All Forum Posts by: Charles LeMaire

I can only speak of my MF world as a Sumrok student, who is happy to be an LP in many deals.  I keep a table of some facts about deals that I see presented.  Looking at the recent deals I have info on:

Minimum: $50K for all, I recall a $40K, some $75Ks, and even a $100K in the somewhat recent past.

Preferred Return: I have to say that a preferred return is rare in Sumrok land.  I have deals paying me a high of 14% and some paying nothing (darn!)  My average is about 7%. 

Sponsor Override: Listed I have 83%/17%, 90%/10%, 85%/15%, 80%/20%, 82%/20%. I have seem a few waterfalls, but they seem rare in the group.  These are during distributions and at sale, but the remaining investment is normally paid out at sale first.

Time to Distribution:  I expect a distribution at about 4 to 8 months on a Yield deal and 12 to 18 months on a Value deal.  Most deals have held to this.

Hold Time:  All of the deals say 3 to 5 years.  All are pro forma'd to 5 years. I think the new tax rules will force the deals to be 3+ years.  It is common for the sponsors to sell when they hit the total return goal. (see below)

CapRate: The purchase cap rate is what it is. The reversion cap rate is commonly about 1.0% higher these days.

Acquisition, Disposition, Refi & Asset Mgt Fees:  In recent deals, most did not have an acquisition fee, but I do have a 1% and a 1.5% listed.  None had a disposition fee or Refi Fee.  The Asset Mgt Fees vary from 1.5% to 2% of gross.  BTW, we put professional management on the property which costs 3% to 3.5% of gross. Maybe G. C. does this for his single fee and beats my sponsors - no idea.

Cash Call: I do not record Cash Call, but I expect they all have that without any specified limit. To the best of my knowledge, I have not heard of a Cash Call occurring in Sumrok world, except for one I did in 2015 - it is a long story, we ended up making 45% IRR on that deal.

Total Return, Hold Time, and IRR (annualize return) are intermingled and very dependent. What I see right now is 3 to 5 years and make 70% to 90% total return. I used to see 100% in 3 to 5 years in the presentation, but have gotten 150% to 250% total returns, such that 35% or 40% IRR or even better have happened. Realize if you hold longer, the total return will likely increase, but the annualized return will likely decrease. Time is important!

I hope some real numbers helps move the conversation ahead. So many folks are vague when it comes to numbers. I do have to say that we are in a period of stable cap rates, no longer in the period of decreasing cap rates, and it is likely the cap rates will increase in the future. This means the returns will be lower in the coming years, but "they still beat my bank"!

Regards,

Charles LeMaire

In my world, on Reg D 506(b) & (c) syndications, most minimums have been $50k, but I have seen a $40k on a smaller deal and a few $75ks & $100ks for larger deals.  It is way to keep the LP count manageable.

My $0.02 is get into several deals ratter than one, if that is feasible.

Charles LeMaire

I think he is asking if Depreciation from a new deal can offset CapGains from a Just sold deal.  Note a 1031 is normally NOT available to an LP in a syndication. 

I also would like to know.  I thought it was YES, but recently saw something about different types of gains (1249, 1250, 1251 or something like that).

Charles LeMaire

Nov 16-17 Brad Sumrok’s Rat-race to Retirement in Hurst (DFW), TX.

Posted my results a while back.

https://www.biggerpockets.com/...

(I hope the link works; it appears truncated when I add it...)

Charles

@Justin Windham -- I think we agree: Roth is a better choice given the current low tax rates; pay tax on the seed, not the crop.   If one's income is extremely high or rates go up, re-think the choice.  

I see you are an Solo-401K guy. For the IRA folks that do syndications, there is the mysterious UBIT/UDFI taxes (Yes, there is a tax inside the IRA). And when one uses qualified money, you loose the cap-gain tax rate and pay income (in the future).

Regards,

Charles

@Rickey Wiley  You live in DFW area -- a hotbed for MF activity.  There are a bevy of MF meetups around the city, I know some are nearby (AIM, THINK, MINNT, REIG, etc).  I actually presented The Passive Investors Perspective on MF to a group last evening not all that far from you.  My mentor, Brad Sumrok, has a week-end R2R (rat-race to retirement) coming up on Nov 16/17.  And there are some other mentors around town (that are almost as good).  

Charles LeMaire

I may take some heat (disagreement) for this post.  It is my opinion, take it for what it is worth.

The amount is $70K from a prior employer and you are asking on the BP website.  I assume you are a young person (perhaps about 30), you are paid well, but not yet an outrageous amount so your tax rates are not terribly high, and you have an interest in RE.  

Given the following: You WIN in an traditional IRA (and all the other similar accounts) if you receive the money someday at a lower tax rate than what you put it in. The tax rates today are the lowest in my lifetime.

