All Forum Posts by: Charles LeMaire

@Jerel 

@Jerel Ehlert -- Interested in the fiduciary duty related to ERISA you mentioned in the post above. I have noticed a few MF syndications recently that limit IRA to 25%. I assume this is the reason. I note that most, probably all, of the PPMs I have seen state there is no fiduciary responsibility.

I am not an attorney, but checked with one.  I was told that if the company is more than 50% real estate, this does not apply.  All of the syndications I have dealt with are 100% real estate.  

I always like to understand the rules, do you concur or have a differing opinion?

Thanks,

Charles LeMaire

Matt,

The Fairless/Hicks book is great, very detailed.  I suspect his school is also good; he is the "Best Ever"...   

If you prefer an in-person mentor and network of folks to work with, I suggest Brad Sumrok.  He has created an "eco-system" of successful MF sponsors and investors.

Charles  

I lean a bit toward Nick's answers.  Partners may make investors a bit more comfortable.  I still see you with no money in the deal.  

But I'm not sure I follow the details from your description...

A. What do you mean as the buyer that "We are going to offer seller financing"?  Are you going to ask for this?  To the point, what kind of financing are you getting?  (Recourse or non-recourse)

B. It is common for a deal sponsor to take a sponsor cut, that is you take 20% to 30% of the deal.  In my world new sponsors take less until they prove themselves.

C. Assuming $50K a door for this C (a guess, you did not say), that means about 30 doors.  How do you plan to manage it?  We go for professional management, typically at 70 doors.

By the way, I have a friend that found a deal that she took to some bigger names.  She got cut out of a lot of the sponsorship money; your concerns are valid.

Regards,

Charles LeMaire

My perspective is MF syndications.  I know there are lots of other RE avenues, but let me stay in the lane where I have a clue...

In MF there is the question of being a Sponsor or a Passive Investor. Personally I follow the passive route, but I have stepped into the Lead role when necessary (long stories).  Many do a deal or two as a passive and then make the jump to being a Sponsor.  All MF participants should be sophisticated about how it all works.  

FACT: There is no require to pay for mentoring.  Clearly, it can be done without a mentor!

But mentoring gives you, well should give you, a sounding board to avoid mistakes (possibly expensive ones) and, if it is a good mentor, an expressway to getting started.  Time is money, so to speak; starting quickly may be a good idea and worth the price.  

You need to decide if you can rationalize the extra cost, it is a classic MBA MAKE versus BUY question.  And you have to have enough capital to buy stuff after you pay for the mentor/membership.  This is my COSCO rule: the person with a net worth of $100 would be foolish to pay $50 to get the 5%-10% discount at Cosco. 

Personally, I don't think it makes sense to quit or change jobs, until you have something of a reputation to fall back on, especially if you have a good income.  In my case, the first sales occurred at year 4, so it was nice to have an income until then.  At that point, it started "raining"!  

If you do choose the mentor route, you have to show up.  This is the GYM rule: Don't buy the membership and not show up!  

In my arena to be a Passive Investor, the SEC says (there are two major types of deals) I must [1] be sophisticated (knowledgeable) or accredited (rich) and have a preexisting relationship with the sponsor - OR - [2] be accredited.

To be a Sponsor, you (or perhaps the team of sponsors) need to have contacts to be able to raise the funds.  If you have a great Mentor, he will have a network of folks that you will have farmed for the needed contacts.  I can't say loudly enough how useful my network has been to me; as a passive, they want my money, I mean they want to meet me. 

If you feel you need a mentor, consider my mentor, Brad Sumrok.  

DISCLAIMER: I do NOT work for him, I am just a successful student at the Sumrok Institute of Multifamily (I made that up).

Regards,

Charles LeMaire

Let me take the opposite opinion.  Say you want to invest $100K in a MF syndication (that is leveraged with a non-recourse loan).  Do some math.

Take $150 out of your IRA (not sure how you talk your employer into taking money out of a 401K unless you leave or are age 59.5.) You will need $15K for penalty and $35K for taxes (approx). Say you make 20% compounded and double your money in about 4 years. Now you owe CapGain on $100K (you can delay by buying another and using the bonus depreciation (if that remains available). You walk away with about $80K that is yours. But you had to pay that $15K penalty (the taxes would have hit you if you had not put it in the IRA anyway). So call it $65K.

