All Forum Posts by: David C.

Interesting! I got involved with the syndicated deal in something like 1980 and that was long before the internet. I was a plumbing, HVAC, general contractor and underground utility contractor with 60 employees. I had projects going on like installing utilities on busy boulevards like city water mains, gas mains, manholes up to 30 feet deep, city sewers, underground utilities for 50-story hotels and I was doing large plumbing and underground utilities for the Los Angeles airport.

In 1972, I worked briefly for a telemarketing company and learned that the most vulnerable, naive, gullible and easiest targets for selling things like limited partnerships to is doctors and dentists because they make a lot of money, they want to invest their money and because they are busy they don't have the time to do research for the things they invest in. 

I sold investments to a few doctors and dentists. I seriously believed the investments were a great deal and they would generate the returns we promised, but I also knew for a fact that these deals were not appropriate for doctors and dentists because I knew they did not have enough time to do the management that these investments required.

I invested in the syndicated K-Mart shopping centers in about 1980 and the internet was not born, yet. Even today, I did a lot of research to dig up some dirt on the syndicator who purchase the property next door to me and I can't find one bad review nor any negative information.

I relied on the advice from my CPA, paid an attorney $1,000 and paid a financial advisor $500. For a busy business person like myself, finding, paying and talking to my CPA, an attorney and a financial advisor actually took me a significant amount of time when I had 60 employees to manage and when I have about 30 city inspectors breathing down my neck and about 5,000 safety concerns that have to be addressed every second of the day so a trench does not cave in and to make sure a vehicle doesn't kill one of our employees.

My point is; the average person does not have the ability nor the time to do a significant amount of research and even if they did research the general partners can rig the books and even his current limited partners are not always aware of what is going to go down in the future.

The syndicated deal was for two K-Mart shopping centers. Each center had a K-mart (obviously) a large national-type grocery store and several other stores and restaurants like Payless Shoes, national brand-type clothing stores and maybe a Kentucky Fried Chicken and a Taco Bell (they were just starting to pop up around 1980).

I am a contractor and if I spent 10 years looking at the Placement Memorandum I would not have the ability to analyze the books for something as large as an entire shopping center. That is not my forte and that is what I relied on my CPA, attorney and financial advisor for and all three of them were wrong and changed their tune after the deal went south. I will not take any personal responsibility because I am a contractor and I paid professionals for their advice. I am not supposed to quit my day job to do an investigation and even if I did spend more time doing an investigation it is virtually impossible to dig up any dirt because you can bet the general partners do a great job getting prepared to answer questions and to bury their dirt.

My point to my post is; Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to  manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON. 

You cannot do it. When investing in a syndicated deal there are literally thousand of variables and even the best real estate syndicators make mistakes, bad choices and bad decisions. No real estate syndicator was prepared for the moratoriums for COVID-19 and you can bet there are thousands of general partners changing their tune when explaining to their limited partners the reasons their returns are negative because of the loss of rental income and the massive number of vacancies at strip malls, malls and shopping centers that resulted from COVID-19.

Jack, I say this with kindness.  Do your best not to say "impossible" or that something "cannot be done".  Those words only limit the human spirit and stifle those who dare to dream and strive for more than they are today.  It has been my experience that those who become successful do not have these words in their vocabulary.  They find a way to make the impossible possible.

Secondly, when I read your posts, it does not strike me that you were very intimately involved in many of the details of the syndication that you invested $1MM into.  As you stated, you handed a majority of the research and vetting of this investment to your CPA, lawyer, and financial advisor, since you were so busy with your contracting jobs.  So when this deal "went south", you seem to blame not only the syndicator, but several others for not doing their due diligence.  But the one thing that I still don't see is the "extreme ownership" on your part that I was talking about in my post.

I say this not to be cruel, but perhaps to propose a different view.  In this way, rather than crying out as the victim (which we see way too often in society these days), we can take personal ownership of the part we played (or were absent and should have played) in order to learn and grow, rather than throw our hands up and say "it's impossible".  If what you say is true, then no one would be making money in syndications.

