All Forum Posts by: David Lilley

@Inderpal Chadha It will depend on the wording in the operating agreement. Most of the time the Sponsor is a Class B member, and their interest (equity) is considered "Carried Interest" which means it is not taxable until you actually receive funds on sale/refi etc. 

Value-add C-B class multifamily. Why? Our recent sales: 65% return in 18 months, 100%+ return in less than 2 years. I guess I would throw in value-add self storage as well... 290% return in 27 months.

Multifamily offers economy of scale and is a hedge against inflation because of rent growth. We choose workforce housing because it offers the greatest protection during economic downturns.

If you are going to be active in the investment versus investing passively with an experienced sponsor, you need to pick a property type and class, and focus your resources on learning everything you can about it. For me, I decided quickly that my focus would be value-add multifamily investments, and more specifically, 70s-80s built product. I believe this property type within the residential sector is superior because of the economies of scale that exists and its greater potential for appreciation.

If you are going to invest with an experienced sponsor, I would say you still need to determine the above, but your focus should be determined based upon your belief that that property type will produce the greatest returns for you. 

@Mike Miller if you are interested in the Dallas market I have a firm who allows 1031 Exchanges into their investment. $1mm is typically the minimum you would need to be exchanging. 

@Sharon R. this is very common and typically accomplished by forming an LLC.

As far as loan docs are concerned- these are absolutely negotiable to some extent. Have an attorney who is experienced in real estate transactions review this. An experienced attorney will likely have dealt with this lender before and will already know which points can and can't be negotiated.

You also need to read them and note important dates and terms that you will need to remember and refer to later. 

We structure our waterfalls so that first investors receive a preferred return of 8% on their money. Then, anything distributed over that is a return of capital. Our preferred return is cumulative and compounding. So, if you invest 100k, your pref in year 1 is $8,000. If we didn't pay out any pref in year 1, your capital account is now $108k in year 2, so we now have to pay out $8,640 (8% on 108k) to meet pref in year 2. This structure is much more beneficial to the investor. 

Originally posted by @Chris Hill:

If I cash out refi all 14, my 1.6 debt currently owed goes to 3.5 owed (taking  1.9 out).  It’s a 17k mortgage.  With gross rents at 22, cash flow goes to 5k per month.  If I successfully invested 1.9 in multiple syndications at 10% it’s roughly 16k per month.  So monthly cash flow would be about 21k per month from syndications + rent.  That’s a good number but seems tight/risky to me so being so leveraged? I think that would be 14 years to pay back the 3.5 loan.

If I refi just the three already paid off, take out 750k, with new loan payment, cash would go up 3k a month to 15k.  The seems more tolerable.  Thoughts?  Minimal leverage or all out?

Chris, the answer is leverage yourself to the point you feel comfortable. 

Originally posted by @Daniel Sperling:

This may be sacrilegious feedback for this community but if you don't want to take on additional debt and doors via cash out refi, I would continue paying down the current mortgages and dollar cost average into a low cost index fund and eventually transition in a top-rated property manager to manage your current portfolio and make that component more passive.

Good advice. Everyone's situation and preference will vary. Your returns will be less if you are lower leveraged, but if that means sleeping good at night, the trade off may be worth it for you.

Originally posted by @Adam Christopher Zaleski:

Based on your personal situation, the most common advice from all the posters is that you should avoid the syndications. It's a little weird that you still want to do that. If you really want to still do it, please start off with a very small amount of money. 

The stock market (S&P 500) did 25% last year. I don't understand why anyone would want to do a syndication for 9%.  

The first 80K of capital gains is at 0%. If you quit your job and sold one townhouse a year, the first 80K of capital gains would be 0%. 

The S&P 500 has averaged about a 10% return for the last 50 years or so. If you were to invest in the stock market, put it into an S&P 500 index fund.

Syndications can return much more than 9%. You may make 9% on your money from annual cashflow alone. Then, you receive additional upside at the sale. For an example, we have two deals under contract to sell right now. One will return approximately 2x equity multiple to investors in less than 2 years and the other 2.8x in just over two years. This doesn't happen with every deal, but when you invest in areas like Dallas, these kind of returns will continue for several years at least. In addition to that, you have all the tax benefits that stocks don't give you.

@Chris Hill if you want to start transitioning to a more passive experience, I would pull the trigger on a cashout refi yesterday before rates increase. Spread those refi dollars across several different operators. Then, once you are tired of being in the property management game, sell those townhomes as a portfolio and 1031 into a multifamily asset and put in 3rd party management. You could also 1031 into a multifamily syndication. There are several firms that will allow it, mine is one of them. 

Originally posted by @Noelle B.:

@David Lilleyawesome! Yea, I think we want to scale to a smaller multifamily, like 6-8 units. I want to gain experience with commercial banks and loans and whatever comes with multifamily investing. I figure, I'm going to learn the most with whatever I'm actively doing... if that's single family, I'll learn single family. But if I just dive head first into multi... I'll learn multifamily. No time but the present! 

Do you invest in the Dallas area? 

Our main focus is Dallas right now, but we have invested in Phoenix and Tampa in the past.