All Forum Posts by: Allan C.

I don't see buy timing related to tenant placement for multi families. Do you plan on getting the unit delivered vacant? If you aren't renovating, then perform strong tenant due diligence and keep them in place. The key is to walk the units and get a feel for how the tenants treat the place.   

I think you're missing my point. No one is disputing that equity returns have been strong last 10 years. Over that same time horizontal most REI has returned 25%+.

but I doubt you'll feel confident that equities is still going to give you 17% over next 10 years. I wonder if you're also conflating IRR with average returns. I'd take 15% IRR over 17% average returns any day. That's beside the point thought.

historically equity markets have yielded 7%, and I wouldn't be surprised if future returns normalize around those levels. In today's environment where information is easy to access, different investment vehicles will price in parity to another, after adjusting for risk. Investors have their choice of where to put their $, so free markets will price asset classes appropriately. But every investor will have to assess their risk tolerance.

I agree with your sentiment about avoiding syndications. It's not worth it to me either, and I've participated in nearly a dozen offerings over the past decade. But going forward the yield isn't worth the risk. 

Both of those markets seem fairly saturated. If you look at sales listings there are a lot, and most with high DOM. Doesn't mean you can't be successful if you buy at a discount and get really efficient with your operations. 

You just need to be realistic with your resolve and ask if you've consistently been in the top quartile performance at everything you've done in life to date. If you're not a top quartile performer, then those markets may be more competitive than you're looking for. 

You're going to get a wide range of feedback on this topic. It's important to understand that investment returns are a function of risk, effort and barriers to entry. When you see 15%+ IRR and you're doing nothing but putting in capital, this should indicate that this is a risky investment.

the other factor to consider is that private placement offers have significantly less regulation than other investment vehicles, so your odds of losing your entire investment increases. Like all other higher risk investments, you should diversify your risk. Doesn't mean it's not worth it, but you need to understand what you're getting into. 

I have both umbrellas and LLCs so I'll give you different perspective. My LLCs are multi-member with non-related parties so we are very diligent about maintaining the integrity of the LLC. I hold my solely-owned properties under personal name with umbrella.

I think there's a high probability that your LLCs will be ineffective. If single-member LLC it's not likely going to protect you, even if you were diligent about maintaining the LLC. Most people dont have the discipline to maintain financial and legal requirements of LLC, so you're just paying extra costs (insurance, lender, accountant, SOC, etc) for no added benefit.

Do any of these properties have loans under personal name? Are you willing to maintain separate bank accounts for all entities? Are you planning on getting insurance under the LLC? Have you performed diligence on how much commercial/business insurance costs these days?

You can switch RCV to ACV and max deductibles for a bit to ride out the storm, but investors need to realize how price setting mechanisms work in free markets. Someone is the marginal (high cost) landlord that sets market rates, and the rest of the lower cost providers are the price takers who make margin.

like any other commodity in the world, you need to ensure that you are the most efficient provider. Have you done everything you can to operate your rental efficiently? If so, just wait a little as everyone else will have to increase rent to cover their costs. Insurance rates are going up faster than people can adjust, so it's a matter of time till markets rebalance. If demand does not outstrip supply, then the lower cost supplier will start to set the market and the high cost suppliers will go out of business. 

I don't think comparing IRRs in different years of the hold makes much sense. IRR is more of a cumulative measure over a period, and it's very sensitive to assumptions, such as initial capital outlay, annual CF, and your final exit cash out. The exit cash out can be a sale event, cash out refi, or even a terminal value if you continue to hold. Needless to say on forecast basis your IRR can vary, and it's only an accurate measure if you perform hindsight analysis after disposition. For your Indy cash-out property you should be able to have the most straight forward IRR calc.

I primarily invest for appreciation, so IRR is the better metric for me to gauge asset performance. Majority of BP crowd will dog when hearing that most my investments have negative CF for first few years. My CoC is often negative or <5% in early years. On the flip side, most people don't realize that the present value of money is a high hurdle to clear for appreciation plays and IRR calcs.

All that said, my assets have generally performed in the 20-25% IRR range over past 20 yrs (excluding tax shielding benefits). Perhaps not a large premium vs equity investing, but equity investing just doesn't excite me.

Separate point, with the change in OBBB SALT allowances, you may want to rethinking having any material funds in HYSA. The AGI phase out can have a big impact for you.  

I know we have similar views, so this discussion is more for benefit of others. My example of liquidity is having more cash equivalent reserves (money market, tbills) while having higher leverage. I think the net of your approach and mine are similar since the cash-equivalents have lower yields offset by higher leverage.

Agreed on preserving buying power when markets retract. That's how investors stay in this game long term. Also agree that folks are too optimistic relying on LOCs - those are gone during large corrections.

Risk tolerances vary by individual, but I think most folks who have extreme tolerances just haven't gone though the experiences that temper those tolerances. 

let's debate this a little. Like you, I'm a firm believer in having sufficient reserves. However, why not lever up your $2.5M into $6M+ of assets and keep <$1M liquid? That buys you 18+ months cushion on PITI should every tenant stop paying, and that is a reasonably conservative scenario.

I think investors should also think hard about where they park reserves. I think equities and real estate are closer-linked in today's environment, so one is not a hedge for the other. They both seem pro-cyclic. If REI gets wiped, so do equity markets...and notes for that matter.

You've got good advice from others already so I won't add more. You're in a tough spot so I'll just say sorry you ran into this, and wish you luck recovering from it.