Are syndications risky?  Absolutely.  But people can mitigate that risk by vetting these folks well and not just stop at the fact that "they have good reviews" or what they read on the internet or that my team(lawyer, CPA, financial advisor) gave me the green light.  There are lots of other ways to vet them that I won't get into here - BP has great podcasts/articles that cover that.  In regards to the lack of the Internet when you invested: Books existed in 1980 just as they do now and I'm confident that you could have found a way to speak with others who invested with this syndication(if not, then you shouldn't have invested in my opinion).  I try to live by the mantra that "My ignorance is not an excuse to blame anyone else but myself."  Again, this is not to be cruel, but this has helped me grow in my investments, and in my life.

To answer your question: "  Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON."

My answer:   What I am hearing from you is that you want a "sure thing" guarantee.  An absolute and unbreakable guarantee that your investment will not go south along with proof that a syndicator will always deliver.  This simply does not exist.  Not in real estate, not in the stock market, not even within marriages.  This is called risk, and this is where "extreme accountability" comes into play and we should hold ourselves responsible to it.  I always do my best to vet all investments, and when they have not performed well(which they sometimes have done), I hold myself responsible, because ultimately, I chose to invest, no one forced me.  I am not a victim.

While I am not at all unsympathetic to what @Account Closed went through, I perhaps look at it a little differently.  I am of the camp of "extreme accountability".  If a deal were to go south on me, I wouldn't blame the syndicators.  I would blame myself for either not vetting the operator/syndicator well enough or maybe not drilling down on the deal well enough to know what would happen in the worst case scenario (which sounds like what happened).

When the syndicator took out $7MM for each K-Mart deal, and took $1MM yearly, was this part of the agreement regardless of the success of the venture?  If it was, then I see no reason for a blaming anyone but myself for signing that agreement.  This would constitute a terrible contract for partnership/syndication.  Now, If the syndicator "embezzled" the money and skipped town, that's a much different story(I can't tell from the details you gave from your class action suit).  But then again, if I truly wish to take "extreme ownership", then maybe that means that I should have vetted the syndicator more.  

Sadly, we all get burned at times, especially by some unscrupulous people.  But I believe that this calls the personal question: "What can I learn from this?"  I don't think the answer is to stay away from all syndicators and throw the baby away with the bathwater.  I think it means that one should be very well versed in syndications, know exactly what a syndicator can and can't do with your money(make sure its in writing), vet your syndicator very well, don't invest money you are not prepared to lose, and look through the contract ten ways to Sunday.  Just like any other investment, proceed with caution - perhaps extreme caution for first timers.

I am wondering what loan terms people are typically encountering for a Real Estate Investment Property these days?

I typically find lenders that are offering renewable 5-year loans with 20 year amortizations, and usually floating prime, with a floor percentage.  But occasionally have found 7 year term, 30 year amortization and fixed rate.

What are most people finding ?

Nick, I'm not sure who exactly your post was aimed at, but if it was me, here's my retort.

If the wholesaler's plan was to sell the property to someone without a tenant in place and had an agreement with the seller as such, then hell yes, I would proceed with having that renter relocate(this does not mean maliciously).  But by your response, it looks as though you feel that the OP should now change his whole business plan because of this?   And you support someone not holding to their word?(i.e. the Seller). That is rather unseemly...

In that case, how would you feel if you took your family on vacation only to find someone sitting in your hotel room, uninvited?  Are you going to tell your family, "I'm sorry kids, were going to go home now, change of plans..."

As for a "weasel clause" I have no idea what that means.  First a verbal/handshake deal means nothing (just ask the relatives of the McDonald brothers), and if the intention was to wholesale the property without a tenant, then you need to have it in writing.  Wasn't that the plan and isn't that the dilemma?

If this is not the dilemma, then let the tenant stay, but have her at least sign a lease.  That's the more responsible way to rent, in my opinion.