Use a self directed IRA, put in the $100K in the MF syndications. 4 years later, the IRA doubled its money, but it owes UBIT (about 40% on most of it). So your IRA gets about $75K or $80K. If your are successful, you get to take this at 59.5 or later at say 35%. If you fail, you get it at no tax... Note that tax rates are at an all time low, I think it is a bad time to put money into traditional IRAs or 401Ks, just my opinion!

Say you have it in a Roth IRA, similar to above in that there is still a UBIT, but tax free if you succeed.

The borrow from the 401K plan is not too bad.  Better if a Roth 401K!   You pay yourself 5% interest into the Roth 401K for later and make 15% compounded on the 4 years.  As you did the investment, NO UBIT.  Cap gains on the $100K; I don't think you can take the interest off the gain, but that is worth checking on.  Seems you walk away about $60K.  One hazard on this one is losing your job, you have to pay back the loan THEN.

Clearly this is based on the hypothetical 20% annual return (which you get mostly at the end. I think there is a slight advantage having the funds in your pocket rather than in an IRA or 401K. But in all it is up to the individual as different folks have different goals and criteria.

Regards,

Charles LeMaire - serial MF syndication passive investor...

Note that an earlier post mentions that you may be getting polite "NO"s and suggests your pitch may need some work and that you may need to build trust.  I am simply attempting to point out that if you don't describe yourself in the profile and you show no picture, you may not be building trust.

And yes, I have no picture, but I don't want your money... my picture is coming...

@Charlotte Dunford  -- The first thing I see is that you do not have a picture.  Then I looked at your profile -- "syndicator".  I am not positively moved...  Sorry to be blunt.

Hey Jacob,

I have done exactly as you describe.  I happened to hold a fair amount of money out of 401K & IRAs.  Then my wife and I happened to run into a great mentor (yes paid a fee) who explained how MF syndications work and who maintains a network of Sponsors and Passive Investors that works like a well oiled machine.  (BTW, I am referring to 70+ units, not small MF, and we always use professional management.) I did my first deal in 2011 but the best return deals were bought in 2015 and sold in 2017 & 2018.   The above comments are accurate:  1. you have to have some money invest to be passive only.  2. you need to spread it around in multiple deals; it is hard to tell which deals will be the home runs and which will be a base hit.  3. it takes a while before it starts throwing off money.  The deals would return about 6-9% cash on cash (most of the time) but the big money was at the sale; the first sale was in 2015, in the 4th year.

To date, we have gotten into 45 deals. 14 have sold; all positive, but a couple have been about 5% IRR (this is the annualized return, not the total return). My average is 30% IRR. We are in around 30 deals at this moment totaling about 5000 doors (but a small % of many of those doors). Now several sell each year and I buy some each year -- it is the "Bond Ladder" of the past with much better than bond returns.

Yes, I expect that there will be a year in the future that will be the wrong year to sell and I will live on other money that year. 

Jacob, the Issue I see for you is distance!  Given that most of these are syndicated using Reg D 506(b), you must have a pre-existing substantive relationship with the Deal Sponsor.  It can be done, but they will need to be accommodating creating that relationship.

Thanks for your service, 

Charles LeMaire

Description is a bit vague, but sounds like land with a plan to develop it into 55 units.  And it sounds as if you wish to have the investors and the sponsors with very different/misaligned interests.  

As I read through the comments, I noticed the 1031 suggestions and then the comment about appraisal at purchase.  I was thinking a 1031 wasn't needed. Perhaps I misunderstand the situation, but was there not a reset of the  basis when your father passed?  I would think your basis is current value (value at death).  If I have this wrong, would someone that does understand please explain this and correct me.

Second, I am sort-of a one trick pony, I invest passively in MF.  That was mentioned above and I think it is a great way to invest funds to make a great return. This solves the Boot on the Ground problem.  But one does need to be Sophisticated, even if you are Accredited, as you should not go there unless you understand how it works.  

Having never experienced CA appreciation, I can't speak to that, but it does seem nice to have that opportunity with property that has a positive cash-flow.

Lastly, are you and your Aunt going to work together to make this decision?  

Regards,

Charles LeMaire