Ashcroft capital: Additional 20% capital call

[Jon Zhou]

After many of the Ashcroft capital syndications paused distributions, I get this surprise email this morning saying all LP investors need to pay additional 19.7% of invested capital call  

anyone have experience with capital calls and syndications? Is there ever a position outcome to these or are we putting more money into a failing syndication?

“Thank you for your patience as we continue to navigate our way through this current economic cycle and unprecedented time in the capital markets. We recognize that this email contains a substantial amount of information, which is why a member of our Investor Relations team will be contacting you shortly to address any questions.

We need to solve for three major factors as it pertains to Elliot Roswell:

1. Allow the multifamily market time to stabilize.
   
2. Meet liquidity needs for the rate cap, capital expenditures and unexpectedly high debt payments.
   
3. Resume renovations which have been temporarily paused.
   

How do we achieve this?

Based on feedback from our existing lender, other potential partners, and the significant capital requirements to potentially buy down the loan to refinance, we determined the best path forward is a successful LP capital call of 19.7%. This will allow us to maintain flexibility to potentially sell the property within 24 months.

This is Ashcroft’s first capital call, and while it’s regrettable to take this step, our primary focus remains safeguarding your investment. Therefore, all LPs must participate 

Elliot Roswell is a strong asset that is poised for a strong rebound in value as markets improve. This is due to the property’s institutional quality and the continued growth within the Atlanta market. Moreover, demand and absorption rates are currently at 25-year highs and are continuing to trend in that direction with a 70% reduction in new construction permits and drop off in deliveries in early 2025.

We will maintain flexibility to sell Elliot Roswell as markets improve and anticipate doing so within the next 24 months. In the meantime, we need to cover rate caps costs and resume renovations so that we are best positioned to maximize your potential return.

Why is a capital call necessary?

• Preserving Capital: If this capital call is not successful, we will have to sell Elliot Roswell in an inopportune market. This would result in selling the asset below our basis and incurring a significant loss of LP-invested equity. Specifically, if forced to sell now it would be a total loss of capital for both Class A and Class B.
  
• Replacing Rate Caps: Our rate cap is expiring this year, and the projected replacement cost is $736k.
  
• Resuming Renovations: Given rising inflation and labor costs, our capital expenditure exceeded initial underwriting. This prompted a temporary pause to renovations. However, resuming renovations is essential to increasing revenue, and a capital infusion allows us to resume both interior and exterior renovations. We will consistently evaluate the cost vs. benefit, adjusting the renovation scope as necessary.
  
• Maintaining Lender Requirements & Loan Covenants: We (Joe & Frank) will consistently support you and our other investors through both favorable and challenging times. We’ve already extended a $2.9M interest-free short-term loan to cover various unexpected expenses, including the replacement rate cap over the past 12 months. While this was meant as a temporary solution, it must be repaid promptly to maintain compliance with loan agreements and ens

[Scott Trench]

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. Check out any YouTube channel or blog, and you will see this is true. You have to look for insane success stories in less than 3 years. But they are there and have huge views.

People want to get rich quick, not sacrifice by living way below their means, working hard, and putting in the many hours of physical sweat to manage and maintain property, or the many hours of due diligence and hard awkward work of truly vetting operators as a “passive” LP.

I stay consistent with my personal approach and what I talk about year in and year out. And while BiggerPockets is a platform, not “Scott Trench’s boring old school approach to wealth with good old fashioned personal sacrifice to let personal wealth steadily compound” I often regret allow certain opposing viewpoints into our space. 

Frankly, I’m growing increasingly of the opinion that if people think they can get rich without time and sacrifice, they can learn elsewhere. There are many gurus and syndicators who will happily promise this, take your money, and 80% of them will have disappeared or moved on in 3 years.

