Apartment Syndication Investors please recommend top sponsors
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votesIt's a potato potahto kind of thing @Michael Bishop and @Eric Mayer. We're all singing on the same choir page. It's just that syndication as a term has been hijacked in this market for a single product.
It its pure form syndication is really just a bunch of folks pitching in to purchase and manage an asset (whether race horse, oil well, or apt complex).
The type of syndication that's talked about the most here is the LP syndication usually with a 506 b or c SEC filing. I'm a simple guy so all of that is kind of "blah blah blah" a foreign language to me. What is important where I live is that these types of syndication almost always cannot accept 1031 money.
The reason is that purchasing into a syndication of this sort you are purchasing a membership interest in the entity and not the real estate itself as required by 1031. The only way to make one of these work for 1031 is if the 1031 investor can become a tenant in common with the LP in ownership of the asset. To do this the syndicator has to be willing to jump through the hoops. And more importantly the lender to the LP has to be willing to split the ownership of the asset. I've seen a few instances where this can happen - especially if the LP is funded internally and the investor is a tuna. But they are rare as @Michael Bishop said.
If we broaden the term syndication to mean what it really means - a bunch of people putting money together to buy and manage and asset then two more types of syndications are available.
Tenants in Common (TIC) - Just like it sounds. Everyone owns a % tic interest in the actual property. Safe Harbor from the IRS in rev proc 2002-22. Not very common because theres governance hurdles and debt financing hurdles to over come. But they are indeed out there. And they are 1031 compliant. More common 2-3 years ago. Now being overtaken by the other "syndication that is 1031 compliant.
Delaware Statutory Trust (DST) - You own a membership interest in the trust which sounds like it won't fly for 1031. But wall street saw the incredible success of TICs in 02-04 and wanted in on the action. So the SEC and the IRS and a few dozen Philadelphia lawyers (general term not actual PA attorneys) got together in a back room somewhere and Boom! - Out comes Rev proc 2004-86 . A safe harbor for 1031 exchanges going into DSTs. Very easy for a 1031 investor to get into DSTs. And this is more the question that @Eric Mayer was asking.
But here's where it gets interesting Eric. The reason DSTs are popular with 1031 investors is that they are 1031 compliant. But they are not popular with the contemporary syndicator for a couple of reasons. The structure is different so they're maybe not as familiar with the DST as with an LP. A DST is hard to structure to accommodate syndicator waterfalls and uneven payouts at sale. And There has traditionally been a pretty big difference in the cost to set one up.
So as it falls out - Users prefer one model. "syndicators" prefer another model. one is very easy to work with 1031. One is incredibly difficult. Both have their uses. We're putting way more people into DSTs followed by only a small amount of TICs and very few syndications since the investor has to be willing to pay the tax and then use the net after tax to invest in an LP syndication.
The 1031 Investor5137 Reviews
41 Replies
- Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes6y
I’m curious to know if any here have a Delaware Statutory Trust set up so I can get involved with a 1031 exchange.
- United States · Member since 2015 · 401 posts · 394 votes6y
@Eric Mayer it's going to be pretty hard to 1031 into a deal. Not to say that it's impossible or not happening at all, but you have a better chance if you're 1031'ing significant capital in as most Operator's won't want to take on the legal fees and added headache for a small investment.
I'm sure there are some options out there though, you'll just have to dig deep.
- Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes6y
@Michael Bishop For sure it would be hard to find, but I’ve heard from experts like @Dave Foster who has personally been the QI in many of these deals. It seems like they just need a DST so that all of the investors actually have ownership in the property.
- United States · Member since 2015 · 401 posts · 394 votes6y
Originally posted by @Eric Mayer:
@Michael Bishop For sure it would be hard to find, but I’ve heard from experts like @Dave Foster who has personally been the QI in many of these deals. It seems like they just need a DST so that all of the investors actually have ownership in the property.
I'll defer to Dave on subject, I was just simply stating that they'll be hard to come by. Maybe he'll be able point you in the direction of one! - Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes6y
Originally posted by @Michael Bishop:
Originally posted by @Eric Mayer:
@Michael Bishop For sure it would be hard to find, but I’ve heard from experts like @Dave Foster who has personally been the QI in many of these deals. It seems like they just need a DST so that all of the investors actually have ownership in the property.
