Open door capital scam???
Minneapolis, MN · Member since 2018 · 33 posts · 53 votes
Open door capital scam???
Most Popular Reply
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
1y@Joey Wilson, I would not classify this as a scam, but we are talking a bit semantics here.
As you noted, and others echoed, creating content can create a lot of trust. Raising investor capital is done on trust. But, the great content creators do not make for good investment managers, as you learned. In fact, the best operators/investment managers, are often NOT good marketers. They continue to play in the "who you know" space because they understand:
1. Their results will continue to attract the capital they need
2. When money is flowing in is often when the most money will be lost
3. They are too busy OPERATING, and don't have bandwidth to market
4. Not all attention is good attention. As many groups are seeing here: when you raise money from trust built on online forums, those same investors will also call you out on online forums.
But to you point, I don't think ODC is a scam. I think they got out over their skis for several reasons, but they did not go out with the intent of losing/taking your money.
191 Replies
- 1yMichael K GallagherBusiness MemberReal Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
@Joey Wilson capital calls are not uncommon from what I understand and have heard, especially on properties that had floating or adjustable rates in syndications.
In order to put money into that fund didn't you have to be an accredited investor? I assume you read and agreed with the projections and investment thesis they had on the deal?
Don't know what the deal was or what DD you did on ODC, but I'd say they having a zoom call and being open about it indicates to me it is not a "scam". Again I didn't see the investment sheets, or specific fund you put money in but I would assume that there were projected returns based on certain variables, and that those projected variables are currently much different than where they were projected to be when you purchased.
Candidly if your alternative idea was Cardone, I'd be willing to bet you wouldn't have even seen that $355, and I'm guessing there wouldn't have been a zoom call either. I actually don't know him personally and am not an accredited investor to even get into his deals, but in general I don't like his investment thesis fundamentally so I'd never put money with him.
You obviously saw promise and aligned with ODC's investment thesis, so unless they went outside that thesis and operated outside the parameters they said they would to get the projected returns, I'm not sure how they could be called a fraud or scam? I'd also be willing to bet their were stipulations in your investment docs around capital calls and how that would potentially be a thing.
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Michael K Gallagher I take full responsibility, I'm just mind blown the first deal I pick to go in on and our full investment is completely at risk with banks ready to take back properties. Just didn't expect that one, but that's how we learn. Hopefully the properties turn around!
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Michael K Gallagher I also heard Capital calls mean the property is cooked most of the time. I do appreciate your long response though. Hoping for the best! 🤞🏼
- 1yJosh C.Pro MemberProperty Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
The market is up like 30% since 2021. How are they underwater? That’s too bad. I will agree that if you are getting communication and transparency, plus Brandon turner as the face, it almost certainly is not a scam. But investments do go bad unfortunately. I’ve personally lost money on two flips over the years.
Hopefully if the deal does go south management will return all their development fees, PM fees, etc in best efforts to make people as whole as possible.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes1y
Quote from @Josh C.:
The market is up like 30% since 2021. How are they underwater? That’s too bad. I will agree that if you are getting communication and transparency, plus Brandon turner as the face, it almost certainly is not a scam. But investments do go bad unfortunately. I’ve personally lost money on two flips over the years.
Hopefully if the deal does go south management will return all their development fees, PM fees, etc in best efforts to make people as whole as possible.
I'm not sure what you've been paying attention to, but the multifamily market is down 20-30% since it peaked in 2022. Are you referring to single-family homes?
- Member since 2020 · 5 posts · 12 votes1y
Sorry to hear your first investment in a syndication has not worked out. This is not normal, but many syndications from 2020 – 2022 relied on variable rate loans and blew up when the Fed started raising interest rates in March 2022. Many of those syndicators are doing capital calls or have had their properties foreclosed. There is a long list of sponsors who have lost all of their investor’s capital over the last few years, but there are also some that have provided great returns.
If you are going to continue to invest in syndications, I would consider joining an investor group like Passive Pockets that is part of Bigger Pockets. It will give you access to other investors and investor reviews of sponsors. Passive Pockets does have a free 7 day trial so you can see what resources they have. Additionally, many of the podcast hosts, guests and YouTube celebrities are not good operators and you should be very careful before investing with them.
Finally, the capital call is a new investment and you should do your due diligence before sending additional money. This includes ensuring that the sponsor has a good plan that you are confident in. Not all capital calls means the deal can’t be salvaged, but some will still go to foreclosure. I don’t know the specifics of your investment, but if is underwater I would be reluctant to participate in the capital call.
I think this will be a hard lesson learned. However, it is not a reason to not invest in real estate or syndications in the future. You will need to invest with more than one sponsor and spend more time doing your due diligence.
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Alex Desroches Thanks for the response. Great info. Hope I at least get my initial 100k back. That would be crazy for everyday Joes to lose their entire investment!
- Real Estate Professional · Salt Lake City, UT · Member since 2010 · 608 posts · 163 votes11mo
Quote from @Alex Desroches:
If you are going to continue to invest in syndications, I would consider joining an investor group like Passive Pockets that is part of Bigger Pockets. It will give you access to other investors and investor reviews of sponsors. Passive Pockets does have a free 7 day trial so you can see what resources they have.
Hello Alex. Is passivepockets.com the URL for the Passive Pockets that is associated with Bigger Pockets?
- New to Real Estate · Bristol IL · Member since 2018 · 24 posts · 10 votes3mo
@Gary Parker correct
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
My view is from 2010 to 2020 virtually every RE syndication produced decent to great returns. Since 2021 things are different.
I have 3 syndications that I have done since 2021 and 1 seems to be doing ok but it is the most conservative, 1 seems to be doomed, 1 is far behind on distributions but still has potential to produce a good return.
@Brian Burke was nice enough to offer to analyze the offering that seems to be doomed. His two primary thoughts was it was smaller than he desires and difficult timing.
I will state with your syndication choice that the timing was far from ideal. Many syndications that were fund raising at that time are struggling. I recognize that is little solace with this being your first syndication. I am sharing your pain.
Learn from this. I am convinced the sponsor is every nit as important as the deal if not more so. My syndication that seems doomed was with a sponsor that had done this plan successfully over a doxzen times, but the one I invest in seems doomed. One of the primary GPs went through a divorce and exited as a GP. lesson is even established, successful GPs can 1) exit the syndication 2) fail.
Good luck
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Joey Wilson:
After listening to so many Brandon Turner/ Bigger pockets podcasts I finally decided to take the risk and invest some of my hard earned savings into a fund with Brandon. So in 2021, I put in 100k into the fund and have received $355 total so far. Just got off an emergency zoom call them saying the banks are close to taking the properties and they are looking for capital because they are underwater, aka we might not even see another dollar let alone our initial investment. I was going to go with Grant Cardone, but Brandon seemed like the more honest type i wanted to follow but maybe hes better at sales and marketing than real estate. Not trying to cause drama but this is my first experience with real estate, is this normal? Thanks!
This is unfortunately more common than people think. Too many investors fall in love with the marketing, whether it's Facebook ads, polished webinars, or podcast appearances, without digging into the numbers or the team behind the fund.
Just because someone hosts a podcast or has a strong media presence does not automatically mean they operate a well-run investment. As a podcaster myself, I say this with full transparency: content creation and running a successful fund are two completely different skill sets.
Before investing, it is critical to look past the branding and evaluate the fundamentals — track record, communication, reporting, risk management, and the actual deal structures. A good sponsor welcomes tough questions.
Sorry to hear about your experience. But a bad experience does not equate to a scam, it could just be a bad deal - but it is a good reminder of how important due diligence is in this space. Thanks for sharing, a lot of people will benefit from hearing it.
7e investments53 Reviews- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Chris Seveney enticed by all the marketing, promoting, and the sounds of amazing returns while the leader lives a great life in Hawaii as a worship leader When does it get considered a scam? Hope his other investors are doing ok. Can't imagine that's the case.
- Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes1y
Quote from @Joey Wilson:
@Chris Seveney enticed by all the marketing, promoting, and the sounds of amazing returns while the leader lives a great life in Hawaii as a worship leader When does it get considered a scam? Hope his other investors are doing ok. Can't imagine that's the case.
All real estate "gurus" are scammers no exceptions. If they're not outright stealing your money best case scenario they're selling crap.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes1yYeah their sweet life and adventure vanning posts make me throw up.
