Open door capital scam???

Question

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!

Evan Polaski · Answer

@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.

Chris Seveney · Answer

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.

Dan H. · Answer

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

Ian Ippolito · Answer

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.

Michael K Gallagher · Answer

@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.

James Hamling · Answer

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......

Jay Hinrichs · Answer

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 .

Alex Desroches · Answer

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.

Joey Wilson · Answer

@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!

Joey Wilson · Answer

@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.

Open door capital scam???

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