I'll defer to Dave on subject, I was just simply stating that they'll be hard to come by. Maybe he'll be able point you in the direction of one!That’s the real reason I tagged him. 😂
- Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes6y
@Isaac S. why not just buy your own SF MF 10% ++ net caps, why make it more complicated. ? All you need is a good team around you .
- 6yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
It's a potato potahto kind of thing @Michael Bishop and @Eric Mayer. We're all singing on the same choir page. It's just that syndication as a term has been hijacked in this market for a single product.
It its pure form syndication is really just a bunch of folks pitching in to purchase and manage an asset (whether race horse, oil well, or apt complex).
The type of syndication that's talked about the most here is the LP syndication usually with a 506 b or c SEC filing. I'm a simple guy so all of that is kind of "blah blah blah" a foreign language to me. What is important where I live is that these types of syndication almost always cannot accept 1031 money.
The reason is that purchasing into a syndication of this sort you are purchasing a membership interest in the entity and not the real estate itself as required by 1031. The only way to make one of these work for 1031 is if the 1031 investor can become a tenant in common with the LP in ownership of the asset. To do this the syndicator has to be willing to jump through the hoops. And more importantly the lender to the LP has to be willing to split the ownership of the asset. I've seen a few instances where this can happen - especially if the LP is funded internally and the investor is a tuna. But they are rare as @Michael Bishop said.
If we broaden the term syndication to mean what it really means - a bunch of people putting money together to buy and manage and asset then two more types of syndications are available.
Tenants in Common (TIC) - Just like it sounds. Everyone owns a % tic interest in the actual property. Safe Harbor from the IRS in rev proc 2002-22. Not very common because theres governance hurdles and debt financing hurdles to over come. But they are indeed out there. And they are 1031 compliant. More common 2-3 years ago. Now being overtaken by the other "syndication that is 1031 compliant.
Delaware Statutory Trust (DST) - You own a membership interest in the trust which sounds like it won't fly for 1031. But wall street saw the incredible success of TICs in 02-04 and wanted in on the action. So the SEC and the IRS and a few dozen Philadelphia lawyers (general term not actual PA attorneys) got together in a back room somewhere and Boom! - Out comes Rev proc 2004-86 . A safe harbor for 1031 exchanges going into DSTs. Very easy for a 1031 investor to get into DSTs. And this is more the question that @Eric Mayer was asking.
But here's where it gets interesting Eric. The reason DSTs are popular with 1031 investors is that they are 1031 compliant. But they are not popular with the contemporary syndicator for a couple of reasons. The structure is different so they're maybe not as familiar with the DST as with an LP. A DST is hard to structure to accommodate syndicator waterfalls and uneven payouts at sale. And There has traditionally been a pretty big difference in the cost to set one up.
So as it falls out - Users prefer one model. "syndicators" prefer another model. one is very easy to work with 1031. One is incredibly difficult. Both have their uses. We're putting way more people into DSTs followed by only a small amount of TICs and very few syndications since the investor has to be willing to pay the tax and then use the net after tax to invest in an LP syndication.
The 1031 Investor5137 Reviews - Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes6y
Originally posted by @Dave Foster:
It's a potato potahto kind of thing @Michael Bishop and @Eric Mayer. We're all singing on the same choir page. It's just that syndication as a term has been hijacked in this market for a single product.
It its pure form syndication is really just a bunch of folks pitching in to purchase and manage an asset (whether race horse, oil well, or apt complex).
The type of syndication that's talked about the most here is the LP syndication usually with a 506 b or c SEC filing. I'm a simple guy so all of that is kind of "blah blah blah" a foreign language to me. What is important where I live is that these types of syndication almost always cannot accept 1031 money.
The reason is that purchasing into a syndication of this sort you are purchasing a membership interest in the entity and not the real estate itself as required by 1031. The only way to make one of these work for 1031 is if the 1031 investor can become a tenant in common with the LP in ownership of the asset. To do this the syndicator has to be willing to jump through the hoops. And more importantly the lender to the LP has to be willing to split the ownership of the asset. I've seen a few instances where this can happen - especially if the LP is funded internally and the investor is a tuna. But they are rare as @Michael Bishop said.
If we broaden the term syndication to mean what it really means - a bunch of people putting money together to buy and manage and asset then two more types of syndications are available.