Quote from @Joey Wilson:
@Chris Seveney enticed by all the marketing, promoting, and the sounds of amazing returns while the leader lives a great life in Hawaii as a worship leader When does it get considered a scam? Hope his other investors are doing ok. Can't imagine that's the case.
What about your investors, bros? Are you taking the haircut along with everybody else?
What are you doing about it and why does it not upset you??? - Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes1y
Quote from @Steve Vaughan:
Yeah their sweet life and adventure vanning posts make me throw up.Quote from @Joey Wilson:
@Chris Seveney enticed by all the marketing, promoting, and the sounds of amazing returns while the leader lives a great life in Hawaii as a worship leader When does it get considered a scam? Hope his other investors are doing ok. Can't imagine that's the case.
What about your investors, bros? Are you taking the haircut along with everybody else?
What are you doing about it and why does it not upset you???Honestly blows my mind that anyone takes any of these social media personalities seriously. These people are frauds. They always have been. The only difference is that up until recently it's been masked by one of the greatest real estate manias in American history.
These people are not real estate people. They are marketers. Every single guru follows the same path. They jump into real estate and quickly realize they can't hack it but what they can do and much more profitably is scam ignorant people out of money selling them hopes and dreams. On the relatively harmless end of the spectrum it's $100 infotainment crap, on the other end it's stuff like this. You know damn well the guy doing the podcast circuit and all the talking is not running the deal, he's handing it off to some other guy who may or may not know what he's doing. It's not as if the marketing front man would have the ability to accurately judge such things anyway.
When are people going to get this through their heads? This is all a scam. I have watched thousands of people lose money on this kind of nonsense and yet every time I turn around there's a new line of suckers waiting to get fleeced. Maybe investors need to see a real liquidation event or something. Maybe it's just been so long since the last one that they are losing their evolutionary survival instinct.
- New to Real Estate · Bristol IL · Member since 2018 · 24 posts · 10 votes3mo
@Sam B. I appreciate this somewhat. I've been feeling stuck trying to save up for the next deal. I don't have tons of time to rehab or flip and have even had calls with Some of these types. How would you suggest getting experience and education then ? Thanks for your time.
- 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
curious what is the asset catagory that you invested in ??
is it an apartment or mobile home park or S storage Office ?
some assets have been under a ton of stress .
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Jay Hinrichs 3 class A apartments, Austin texas, Atlanta, Daytona Fl.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Jay Hinrichs:
curious what is the asset catagory that you invested in ??
is it an apartment or mobile home park or S storage Office ?
some assets have been under a ton of stress .
Have you checked out there offerings recently Jay?
There is now a "Cash Flow Fund" offering that speaks of a monthly distributing preferred return up to 15%...... Via notes & private credit.....
I hate to say it, I truly do, but WTF....
It has all this wording of "conservative" and "risk-adjusted" making it all sound so simple and chill but to get those kind of returns were talking sky-high risk levels.
Admittedly this is not my arena of specialty, it's my wife's. This is exactly what she does. So I have some insights via her as to the living reality of it and they sure as heck don't have anywhere near a 15% distribution to investors, more like 1/3 of that.
The default rates for such lending and notes, it's no small thing.
It makes me wonder because as they say, where there is smoke......
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Joey Wilson:
@Jay Hinrichs 3 class A apartments, Austin texas, Atlanta, Daytona Fl.
All markets that were running super hot and are now normalizing. All REI will eventually turn out positive, as long as management is good. Assume NOI is depressed because of vacancies + incentives, hard to tell if this is temporary or if it will bust
- 1yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @James Hamling:
Quote from @Jay Hinrichs:
curious what is the asset catagory that you invested in ??
is it an apartment or mobile home park or S storage Office ?
some assets have been under a ton of stress .
Have you checked out there offerings recently Jay?
There is now a "Cash Flow Fund" offering that speaks of a monthly distributing preferred return up to 15%...... Via notes & private credit.....
I hate to say it, I truly do, but WTF....
It has all this wording of "conservative" and "risk-adjusted" making it all sound so simple and chill but to get those kind of returns were talking sky-high risk levels.
Admittedly this is not my arena of specialty, it's my wife's. This is exactly what she does. So I have some insights via her as to the living reality of it and they sure as heck don't have anywhere near a 15% distribution to investors, more like 1/3 of that.
The default rates for such lending and notes, it's no small thing.
It makes me wonder because as they say, where there is smoke......
If someone is offering 15%, most should just know better. It's like that Morlada person on here.
15% and risk adjusted don't work unless you're the one managing the risk and are fluent within it. And even then you know your entry price is really the risk and aren't super confident.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @V.G Jason:
Quote from @James Hamling:
Quote from @Jay Hinrichs:
curious what is the asset catagory that you invested in ??
is it an apartment or mobile home park or S storage Office ?
some assets have been under a ton of stress .
Have you checked out there offerings recently Jay?
There is now a "Cash Flow Fund" offering that speaks of a monthly distributing preferred return up to 15%...... Via notes & private credit.....
I hate to say it, I truly do, but WTF....
It has all this wording of "conservative" and "risk-adjusted" making it all sound so simple and chill but to get those kind of returns were talking sky-high risk levels.
Admittedly this is not my arena of specialty, it's my wife's. This is exactly what she does. So I have some insights via her as to the living reality of it and they sure as heck don't have anywhere near a 15% distribution to investors, more like 1/3 of that.
The default rates for such lending and notes, it's no small thing.
It makes me wonder because as they say, where there is smoke......
If someone is offering 15%, most should just know better. It's like that Morlada person on here.
15% and risk adjusted don't work unless you're the one managing the risk and are fluent within it. And even then you know your entry price is really the risk and aren't super confident.
First know I am NOT on any bandwagon inferring in any way Brandon and ODC is any form of a "scam" or "fraudulent", that's just ridiculous and ignorant banter.
And let's be fair. Given the time window of ODC's operations, if they have "A" fund that implodes, there still beating 95% of syndicators out there.
Anyone who thinks syndicated ventures are sure-fire wins 100% of time, there just telegraphing there ignorance. And when Black-Swans happen, yes, my default is to give some grace and leap to finding understanding vs hyperbolic accusations of assumption. There called Black-Swans for a reason.
The thing I find most troubling in this new offering from ODC is the complete industry venture change. That almost never works out. And it most often indicates much bigger problems under the surface within the group.
I am rooting for ODC, I am. But as said, where there is smoke and this certainly looks like billowing smoke to me.
Those feeling sore because there assumptions of perfection in profiting is being burst by reality of.... well reality, and are snapping to claims of "scam" in any iteration owe a lot more credit for the very active communications ongoing, that is NOT a "scam" action. That is an action of the very legitimate.
It takes integrity to face your investors and tell them the ugly stuff, to admit failing, to say "hey everyone, it's ugly, things are bad, really bad."
I am rooting for ODC to come through, but very confused as to this next action.
- Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes1y
@Joey Wilson would not mind purchasing these properties at an extreme discount to help out exploited investors get some of their capital back
- 1yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Joey Wilson:
After listening to so many Brandon Turner/ Bigger pockets podcasts I finally decided to take the risk and invest some of my hard earned savings into a fund with Brandon. So in 2021, I put in 100k into the fund and have received $355 total so far. Just got off an emergency zoom call them saying the banks are close to taking the properties and they are looking for capital because they are underwater, aka we might not even see another dollar let alone our initial investment. I was going to go with Grant Cardone, but Brandon seemed like the more honest type i wanted to follow but maybe hes better at sales and marketing than real estate. Not trying to cause drama but this is my first experience with real estate, is this normal? Thanks!
Sorry to hear that Joey.
Which of their deals is this (and what type of real-estate)?
To answer your question: I've see more than a thousand deals when they've come out...and how they're doing now. And the answer is :No and Yes.
1) In most real-estate asset classes (other than office): unplanned capital calls are not normal for *conservatively* structured sponsors (meaning sponsors that structured their deal with low leverage, fixed-rate loans, simple structure with no multiple-classes of equity etc).
2) On the other hand, several real-estate asset classes (multi-family, self storage, etc) went into a multi-year downturn starting about 2021-2022. And many of the non-conservatively structured sponsors are in trouble (and ARE requiring investors to make unplanned capital calls or else they default on the debt and the investment implodes).
3) The one exception is office. In this case there's been a fundamental shift due to post Covid 19 changes in the workforce (and alot more stress on the asset class). And so in this asset class, BOTH conservative and non-conservatively structured sponsors are forced to make unplanned capital calls.
