refinance of the Property shall be returned to the Members, Manager and Advisor, pro-rata, in proportion to their Capital Contributions, and 60% to the Members and 40% to the Manager, Advisor and affiliates thereafter.
Could anyone let me know how to calculate my return and how much would be my total return once the property is sold? Say based on a $10,000 investment amount (1 unit of investment). Thanks!
Los Angeles, CA · Member since 2018 · 26 posts · 0 votes
8y
Hi...The syndicator isn't sharing any additional information besides the legal documents (investor returns report or allow to speak to other investors). Wouldn't want to fix some of the faults in the agreement. There is also sales pressure by setting deadlines. Would you say it is probably not a good idea to pursue further or I have been requesting too much info?