All Forum Posts by: Charles Worth

@Joel Owens

interesting comment related to min investment. From the investor side you definitely alluded to a good reason even those with high net worth like to spread it out (though that spread is relative to net worth). Personally, I think its up to the syndicator to bring great deals. If I knew u were going to be bring me a deal I am unlikely to see again putting a lot more money in is not such a big ask. However, a syndicator has to eat so most will syndicate good but not great deals in an up market. Nothing wrong with that but its not where I would want to be stuck in for 5 years when the market goes down and buying opportunities open up. 

I have spent a good amount of time with some larger syndicators understanding their capital strategies (no one on BP) and I would say that the thought is that the larger investors will eventually get tapped out on their allocation to you, will get tied up in other investments in a downturn and/or will find other investments at the wrong time for you and thus the mentality is to build that list of repeat business and keep doing deals. Not saying its the right strategy but thats the thought process I have seen. 

@Mark Ellis

If it were me (and it was) I would start with private lending if you do not really know as much about RE. You should still learn but in a private lending deal you are typically first lien, get personal recourse against the person's assets and are out in 6 to 12. You also get paid for delays (i.e. interest costs accrue). The biggest downside its taxed as income but it allows you to really get to know the real estate operator you are funding and their operation before you make an equity investment with a long timeframe (TK has a long timeframe). 

Syndicated deals (crowdfunding) is also an interesting option though the time frame can be long here too (you can also do private lending through crowd funding but my personal preference has been to actually know the people i fund but that is just a preference) 

Anyone who has spent as much time around BP as I have has seen that the vast majority of out of state and TK conversation revolves around companies selling (typically lower-end properties) to cash flow investors. 

I am curious, how many people have gone the other route and had a good experience with companies selling good properties in higher quality areas to out of state buyers, especially more of a turnkey experience than a just a local realtor? What was your experience? What were the returns like with reasonable appreciation built in? Was there any cash flow? 

Were you able to find properties at decent discounts to equity value (the major problem I have seen in most people focused on this niche)? Did they have property management or did you have to find your own? Was there decent inventory to offset the upfront learning curve? 

@Joe Jackson  

You are confusing levered returns with unleveraged returns (i.e. all cash to mortgaged). The fundrise investment has or will use leverage as far as I know . Also the returns typically sound better on paper. Either way though, your unlevered (all cash) vs. their levered is apples and oranges. You are above that 13% now. On the other hand their return is diversified into various areas, projects and property types plus its truly passive so that is something to consider. 

I have an equity line, biggest risk is if you lose the money it is recourse against your own property so you can lose it that and interest rate risk since they are varaible rate not fixed so if rates go up so does your payment. 

@Joe Jackson

There a number of things you didn't really talk about that really factor into what you may consider. The biggest are probably your tax situation and time situation. Are you high tax bracket or low? Working all day? Also, one big thing left out there is appreciation potential and area types. That could turn a good return into a very good return even without leverage. Course its also hard to quantify but think about it like an option if we are already doing ok.  Its kind of like getting both a salary and stock options in tech.

If you are not in a high tax bracket and/or are not going to get real appreciation you may want to consider lending as the returns are higher and you get a lot more risk coverage because its backed by RE and typically by the assets of the person you gave the money to.  I see 12% returns all the time on lending and it can be even higher. 

In addition, I am curious why you would not use leverage? most returns here typically include leverage 

You also can get good returns in larger deals where you are just the passive investor. They will typically leverage those funds so its tough to compare against the numbers you gave but I estimate you are at 17% if you used leverage (most poeple do) and probably a little higher if you include principal paydowns which are decent returns if you are in a decent area (class A, B) especially today. In addition, I am not sure if you included reserves but you should probably include reserves for capex, opex, vaccancy etc. which may reduce the returns if you include them. I think not including them though is a mistake and esp. in condos those costs can very lumpy and out of your control because of the HOA assessments. All larger deals will basically include these reserves for you so keep that mind when comparing.

Including things like reserves, appreciation etc. is what you typically see on here referred to as calculating the total return on the investment or IRR. That is normally one of the better metrics to use because it includes everything.

I have done lending, larger deal investing, home investing and condo/cop-op so feel free to reach out. 

@John Errico

Great response.

I would only add that if you look at other markets, such as equity markets, where there is a top and a big drop it takes a long time to get back to even (ie.. no growth or a loss) that really says more about the prices at the time than the prices today. Many areas in NJ are not back to those levels todays so this is not unusual.  In fact, some would say the fact that prices are trending toward the prices we saw way 10 years ago is a sign of overpricing again. 

@Jamie Henkin

yes you should. You don't need to see each and every one after that though since, unless you really know your stuff, you are more vetted the provider. For instance, I would not know enough to catch the little details so my seeing each property is not very helpful.

One other thing i would add is while there don't just meet with one person, meet with a bunch of people including those who are TK operators. Buy them lunch, drinks or dinner if you have to. That will give you a different perspective and is another layer of DD. Locals tend ot know before you will if you are getting ripped off. 

@Oscar Campos you should share your situation and goals. A lot depends  on that and this is the best first step. Different firms meet different needs and TK may not be the right situation at for you, it highly depends on your personal preferences and what the other options are. 

First off is Bob's account really closed wow didn't see that coming.

Second, @Matt R. I typically like your writing and I think the sentiment is right related to buying A,B vs. C, D in most cases as well as the historical . However, I strongly disagree with much of the rest of what you said. To me cap rates measure EXPECTATIONS. Those expectations can be hugely different from reality. For example, do you think a property today selling for a 3 or 4 cap is low risk? Using your market argument is it lower risk than it was 4 years ago when it was selling for much less per dollar of NOI? Further, the fact that the price is so high (low cap rate = high price) means there is more risk not less because eventually you will have to sell or refi (typically 5 to 10 years) so if the cap rate is a little bit more that = distress. Further it is highly unlikely that your cap rate goes from 3 to 2 so a big area for appreciation is no longer open to you. Its true larger investors favor these assets but that has to do with size and also that most of these folks tend to like to go with the herd, no one ever got fired for buying IBM at least not without a lot of company.

Course this is mostly theory, I assume you probably are not referring to buying really low cap rates (though I can't say for certain) but rather decent cap rates in good areas which is a much different ballgame.

@Marty Smith

What types of borrowers are you lending to? I think the people who are general fix and flippers right now have numerous options you can't and shouldn't compete with. Jay pointed out a good niche and I think another one are people for whom time and ease of use is more important than just straight costs or % of funding. In general these tend to be larger scale operations and they don't advertise for private lenders most of the time. I have a few if you want to PM me.