The Real Estate Crowdfunding Review - Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes1y
@Joey Wilson, I would not classify this as a scam, but we are talking a bit semantics here.
As you noted, and others echoed, creating content can create a lot of trust. Raising investor capital is done on trust. But, the great content creators do not make for good investment managers, as you learned. In fact, the best operators/investment managers, are often NOT good marketers. They continue to play in the "who you know" space because they understand:
1. Their results will continue to attract the capital they need
2. When money is flowing in is often when the most money will be lost
3. They are too busy OPERATING, and don't have bandwidth to market
4. Not all attention is good attention. As many groups are seeing here: when you raise money from trust built on online forums, those same investors will also call you out on online forums.
But to you point, I don't think ODC is a scam. I think they got out over their skis for several reasons, but they did not go out with the intent of losing/taking your money.- CA · Member since 2013 · 64 posts · 58 votes8mo
Quote from @Evan Polaski:
@Joey Wilson, I would not classify this as a scam, but we are talking a bit semantics here.
As you noted, and others echoed, creating content can create a lot of trust. Raising investor capital is done on trust. But, the great content creators do not make for good investment managers, as you learned. In fact, the best operators/investment managers, are often NOT good marketers. They continue to play in the "who you know" space because they understand:
1. Their results will continue to attract the capital they need
2. When money is flowing in is often when the most money will be lost
3. They are too busy OPERATING, and don't have bandwidth to market
4. Not all attention is good attention. As many groups are seeing here: when you raise money from trust built on online forums, those same investors will also call you out on online forums.
But to you point, I don't think ODC is a scam. I think they got out over their skis for several reasons, but they did not go out with the intent of losing/taking your money.Evan, I believe you worked for Ashcroft right? Ashcroft is very similar to Open Door Capital in that the senior leadership is completely incompetent. Unable to manage interest rate risk or underwrite deals effectively in a changing environment. Ashcroft has multiple deals where LPs are taking substantial losses. I'm sure that Joe Fairless and Frank Roessler are nice enough people, but they're terrible at managing a syndication.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes1y
Is Open Door Capital a scam? Absolutely not.
Is Brandon Turner truthful? Absolutely yes.
The reality is investing comes with risk, and yes part of that risk is you can lose your entire investment. Syndications are particularly risky, and thats why they offer such high returns. That high return is consummate with the risk being high. Because that risk is so high, and these syndications are not filing financial reports with the SEC, the government will only allow accredited investors to invest in them. ie, individuals the government believes are either sophisticated enough to understand the risk, or have the fiancial capability of losing the entirety of their investment.
What's happening to ODC is happening to numerous syndicators in this space the last 2 years. The reality is they only stress tested their underwriting for interest rates to rise 200 basis points, say handling 3% rise to 5%, but many of their debt service rose 600-800 basis points up to 9-11%. Throw in that most of them underwrote for rent growth to be 3-5%, but instead have had negative rent growth instead. Combine falling rents, with higher vacancies, and higher rates and it was a recipe for disaster.
And every syndicator really any choice but to underwrite that way. If they underwrote the deals more conservatively, then they would have had to pay substantially less for the properties. But others were willing to buy at the same prices they bought at, so acquiring them cheaper wasnt possible. Additionally they wouldnt have been able to raise investment capital...because who is throwing capital at an investment with promised 2% returns if the other guys are promising 18% returns? So in both cases, the market determined what they could pay, the market determined how they underwrote, and the market determined what promised return they had to offer. Unfortunately it panned out very poorly.
It's important for investors to understand their risk tolerance. Most dont consider that. An S&P 500 index fund, incredibly unlikely to ever go to zero. A US Treasury Bond, incredibly unlikely to go to zero. Low risk investments with low/average returns. But a syndication, very high risk and thus a much much greater probability of the investment going to zero.
District Invest Group546 Reviews- Real Estate Consultant · Indianapolis · Member since 2019 · 75 posts · 80 votes1y
Quote from @Russell Brazil:
Is Open Door Capital a scam? Absolutely not.
Is Brandon Turner truthful? Absolutely yes.
The reality is investing comes with risk, and yes part of that risk is you can lose your entire investment. Syndications are particularly risky, and thats why they offer such high returns. That high return is consummate with the risk being high. Because that risk is so high, and these syndications are not filing financial reports with the SEC, the government will only allow accredited investors to invest in them. ie, individuals the government believes are either sophisticated enough to understand the risk, or have the fiancial capability of losing the entirety of their investment.
What's happening to ODC is happening to numerous syndicators in this space the last 2 years. The reality is they only stress tested their underwriting for interest rates to rise 200 basis points, say handling 3% rise to 5%, but many of their debt service rose 600-800 basis points up to 9-11%. Throw in that most of them underwrote for rent growth to be 3-5%, but instead have had negative rent growth instead. Combine falling rents, with higher vacancies, and higher rates and it was a recipe for disaster.
And every syndicator really any choice but to underwrite that way. If they underwrote the deals more conservatively, then they would have had to pay substantially less for the properties. But others were willing to buy at the same prices they bought at, so acquiring them cheaper wasnt possible. Additionally they wouldnt have been able to raise investment capital...because who is throwing capital at an investment with promised 2% returns if the other guys are promising 18% returns? So in both cases, the market determined what they could pay, the market determined how they underwrote, and the market determined what promised return they had to offer. Unfortunately it panned out very poorly.
It's important for investors to understand their risk tolerance. Most dont consider that. An S&P 500 index fund, incredibly unlikely to ever go to zero. A US Treasury Bond, incredibly unlikely to go to zero. Low risk investments with low/average returns. But a syndication, very high risk and thus a much much greater probability of the investment going to zero.
LOL! Brandon Turner is truthful. He is nothing more than a marketer.
Explain this forum https://www.biggerpockets.com/forums/960/topics/1127261-anyo...
@Sam B. This is what we were talking about tonight. - Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes1y
Quote from @Russell Brazil:
Is Open Door Capital a scam? Absolutely not.
Is Brandon Turner truthful? Absolutely yes.
The reality is investing comes with risk, and yes part of that risk is you can lose your entire investment. Syndications are particularly risky, and thats why they offer such high returns. That high return is consummate with the risk being high. Because that risk is so high, and these syndications are not filing financial reports with the SEC, the government will only allow accredited investors to invest in them. ie, individuals the government believes are either sophisticated enough to understand the risk, or have the fiancial capability of losing the entirety of their investment.
What's happening to ODC is happening to numerous syndicators in this space the last 2 years. The reality is they only stress tested their underwriting for interest rates to rise 200 basis points, say handling 3% rise to 5%, but many of their debt service rose 600-800 basis points up to 9-11%. Throw in that most of them underwrote for rent growth to be 3-5%, but instead have had negative rent growth instead. Combine falling rents, with higher vacancies, and higher rates and it was a recipe for disaster.
And every syndicator really any choice but to underwrite that way. If they underwrote the deals more conservatively, then they would have had to pay substantially less for the properties. But others were willing to buy at the same prices they bought at, so acquiring them cheaper wasnt possible. Additionally they wouldnt have been able to raise investment capital...because who is throwing capital at an investment with promised 2% returns if the other guys are promising 18% returns? So in both cases, the market determined what they could pay, the market determined how they underwrote, and the market determined what promised return they had to offer. Unfortunately it panned out very poorly.
It's important for investors to understand their risk tolerance. Most dont consider that. An S&P 500 index fund, incredibly unlikely to ever go to zero. A US Treasury Bond, incredibly unlikely to go to zero. Low risk investments with low/average returns. But a syndication, very high risk and thus a much much greater probability of the investment going to zero.
"But mom, everyone was doing it!"
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
They missed every metric. Vacancy rate, insurances taxes, interest rate, repairs and maintenance. One or two maybe but everything?? It's unbelievable that anyone could be so bad at buying real estate. Unless you're partying in Hawaii and picking real estate without doing any due diligence at all. To top it off he's out selling guru stuff and has been. He should be digging his heels in every day to make his investor profitable.
Sunbelt is 94% below projections. That doesn’t happen without poor underwriting, I don’t care how many economic disadvantages they’ve had to endure.
- Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes1y
Quote from @Joey Wilson:
They missed every metric. Vacancy rate, insurances taxes, interest rate, repairs and maintenance. One or two maybe but everything?? It's unbelievable that anyone could be so bad at buying real estate. Unless you're partying in Hawaii and picking real estate without doing any due diligence at all. To top it off he's out selling guru stuff and has been. He should be digging his heels in every day to make his investor profitable.