@Roshan Khatri

To begin with.  I would NEVER, and I mean NEVER(never, ever, ever, ever.....did I mention ever?....EVER) use a dual listing agent.  In my opinion it is one of the biggest mistakes I see people make.  Remember the big screen ?  When has anyone been able to trust a "double agent" ?  Therefore, how can you ever expect a Dual Agent to work in the favor of a buyer?

Remember that realtors make their money on commissions(Buyer and Seller agents split the commission) - The higher the sale price, the more they make.  Now in this case, a dual agent gets *all of the commission*, so this is akin to a 2x bonus.  Of course they want the highest offer, and when they get it, this makes the Dual Agent *very happy*.  As such, they are more likely to milk the process for every last dime and recommend that the seller decline even reasonable offers and then respond with the tagline "Only put forth your best and highest offer".  This is a psychological tactic in an attempt to make a buyer overpay.  Only suckers overpay.

I personally feel that dual agency should have been banned a long time ago.  But, I digress.

When I make an offer, I almost always put my best offer in and am prepared to walk away.  In very rare situations(where I place a low-ball offer), I always have a "final" number that I stick to.  You should do the same.

Would need an good estimate for expected expenses (is the tenant paying all utilities, etc).

Just from the numbers alone monthly:

$1000 rent - ($260) HOA fee, and approximately ($95 Taxes), mortgage around ($275), that leaves you with $375 monthly before other expenses (Insurance, sewer, garbage, etc). So it really depends on your expenses. You also need to factor in vacancy as well. Too many unknowns for a good answer, but thats the best I can do.

 Joe, If I am understanding you correctly, are you saying that securing the new refi loan with your existing equity will not make the interest upon the new loans deductible ?

Let me use an easy example assuming no loss to fees, etc:  

- You have a paid off $100K property.  You cash refinance with $20K down and have an $80K loan (pulling out 80K in equity).

Question 1:   Is the interest on this new loan deductible? (YES/NO)

Question 2:  If you put all $80K that was cashed out towards new investment property/properties, is the interest on this/these loan(s) deductible? (YES/NO)

Just want to have a clear understanding as to what you were explaining....

 Joe, do you mind explaining that a little more?  I'm not sure if I grasp what you are saying.  Wouldn't the loan be originating from his investment property, this qualifying for deductible interest?

I think that it comes down to two principles, risk tolerance and cash on cash return.  Though your units are cash flowing nicely, your cash on cash return is still lower than if you were using "someone elses money"(i.e. the bank).  I am not sure if you meant that your "$10K monthly rent" is before or after all expenses (thus cash flow), but lets go with that.

Based on this, your Annual Cash flow is $120K, but your cash on cash return for your $500k property is 24% (which is nothing to sneeze at).  

However, lets suppose that you refinanced, with a 20% loan of 100,000 at 5%, just a rough estimate would mean an annual mortgage payment of $26,000.  With all other expenses not changing, your cashflow would decrease to $94K, but your cash on cash return is now 94%!!!

In terms of risk tolerance, well, that's personal.  If you invest in developing other properties/acquiring other properties, can you handle the risk if you are less "cash rich", should some unforeseen situation arise?  That's how I would look at it.

As a side note - Don't forget that some states have transfer fees for changing titles, which can be up to 2% of the price of the property. You had stated that your intention was to refinance in your own name, and then transfer it back to the LLC (which is smart), however unless there is another way to do it, you would have to transfer it 2 times - #1 out of LLC into your own name(to secure the loan), then #2 back into the LLC. If your state does not have this issue, then you are golden.

I agree with @Brad Hammond.

Honestly, I think your only option would be to find a private investor/hard money loan.  I think that the biggest stumbling block is your employment situation.  In my mind, the properties and numbers you mention would need to be "bulletproof", because any little hiccup, and you may not have the reserve cash that an investor would want to secure a loan and that could prove disastrous for you financially.