Tenants in Common (TIC) - Just like it sounds. Everyone owns a % tic interest in the actual property. Safe Harbor from the IRS in rev proc 2002-22. Not very common because theres governance hurdles and debt financing hurdles to over come. But they are indeed out there. And they are 1031 compliant. More common 2-3 years ago. Now being overtaken by the other "syndication that is 1031 compliant.
Delaware Statutory Trust (DST) - You own a membership interest in the trust which sounds like it won't fly for 1031. But wall street saw the incredible success of TICs in 02-04 and wanted in on the action. So the SEC and the IRS and a few dozen Philadelphia lawyers (general term not actual PA attorneys) got together in a back room somewhere and Boom! - Out comes Rev proc 2004-86 . A safe harbor for 1031 exchanges going into DSTs. Very easy for a 1031 investor to get into DSTs. And this is more the question that @Eric Mayer was asking.
But here's where it gets interesting Eric. The reason DSTs are popular with 1031 investors is that they are 1031 compliant. But they are not popular with the contemporary syndicator for a couple of reasons. The structure is different so they're maybe not as familiar with the DST as with an LP. A DST is hard to structure to accommodate syndicator waterfalls and uneven payouts at sale. And There has traditionally been a pretty big difference in the cost to set one up.
So as it falls out - Users prefer one model. "syndicators" prefer another model. one is very easy to work with 1031. One is incredibly difficult. Both have their uses. We're putting way more people into DSTs followed by only a small amount of TICs and very few syndications since the investor has to be willing to pay the tax and then use the net after tax to invest in an LP syndication.
Sounds like a million dollar idea to setup DST's and market to 1031 exchangers? I don't see anything like that on the market. Thank you for always answering our questions so thoroughly.
- Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes6y
Awesome, I will research those companies. Thanks!
- 6yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Originally posted by @Michael Bishop:
@Eric Mayer it's going to be pretty hard to 1031 into a deal. Not to say that it's impossible or not happening at all, but you have a better chance if you're 1031'ing significant capital in as most Operator's won't want to take on the legal fees and added headache for a small investment.
I'm sure there are some options out there though, you'll just have to dig deep.
No it's actually really easy to find lots of 1031/DST deals to do a 1031 exchange into. Just go to a site like 1031 crowdfunding.com. Just realize that most of these come with significant fees, so make sure to do your homework on your particular situation and see if the tax savings are worth it for you or not.
The Real Estate Crowdfunding Review - 6yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Originally posted by @Isaac S.:
Hey BP,
Just trying to see what passive investors are getting into? Best sponsors? Or any advice/guidance about investing in Multi Family syndication
In my opinion there's no such thing as a "best sponsor" that works for everyone. The sponsor that's best for an aggressive investor will look horrible to a conservative one and vice versa. So it depends on what the individual person is looking for and that depends on their individual financial situation and risk tolerance.
Having said that, I can tell you what I consider to be best for me personally. I'm a conservative investor and believe we are late in the cycle. And if we have a severe recession I don't want a less experienced sponsor learning very expensive lessons with my money. So I personally require a sponsor in this asset class to have at least one full real estate cycle experience with no or very little money lost. That very quickly weeds out most of the 100+ new syndications that come out each month to just a handful a year.
Then I look for things like significant skin in the game to mitigate the fact that the promote structure incentivizes the sponsor to push the risk envelope. (An aggressive investor will have the opposite opinion and will like low skin in the game so that the sponsor will push it). I want to see fees that are fair and competitive, etc. I look at a lot of things and take weeks to months to do due diligence. If you're interested in my due diligence process let me know and I can share it here.
I also know the sponsor that meets all of the above criteria (as well as allows a 1031 exchange out of the deal into their next one, without charging a huge fee). They are not allowed to market publicly though because they operate under 506b. So if you want more information on them specifically, private message me and I can share it.The Real Estate Crowdfunding Review - Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes6y
It does not really work like tell me yours. People don't want to talk negatively or have them targeted. You are going to have to take the long game approach of building real relationship with other high net worth accredited passive investors.