Sunbelt is 94% below projections. That doesn’t happen without poor underwriting, I don’t care how many economic disadvantages they’ve had to endure.
It's unfortunate that you had to learn this lesson the hard way, but it sounds like you now realize that you have to do your own due diligence as well. Not just on the operator but on the investment itself. Here are some resources I've found valuable to help with that:
https://store.biggerpockets.com/products/the-hands-off-inves...
- Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes1y
I think Brandon should resort to Ponzi techniques by inviting in more newer investors to dilute the challenge
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Russell Brazil Wow one of the few times I get to disagree with Russell
"And every syndicator really any choice but to underwrite that way."Seems like they made a choice to ignore their fiduciary duty? They could have chosen not to do the deals. If the only investments available are bad investments, just don't buy them. Especially if you are buying with other peoples money.
The assumption that 3,4 or even 5% rates would continue is laughable. Part of me thinks syndicators should have disclosed the exceptionally low rates, part of me thinks that is why it is limited to accredited investors. Accredited investors should know that those were unsustainable interest rates.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes1yI dont think anything about being a syndicator makes you a fiduciary. Quite the opposite. Syndicators have no training or legal requirements on understanding to be a fiduciary. That is part of why this type of investment is high risk.
Quote from @Ned Carey:
@Russell Brazil Wow one of the few times I get to disagree with Russell
"And every syndicator really any choice but to underwrite that way."Seems like they made a choice to ignore their fiduciary duty? They could have chosen not to do the deals. If the only investments available are bad investments, just don't buy them. Especially if you are buying with other peoples money.
The assumption that 3,4 or even 5% rates would continue is laughable. Part of me thinks syndicators should have disclosed the exceptionally low rates, part of me thinks that is why it is limited to accredited investors. Accredited investors should know that those were unsustainable interest rates.
District Invest Group546 Reviews - Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes1y
@Ned Carey what fiduciary duty do you believe exists in this scenario?
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
Quote from @James McGovern:
@Ned Carey what fiduciary duty do you believe exists in this scenario?
James I replied earlier saying
"However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility."I was wrong to call it a fiduciary duty, but clearly there is a duty to describe the risks.
Interest rates being at historical lows, and knowing that statistically the interest rates would higher at time of refinance, is a obvious knowable risk. My guess is few sponsors described that risk accurately.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Ned Carey:
Quote from @James McGovern:
@Ned Carey what fiduciary duty do you believe exists in this scenario?
James I replied earlier saying
"However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility."I was wrong to call it a fiduciary duty, but clearly there is a duty to describe the risks.
Interest rates being at historical lows, and knowing that statistically the interest rates would higher at time of refinance, is a obvious knowable risk. My guess is few sponsors described that risk accurately.
The way the SEC views it (Which is why they rarely go after Reg D's) is - if you are accredited then you can afford to lose all the money invested and take on the risk. For a 506c they technically do not even need a PPM.
I think many investors do not realize this and the risks that are involved. This to me is one of the problems of the accredited investor definition, 40 years ago $200k you were wealthy, today lifeguards in california are accredited and people take their $250k in savings and dump it into one syndication and losing it all -and most cases its not a scam its investing as Jay mentioned as someone who invested in $100k rentals into large MF which is like trying to back up a mini cooper into a parking space to a 50' tractor trailer.
7e investments53 Reviews
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes1y
My view on this kind of thing boils down to this: I think it is morally wrong to use your fame/notoriety/whatever you want to call it to entice people into investing in something that you have little to no experience running or managing. We can talk all day about accredited investors and everything has risk and nothing is technically a scam and all of that may be true but it doesn't change the moral responsibility someone has in my book to do right by others and be honest to the greatest extent possible. Using your name to create wealth for yourself while taking significant risks with other people's money in an arena you know little about is pretty much what Guruism is.
If @Jay Hinrichs said he was starting a perfect Internet grammar course tomorrow, I would know better than to invest $100 in that but a lot of other people would recognize Jay from the forums and think "Well, it's got to be legit because Jay's doing it". Of course we all know he wouldn't do such a thing, but lots of other people would. In fact I suspect some people - I'm not necessarily saying ODC people - set out to become "famous" on BP, podcasts and other areas purposely to attract capital for dubious "investments".
Bottom line: never go with anything because they seem honest, like a good guy, or well known in a community. Trust but verify everything and always consider the asset itself and the consequences of failure.
Skyline Properties- 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesSo true! I think part of what it boils down to for someone like Brandon is picking the right team everyone in this bizz makes poor choices on who they may align with or their team. All syndicators had to start somewhere so business background is important as you note.. I think if anyone has followed Brandon in BP he started with small rentals in a little town in Central Western WA from what I read on his earliest posts. Of course I have no idea about his background in other kinds of education as it relates to running a syndication or fund. However we have seen a lot of smaller landlords make the jump like Brandon did and then of course with Brandon having access to the 50,000 watt BP flame thrower of social media presence its a logical jump for him to leverage that fame and notoriety to create ODC. Their could be and probably is an irrational thought process by investors thinking that this fame and notoriety equates to a super seasoned fund / syndication manager.
Quote from @JD Martin:
My view on this kind of thing boils down to this: I think it is morally wrong to use your fame/notoriety/whatever you want to call it to entice people into investing in something that you have little to no experience running or managing. We can talk all day about accredited investors and everything has risk and nothing is technically a scam and all of that may be true but it doesn't change the moral responsibility someone has in my book to do right by others and be honest to the greatest extent possible. Using your name to create wealth for yourself while taking significant risks with other people's money in an arena you know little about is pretty much what Guruism is.
If @Jay Hinrichs said he was starting a perfect Internet grammar course tomorrow, I would know better than to invest $100 in that but a lot of other people would recognize Jay from the forums and think "Well, it's got to be legit because Jay's doing it". Of course we all know he wouldn't do such a thing, but lots of other people would. In fact I suspect some people - I'm not necessarily saying ODC people - set out to become "famous" on BP, podcasts and other areas purposely to attract capital for dubious "investments".
Bottom line: never go with anything because they seem honest, like a good guy, or well known in a community. Trust but verify everything and always consider the asset itself and the consequences of failure.
WE all have our stories I know that 08 to 2011 when the market changed for me and my companies I basically had to start over everything I had done for the previous 20 years in the RE lending space went right out the window when credit froze Landlords walked from the rentals I funded for them in droves banks called all our lOC's etc etc. For me I did what the OP mentions I dove in I sold everything I owned at the time to pay my banks back etc was quite a Humbling experience and thats when I found BP and started to build back up and basically start all over.
To that end I am in Montana just finished a week of fishing with my Banker who rode through the 08 melt down with me .. And is one of the main reasons I am alive to fight another day.. I did not burn the bank like many in my space did. He was what I did personally and by the time I got stablized they kept our relationship going and over the preceding 10 years have funded about 400 construction loans for me.. It was very nice being able to borrower at bank rates compared to so many of my peers that burned their banks and had to move to HM or PM to restart..
I do find it pretty wild that these guys can go from poorly performing funds/syndications then start selling systems of some sort not sure what they sell today.. But it is a testament to the internet etc. But its natural progression for many - Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes1y
Quote from @JD Martin:
My view on this kind of thing boils down to this: I think it is morally wrong to use your fame/notoriety/whatever you want to call it to entice people into investing in something that you have little to no experience running or managing. We can talk all day about accredited investors and everything has risk and nothing is technically a scam and all of that may be true but it doesn't change the moral responsibility someone has in my book to do right by others and be honest to the greatest extent possible. Using your name to create wealth for yourself while taking significant risks with other people's money in an arena you know little about is pretty much what Guruism is.
If @Jay Hinrichs said he was starting a perfect Internet grammar course tomorrow, I would know better than to invest $100 in that but a lot of other people would recognize Jay from the forums and think "Well, it's got to be legit because Jay's doing it". Of course we all know he wouldn't do such a thing, but lots of other people would. In fact I suspect some people - I'm not necessarily saying ODC people - set out to become "famous" on BP, podcasts and other areas purposely to attract capital for dubious "investments".
Bottom line: never go with anything because they seem honest, like a good guy, or well known in a community. Trust but verify everything and always consider the asset itself and the consequences of failure.
I heard a rephrasing of that last line recently that I thought was fantastic: "Verify, then trust". Same process really but it puts the numbers first.