We’ve already made subtle but big shifts to reflect this in 2024. Expect that trajectory to continue. And for me to increasingly and publicly call out any content that promises to be the next Warren Buffet

[Carlos Ptriawan]

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 the problem started when people is buying without thinking of the risk.

most people only want to buy the income stream from rentonomics.

the problem with basic investors are they do not understand when we invest to equity or even debt is that we are buying the spread actually.

in cheap money financial regime, with interest rate of 1% and cap rate of 7% we have positive 6% spread which I feel the risk/reward is sufficient to proper for any rentonomics to run.

but we're in expensive money regime now with interest rate of 5% and cap rate of 3-4% (depending on class) so we have negative spread of 1% where it's guaranteed investor would lose money. 

there's also issue with supply especially in sunbelt.

i meant it's not the fault of GP but it is the fault of LP mosty because they do not understand all these risk.

when interest rate is high like these, obvious choice is to move from equity investment into debt investment (conservatively of course). 

when cash could generate s much as money as when we work, obviously we can also try to add more allocation to cash position rather than equity investment.

And all of these are actually predictable, when Fed prints gazzilion tons of money during covid, the problem in 2024 is expected to happen.

[Chris Seveney]

Quote from @Scott Trench:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. Check out any YouTube channel or blog, and you will see this is true. You have to look for insane success stories in less than 3 years. But they are there and have huge views.

People want to get rich quick, not sacrifice by living way below their means, working hard, and putting in the many hours of physical sweat to manage and maintain property, or the many hours of due diligence and hard awkward work of truly vetting operators as a “passive” LP.

I stay consistent with my personal approach and what I talk about year in and year out. And while BiggerPockets is a platform, not “Scott Trench’s boring old school approach to wealth with good old fashioned personal sacrifice to let personal wealth steadily compound” I often regret allow certain opposing viewpoints into our space. 

Frankly, I’m growing increasingly of the opinion that if people think they can get rich without time and sacrifice, they can learn elsewhere. There are many gurus and syndicators who will happily promise this, take your money, and 80% of them will have disappeared or moved on in 3 years.

We’ve already made subtle but big shifts to reflect this in 2024. Expect that trajectory to continue. And for me to increasingly and publicly call out any content that promises to be the next Warren Buffet

 Scott,

You may have misinterpreted my post. I am not saying the content provided is not valuable or what I will call the "guru selling snake oil". What I was trying to say is, thats not what sells and unfortunately most people only go after the shiny object. Below is a perfect example of I just went to the BP youtube page.

The first video is how to turn $500k into $1.5M by someone who recently has not had the most positive reviews on BP.

The second is how to replace your salary fast and have $350k in income in 3 years. 

These videos are there because they have most likely a lot of views.

I also googled "how to build long term wealth in real estate" biggerpockets and this video came up (see below), and read the commentary "How To Explode Your Wealth".

For me, the shame is the amount of information on this site about that is available to investors and those who scream from the rooftops saying "be careful" but many think its easy and a get rich quick scheme, which unfortunately its not.

How to Build Wealth in 2024 with This Real Estate “Strategy” (youtube.com)

Episode #870

If you want to build wealth through real estate, you’ll need a real estate “strategy.” Most people THINK that just buying rental properties or flipping houses is enough, but the experts know that’s far from the truth. If you REALLY want to get rich, find financial freedom, live life on your terms, and own your time, you’ll have to copy what the wealthy do and build a real estate investing strategy that fits YOUR life and YOUR goals. Here’s how you do it!

In today’s show, Dave Meyer, BiggerPockets VP of Data and Analytics and author of “Start with Strategy,” shares how YOU can build wealth in 2024 without a big portfolio or any investing experience. Even if you’re a complete beginner, Dave will walk you through how to create an investing strategy specific to you, a “portfolio plan” that’ll explode your wealth, and a “deal design” that helps you lock in on the perfect properties for your portfolio.

[Scott Trench]

Quote from @Chris Seveney:

Quote from @Scott Trench:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. Check out any YouTube channel or blog, and you will see this is true. You have to look for insane success stories in less than 3 years. But they are there and have huge views.

People want to get rich quick, not sacrifice by living way below their means, working hard, and putting in the many hours of physical sweat to manage and maintain property, or the many hours of due diligence and hard awkward work of truly vetting operators as a “passive” LP.

I stay consistent with my personal approach and what I talk about year in and year out. And while BiggerPockets is a platform, not “Scott Trench’s boring old school approach to wealth with good old fashioned personal sacrifice to let personal wealth steadily compound” I often regret allow certain opposing viewpoints into our space. 