- 6yRonan DonnellyPro MemberInvestor · New York City, NY · Member since 2012 · 332 posts · 385 votes
Originally posted by @Isaac S.:
Hey BP,
Just trying to see what passive investors are getting into? Best sponsors? Or any advice/guidance about investing in Multi Family syndication
Hi Isaac, in order to find the ‘best’ sponsor it can be a good approach to try to define a few filters in order to narrow down the field. Some parameters that come to mind are:
1) Risk Tolerance
2) Direct investing versus investing in a fund
3) Strategy e.g. value-add, ground up development, etc
4) Asset Class e.g. multifamily, self-storage, mobile homes, student housing, senior living etc
5) Geographical Area
6) Hold Period
If you can apply these filters in advance it will leave you with a much more focused pool of sponsors that you can then due-diligence in detail, including asking the BP community for specific feedback. Good luck!
- Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes6y
@Isaac S. you're going to get a thousand recommendations here. The idea is to choose someone who you feel comfortable with. I just posted a video on my YouTube channel about questions to ask a sponsor to vet a deal.
The content was crowdsourced from a bunch of passive investors and these were the main take-aways from folks: matching risk tolerance, track record, investment philosophy, ethics and location are all critical.
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Eric Mayer:
I’m curious to know if any here have a Delaware Statutory Trust set up so I can get involved with a 1031 exchange.
Hey Eric,
LOL, Nice way to hijack the thread and make it about 1031....haha, fortunately its another topic I am interested in. I have a whole other thread dedicated to it, here's the the title so you can find it quick, there's a ton of great post, including @Dave Foster
Delaware Statutory Trust DST 1031 Difficulty Giving up controlI am trying to keep this thread about syndication, as it is another passive form of investing, that i am interested in.
Thanks and much prosperity to you!
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Hey CHad,
Thanks for contribution! I like that strategy and would be interested in finding out more about them.
What were the cycle time frames on 1-4? How are 5-7 currently doing? I would be interested in checking out the PPM for 8.
I'll check for DM from you regarding the PPM, but please post as much to this thread as possible, as I really enjoy seeing different sponsors and investors react to statements and add comments.
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Ian Ippolito:
Originally posted by @Isaac S.:
Hey BP,
Just trying to see what passive investors are getting into? Best sponsors? Or any advice/guidance about investing in Multi Family syndication
In my opinion there's no such thing as a "best sponsor" that works for everyone. The sponsor that's best for an aggressive investor will look horrible to a conservative one and vice versa. So it depends on what the individual person is looking for and that depends on their individual financial situation and risk tolerance.
Having said that, I can tell you what I consider to be best for me personally. I'm a conservative investor and believe we are late in the cycle. And if we have a severe recession I don't want a less experienced sponsor learning very expensive lessons with my money. So I personally require a sponsor in this asset class to have at least one full real estate cycle experience with no or very little money lost. That very quickly weeds out most of the 100+ new syndications that come out each month to just a handful a year.
Then I look for things like significant skin in the game to mitigate the fact that the promote structure incentivizes the sponsor to push the risk envelope. (An aggressive investor will have the opposite opinion and will like low skin in the game so that the sponsor will push it). I want to see fees that are fair and competitive, etc. I look at a lot of things and take weeks to months to do due diligence. If you're interested in my due diligence process let me know and I can share it here.
I also know the sponsor that meets all of the above criteria (as well as allows a 1031 exchange out of the deal into their next one, without charging a huge fee). They are not allowed to market publicly though because they operate under 506b. So if you want more information on them specifically, private message me and I can share it.Hey Ian,
Thanks for the great post! Yes, I would really like for you to share your criteria in the thread. I recognize your name from another syndication thread, that I was kind of hijacking, hence my reason for starting this post, in an effort to continue growing my knowledge about the more passive forms of investing. ALTHOUGH, as you said "I look at a lot of things and take weeks to months to do due diligence." I am realizing that passive investing is even more involved on the front end for the investor, since, those PPM's are hundred+ pages of real detailed legalese and what the large print giveth, the small print taketh away...they are almost all small print!
I am sure i will have many more questions, but, first I am curious if you also own fee simple interests in RE? If yes, do you self manage or use PM?
Thanks again for participating and I look forward to learning more from you!
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Lane Kawaoka:
It does not really work like tell me yours. People don't want to talk negatively or have them targeted. You are going to have to take the long game approach of building real relationship with other high net worth accredited passive investors.