- 1yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Jay Hinrichs:
So true! I think part of what it boils down to for someone like Brandon is picking the right team everyone in this bizz makes poor choices on who they may align with or their team. All syndicators had to start somewhere so business background is important as you note.. I think if anyone has followed Brandon in BP he started with small rentals in a little town in Central Western WA from what I read on his earliest posts. Of course I have no idea about his background in other kinds of education as it relates to running a syndication or fund. However we have seen a lot of smaller landlords make the jump like Brandon did and then of course with Brandon having access to the 50,000 watt BP flame thrower of social media presence its a logical jump for him to leverage that fame and notoriety to create ODC. Their could be and probably is an irrational thought process by investors thinking that this fame and notoriety equates to a super seasoned fund / syndication manager.Quote from @JD Martin:
My view on this kind of thing boils down to this: I think it is morally wrong to use your fame/notoriety/whatever you want to call it to entice people into investing in something that you have little to no experience running or managing. We can talk all day about accredited investors and everything has risk and nothing is technically a scam and all of that may be true but it doesn't change the moral responsibility someone has in my book to do right by others and be honest to the greatest extent possible. Using your name to create wealth for yourself while taking significant risks with other people's money in an arena you know little about is pretty much what Guruism is.
If @Jay Hinrichs said he was starting a perfect Internet grammar course tomorrow, I would know better than to invest $100 in that but a lot of other people would recognize Jay from the forums and think "Well, it's got to be legit because Jay's doing it". Of course we all know he wouldn't do such a thing, but lots of other people would. In fact I suspect some people - I'm not necessarily saying ODC people - set out to become "famous" on BP, podcasts and other areas purposely to attract capital for dubious "investments".
Bottom line: never go with anything because they seem honest, like a good guy, or well known in a community. Trust but verify everything and always consider the asset itself and the consequences of failure.
WE all have our stories I know that 08 to 2011 when the market changed for me and my companies I basically had to start over everything I had done for the previous 20 years in the RE lending space went right out the window when credit froze Landlords walked from the rentals I funded for them in droves banks called all our lOC's etc etc. For me I did what the OP mentions I dove in I sold everything I owned at the time to pay my banks back etc was quite a Humbling experience and thats when I found BP and started to build back up and basically start all over.
To that end I am in Montana just finished a week of fishing with my Banker who rode through the 08 melt down with me .. And is one of the main reasons I am alive to fight another day.. I did not burn the bank like many in my space did. He was what I did personally and by the time I got stablized they kept our relationship going and over the preceding 10 years have funded about 400 construction loans for me.. It was very nice being able to borrower at bank rates compared to so many of my peers that burned their banks and had to move to HM or PM to restart..
I do find it pretty wild that these guys can go from poorly performing funds/syndications then start selling systems of some sort not sure what they sell today.. But it is a testament to the internet etc. But its natural progression for many
It actually testifies to how much luck is involved rather than skill for Brandon & everyone else in that 2008-2017 era. And when you're successful you refuse to believe luck is apart of it, and it was mere skill. He was 99.99% luck, .01% skill.
8 years ago when people told me I got lucky a lot-- I hated it & them.
As time has passed, I've learned I'm excellent two things-- being lucky and quickly can isolate the indicators that make a business grow or fail. I always believed the latter is what made me successful, the reality is all variables lining up is what has made me successful. - Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
I don't agree with that. From 2008 to 2017 the fundamentals made sense. People were buying at a low part of the cycle. Many investors understand cycles and buy based on fundamental analysis. Yes some got luckily but some were smart.
If you had chosen the dates of 2019-2023 then I would agree. A drunk monkey could throw a dart at a map and pick a deal that made money. I made a lot of money in that time period but recognize it was luck not brains.
I haven't followed Brandon closely but I believe he went form smaller SFH and smaller Multi family to a totally different class of properties with a different financing structure. I think it likely he was skilled at the former but lacked expertise and skill in the latter.
I think you know this but for others books on risk like "Black Swan" or "Fooled by Randomness" by Nassim Taleb are excellent reads. Most people don' have a clue about risk.
- 1yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Ned Carey:
I don't agree with that. From 2008 to 2017 the fundamentals made sense. People were buying at a low part of the cycle. Many investors understand cycles and buy based on fundamental analysis. Yes some got luckily but some were smart.
If you had chosen the dates of 2019-2023 then I would agree. A drunk monkey could throw a dart at a map and pick a deal that made money. I made a lot of money in that time period but recognize it was luck not brains.
I haven't followed Brandon closely but I believe he went form smaller SFH and smaller Multi family to a totally different class of properties with a different financing structure. I think it likely he was skilled at the former but lacked expertise and skill in the latter.
I think you know this but for others books on risk like "Black Swan" or "Fooled by Randomness" by Nassim Taleb are excellent reads. Most people don' have a clue about risk.
Those are great reads by Nassim.
2009-2014 were the only times where it was intrinsic, almost deep ITM, to buy a house. I don't think he got in understanding that theory, but by sheer luck. I guess that's my point.
There's tons of skilled REIs that invested then due to fundamentals, but those were the ones that have invested for decades that saw the opportunity. The ones who just started? Definitely more beginner's luck. Evidence? See what happens when the option prices more extrinsic? They can't create value. - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes1y
Quote from @V.G Jason:
Quote from @Ned Carey:
I don't agree with that. From 2008 to 2017 the fundamentals made sense. People were buying at a low part of the cycle. Many investors understand cycles and buy based on fundamental analysis. Yes some got luckily but some were smart.
If you had chosen the dates of 2019-2023 then I would agree. A drunk monkey could throw a dart at a map and pick a deal that made money. I made a lot of money in that time period but recognize it was luck not brains.
I haven't followed Brandon closely but I believe he went form smaller SFH and smaller Multi family to a totally different class of properties with a different financing structure. I think it likely he was skilled at the former but lacked expertise and skill in the latter.
I think you know this but for others books on risk like "Black Swan" or "Fooled by Randomness" by Nassim Taleb are excellent reads. Most people don' have a clue about risk.
Those are great reads by Nassim.
2009-2014 were the only times where it was intrinsic, almost deep ITM, to buy a house. I don't think he got in understanding that theory, but by sheer luck. I guess that's my point.
There's tons of skilled REIs that invested then due to fundamentals, but those were the ones that have invested for decades that saw the opportunity. The ones who just started? Definitely more beginner's luck. Evidence? See what happens when the option prices more extrinsic? They can't create value.Anti-Fragile is another good one by Taleb. I think it might be my favorite of his. Anyway, your point is well taken - everyone can walk around when the tide is low, but not everyone can swim when it rises
Skyline Properties
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes1y
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
District Invest Group546 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Agree with everything you said. Some say it should be easier to get accredited investor but the income limits are from like 1984. Today you would need like a $5M net worth or $1M annual income -which I 100% support because along with that Reg A and Reg CF allow for non-accredited but limit the exposure to 10% of net worth. So the old excuse of getting institutional product and cannot invest in real estate syndications is out the window.
Also as you mention, most of these are not scams but investors feel scammed because they did not do their due diligence. Original poster said invested after listening to podcasts. I take it as "I did not underwrite the deal, person sounded trustworthy".
7e investments53 Reviews - Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes1y
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Yeah that's all fine and good theoretically until you remember that the entire business model of every real estate guru ever revolves around selling courses to or raising money from precisely the type of unsophisticated investors who would invest based on something they saw on a podcast. You can't have it both ways. Either you're catering to newbies or you're not.
- Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes1y
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Or alternatively it should be a combination of finances and passing a test to prove competency.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes1y
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Or alternatively it should be a combination of finances and passing a test to prove competency.
There is actually tests you can take to become accredited investors. If you pass the series 7, 65 or 82 licensing exams you become accredited.
District Invest Group546 Reviews - Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes1y
Quote from @Russell Brazil:
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Or alternatively it should be a combination of finances and passing a test to prove competency.
There is actually tests you can take to become accredited investors. If you pass the series 7, 65 or 82 licensing exams you become accredited.
Understood but what I meant was that maybe a test should be mandatory regardless of the financials if the whole point is to ensure someone is sophisticated enough to properly evaluate higher risk investments. If I'm an 18 year old kid that inherits $1M, I'm accredited overnight. The net worth or income tests just seem a poor way to measure such things.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Or alternatively it should be a combination of finances and passing a test to prove competency.
There is actually tests you can take to become accredited investors. If you pass the series 7, 65 or 82 licensing exams you become accredited.
