All Forum Posts by: David Thompson

Taylor,

Yes, have fielded that question a few times. All good inputs above and definitely you should lead w/all that (conservative). One thing I do add however is this. Let's not forget that this is a "passive income" strategy. Value add syndicators will target a cash re-fi or supplemental loan typically in the 18mos - 36 mos range once renovations are complete and the rents (NOI) is now maximized. In our deal, we are also now moving to monthly distributions. So, yes illiquid but keep in mind this isn't a buy n hold and wait for a 5 yr capital event. The investor is getting cash along the way to provide some liquidity.... monthly or quarterly distributions plus a real shot at some return of capital in ~ 2yrs. We had a deal in Houston in 16 mos a $100K investment returned $46K including distributions over 5 quarters and a refi. If a life event happens very early in the program this won't help. But certainly understanding this w/the investor may ease some of the concern of a 5yr hold type mind set w/little return of capital opportunities.

Hi Ryan,

I think your approach is a good one.  If someone brings all the capital going 50/50 is reasonable.  If you had a ton of experience, that capital person would probably get about 1/3.  You can read my blog on 10 tips for vetting a sponsor and look at structure and fees there.  I think that is where you could carve out more of an opportunity for yourself and that could be palatable for your partner because you could state this is what I benchmarked.   Review specifically tips 6 and 7 under structure and fees. The 10 tips are something to keep in mind as you approach a long term game plan. Overall, I would be more comfortable giving up more in general to build a long term relationship w/an investor who has the means and I like, knowing if I perform and communicate w/them well, they ultimately will want to do more deals with me.  

https://www.biggerpockets.com/blogs/9145/53959-vetting-an-apartment-deal-sponsor---10-tips-from-an-insider

Hi Angela,

I certainly think you can do anything and age is really not a barrier. I would say that folks moving into their peak earning years start thinking about passive income streams. To most of the investors I deal with, they want options to either leave their career at some point, maybe go part-time or simply spend more time doing what they want to do including spending more time w/family, friends and exploring new horizons. Additionally, risk tolerance typically changes and folks start thinking a bit towards more conservative but still want and need to participate in attractive asset classes that can generate income. I don't know your means but if you have a SD-IRA, many folks like the lending game, getting 8-10% and have that interest grow in a tax deferred account. Alternatively, I like to share w/folks that if they are accredited, looking at putting some of your capital (that is in taxable locations) into generating rental income from real estate. There are 3 areas that I like including pooling your money (if you are accredited investor especially) into syndications where experts manage the investments in MF apartments, self storage and mobile home parks. These are currently taking advantage of long terms trends in more renters (millennials, boomers downsizing) and affordable housing.

Most syndications payout quarterly but some like ours pay out monthly. Several pay preferred returns of min 8% w/upside to 10% and greater on your cash each year w/some handsome opportunities for appreciation over say 5 years to get returns in the 15% to 20% range.  Couple blog articles I wrote on apartments and self storage might be a good start to read and get you thinking.  Do your homework on some areas and I'm including a bonus on 10 tips for vetting sponsors as the last link here.  Wish you the best, reach out if you'd like to discuss any ideas further.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/54155-sel...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Louis,

The big value add players refi (if they are using a variable rate loan) or obtain a supplemental loan (if they have a nice fixed rate in play) to pull out cash as soon as the property renovations are completed. Often this is in the 18 - 36 mos range. This is especially true if you are dealing w/investors. Anytime you can return capital to your investors earlier that's great. The reason why syndicators can beat their forecasted numbers is this strategy. You will see CoC returns say 8-10% then IRR 18-20% over a 5 year hold. But, the plan is to refi or obtain that supplemental loan and get cash back out which increases the CoC and IRR over forecast.

If you are a true value add player, an apartment should be no different than flipping a house, create massive value early, get the money out and if the market is healthy, look to sell and find another property you can do the same thing to.  If you are not a value player, buy n hold it and take out cash along the way.

Lee Yan,

Good for you !  Get some legal advice on soliciting funds for your deals.  Additionally, please review by BP profile page and listen to some interview podcasts on raising capital I've done.  Free eBook on how I raised $1m in two weeks on my website under thought leadership tab.  Looking to put together a capital raising workshop in Austin next spring.  I find if you can raise capital, there is no limit on what you can bring to the table as everyone seems to need cash and you can leverage yourself and OPM.  I've raised ~ $10m in one year over 5 MF deals and grown my accredited investor base from zero to 75+.  Get good at this area.