OK got it...you don't want to be friends! Haha, just kidding, but, really thanks for telling me what not to do.... don't be direct and open
and please tell me if I'm crazy but you are kind of coming off condescending, sorry if I am misreading you.But, considering this is an open forum, where people go to learn about things they don't know and/or network with those that do and don't know.
At least contribute to thread, something more tangible/actionable.
For example, in the vein of attempting to find out more about passive investing in apartment syndication...How do you break the ice at meeting other high net worth investors accredited investors, that invest in and/or recommend syndicators? Or please explain what you mean by
"...the long game approach of building real relationship..."?Thanks for any contribution to this thread and topic!
Much prosperity and wealth to all those that befriend me!
- 6yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Originally posted by @Isaac S.:
Originally posted by @Ian Ippolito:
Originally posted by @Isaac S.:
Hey BP,
Just trying to see what passive investors are getting into? Best sponsors? Or any advice/guidance about investing in Multi Family syndication
In my opinion there's no such thing as a "best sponsor" that works for everyone. The sponsor that's best for an aggressive investor will look horrible to a conservative one and vice versa. So it depends on what the individual person is looking for and that depends on their individual financial situation and risk tolerance.
Having said that, I can tell you what I consider to be best for me personally. I'm a conservative investor and believe we are late in the cycle. And if we have a severe recession I don't want a less experienced sponsor learning very expensive lessons with my money. So I personally require a sponsor in this asset class to have at least one full real estate cycle experience with no or very little money lost. That very quickly weeds out most of the 100+ new syndications that come out each month to just a handful a year.
Then I look for things like significant skin in the game to mitigate the fact that the promote structure incentivizes the sponsor to push the risk envelope. (An aggressive investor will have the opposite opinion and will like low skin in the game so that the sponsor will push it). I want to see fees that are fair and competitive, etc. I look at a lot of things and take weeks to months to do due diligence. If you're interested in my due diligence process let me know and I can share it here.
I also know the sponsor that meets all of the above criteria (as well as allows a 1031 exchange out of the deal into their next one, without charging a huge fee). They are not allowed to market publicly though because they operate under 506b. So if you want more information on them specifically, private message me and I can share it.Hey Ian,
Thanks for the great post! Yes, I would really like for you to share your criteria in the thread. I recognize your name from another syndication thread, that I was kind of hijacking, hence my reason for starting this post, in an effort to continue growing my knowledge about the more passive forms of investing. ALTHOUGH, as you said "I look at a lot of things and take weeks to months to do due diligence." I am realizing that passive investing is even more involved on the front end for the investor, since, those PPM's are hundred+ pages of real detailed legalese and what the large print giveth, the small print taketh away...they are almost all small print!
I am sure i will have many more questions, but, first I am curious if you also own fee simple interests in RE? If yes, do you self manage or use PM?
Thanks again for participating and I look forward to learning more from you!
You're welcome Isaac. Yes, there are literally hundreds of pages of small print to read on just a single deal! Doing a proper due diligence takes time.
I do own direct real estate myself and have used both third-party property management and done it myself. If you are starting out and have the time and ability, would recommend that you try doing it yourself for at least a while. If you don't you will be potentially missing out on understanding key parts of the business.
For vetting a syndication, different investors do it differently because every investor comes from a different financial situation and has different goals and risk tolerance. For me, I'm a very conservative investor and as we talked about before, I may look through a hundred deals a month, and at the end of the year only invest in 4-5. So things that are a red flag for me may be fine for someone more aggressive. Here's how I do my due diligence:
1) Portfolio matching: (takes 30 seconds per deal)
a) Have an educated opinion on where you think we are in the real estate cycles (financial and physical market cycles)
b) Then only then pick the strategies, capital stack, and specialized asset subclasses that make sense for that opinion. For example, I think we are late cycle, so I lean toward the safest part of capital stack which is debt (or debt free equity). I won't go with the riskiest opportunistic strategies, and will stick to core and core plus mostly with some value-added. I won't be investing in the riskiest/most supportable asset subclasses such as hotels, and tilt my portfolio the ones that have historically been more stable such as multifamily and single-family housing. I also don't want refinancing risk, so any deals with only 3 to 5 year debt are out for me. For someone that's not as conservative, or a different view on the next recession, they might have a different opinion than me on all of this
2) Sponsor quality check: (takes about 45 minutes per deal)
I believe that a great sponsor can take an average looking deal and make it great, and that in mediocre sponsor can take a fantastic looking deal and make it bad (especially if there is a severe recession). So I start with the sponsor first. Again, others might disagree.