Understood but what I meant was that maybe a test should be mandatory regardless of the financials if the whole point is to ensure someone is sophisticated enough to properly evaluate higher risk investments. If I'm an 18 year old kid that inherits $1M, I'm accredited overnight. The net worth or income tests just seem a poor way to measure such things.
The same could be said for stock markets - I do not agree that everyone needs to take a test, if someone is worth $1M and wants to gamble $50k they should be able to. The issue I have is the limits are too low right now and the definition for what qualifies needs to be adjusted to todays dollars not 1984.
7e investments53 Reviews - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Jon K.:
Quote from @Russell Brazil:
Quote from @Ned Carey:
@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.
I don't think it's a get out of jail card. But it does mean an investment is high risk.
We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.
Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment.You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.
Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products.
Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.
Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.
Or alternatively it should be a combination of finances and passing a test to prove competency.
There is actually tests you can take to become accredited investors. If you pass the series 7, 65 or 82 licensing exams you become accredited.
Understood but what I meant was that maybe a test should be mandatory regardless of the financials if the whole point is to ensure someone is sophisticated enough to properly evaluate higher risk investments. If I'm an 18 year old kid that inherits $1M, I'm accredited overnight. The net worth or income tests just seem a poor way to measure such things.
The entire premise of Accredited Investor is not to prevent people from making bad investment decisions and loosing investment capitol.
It's to assure FIT. That the people being brought in (LP's) have the "appropriate" financial capacity for the action they are doing.
Possessing commanding knowledge is the work around.
When Freedom Reigns, it has no direction. Freedom means the freedom to make smart choices or really bad dumb choices. That's freedom.
And yes, that includes investing. People have the freedom to make really poor choices.
They system is designed to protect people from over-leveraging said poor investing decisions. Because poverty becomes a burden on the system ie all of us.
So yeah, a person who inherits $2.3m from Grandpa, yup, they have all the freedom to act like a moron and just throw it away on hair-brained dumb investments.
That's freedom. It's not mono-directional. There is no fantasy land where everything is only always great.
The limits are not made to assure profitability, there specifically designed for losses, not wins.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Russell Brazil I think you understand what I am about to say already. I am NOT suggesting Open door or any other syndication is a scam. However it is obvious statistically some syndications are. There is a big difference between a scam and incompetence and simple bad luck. I think many are quick to use bad luck as an excuse when lack of skill and inexperience were strong factors. on very predictable changes in the market.
I agree with your point about the low level required to be an accredited investor. It should be raised.
- Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes1y
Quote from @Ned Carey:
@Russell Brazil I think you understand what I am about to say already. I am NOT suggesting Open door or any other syndication is a scam. However it is obvious statistically some syndications are. There is a big difference between a scam and incompetence and simple bad luck. I think many are quick to use bad luck as an excuse when lack of skill and inexperience were strong factors. on very predictable changes in the market.
I agree with your point about the low level required to be an accredited investor. It should be raised.
If you're incompetent and you're going around selling yourself as having skills that you don't actually have, you are a scammer by any reasonable definition. It's a distinction without a difference. The people in this thread arguing that "well TECHNICALLY it's not a scam" are just making pedantic defenses of the indefensible.
Drunk drivers don't mean to kill people but when they do the people are still dead and we don't let them off the hook for their negligence and lack of consideration.
- Lender · Lake Geneva WI, USA · Member since 2023 · 141 posts · 72 votes1y
Quote from @Joey Wilson:
After listening to so many Brandon Turner/ Bigger pockets podcasts I finally decided to take the risk and invest some of my hard earned savings into a fund with Brandon. So in 2021, I put in 100k into the fund and have received $355 total so far. Just got off an emergency zoom call them saying the banks are close to taking the properties and they are looking for capital because they are underwater, aka we might not even see another dollar let alone our initial investment. I was going to go with Grant Cardone, but Brandon seemed like the more honest type i wanted to follow but maybe hes better at sales and marketing than real estate. Not trying to cause drama but this is my first experience with real estate, is this normal? Thanks!
I think you would find much better success if you met up with someone and checked out what they had going on, forming a partnership. In Minneapolis you might find a good REIG.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
I've managed hundreds of real estate and mortgage loan syndications as well as high yield mortgage funds and real estate equity funds. Most of our deals (80 + %) end up within a rather small variance from projected ROI. A relatively small number under or over perform. Once in a while "unique and unforeseen" events unfold which lead to extremely high ROI - OR - extremely DISAPPOINTING (i.e. LOSSES) results.
The question passively investors should be asking is if the person running the syndication is a “real estate guy” who is using social media, writing, public presence, etc. as part of a marketing program or is the person running the syndication a “marketing guy” (“influencer”, social media expert, marketer, salesman, pitchman) who has found real estate marketing to be profitable? If you’re investing with a real estate “expert” you should expect to do well OVER THE LONG RUN, with a DIVERSIFIED portfolio of different assets (syndication participations). If you’re investing with a “media personality” whose expertise is MARKETING and who HAPPENS to be “marketing” real estate then your results are going to be what would be expected when we take medical advice from a plumber; stock market advice from a barber, or real estate investment advice from a salesman.
- 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
I've managed hundreds of real estate and mortgage loan syndications as well as high yield mortgage funds and real estate equity funds. Most of our deals (80 + %) end up within a rather small variance from projected ROI. A relatively small number under or over perform. Once in a while "unique and unforeseen" events unfold which lead to extremely high ROI - OR - extremely DISAPPOINTING (i.e. LOSSES) results.
The question passively investors should be asking is if the person running the syndication is a “real estate guy” who is using social media, writing, public presence, etc. as part of a marketing program or is the person running the syndication a “marketing guy” (“influencer”, social media expert, marketer, salesman, pitchman) who has found real estate marketing to be profitable? If you’re investing with a real estate “expert” you should expect to do well OVER THE LONG RUN, with a DIVERSIFIED portfolio of different assets (syndication participations). If you’re investing with a “media personality” whose expertise is MARKETING and who HAPPENS to be “marketing” real estate then your results are going to be what would be expected when we take medical advice from a plumber; stock market advice from a barber, or real estate investment advice from a salesman.
Or buy low end rentals from a former fox and friends TV host :) Seems Like Grant Cardone has raised above this and made it through High profile 50 mil Jet and now RE expert on TV News stations.
When the Fox and Friends host started selling TK low end rentals and so many on BP jumped in blindly I think there was again a very irrational thought process that he would not dare ruin in reputation by doing something that was not up to snuff. I can see the folks in ODC thinking same thing here. Irrational trust because of being such a public figure and so well loved.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes1y
In for later
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 726 votes1y
Some people get in over their head. There was a time when Bernie Madoff was even honest.
- Member since 2022 · 6 posts · 10 votes1y
Should have bought digital real estate. Bitcoin. You'd be up over 200% right now.
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@Martin Navarro i got that also
- Member since 2025 · 242 posts · 97 votes1y
@Joey Wilson Tough spot - sorry to hear that. Real estate has risks, especially in syndications. Use this as a lesson, not a loss. Wishing you better deals ahead.
- 1yRenato CoelhoPro MemberInvestor · Denver, CO · Member since 2022 · 8 posts · 5 votes
Reply from newest
- 1yRenato CoelhoPro MemberInvestor · Denver, CO · Member since 2022 · 8 posts · 5 votes
Reply from oldest
- Member since 2022 · 9 posts · 10 votes1y
Just needed to stop and mention - you are not alone,bro. I invested with ODC as well in 2022, and was thinking the same thing after distributions stopped and negative outlooks were being disclosed. I did appreciate the transparency of ODC and Brandon and have heard from other sources that most multi family syndications did utterly poorly at that period. All we can do is hope that Brandon and the GPs make us whole again. Don’t think profiting is realistic at this point.
Good luck to your investing future! - Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
An Individual that has invested in the fund just wrote me this... "
"I have invested $500k with him in 3 different funds.
The first one is already bankrupt... I am just praying that I get my money back with the other funds.. it is the worst mistake I have ever made. I fell your pain."
- Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes1y
Instead of investing in syndication it is better to use capital and become a private money lender
- Minneapolis, MN · Member since 2018 · 33 posts · 53 votes1y
@James McGovern thanks brother, sounds like a better idea to me as well!
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Chris Seveney thanks for the reply.. This is much ore your area than mine. So it is just an interesting theoretical discussion of law to me.
My thinking is, a PPM includes disclosures of risk. If it didn't include what to me was the biggest and most obvious risk of interest rate changes that I think an investor has a reasonable case against the sponsor. This interest rate was both highly probably and potentially ruinous. Both which came to be true.