Frankly, I’m growing increasingly of the opinion that if people think they can get rich without time and sacrifice, they can learn elsewhere. There are many gurus and syndicators who will happily promise this, take your money, and 80% of them will have disappeared or moved on in 3 years.

We’ve already made subtle but big shifts to reflect this in 2024. Expect that trajectory to continue. And for me to increasingly and publicly call out any content that promises to be the next Warren Buffet

 Scott,

You may have misinterpreted my post. I am not saying the content provided is not valuable or what I will call the "guru selling snake oil". What I was trying to say is, thats not what sells and unfortunately most people only go after the shiny object. Below is a perfect example of I just went to the BP youtube page.

The first video is how to turn $500k into $1.5M by someone who recently has not had the most positive reviews on BP.

The second is how to replace your salary fast and have $350k in income in 3 years. 

These videos are there because they have most likely a lot of views.

I also googled "how to build long term wealth in real estate" biggerpockets and this video came up (see below), and read the commentary "How To Explode Your Wealth".

For me, the shame is the amount of information on this site about that is available to investors and those who scream from the rooftops saying "be careful" but many think its easy and a get rich quick scheme, which unfortunately its not.

How to Build Wealth in 2024 with This Real Estate “Strategy” (youtube.com)

Episode #870

If you want to build wealth through real estate, you’ll need a real estate “strategy.” Most people THINK that just buying rental properties or flipping houses is enough, but the experts know that’s far from the truth. If you REALLY want to get rich, find financial freedom, live life on your terms, and own your time, you’ll have to copy what the wealthy do and build a real estate investing strategy that fits YOUR life and YOUR goals. Here’s how you do it!

In today’s show, Dave Meyer, BiggerPockets VP of Data and Analytics and author of “Start with Strategy,” shares how YOU can build wealth in 2024 without a big portfolio or any investing experience. Even if you’re a complete beginner, Dave will walk you through how to create an investing strategy specific to you, a “portfolio plan” that’ll explode your wealth, and a “deal design” that helps you lock in on the perfect properties for your portfolio.

 Chris -  I completely agree with the sentiments here. You’ll notice that the feed is “for you” - so it seems that this is the content that catches your eye. If you filter by “latest” you will see a very different feed, with these videos interspersed. But point taken. I may need to revisit the system for this content. Dave Meyer, I know for a fact, does not endorse strategies that “explode wealth” and nor do I (aside from house hacking, which is often a cheat code).

[Allan C.]

@Scott Trench do you also think some moderation is needed of these midwest sales agents who keep pushing midwest assets as the greatest appreciating investments on the planet to OOS investors?

Every single post is infiltrated by these folks who are ignorant of fundamentals and taking advantage of a short-term situation. They aren’t being malicious, but most of them seem too new to real estate to know better. The next trend I see are many OOS investors regretting the appeal of cheap properties that don’t pan out long term.

[Mike Dymski]

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

Go to forums such as https://506investorgroup.com/ for information on syndications...very experienced LPs performing extensive diligence on institutional grade opportunities (no GPs allowed; so, no spam to deal with either).  You won't see any "...what do you think about this deal or sponsor..." basic type posts....it's real diligence and analysis.  I have no affiliation other than a user of the forums.

[Jay Hinrichs]

Quote from @Allan C.:

@Scott Trench do you also think some moderation is needed of these midwest sales agents who keep pushing midwest assets as the greatest appreciating investments on the planet to OOS investors?

Every single post is infiltrated by these folks who are ignorant of fundamentals and taking advantage of a short-term situation. They aren’t being malicious, but most of them seem too new to real estate to know better. The next trend I see are many OOS investors regretting the appeal of cheap properties that don’t pan out long term.

every city in the US has its plus's and minus' so in my mind you cant single out the mid west particularly. The Columbus Brokers do troll BP more than any others that I have seen over the years.. So I can see how that could be annoying.  But your not going to have LA Brokers trolling residents of Columbus Ohio to buy 700 to 1 mil dollar SFRs for rental purposes.. when in fact many CA residents do buy those and rent them.

There is and has always been a get your self started in real estate vib going on.. So folks tend to go to where they can afford so they can at least get in the game. Is it always a wise investment maybe maybe not.  This get yourself started in RE started in the land business and millions upon millions of lots were created from 1900 to the late 60s when there were virtually no rules or regs.. The mid west low value asset rental has replaced the land game as starter RE.  At least in my mind..

