All Forum Posts by: Alan F.

Crowdfunding, syndications, blind pools, the disasters continue
What are the common threads?

1. Lack of experience, lack of knowledge, lack of depth of the GP/Manager. In the case of the subject syndication, the sponsor was a "media star" author, with actual experience limited to SFR. In the case of all those crowdfunders that imploded, the expertise were the tech people, the finance people were kids two years out of an undergraduate business program

2. Lack of liquidity, lack of transparency, lack of information.  Unlike actively traded securities, most syndications are very difficult to sell your interests, at least without taking a huge “hit”.  Further, when things start going bad these inexperienced “lone wolf” syndicators “go dark” hoping to “fix” the problem before having to reveal it. So, unlike a stock that declines 90% in a slow grind as you watch every day, the syndication feels like “overnight” your investment went from full investment to zero. 

3. Structure.  Stock market investing is commission free- 100% of your investment goes into the equity.  Syndications and crowdfunding, often only 80 -85% of your investment goes to real estate equity, the rest is eaten up by fees. So on day one your investment is “down” 10- 20 %. 

Syndications should offer higher returns.  BUT, if those higher returns are obtained by financial engineering, then the higher returns are negated by higher risk. 

Take for example office buildings.  Across theUS the AVERAGE office building has lost 40-45% of its value since Covid.  So, for a syndication started in2020 to purchase an office building using 50% leverage the investor is now “wiped out”.  Same in the stock market with REITs.  Office Properties Income Trust was utilizing 65% leverage.  Its stock market price was $36 pre Covid.  Yesterday it traded at 24 cents!

Quote from @Alan F.:

@James Hamling bingo, hardware...Moore's law isn't dead it just changed and since NAFTA Americans are out of touch

@Becca F. residential infrastructure such as HVAC, Electrical etc. isn't just a matter of age, it's about the maintenance. I have systems that are over 35 years old, but very well maintained.

Everyone; I don't think investment vehicles can be compared directly, to wit flipping in the Bay Area has been good to me because of high quality, permitting, energy efficiency but I don't think that would work in many other markets. Its alot of work though but it actually mitigates my risk. It may not actually be investing though.

STR is the hospitality industry, if you provide the excellent experience you'll do well, but it takes some work.

Gold has been pretty good to me lately. 

Even with PE ratios so high Im not sure the stock market is bad, AI and many other emerging industries show alot of promise.

"I don't think investment vehicles can be compared directly"

Kind of.... 

I totally get where your coming from Alan and agree 100%, but it's not an issue of comparing 1 investment segment vs another, one can do that, the issue that comes up is HOW people are doing the analysis for a comparative analysis. 

A simple way to make an example here is stocks on Wall Street. 

Look at Ford, with a PE sub 18. 

Now look at AMD, with a PE around 75-100. Or Apple around 35. 

Comparing standard residential rental properties too STR, compared too say flipping properties, yes, it is like comparing Ford too AMD too Apple.

These business segments are wildly different business segments. It requires a modifier to compare each to the other. 

A flip is a very short-term thing, and it carries a whole different risk profile with it and thus it requires a totally different return metric to meet "par" for the risk exposure, operational impact etc etc.. This is kind of like your growth stocks, the AMD's that are something of emerging whatever, expected significant immediate term growth but one never expects it to clock 40% gains YOY into eternity. 

Vs say a standard rental, the "Ford's" of things. Simple, steady. It's about length of time, the set-it-and-forget-it model of things and thus a "par" is much more acceptable in a much much lower return range because it's something measured in years and decades, not months and quarters. And with that is supposed to come a lot less risk, more simplicity, more reliability. 

I mean look, there is a reason why treasuries are such a low return, AND why many investors still invest in them. 

STR has it's place and market where it does good, best, amazing and horribly.

One has to use a modifier to adjust the different business/investment segments when comparing against each other. 

I like to define a "PAR" return for each. And than can judge the returns vs PAR, that deviation +/- vs the other segments which then shed's the light that ___ is performing +6% and ___ is at -4% over/under par. 

PAR as in the golfing terminology of dead even, meeting as expected, a 5 on scale of 1-10. 

For me, on wall street any LT position has a PAR of 9%. An option play PAR is 15%. 

A standard rental PAR is aggregate 7%. A flip is 20%. 

STR, for me in my eyes, PAR is 40%.

Thank you. We plan to discuss our options with the city and our lender to make sure we’re setting ourselves up for the longterm. 