I understand why the SEC would take this position however a jury may think otherwise.
Totally agree that most investors at any level have no clue as to the risks they are taking.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesI couldn’t even fathom the incompetence of a securities attorney that omitted interest rate risk from a real estate PPM.
Quote from @Ned Carey:
@Chris Seveney thanks for the reply.. This is much ore your area than mine. So it is just an interesting theoretical discussion of law to me.
My thinking is, a PPM includes disclosures of risk. If it didn't include what to me was the biggest and most obvious risk of interest rate changes that I think an investor has a reasonable case against the sponsor. This interest rate was both highly probably and potentially ruinous. Both which came to be true.
I understand why the SEC would take this position however a jury may think otherwise.
Totally agree that most investors at any level have no clue as to the risks they are taking.
securities attorneys begin work on PPM from a boilerplate which discusses every imaginable risk under the sun, and then they modify the PPM for the specific offering. Which is why the PPM runs 80 + pages.
Reg D compliance is a “safe harbor”. By that it means that IF an offering complies with Reg D then (1) the SEC will not in the future determine that the offering fails to meet exemption from securities registration (2) the offering is exempt from state securities laws (but still need to file “offering notices” in those states where the offering is active (3) if sued by a disgruntled investor the sponsor has a “definitive defense” and a”statutory” defense, absence fraud. The value of this statutory/definitive defense for a sponsor can’t be overstated; almost no attorney will take the case of a plaintiff investor if Reg D was complied with (with includes proper disclosures) and certainly won’t on a contingency basis.
A fund I ran ran into some problems in 2008 - 2010, as you can imagine. Investors all got made whole by 2012, however our “projected” 12 % annualized return turned out to be overstated as the ROI was 8.3%. One of our 50+ investors was adamant that we “owed” him the “difference”, as if the “projected” return was a “guarantee”. After contacting a dozen or so attorneys who turned down representing him, he found one to take his case demanding and receiving a large retainer. We not only obtained a summary judgement in our favor, but we also had the court confirm a provision in our partnership agreement whereby he was responsible for our attorney fees.
The real crazy thing was that the GP of the partnership that was sued was a SPV corporation I had set up and had absolutely no assets even if losing in court. Since fraud was never charged, the liability could not flow through to myself in any case.
Here’s something I learned from 40 years syndicating real estate deals. The VAST majority of investors just want honesty and fiduciary responsibility from the sponsor, and want to be informed of any relevant developments good or bad in a timely matter. They understand there’s a risk in any investment and accept that when they invest.
A very SMALL minority believe that any deviation from projections, or any disappointing results are the result of sponsor fraud and that the sponsor is stealing their money and is going to abscond with the cash. These people usually have anger issues, and lack any ability to think rationally.
What really muddies the waters is that so many syndicated offerings are sponsored by people inexperienced, lacking specific knowledge, and lacking the various talent needed to give an investment the best chance of success. They typically go silent when confronted with bad news/investor inquiries; are quick to hide behind legal counsel; and often illegally use new investor capital inappropriately.
Here’s the bottom line. Investing in syndications on a large scale (if done CORRECTLY) will take a LOT of time and effort. The investor will look at 50 deals for every one they do. That’s why the only efficient way to do it long term is to identify a sponsor who is active with continual offerings, who fits all criteria for success both with sponsors and properties and strategy, and invest in multiple offerings. - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes1yThat's exactly the major problem with a lot of these syndications. They are being run by people who don't necessarily have any realistic experience running a syndication nor managing & mitigating risk, which is the real value of a successful syndicator. Of course everyone wants to make 12% but what most people *really* want is as close to a guarantee of their principal as possible. These social media stars play on the individual's natural sense of greed while giving lip service to their plans to manage exposure, because they tend to only have the same one or two tricks in their bag as everyone else - refinance & raise rents being pretty much it. Then, when conditions preclude either one of those things from happening their entire model is underwater, with no clue (or inclination, for a lot of them making fat fees) on how to preserve LP equity. I'm convinced that a lot of the capital calls are as much about shoring up the operational bottom line to prevent total collapse and blowing up their future funds as it is about stabilizing & improving existing funds. A lot of these syndications are running on margins so thin that there's virtually no chance of recovery even with an asset sale.
Quote from @Don Konipol:
I couldn’t even fathom the incompetence of a securities attorney that omitted interest rate risk from a real estate PPM.Quote from @Ned Carey:
@Chris Seveney thanks for the reply.. This is much ore your area than mine. So it is just an interesting theoretical discussion of law to me.
My thinking is, a PPM includes disclosures of risk. If it didn't include what to me was the biggest and most obvious risk of interest rate changes that I think an investor has a reasonable case against the sponsor. This interest rate was both highly probably and potentially ruinous. Both which came to be true.
I understand why the SEC would take this position however a jury may think otherwise.
Totally agree that most investors at any level have no clue as to the risks they are taking.
securities attorneys begin work on PPM from a boilerplate which discusses every imaginable risk under the sun, and then they modify the PPM for the specific offering. Which is why the PPM runs 80 + pages.
Reg D compliance is a “safe harbor”. By that it means that IF an offering complies with Reg D then (1) the SEC will not in the future determine that the offering fails to meet exemption from securities registration (2) the offering is exempt from state securities laws (but still need to file “offering notices” in those states where the offering is active (3) if sued by a disgruntled investor the sponsor has a “definitive defense” and a”statutory” defense, absence fraud. The value of this statutory/definitive defense for a sponsor can’t be overstated; almost no attorney will take the case of a plaintiff investor if Reg D was complied with (with includes proper disclosures) and certainly won’t on a contingency basis.
A fund I ran ran into some problems in 2008 - 2010, as you can imagine. Investors all got made whole by 2012, however our “projected” 12 % annualized return turned out to be overstated as the ROI was 8.3%. One of our 50+ investors was adamant that we “owed” him the “difference”, as if the “projected” return was a “guarantee”. After contacting a dozen or so attorneys who turned down representing him, he found one to take his case demanding and receiving a large retainer. We not only obtained a summary judgement in our favor, but we also had the court confirm a provision in our partnership agreement whereby he was responsible for our attorney fees.
The real crazy thing was that the GP of the partnership that was sued was a SPV corporation I had set up and had absolutely no assets even if losing in court. Since fraud was never charged, the liability could not flow through to myself in any case.
Here’s something I learned from 40 years syndicating real estate deals. The VAST majority of investors just want honesty and fiduciary responsibility from the sponsor, and want to be informed of any relevant developments good or bad in a timely matter. They understand there’s a risk in any investment and accept that when they invest.
A very SMALL minority believe that any deviation from projections, or any disappointing results are the result of sponsor fraud and that the sponsor is stealing their money and is going to abscond with the cash. These people usually have anger issues, and lack any ability to think rationally.
What really muddies the waters is that so many syndicated offerings are sponsored by people inexperienced, lacking specific knowledge, and lacking the various talent needed to give an investment the best chance of success. They typically go silent when confronted with bad news/investor inquiries; are quick to hide behind legal counsel; and often illegally use new investor capital inappropriately.
Here’s the bottom line. Investing in syndications on a large scale (if done CORRECTLY) will take a LOT of time and effort. The investor will look at 50 deals for every one they do. That’s why the only efficient way to do it long term is to identify a sponsor who is active with continual offerings, who fits all criteria for success both with sponsors and properties and strategy, and invest in multiple offerings.Skyline Properties - 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesJD that’s a pretty insightful observation.
Quote from @JD Martin:
That's exactly the major problem with a lot of these syndications. They are being run by people who don't necessarily have any realistic experience running a syndication nor managing & mitigating risk, which is the real value of a successful syndicator. Of course everyone wants to make 12% but what most people *really* want is as close to a guarantee of their principal as possible. These social media stars play on the individual's natural sense of greed while giving lip service to their plans to manage exposure, because they tend to only have the same one or two tricks in their bag as everyone else - refinance & raise rents being pretty much it. Then, when conditions preclude either one of those things from happening their entire model is underwater, with no clue (or inclination, for a lot of them making fat fees) on how to preserve LP equity. I'm convinced that a lot of the capital calls are as much about shoring up the operational bottom line to prevent total collapse and blowing up their future funds as it is about stabilizing & improving existing funds. A lot of these syndications are running on margins so thin that there's virtually no chance of recovery even with an asset sale.Quote from @Don Konipol:
I couldn’t even fathom the incompetence of a securities attorney that omitted interest rate risk from a real estate PPM.Quote from @Ned Carey:
@Chris Seveney thanks for the reply.. This is much ore your area than mine. So it is just an interesting theoretical discussion of law to me.
