All Forum Posts by: Duke Giordano

Hello All,

As a high income W2 earner I am not looking for investments that increase my ordinary income.  I recently learned about the existence of debt deals that give off whats considered "business income" or passive income as opposed to classified as interest what is considered as ordinary income.  This obviously would be of importance in a real estate portfolio that had passive losses from a RE syndication deals to offset some of each other as the debt deal may show passive gains.  Are people aware of where we can find these type of debt deals that give off "business" or passive income, and if so what is the typical rate of return?  Risk?

Thanks

Duke

Not sure what your income is, but we are probably in a similar situation.  You must keep in mind something that hasn't been mentioned above is the tax implications of the above options.  Some of these vehicles that have been discussed may increase your taxable income. Since my taxable income is probably in a similar to yours, and I am all W2 I'm really not looking to increase income so I'm looking mainly at vehicles that either offer depreciation offset it's on passive income or other vehicles that develop passive income. 

I'm not sure that direct landing or Or Mortgage notes will satisfy this passive income designation that's if you're not looking to increase your taxable income may be worthwhile to look into other options that are tax advantaged.

Thanks for the reply @Chris Grenzig it is surely a factor to consider.  I think there are a number things to take into consideration, but eventually the market will dictate the preferred model.  

My concern with the Fund model is some GP/Syndicators split out the performance of assets individually, meaning that if say there are 5 assets and two are grossly underperforming, but the other three are performing than the GP collects on the waterfall structure anyway for the performing assets (says pref 8%) or a straight split, even though the aggregate performance of all the assets is overall underperforming if you follow me.  This is a way for the GP to hedge their own risk, but in reality is not fair to the LP and at times can be difficult to elucidate in the Funds Operating Agreement.

Thanks Brian for your thoughtful reply.  I do appreciate it.  I think a two or three deal fund is much more approachable than a 10 asset fund, so it may be a reasonable hybrid option.

Thanks to all for your replies.  It seems there is some clarification in order to specify the funds I am talking about.  I think the deals I am talking about are offered with a single GP/Sponsor but they may lump in several assets such as 4-6 multi-family etc.  You still have a relationship with that individual sponsor but you are putting your trust in that sponsor and not vetting the individual deals as much.  In addition, the fees are mostly the same in that you are paying the same GP/Sponsor, so there is not an added middle man (such as crowdstreet as mentioned above) so this is an important distinction.  In addition there are some who may act as co-sponsors for a deal they are not involved in they are just recruiting for the real sponsors, which I am also not so fond of.

I think you need to think of the tax implications as well which has not been mentioned.  In addition whether this money (100-200k is coming from cash/brokerage account or a SDIRA or other pretax vehicle.  If you are someone that is not interested in adding to your taxable income, then lending may not be a good option for you since the returns may be decent but the tax treatment is poor.  However the turn key and syndication options offer much more tax advantages from a depreciation and capitol gains standpoint.  Just other aspects to take into consideration.

Thank you @Ed Matsonundefined for your thoughtful reply

Thanks for your perspecitve @Mike Dymski and @Matt Engle.  Seems like overall adds complexities that mostly skew away from a favorable terms for an LP.

Hello All,

Whats your thoughts with the recent developments over the last year of more states adopting rent caps and how these have or will effect RE syndication deals?  This obviously would seem to effect Multi-family syndication the most, but not sure if this changes LP view on this asset class.  It seems there have been some caps in place in NJ, DC, parts of Md and now Oregon and CA looking to enact as well and possibly WA to follow.  Do you think this will effect future syndication options in these states?  How are you LP's out there approaching this development?

Thanks in advance

Duke

Hello All,

Thanks in advance for your reply.  As someone who is knee deep into the syndicator vetting process I have come across many of the well known syndicators that are now switching into the real estate fund model grouping 2-10 deals into their own fund at least as an option.  Some still offer single deals, with the fund option.  I feel the fund model adds a layer of opaqueness to the evaluation of the deal although it certainly diversifies things.  

For those experienced LPs out there who have invested in multiple syndications what is your feeling on many of the well known syndicators offering the fund model? Are you looking into them or steering clear?  It certainly makes it more difficult to vet some of these deals in that not all the asset acquisitions are even made at the time of investment draw/call.   

What would you say the pros and cons of investing in individual syndication versus these smaller funds (not including bigger funds like MLG, Origin, Broadstone etc) but mainly talking about the smaller funds individual syndicators are offering.  There is also a tax componet where depending on the number of states this may complicate both K1 filings if there is not a combined K1, as well as, depreciation deployment/treatment across several assets in a fund deal.  It makes it more difficult to predict depreciation timing (as typically in a single deal you can expect most in year 1 if bonus depreciation/cost seg used).  

The obvious answer to the pro is diversity where the con is transparency. Would be interested in peoples experience with these deals. My inclination is to lean towards the individual syndications for the reasons discussed above, but some of the goods syndicators are switching to the fund model or at least as an option.

Thanks

Duke