a) Track Record: Get the entire track record for the strategy. As easy as this sounds, it's not simple and usually like pulling teeth. Many times they will claim it's wonderful and then try to hide their worst deals by only showing completed deals. Make sure to get unexited deals. Or if they are doing value-added multifamily, they will show you their hotel experience. That doesn't cut it for me. I want a specialist that's an expert, and not a jack of all trades and master of none. Also, in a mainstream asset class like value-added multifamily, I see no reason to take a risk on a sponsor that doesn't have full real estate cycle experience and didn't lose money. Again, other might feel differently here.
b) Skin in the game: as a conservative investor, I understand that the dirty secret of industries that the waterfall compensation is in the line with me and incentivizes sponsors to take more risk. So I require skin in the game (average is 5% to 15%) to offset this. Contrary to popular belief, this is not set because I believe it will give me a higher return. I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses. Someone that is more aggressive, may want lesser even though skin in the game. Also, if the sponsor is new, I am fine with less skin in the game as long as it is significant to their net worth. On the other hand if they are a sponsor that is experienced in stopping a skin in the game, that's a huge red flag for me.
c) how open to scrutiny are they? I always discuss investments with others in an investor club because other people might think of things that I might miss. And even though virtually every sponsor agreement allows me to share investment information with others who might be advising me on it (especially when club members are bound by an NDA), I still ask the sponsor if I can share it, because it's a test. Most are fine with that, but a few will have problems with it and claim there are legal issues, etc.. That's a red flag for me.
d) death by Google: I Google everything I can about the sponsor. I check the SEC, FINRA, ratings websites for inside information on the principals in the company. I also look for lawsuits and see what happened in them. Many times it's an easy red flag. Sometimes it's ambiguous, but even then, why should I bother with the company that has numerous unresolved lawsuits, versus another company that is virtually the same but has none. Again, others might feel differently here.
3) property level due diligence: (takes seconds to weeks per deal): here is where I drill in with the low-level details.
a) pro forma popping: I examine all the assumptions, and see if they are overoptimistic or not. I look at every single item in the pro forma and imagine that it is complete BS, and see if I can challenge it. If there's a hole, it may be a red flag.
b) sensitivity analysis: I examine all the assumptions, and make sure I can live with the worst case scenarios.
c) "Stall and see": if they are getting money over multiple years, and there is no penalty for investing later, I would usually wait so I get some real performance data, versus having to look at theoretical pro forma information.
d) Recession stress test: I will not invest in anything, until I subject it to recession level stress and see if I can live with the result. And I take the worst recession I can find in the recent past. Sometimes there is only great recession data, and that recession was pretty mild on some asset classes, versus previous recessions. So I will usually 1.5x or 2.0x the stress. If the deal collapses and I would lose everything, I'm out. Others might be fine with taking risk, but least by doing this a person can get an idea of what might go wrong.
e) Legal document analysis: it will usually take a few days to go through the legal document properly, as almost inevitably there are tons of gotchas that either have to be explained, or mitigated with a side letter.
That is the very short summary of what I do. If you want more information, p.m. me and I can give you a lot more details.The Real Estate Crowdfunding Review - 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Ronan Donnelly:
Originally posted by @Isaac S.:
Hey BP,
Just trying to see what passive investors are getting into? Best sponsors? Or any advice/guidance about investing in Multi Family syndication
Hi Isaac, in order to find the ‘best’ sponsor it can be a good approach to try to define a few filters in order to narrow down the field. Some parameters that come to mind are:
1) Risk Tolerance
2) Direct investing versus investing in a fund
3) Strategy e.g. value-add, ground up development, etc
4) Asset Class e.g. multifamily, self-storage, mobile homes, student housing, senior living etc
5) Geographical Area
6) Hold Period
If you can apply these filters in advance it will leave you with a much more focused pool of sponsors that you can then due-diligence in detail, including asking the BP community for specific feedback. Good luck!
Hey Ronan,
Thank you so much! I am actually pretty open to all of your mentioned criteria, except the the first...
1. Risk tolerance...low risk, conservative I would rather start off with low risk and then ease my way into higher risk higher return, as get more acclimated to the world of accredited investing.