[Mark F.]

Quote from @Scott Trench:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. 

This. My story isn't sexy but I connect more with locals like Jonathan Greene and others who slowly build our portfolio. Thanks to BP, since 2020 I've acquired 7 units now worth $2.5m via the slow and steady method of house hacking combined with smart personal finance habits I've learned from BP and other within the sphere podcast like Choose FI, Afford Anything etc. I've been disciplined since then not only listening to podcast every week to educate myself, but putting those principals I've learned and sacrificing my housing situation for 5 years, living around tenants. This will cease by the end of the year as I think my wife and I have earned it.

I say all that not to brag but for you to know the ones who are slow and steady are often too busy to be loud and promoting ourself. Tried tagging you directly but kept sticking it at the top. For this, don't be too hard on yourself Scott, as myself and others are truly are "Set for Life" because of BPs original message.

[Jay Hinrichs]

Quote from @Mark F.:

Quote from @Scott Trench:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. 

This. My story isn't sexy but I connect more with locals like Jonathan Greene and others who slowly build our portfolio. Thanks to BP, since 2020 I've acquired 7 units now worth $2.5m via the slow and steady method of house hacking combined with smart personal finance habits I've learned from BP and other within the sphere podcast like Choose FI, Afford Anything etc. I've been disciplined since then not only listening to podcast every week to educate myself, but putting those principals I've learned and sacrificing my housing situation for 5 years, living around tenants. This will cease by the end of the year as I think my wife and I have earned it.

I say all that not to brag but for you to know the ones who are slow and steady are often too busy to be loud and promoting ourself. Tried tagging you directly but kept sticking it at the top. For this, don't be too hard on yourself Scott, as myself and others are truly are "Set for Life" because of BPs original message.

two of the best wealth builders  House hacking and then selling a primary with the 250 or 500k owner occ totally tax free .. :)  

[Brian Burke]

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

To be fair, BiggerPockets published an entire book on this very topic.  Not intending to self-promote, just pointing out something many people might not be aware of.  One of the things that led me to write it was I saw too many instances of what I believed were cattle being led to slaughter and I hoped that a little education would save some people from that experience.  Hopefully it did, but I think we’ll see over the next few years that I couldn’t save everyone.

[Paul Azad]

Quote from @Brian Burke:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

To be fair, BiggerPockets published an entire book on this very topic.  Not intending to self-promote, just pointing out something many people might not be aware of.  One of the things that led me to write it was I saw too many instances of what I believed were cattle being led to slaughter and I hoped that a little education would save some people from that experience.  Hopefully it did, but I think we’ll see over the next few years that I couldn’t save everyone.

 Mr Burke, thankyou so much for sharing your hard earned knowledge, both on these forums and in your book and in the many podcasts I have listened to you on. You have been a wealth of information and common sense analysis. Praxis is the old Greek word for an unstoppable force, hoping you remain one in the area of sharing and educating here on Bigger Pockets. :)

[Todd Goedeke]

@Brian Burke please post again the questions every investor should get answers for ( red flags) from the operating agreement and historical experience of general partners.

An investor should not have to read a book to see a checklist of “ dealbreakers” before investing.

[Mike Dymski]

Quote from @Todd Goedeke:

An investor should not have to read a book to see a checklist of “ dealbreakers” before investing.

They absolutely should have to read a book...many of them.  It takes years, not months or weeks, to properly analyze opportunities and sponsors.  Analyze 50-100 opportunities, invest in 1 or 2 (and track the sponsor / perform diligence for a year or two prior to investing).  Private placements have no investor protections, audits, and public disclosures...they are the wild west of investing.  Investing in them is a lot easier and safer than discussed on the forums...just has to be done properly and what is discussed on the forums is nowhere near proper.  Many LPs are only investing in podcast sponsors, performing almost no diligence on the sponsor or opportunity or the PPM, and investing within weeks of presentation of an opportunity (red flag).  This is the norm on the forums...not the norm for sophisticated LPs (who perform credit checks, run TLO reports, track sponsor performance over years and decades, have attorneys review PPMs, review PPMs and OMs and discuss them with peers, negotiate more favorable LP terms for investing at scale with a group, have access to institutional opportunities that have minimum investment levels in the millions, validate rent rolls with comps, validate purchase and exit cap rate assumptions, analyze rent and exit cap rate sensitivities on IRRs, analyze submarket demographics to validate revenue, analyze the sponsors total portfolio risks rather than just the deal, understand the debt terms thoroughly and have a conscious position on what debt fits the LPs risk profile...the list goes on and on and it's not a checklist approach / it's investment analysis that requires qualifying the property based on extensive knowledge of the asset class and additional work qualifying the sponsor.