Do the MATH to decide what is better for you and realize it changes with the tax rates.  Do you forecast higher or lower taxes in the future?  Do you prefer CapGain or income rates? 

It is true, if you are a near failure (approximately broke when you retire), you can have minimal income in retirement and get your IRA money out for a song. I went to a retirement seminar where they taught folks to hide everything (assuming you didn't have too much) so that you could avoid taxes completely. I had too much already. And I didn't really want to exist like that!

If you plan to succeed (retire with wealth and/or income), the RMD (forced withdrawals from traditional IRA) on that pot trad-IRA will move you to a higher tax bracket. Folks that play in property tend to be successful (more wealthy) and have a stream of "income" that is part CapGain and part taken against depreciation, ie., avoid a lot of taxes.

If your company has a match, put in the needed amount. If you can, put yours in a Roth 401K, their contribution will go to a trad 401K. Roll it out if you change jobs or at 59.5. Depending on your tax rates at that moment, choose to pull some or all out or convert to a Roth IRA. If there is a correction in the market, JUMP to pull or convert!

Do consider: There are protection advantages to 401K. There are advantages to bequeathing Roth IRA. You may have a reason to leave some money in those.

Personally, I used 401K/IRAs (when tax rates were higher) and saved on my own. I did (fairly) well in the market. This gave me funds to become a MF passive investor (There are a lot of ways to make money in RE). It was and still is hugely advantageous to have my money (non-IRA) to invest in MF syndications. YES, SD-IRA can be used. I did 1 deal that way; but it hurts to see the returns go into a bucket, that I will pay income tax rates on when it comes out -- rather than Cap Gain rates (now or delayed).

As always, Take With A Grain of Salt!

Charles LeMaire 

Like @Travis Watts  I had a job working for a tech company, but I was never so dedicated, my kids knew what I looked like... :)  

In 2010, I saw a presentation about SF and MF at a week-end seminar; SF no, and MF yes -- I could understand how it worked. Over the almost 10 years since, I (actually we, my wife is my partner in this) have gotten into 49 (#50 is in progress).  14 have sold, so holding about 35 at this moment; around 5000 doors (but maybe only the door knobs of each -- MF sort of exaggerates this).

Perhaps I should mention that I had no prior experience before that presentation.  I still work with the fellow that gave that presentation, my current mentor.

If your goal is to leave your job, in my network of investors, you become a KP then work to become one of several sponsors on one and the another deal.

If you don't feel the need to create a new job in RE, you can continue to be a passive.  I am the this person.  BTW, the sponsor will make more than I do, but I do less. 

My experience was that at about the 4th year,  a deal sold (the buy order is unrelated to the sell order).  The next year 3 sold.  Yes, as I was working, most of this went back into other deals.  Now I am retired, several sell each year, and I roll some back in and keep what I want/need.  The average annualized returns have been 30%.  Expect less for a while, but better than the bank rates.

Regards,

Charles LeMaire

@Jason Padgett -- a few comments.  

1. Of the 100's of MF syndications I have seen, I recall only one or two that did not share the depreciation pro rata.  In those two, the SDIRA folks got a different status.  If you are using non-qualified money, don't do a deal that doesn't share.

2. A 1031 is highly unlikely in a syndication deal. I have heard of it happening one time. The members of the selling LLC stayed together and bought another property. Don't count on it. I am lead to believe that an individual's portion of a syndication may not be 1031'd out of the deal, not into for that matter.

3. Recently, I've seen two syndication deals that were also TIC deals to allow a person to roll into the deal, albeit, not the syndication portion. And I have heard of TIC (only) deals that received 1031 funds.

4.I am in TX with no state income tax. So far 3 out-of-state deals have sold.  The two in NM did composite returns.  The Lead in the CO deal got excited to distribute and forgot to do one.  I was told that some states allow composite returns, some don't.  Unconfirmed, so rumor at this time.

5. The excess bonus depreciation (for non RE Pros) is available to offset other passive income.  Say you happened to sell all that Apple stock that year.  Follow me!  It is not a huge help on your first RE investment, but say you sell that one - double your money, so you have $75K cap gain.  You take the $100K investment and buy another property.  The bonus depreciation on this one can be used to offset the profits on the first one.  So you get to push the tax liability into the future.  Bonus Dep will likely disappear when the wind in Washington changes, enjoy while you can.

6. WRT SDIRAs, be aware of UBIT & UDFI.  After my search for experts, I observe this is not a well understood part of the tax code.  Finally heard a good description from Quest Trust's Rebecca Miller on a Brad Sumrok youtube video - link below, go to 20:45.  Actually, it is all pretty good.
https://www.youtube.com/watch?v=3TEpZ_0x3io

Regards,

Charles LeMaire