My thinking is, a PPM includes disclosures of risk. If it didn't include what to me was the biggest and most obvious risk of interest rate changes that I think an investor has a reasonable case against the sponsor. This interest rate was both highly probably and potentially ruinous. Both which came to be true.
I understand why the SEC would take this position however a jury may think otherwise.
Totally agree that most investors at any level have no clue as to the risks they are taking.
securities attorneys begin work on PPM from a boilerplate which discusses every imaginable risk under the sun, and then they modify the PPM for the specific offering. Which is why the PPM runs 80 + pages.
Reg D compliance is a “safe harbor”. By that it means that IF an offering complies with Reg D then (1) the SEC will not in the future determine that the offering fails to meet exemption from securities registration (2) the offering is exempt from state securities laws (but still need to file “offering notices” in those states where the offering is active (3) if sued by a disgruntled investor the sponsor has a “definitive defense” and a”statutory” defense, absence fraud. The value of this statutory/definitive defense for a sponsor can’t be overstated; almost no attorney will take the case of a plaintiff investor if Reg D was complied with (with includes proper disclosures) and certainly won’t on a contingency basis.
A fund I ran ran into some problems in 2008 - 2010, as you can imagine. Investors all got made whole by 2012, however our “projected” 12 % annualized return turned out to be overstated as the ROI was 8.3%. One of our 50+ investors was adamant that we “owed” him the “difference”, as if the “projected” return was a “guarantee”. After contacting a dozen or so attorneys who turned down representing him, he found one to take his case demanding and receiving a large retainer. We not only obtained a summary judgement in our favor, but we also had the court confirm a provision in our partnership agreement whereby he was responsible for our attorney fees.
The real crazy thing was that the GP of the partnership that was sued was a SPV corporation I had set up and had absolutely no assets even if losing in court. Since fraud was never charged, the liability could not flow through to myself in any case.
Here’s something I learned from 40 years syndicating real estate deals. The VAST majority of investors just want honesty and fiduciary responsibility from the sponsor, and want to be informed of any relevant developments good or bad in a timely matter. They understand there’s a risk in any investment and accept that when they invest.
A very SMALL minority believe that any deviation from projections, or any disappointing results are the result of sponsor fraud and that the sponsor is stealing their money and is going to abscond with the cash. These people usually have anger issues, and lack any ability to think rationally.
What really muddies the waters is that so many syndicated offerings are sponsored by people inexperienced, lacking specific knowledge, and lacking the various talent needed to give an investment the best chance of success. They typically go silent when confronted with bad news/investor inquiries; are quick to hide behind legal counsel; and often illegally use new investor capital inappropriately.
Here’s the bottom line. Investing in syndications on a large scale (if done CORRECTLY) will take a LOT of time and effort. The investor will look at 50 deals for every one they do. That’s why the only efficient way to do it long term is to identify a sponsor who is active with continual offerings, who fits all criteria for success both with sponsors and properties and strategy, and invest in multiple offerings.
To expand it just a little further
Many real estate crowd funding platforms failed because while they had primo tech talent, they “scrimped” on paying for financial talent.
Along similar lines many syndications fail because the sponsors are primo “marketers, promoters, and social media specialists, lacking investing, analytical and managerial skills as well as relevant real estate experience. - 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
JD that’s a pretty insightful observation.Quote from @JD Martin:
That's exactly the major problem with a lot of these syndications. They are being run by people who don't necessarily have any realistic experience running a syndication nor managing & mitigating risk, which is the real value of a successful syndicator. Of course everyone wants to make 12% but what most people *really* want is as close to a guarantee of their principal as possible. These social media stars play on the individual's natural sense of greed while giving lip service to their plans to manage exposure, because they tend to only have the same one or two tricks in their bag as everyone else - refinance & raise rents being pretty much it. Then, when conditions preclude either one of those things from happening their entire model is underwater, with no clue (or inclination, for a lot of them making fat fees) on how to preserve LP equity. I'm convinced that a lot of the capital calls are as much about shoring up the operational bottom line to prevent total collapse and blowing up their future funds as it is about stabilizing & improving existing funds. A lot of these syndications are running on margins so thin that there's virtually no chance of recovery even with an asset sale.Quote from @Don Konipol:
I couldn’t even fathom the incompetence of a securities attorney that omitted interest rate risk from a real estate PPM.Quote from @Ned Carey:
@Chris Seveney thanks for the reply.. This is much ore your area than mine. So it is just an interesting theoretical discussion of law to me.
My thinking is, a PPM includes disclosures of risk. If it didn't include what to me was the biggest and most obvious risk of interest rate changes that I think an investor has a reasonable case against the sponsor. This interest rate was both highly probably and potentially ruinous. Both which came to be true.
I understand why the SEC would take this position however a jury may think otherwise.
Totally agree that most investors at any level have no clue as to the risks they are taking.
securities attorneys begin work on PPM from a boilerplate which discusses every imaginable risk under the sun, and then they modify the PPM for the specific offering. Which is why the PPM runs 80 + pages.
Reg D compliance is a “safe harbor”. By that it means that IF an offering complies with Reg D then (1) the SEC will not in the future determine that the offering fails to meet exemption from securities registration (2) the offering is exempt from state securities laws (but still need to file “offering notices” in those states where the offering is active (3) if sued by a disgruntled investor the sponsor has a “definitive defense” and a”statutory” defense, absence fraud. The value of this statutory/definitive defense for a sponsor can’t be overstated; almost no attorney will take the case of a plaintiff investor if Reg D was complied with (with includes proper disclosures) and certainly won’t on a contingency basis.
A fund I ran ran into some problems in 2008 - 2010, as you can imagine. Investors all got made whole by 2012, however our “projected” 12 % annualized return turned out to be overstated as the ROI was 8.3%. One of our 50+ investors was adamant that we “owed” him the “difference”, as if the “projected” return was a “guarantee”. After contacting a dozen or so attorneys who turned down representing him, he found one to take his case demanding and receiving a large retainer. We not only obtained a summary judgement in our favor, but we also had the court confirm a provision in our partnership agreement whereby he was responsible for our attorney fees.
The real crazy thing was that the GP of the partnership that was sued was a SPV corporation I had set up and had absolutely no assets even if losing in court. Since fraud was never charged, the liability could not flow through to myself in any case.
Here’s something I learned from 40 years syndicating real estate deals. The VAST majority of investors just want honesty and fiduciary responsibility from the sponsor, and want to be informed of any relevant developments good or bad in a timely matter. They understand there’s a risk in any investment and accept that when they invest.
A very SMALL minority believe that any deviation from projections, or any disappointing results are the result of sponsor fraud and that the sponsor is stealing their money and is going to abscond with the cash. These people usually have anger issues, and lack any ability to think rationally.
What really muddies the waters is that so many syndicated offerings are sponsored by people inexperienced, lacking specific knowledge, and lacking the various talent needed to give an investment the best chance of success. They typically go silent when confronted with bad news/investor inquiries; are quick to hide behind legal counsel; and often illegally use new investor capital inappropriately.
Here’s the bottom line. Investing in syndications on a large scale (if done CORRECTLY) will take a LOT of time and effort. The investor will look at 50 deals for every one they do. That’s why the only efficient way to do it long term is to identify a sponsor who is active with continual offerings, who fits all criteria for success both with sponsors and properties and strategy, and invest in multiple offerings.
To expand it just a little further
Many real estate crowd funding platforms failed because while they had primo tech talent, they “scrimped” on paying for financial talent.
Along similar lines many syndications fail because the sponsors are primo “marketers, promoters, and social media specialists, lacking investing, analytical and managerial skills as well as relevant real estate experience.
I was realty shares very first client that put up an investment on their site.. I went to meet them they were working in an incubator in Menlo Park right out of the TV show silicon valley. ONe floor of the building had all these start ups in them and RS was just in the middle working off of picnic tables with the owner Nav and his other partner .. they are smart guys for sure but did not have deep background in RE lending .. So like many these folks got into the debt side and made some pretty poor choices . then when they got their seed money and got an office downtown SF they really blew up but bad deals are bad deals and its no more along with many others as you mention.. Give me the grizzled ole lender anyday..
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