[Stuart Udis]

@Mike Dymski Great post! Most of these podcast sponsors as you refer to them attract their LP capital from the most unsophisticated of LP investors.  Then you hear from disgruntled LP investors who invested $5K in syndications and are now upset over paused distributions, capital calls etc. These are not LP investors who have the means to undertake adequate diligence and quite frankly the dollar amount of these investments don't justify taking the necessary steps.  I believe these syndicators are intentional with their targeted audience for these reasons and social media has become a valuable tool at reaching these individuals who don't have a clue.

[James Wise]

Quote from @Jay Hinrichs:

Quote from @Allan C.:

@Scott Trench do you also think some moderation is needed of these midwest sales agents who keep pushing midwest assets as the greatest appreciating investments on the planet to OOS investors?

Every single post is infiltrated by these folks who are ignorant of fundamentals and taking advantage of a short-term situation. They aren’t being malicious, but most of them seem too new to real estate to know better. The next trend I see are many OOS investors regretting the appeal of cheap properties that don’t pan out long term.

every city in the US has its plus's and minus' so in my mind you cant single out the mid west particularly. The Columbus Brokers do troll BP more than any others that I have seen over the years.. So I can see how that could be annoying.  But your not going to have LA Brokers trolling residents of Columbus Ohio to buy 700 to 1 mil dollar SFRs for rental purposes.. when in fact many CA residents do buy those and rent them.

There is and has always been a get your self started in real estate vib going on.. So folks tend to go to where they can afford so they can at least get in the game. Is it always a wise investment maybe maybe not.  This get yourself started in RE started in the land business and millions upon millions of lots were created from 1900 to the late 60s when there were virtually no rules or regs.. The mid west low value asset rental has replaced the land game as starter RE.  At least in my mind..

 We got a lot of future Uber drivers in Columbus. 

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Mark F.:

Quote from @Scott Trench:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 This comment is a shame, because the vast majority of our content discussed long term success in real estate grounded in fundamentals. But the stuff that gets the most attention is exactly what you describe - the 10% that is flashy and promises quick wealth. 

This. My story isn't sexy but I connect more with locals like Jonathan Greene and others who slowly build our portfolio. Thanks to BP, since 2020 I've acquired 7 units now worth $2.5m via the slow and steady method of house hacking combined with smart personal finance habits I've learned from BP and other within the sphere podcast like Choose FI, Afford Anything etc. I've been disciplined since then not only listening to podcast every week to educate myself, but putting those principals I've learned and sacrificing my housing situation for 5 years, living around tenants. This will cease by the end of the year as I think my wife and I have earned it.

I say all that not to brag but for you to know the ones who are slow and steady are often too busy to be loud and promoting ourself. Tried tagging you directly but kept sticking it at the top. For this, don't be too hard on yourself Scott, as myself and others are truly are "Set for Life" because of BPs original message.

two of the best wealth builders  House hacking and then selling a primary with the 250 or 500k owner occ totally tax free .. :)  

yea.... keep accumulating primary is the best top secret in industry, dont buy rent but buy primary LOL then convert that primary to rent, keep moving and keep buying your neighbour lol

the impact of these is those Californian investor would buy in CA city only and not investing OOS.

Think globally buy locally LOL

[Carlos Ptriawan]

Quote from @Todd Goedeke:

@Brian Burke please post again the questions every investor should get answers for ( red flags) from the operating agreement and historical experience of general partners.