Thanks Alex.  I would have to say in all the things I have learned, if you can align yourself w/experts to start out who have the credibility and experience you want or will have some day, it will make it much easier to raise capital.  All lenders and investors will ask or be thinking, what's this person's experience if I'm going to give them money.  In the MF arena, it's not only your partners track record but it should be the excellent property manager you hire w/years of experience that will be operating the property. When I started out, I was thinking, instead of trying to beat these experienced and professional organizations, why not join them, learn and if I can carve out a niche that contributes value to them (finding great deals or raising capital are IMO the best ways since all of them are searching for this constantly), then I start building my track record.

I worked out a deal that the investors I build these relationships w/and get into these deals are my investors (that's a huge deal, make sure if you go this route you get that commitment - in writing ideally; and work into other areas to learn the business to support them).  In no time, you have build an investor base that are your investors.  Assuming the deals are good solid deals, your investors have done well and you have built that relationship w/them they will likely be interested when you set off to take them into your own deals someday.  That can happen faster than you think if you align yourself w/an organization doing good deal flow to keep you busy building that investor base and gaining experiences in every meeting you have.  Wish you the best and when I get more info on the cap raise workshop I'll reach out.  I'm going to get my business partner and friend Joe Fairless down here too and together we'll make it a great event to accelerate your capital raising !!

Todd,

I think it starts w/passion and it seems you have it.  You can tone it down just a bit when you approach investors from an education standpoint (since most investors that are new to our program often have never invested in apartments before)... you are placing yourself then in a natural position of being the educator.  This then comes across as less of a sales / marketing discussion which turn folks off.  As you astutely mention, if you approach every investor as starting a new relationship, understanding who they are, their experiences w/real estate investing and what they want to do versus this is what I have to share w/you, it plays very well.  If at a minimum you have educated them, then whether they are ready now or in the future, they now know what you do and they may be an investor, prospect or refer you to someone that fits your ideal profile investor.  I created my ideal investor profile and it really has helped me focus my time and energy on talking to the right folks, attending the right meetings, etc.    

Hi Ricardo,

My partners continue to favor Dallas.  We are in the process of closing our 8th 200+ unit deal in the DFW metroplex in the past year.  We like the submarkets along the I-635 N to NE belt as well as north Fort Worth.  We favor B -value assets to reposition as B+ in areas seeing gentrification. Mostly infill built in the 1980s but currently have our first 1998 value add deal in north Fort Worth.  The Texas economy and in particular Dallas (which nets 1 out of every 2 folks moving to TX) is just rocking w/job growth and hence population inflow.  When these companies announce, its not a light switch so for us, we get our value w/n about 2 years after renovations are complete, we are not holding long term here.  That gives us extra protection in our opinion.  Cap rates are unchanged in 6 mos while interest rates have risen.  Strong demand for these MF assets exists and will remain so for some time.  

If oil starts any kind of a pickup, this could turbo charge the area even more.  Just because a market is strong, look deeper and understand really why its happening and does it have legs.  In our view, DFW has some very unique characteristics most important is middle of the country logistics / transportation hub (great freeway system, rail and DFW airport), HQs for a growing number of companies in diverse industries.  Companies continue to make announcements to move to the area (these typically take 3-4 years to fully play out w/thousands of jobs coming in).  For every direct job, creates 3 indirect jobs and the latter is our renter base.  If the nationwide economy slowed down, those jobs will continue to come in, its not going to be a light switch slowdown.  If anything, DFW may be still be misunderstood as here to stay and getting perhaps stronger.   See article below to support this thinking.

http://247wallst.com/economy/2017/02/27/the-texas-...

Hi Todd,

I've raised ~ $10m over the last 12mos in about 5 deals to date.  I'd listen to the Kevin Bupp podcast interview I did w/him (2 hr, 2 parts) on my BP profile page and download my free eBook on my website under Thought Leadership entitled How I Raised $1m in two weeks on my first deal.  It targets the top 10 things I've learned raising capital (blog below hits high points).  I hope this provides some guidance.  I'm thinking about putting together a "capital raiser" workshop in Austin next spring.  For such an important piece of the syndication experience, its interesting to me that there is not a lot of good instruction on how to go about it.  

https://www.biggerpockets.com/blogs/9145/53037-1m-...

Justin,

If you are an accredited investor then you can get into apartment opportunities as a limited partner and reap a lot of the positives w/o a lot of headaches for that amount of money.  You can also learn how the experts do it by participating passively but learning actively.  More than happy to discuss.  Here's a blog on why I like apartments.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53959-vet...