My husband will be getting a B1 next month 😊 

Quote from @Alan F.:

Quote from @Bryn Kaufman:

Quote from @Tim W.:

I've read a lot of Brandon's books, and listened to his old podcasts. While i've never considered investing with him, i do have a level of respect for what he's built up. I've never met Brandon, nor do I know him personally, but since you've lost all your money in one of his deals, maybe reach out to him or the company? 

Again, I know nothing about Brandon's businesses, but would hate for one post to dramatically hurt his business. I'm sure there are two sides to the story and missing pieces of information. 

I have not lost all my money. I received an email saying I might lose 90% of my investment. He is also looking into recovery options, and we have another web meeting about this coming up with all investors.

I have heard of others who are afraid they might lose it all.

What I am trying to do with this post is help people not lose money with passive Real Estate, or at least be aware that it can be really risky, and if they still want to do it, that is their choice.

He does have a good reputation, which attracted thousands of investors, but now he has to perform, and sending out an email to investors in this particular deal, where we might lose 90% of our money, is not great performance.

One post is not going to dramatically hurt his business. He has tons of deals going already. Assuming all his other deals go well, his business will continue to boom. Of course, if a number of his deals go like this one, it is not posts that hurt his business, but the results of his deals.

This post hopefully will make investors think harder about the risks associated with passive investing, and I think that is a good thing. No one wants to be in an investment where they might lose 90% of their money.

If he is able to get investors out of this without a major loss, I will update this post, but the point stays the same: I would still never invest in another passive Real Estate deal again. I don't like the risk-to-reward ratio.

@Alan F. I never talked about investing in specific companies. You will notice I am always talking about index funds, either the S&P or the Nasdaq 100. Investing in a single company, whether via passive investing or a stock, has more risk than investing in the 500 best companies in an index that is regularly updated. SPY and QQQ have proven to be a fairly safe investment over many years.

 Gotcha, we're you in funds in '08?

 2000 but not 2008. I lost a lot of money in the dotcom crash. However, I still would rather be in the S&P vs. passive Real Estate.

Quote from @Jorge Vazquez:

Quote from @V.G Jason:

These posts are just suspicious engagement one's with some AI backstory to help create the narrative.

If you have a designated PM team, you don't fish in another sea unless it's a completely one off or specialized issue. In those cases, they aren't done quickly. 

Hey Jason, totally get the skepticism but this really did happen—I haven’t even deleted the post so people can see it for themselves: https://www.facebook.com/Broker.Jorge.Vazquez/posts/pfbid02UETqYVorUx7b9i35aEYQDTC3XCrHcSsYmzpuEXUpSHcW9C7ArfXd32U5wsXRQ8B1l?rdid=XHd10dAtcXu2qnWj. Check out all the Facebook accounts involved, it’s crazy. All of my stories are real—either they come straight from me, from one of my 75 agents, my database of 25,000 investors, or my wholesaler partners. I only write real stuff because I love educating and writing—been doing it for over 20 years and probably enjoy it even more than real estate. Thanks for reading my content… do you write too?

 my 75 agents

Didn’t realize you was so big time. :-)

I am purchasing a REO for a flip (or possibly to hold and rent for a while). It currently has electric baseboard heat and the previous owners used window AC units. It is a slab on grade house so adding central forced air would require a package unit and ducting through the attic to the tune of about $13,000. Is this an investment that is worth it or is there just no ROI for upgrading? I know it might make it sell faster but I don't know if would bring enough more to justify the cost. Thanks, first time poster, first investment property. .

I should add that I am a remodeling contractor and will do all of the work myself other than this. 

Hi Dan, 

Thank you for bringing this up. I did further research and this zone is very ADU friendly. One set back is that one of the rooms is not permitted. That said, the below information states we should be ok to create either a duplex or JADU, plus future detached ADU. Let me know if there's anything else I might be missing? Thank you!

Conventional Financing: You’ll still qualify for conventional financing when you refinance. Fannie Mae and Freddie Mac allow:

• Single-family with 1 ADU classification, OR

• 2–4 unit multi-family classification (duplex/triplex), both of which are eligible for conventional loans.

Refi & Resale: Future refinancing and buyer financing are not an issue as long as you stay ≤4 units. When you go to sell, a buyer could use an FHA, VA, or conventional loan depending on occupancy.

Quote from @Alan F.:

Well....stocks aren't necessarily guaranteed; GM, pets.com, AIG, Lehman bros, WAMU, Enron need I go on? 

All investing comes with risk, vetting, due diligence are big components to mitigate, not eliminate risk.

Plenty of people have lost $ in real estate in a litany of ways.

Don't get me started on Go Pro... biggest mistake of my life. Luckily it was only a few grand. I'll stick to single family B class homes within 15 miles of my home.