An investor should not have to read a book to see a checklist of “ dealbreakers” before investing.

this is why biggerpocket, Twiter, Alexey LP advisory, RediTT, 506group, any other investment club, local REIA club , and even AI ChatGPT is place where one is exchanging information how to do due diligence. It takes time a process. There's no such thing as guaranteed income or guaranteed result.

one more thing, people dont like to talk about risk, so it's hard to conquer and understand the risk. While the best investment is always not being marketed,  investment that's generating poor return or having intangible risk is usually always being marketed heavily.

[Eric Bilderback]

@Brian Burke

In your opinion do you believe the sponsor should return fees etc?

[Chris John]

Quote from @Carlos Ptriawan:

the problem with basic investors are they do not understand when we invest to equity or even debt is that we are buying the spread actually.

I love the way you phrased this.  I've tried to express this general idea to people, but could never articulate it properly.  I'll be stealing this phrasing from now on.  Great stuff as always, Carlos.  Thanks!

[Calvin Thomas]

@Scott Trench, I agree with you on your original approach and how/why you started Bigger Pockets, However, as your site and company has grown, people have used BP as a launching ground for their own little projects.  They've used their "clout"on BP to push their agenda and product/service w/o any real experience. Your way is the correct way. These syndicators and gurus' are snake oil salesmen; especially that bearded guru from Hawai'i.

It would be nice if BP went more conservative and back to basics on what they promote and teach. It's a different world now which many do not know how to operate at 8%-12% interest rates.

I predict a lot of the gurus and syndicators will continue to request more $$$ or give the keys back to the bank and the investors/ LPs will be wiped out. I also predict new licensing and regulations for these types of investors as more and more of the mom and pops get wiped out.

Time will tell where the dust settles, but thes syndicators often promoted (not necessarily by BP) will be caught with their pants down. Making money on 3% funds, not that hard. Making money on 8%+, much harder.

[Jay Hinrichs]

Quote from @Eric Bilderback:

@Brian Burke

In your opinion do you believe the sponsor should return fees etc?

I wonder about this too.  I am going to make a WAG but I suspect many simply would not have the liquidity to do this even if they wanted to do it. I suspect but don't know but a lot of syndicators net worth could be tied up in trailing equity. And cash might have come in and used to run the railroad run their personal lives ( not sure if they have a any tax burden I suspect they have the depreciation write offs as well). I could see not taking future management fee's if they could afford it. But I am thinking if you really press them to the wall on this point it could lead to the dreaded rob Peter to pay Paul scenario's we see in business deals

[Jay Hinrichs]

Quote from @Brian Burke:

@Jon Zhou I don’t know anything about this deal so my comments here are intended to be general because I have a feeling that a significant percentage of passive investors will be faced with a capital call in the near future from a large array of operators, and maybe this will be helpful to them, too. I’m not an attorney, just a syndication sponsor who has survived 34 years in the investment arena, so this is not intended to be legal advice, either.

The first question you face is whether you “have to” meet this capital call. I doubt you have to, despite the language in the letter you shared stating that “all LPs must participate.” Letters to investors are not governing documents—whether you are required to fulfill this capital call depends on the language in the operating agreement, so I’d start there. It should say whether capital calls in excess of your capital commitment are voluntary or mandatory, and if they are mandatory, it should state what the penalties are for failing to fulfill it. By that, I mean the contractual penalties, not the practical penalty such as loss of principal due to foreclosure of the property, dilution, and so on.

Then, you must decide whether you “want to” meet this capital call. There is a lot to consider here.

The letter you posted states that the sponsor has extended a $2.9 million loan to the entity to cover expenses, which “must be repaid promptly.” On one hand, it’s a good sign that the operator stood behind the deal to keep expenses funded with their own cash as long as they could. On the other hand, it could be a sign that they waited too long to issue the call, or that getting their cash back from the proceeds of the call plays a role in their decision to now issue it. Maybe it’s not a factor for this sponsor, but it could be with others…just something to consider.

To address your concern of whether you “are putting more money into a failing syndication,” your mission is to analyze whether there could potentially be a positive outcome, and if you can earn a return on the additional money.

The decision is actually a bit easier in a scenario such as this where a total loss of principal is on the table. In the case of a partial loss of principal, you also have to factor in the return you could make on the principal you got back from an immediate sale. That calculation doesn’t apply here.