2. Direct vs. fund... I would think that direct suits me best, but, I am going to need to research more on the differences, as I feel my knowledge on this criteria is fairly shallow.
3. Value add seems to be the easiest for me to grasp and to directly benefit from my own RE experience managing and renovating my primary asset, a 37 unit apartment building in LA, CA.
4. Multifamily for the same reason as my answer to question 3, but, I am curious about mobile homes, senior and student housing, and self storage, in that order. I just don't have any direct hands on with them, other than once being a student, visiting an elderly relative at senior housing, and storing a boat and some belongings at a self storage place.
5. Geographical area...I like the south, southeast and southwest. Preferably no income tax states(FLA, TX, NV) and also GA, AZ, but, I am open to well strategized and justified investments anywhere in the USA.
6. As for hold period, I am ok with longer hold periods if the distributions are monthly or quarterly and greater than 6%APY and then the liquidation of the asset gets the IRR of 14+%.
Thanks for the great questions and helping me to better communicate what I do know and figure out more of what i need to learn!
May you have much prosperity and happiness!
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Luke Miller:
@Isaac S. you're going to get a thousand recommendations here. The idea is to choose someone who you feel comfortable with. I just posted a video on my YouTube channel about questions to ask a sponsor to vet a deal.
The content was crowdsourced from a bunch of passive investors and these were the main take-aways from folks: matching risk tolerance, track record, investment philosophy, ethics and location are all critical.
Hey Lucas,
Thanks for chiming in. Yeah, I intentionally kept the question pretty vague and open ended. I want a ton of suggestions because I am at the very beginning of my journey into learning about syndication investing.
Although I do agree with the criteria you mentioned:
matching risk tolerance, track record, investment philosophy, ethics and locationI know what some of my initial inclinations are in regards to these criteria one of my above replies mention them, however, I am trying to make sure I don't miss anything that would be outside of what my own biases make me lean towards.
Please let me know your YouTube channel, so I can check out your content.
Thanks again and much prosperity and happiness!
- Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes6y
Originally posted by @Eric Mayer:
Originally posted by @Dave Foster:
It's a potato potahto kind of thing @Michael Bishop and @Eric Mayer. We're all singing on the same choir page. It's just that syndication as a term has been hijacked in this market for a single product.
It its pure form syndication is really just a bunch of folks pitching in to purchase and manage an asset (whether race horse, oil well, or apt complex).
The type of syndication that's talked about the most here is the LP syndication usually with a 506 b or c SEC filing. I'm a simple guy so all of that is kind of "blah blah blah" a foreign language to me. What is important where I live is that these types of syndication almost always cannot accept 1031 money.
The reason is that purchasing into a syndication of this sort you are purchasing a membership interest in the entity and not the real estate itself as required by 1031. The only way to make one of these work for 1031 is if the 1031 investor can become a tenant in common with the LP in ownership of the asset. To do this the syndicator has to be willing to jump through the hoops. And more importantly the lender to the LP has to be willing to split the ownership of the asset. I've seen a few instances where this can happen - especially if the LP is funded internally and the investor is a tuna. But they are rare as @Michael Bishop said.
If we broaden the term syndication to mean what it really means - a bunch of people putting money together to buy and manage and asset then two more types of syndications are available.
Tenants in Common (TIC) - Just like it sounds. Everyone owns a % tic interest in the actual property. Safe Harbor from the IRS in rev proc 2002-22. Not very common because theres governance hurdles and debt financing hurdles to over come. But they are indeed out there. And they are 1031 compliant. More common 2-3 years ago. Now being overtaken by the other "syndication that is 1031 compliant.
Delaware Statutory Trust (DST) - You own a membership interest in the trust which sounds like it won't fly for 1031. But wall street saw the incredible success of TICs in 02-04 and wanted in on the action. So the SEC and the IRS and a few dozen Philadelphia lawyers (general term not actual PA attorneys) got together in a back room somewhere and Boom! - Out comes Rev proc 2004-86 . A safe harbor for 1031 exchanges going into DSTs. Very easy for a 1031 investor to get into DSTs. And this is more the question that @Eric Mayer was asking.
But here's where it gets interesting Eric. The reason DSTs are popular with 1031 investors is that they are 1031 compliant. But they are not popular with the contemporary syndicator for a couple of reasons. The structure is different so they're maybe not as familiar with the DST as with an LP. A DST is hard to structure to accommodate syndicator waterfalls and uneven payouts at sale. And There has traditionally been a pretty big difference in the cost to set one up.
So as it falls out - Users prefer one model. "syndicators" prefer another model. one is very easy to work with 1031. One is incredibly difficult. Both have their uses. We're putting way more people into DSTs followed by only a small amount of TICs and very few syndications since the investor has to be willing to pay the tax and then use the net after tax to invest in an LP syndication.
Sounds like a million dollar idea to setup DST's and market to 1031 exchangers? I don't see anything like that on the market. Thank you for always answering our questions so thoroughly.
You're right, it's big business. Here in my town of Richmond VA we have Capital Square 1031 which specializes in this aspect of investing.
For an average syndicator and syndication investor, a DST type setup wouldn't make sense. Too many hoops to jump through for a $50k or $100k investment. If an investor wanted to place $300k or more it would be much more appropriate.
- 6yIsaac S.Member since 2018 · 563 posts · 562 votesOP
Originally posted by @Bob Prisco:
@Isaac S. why not just buy your own SF MF 10% ++ net caps, why make it more complicated. ? All you need is a good team around you .
Hey Bob,
LOL, "....a good team around you." You are preaching to the choir, buddy. I own and have been self managing a decent size multi family asset for more than a few years.
I'm getting tired of the T's and wouldn't mind a more passive approach. I like the idea of the syndication, because I'm trying to find that team already assembled and ready to have money thrown at them and able to make sure it gets thrown back. The other thing that attracts me about syndication, is that they can take down much larger(and/or more capital intensive) assets than I can. Lastly, I can really diversify on multiple criteria, much more than I could alone or with a couple of like minded partners.
Now don't get me wrong, I'm absolutely open to 10%++ caps in MF, but, the partners would have to be some kind of amazing because the type of assets that seem to offer those caps are generally not premium assets, nor premium locations. Please show me I'm wrong or you are that amazing, because even when I eventually invest the right syndication for me, I will always have and continue to acquire fee simple interest RE.
Please, please, please, bring me ten caps! I look forward to hearing what you have to say, I'll message you directly, as I would like to keep this thread on syndication.
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes6y
You've got a ton of phenomenal responses, particularly from @Ian Ippolito.
While everyone here is sharing with you their opinion and their goals, risk tolerance, etc. A lot depends on your personal situation and goals/their duration, taxes, and etc. In addition to this thread, I'd suggest you have an offline conversations with folks here as well as by going to REI meetups and events to get more exposure to the world of syndications by speaking with passive investors and sponsors.
After being on both sides of syndications, I can tell you that by digesting all the information you receive and by educating yourself through books and evaluating such syndications, you will gain the knowledge necessary to start making such decision relatively quickly. You have noted correctly that syndications (just like any other type of investing) requires an upfront time commitment. However it does drastically decrease over time as you get more acclimated with the process. Another important component of educating yourself is understanding the actual asset types you're investing in. So make sure to read up on it as well. Sounds like you're pretty knowledgeable when it comes to MFH, so start reading other asset types of your interest.
In terms of the books, I recommend reading "best ever syndication" book by Joe Fearless.
Here're some additional blogs to help you understanding syndications and some of the asset types you mentioned:
https://www.biggerpockets.com/member-blogs/10850/86626-the-pros-and-cons-of-investing-via-real-estate-syndication
https://www.biggerpockets.com/member-blogs/10850/87614-interpreting-the-private-placement-memorandum-ppm
https://www.biggerpockets.com/member-blogs/10850/88110-pros-and-cons-of-investing-in-self-storage-or-why-not-another-asset
https://www.biggerpockets.com/member-blogs/10850/88439-why-invest-in-assisted-living-facilities
https://www.biggerpockets.com/member-blogs/10850/84504-step-by-step-process-on-how-to-invest-in-a-real-estate-syndication
https://www.biggerpockets.com/member-blogs/10850/79257-deciphering-syndication-investment-terminology - Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes6y
Eric,
Reach out if you'd like me to connect you with DST provider.
Originally posted by @Eric Mayer:I’m curious to know if any here have a Delaware Statutory Trust set up so I can get involved with a 1031 exchange.
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