If a sale today would result in a 100% loss, but a sale in the future resulted in only getting all your money back (original plus the additional call), but zero profit, you are getting a 5X return on the called capital (putting in $20K to get $120K back, for example). If it took 5 years, that’s a 20% return on the 20K (in the simplest terms). Probably a decent investment. If you got half of your original investment back plus the additional, that’s a 2.5X return on the called capital, or 10% over 5 years. Still not terrible.

But the question is, can such an outcome be achieved? Only hindsight will reveal the true answer, but I have personal experience that it is possible. I was there in the great recession of 2009 and had a deal where we were totally underwater and bleeding cash but 6 years later sold and returned all capital plus a profit.

But you have to weigh all the factors to gauge your odds. You need two things for this to work: 1. you can’t run out of time, and 2. you can’t run out of money. So is a 20% capital call going to get the job done, and provide enough money to go the distance? And if it will, is there enough term left on the loan (and if not, what’s the plan to fix that)?

Here are some things to consider in your decision (i.e. questions you might want to ask):

1. When does the loan mature? (perhaps the most important question of all)
2. What was the loan-to-purchase-price ratio when the property was bought?
3. How much is the property worth today?
4. What is the loan amount?
5. When does the rate cap expire?
6. What is the monthly cash burn, including reserves to purchase replacement rate caps?
7. Is income/occupancy holding up?
8. What are the market rent growth and occupancy forecasts for the next few years?
9. Are renovation bumps supported by the market?
10. What happens if some investors fulfill the call but others don’t? i.e. if the sponsor doesn’t get enough money to solve the problem, what will they do with the capital that was just contributed?
11. What place am I in the capital stack? Is there preferred equity or Mezz Debt at a higher priority than me?
12. What are the uses of the new funds?
13. And a question for you: If you are invested in multiple syndications, do you have enough reserves to fulfill capital calls from all or many of them? And if not, you need to prioritize the ones that have the most likely positive outcome.

You also want to think about the market and subsequent recovery. If you zoom out, real estate goes up in value. Maybe not year to year, but certainly decade to decade. I remember people saying in 2010 that prices would never get back to the 2006 peak. But by 2014 prices had not only reached the 2006 peak but exceeded it. How long will it take for the next recovery cycle to bring you back to right-side up? I’d guess five to seven years, but I could be way off base. I’m a bit of a market pessimist lately which is why I’m not invited to a lot of parties.

BP is doing a podcast on the topic of capital calls and I’m one of the two panelists. Maybe listen to that when it comes out in a couple weeks and see if any other nuggets of info come up in the discussion.

When EF Hutton speaks people listen.. well done Brian !!! younger investors wont know what the heck I am talking about though :)

[Todd Goedeke]

@Carlos Ptriawan you mention no such thing as " guaranteed" income. I disagree. It depends on the definition of guarantee. The guarantee can mean income guaranteed by a 3 rd party ( treasury bills, notes, bonds) such as an insured municipal bond or a tenant, NNN lease guaranteed by a tenant or manager with a AAA credit rating.

Terms of a NNN lease can guarantee fixed income plus future escalators. The strength of the guarantee is what is questionable. Syndicators are prohibited from guaranteeing anything and should not state as such.

[Carlos Ptriawan]

Quote from @Todd Goedeke:

@Carlos Ptriawan you mention no such thing as " guaranteed" income. I disagree. It depends on the definition of guarantee. The guarantee can mean income guaranteed by a 3 rd party ( treasury bills, notes, bonds) such as an insured municipal bond or a tenant, NNN lease guaranteed by a tenant or manager with a AAA credit rating.

Terms of a NNN lease can guarantee fixed income plus future escalators. The strength of the guarantee is what is questionable. Syndicators are prohibited from guaranteeing anything and should not state as such.

Nnn is also not guaranteed if tenant is facing bankruptcy in fact single NNN is one of the riskiest these days due to restaurant bankruptcy 

[Todd Goedeke]

@Mike Dymskiif you think a person needs to be a RE financial analyst to evaluate a syndication you are either: A grossly complicating due diligence or B. Making the point that the average RE investor does not belong in a syndication and should invest directly in properties , C an attorney looking to promote his “ ambulance chasing”business .