All Forum Posts by: Evan Polaski

@Vlad Ovchynnikov, being an amateur, I would say the best thing you can do is join a club and talk about investments, learn as much as you can from other's issues.  EVERY investment has its own risks and rewards.  While I have not invested in many ways of the ways that Don or Chris outline in their respective top 5's.

You mention syndications, and your approach I think helps, but ultimately, you are investing in an illiquid security, which, unfortunately often is marketed by people with little more knowledge than you, but potentially better BS abilities.  Again, I think investment clubs can certainly help, but you need to be careful of the potential for group think mentality in these clubs.  

PassivePockets is a pretty good "club" for this.  But even with this reasonably large community, there are many, many groups out there that simply don't market themselves, so you need to look outside of these groups, as well, if you are wanting to uncover more and different sponsors.

@Jay Hinrichs, in the most conservative definition of capital raiser, yes.  I am using it a bit more colloquially to include co-GPs that have a primary function of capital raising and Fund of Fund operators.

The co-GP role is the very sticky one, because the active participation is very subjective. If I raise money, AND co-sign a loan, and have a quarterly GP meeting and property tour, is that active enough?  

Fund of Funds: are a little more clear cut on the surface.  I am raising for my own feeder fund that will be placed into a specific deal. My question with many of these is how these FoF GPs are sharing in the primary GP fees, if they are only an LP.  I feel like there is some legal gymnastics to work through in this structure, that I haven't gone down the rabbit hole of figuring out.

Outside of one of those two structures, and the most clean version from a compliance perspective, is having the capital raiser being a licensed Broker Dealer.  Knowing more than a few that transitioned from "grey area" capital raiser to licensed Broker Dealer, it is certainly a process, typically taking these people about 9 months to a year to finish all coursework and testing.

@Rayan Khwaja, capital is almost always a challenge for sponsors.  Good deal flow would be the second, but you are talking about funding, not finding.  Specific to raising capital, it is getting visibility and breaking through the noise.  It is offering an achievable return that still garners investor interest.  It is mitigating the risks associated with the deal, without completely capsizing a marketable return.  It is getting an investor base that has been burned in the last few years to start to trust again.  

As for the LP question: your proposal sounds "fine" but likely has some very real issues with it.  There is the regulatory side from the SEC and the various exemptions, numbers of investors, etc.  There is the practical side of what is my tax form, and will be have to pay my accountant more than I earned from this small investment to add in another tax document.

I respect trying to learn and look into new ways of doing things. The capital raising world is much more highly regulated than real estate in general.  And as anyone raising capital, you are opening yourself up to a lot of risks should the investment not pan out how you planned, i.e. investor lawsuits.

@Joseph M., if you are seriously interested in LP investing, I would say PassivePockets membership is likely worthwhile.  

For me, some basic DD I do, and what I did with a few properties on SoGu's site, is google the name of the asset listed + apartments + city + acquisition, i.e. "Forty51 Apartments decatur acquisition". Admittedly, this does not always come up with a valid result, particularly for "smaller" deals in Class C/D areas, like the example I mentioned above.

I also search Facebook and Instagram for the same, since you will sometimes uncover multiple groups marketing their new deal webinar for the same deals.  

Beyond that, a telltale sign is on their websites, specifically their "team" pages. Capital raisers for hire are often very small teams, i.e. a couple people.  They don't need many people because their role is almost exclusively marketing.  Compare that to groups that are investment managers: acquisitions, asset management, typically Investor Relations, accounting/finance teams, etc.  And compare that to fully integrated management teams, which will have VP of Property Management, HR teams, Head of Maintenance, etc.  

A small team that is raising capital is NOT necessarily illegal or unethical.  There are some that are fully transparent about their role in the deal and the value they bring.  There are a lot that overstate their roles in the deal, which is borderline unethical in my book, but still not, necessarily, illegal. 

And, if you are ever curious, ask them.  What is your role in this deal?  And then hit them with follow-up questions: I see on your portfolio, that you list "deal x, y and z" on your portfolio, but when I googled those deals, they are shown as "Sponsor ABCs" deal, with press releases stating they were the buyer.  Can you please explain how this deal is different?  Who is the lead sponsor of this deal?  Why should I invest through you versus directly through them?  How many deals have you raised for them?  How are you compensated?  What deals have you turned down from this group or others and why?

@Hassan Ferozpurwala

Some people love syndications, some don't. As noted, running a syndication is vastly different than selling turnkey rentals or managing properties.  You are, effectively, a money manager as a syndicator, where your underlying investment is real estate, but the relationship is different.  Everyone talks about selling real estate as a relationship business, which I agree it is.  But it is a transaction.  You hold a buyers hand through a deal, make it fairly seamless, and your job is done.  

An investment manager needs to make sure checks are paid on time each month.  Operations are clearly communicated, and in underperforming times, with a fine balance of full transparency and not causing a panic.  It is staying within compliance of SEC rules.  It is setting up proper marketing channels to find investors, while also offering a product (real estate) and return profile that the investor is seeking.  

It is also about taking on a lot of risk.  In a syndication, you are the loan guarantor, not your buyer.  You are the one getting sued by tenants, and potentially by investors, if you do something wrong that impacts their returns.  

Again, it can be lucrative.  It can be worth the risks.  But it does take a rather business oriented mentality. 

As for the terms, I won't say they are good or bad.  You can make any syndication anything you want, as long as you can find investors that are open to participating.

@Jonathan Underwood, I love how human nature is to place far more value on the negative results versus the potential positives.  This is not a glib comment, I am guilty of it too.  New amazon product: look at the one star reviews first...  "don't mix family and business" "don't mix friends and business"...  And yet, many of the most successful partnerships are friends, or very good acquiantences before they get into business together.

But, as you and others note: try to plan for the most common situations you will encounter.  One that was not directly stated is: be sure you are all in a similar financial position to one another.  Yes, you each have your $50k today that you want to invest, but is that a small part of your savings and your friend's entire life savings? Does one partner make $50k/yr in their job, while the others make $150k?  

This gets to a lot of the things that Chris notes regarding, one person wants/needs out or a partner becomes incapacitated, etc.  But, it also comes down to how you maintain the property.  Some people are very proactive and others are reactive; and often the difference between the two is whether a partner needs the money or not.

@Greg Scott I think you and I align on our views at a high level.  It is like wholesalers in the single family market.  A lot are operating illegally and somewhere on the spectrum of ill-informed to downright unethical.  But, there are some licensed agents with true market knowledge that operate in a similar vein of wholesalers.  The nomenclature lumps them all together and the many bad apples spoil it for the good ones.

Capital raisers are very much the same.  There are some well-informed, smart people that generally maintain the interests of their investors higher than personal interests, even if they aren't licensed broker-dealers and don't officially have a fiduciary duty to their clients.  Some of these people operate under feeder fund/fund of fund structures to maintain a more clear delineation within the sights of the SEC. 

There is a lot of grey area and some highly unethical, if not fully illegal, happenings in this space.  But, I also can't say 100% of these capital raisers or FoF operators are totally illegal setups.  As has been noted in various conversations here, my challenge with the capital raiser/FoF model is that many of these groups are not offering any better terms to their LPs than the LPs could achieve on their own, given a lot of the groups the FoF raise for have very low minimums, themselves.  But it does add another layer into the equation, which increases the risk of the deal.

@Joseph M.

https://www.multihousingnews.com/ashland-greene-acquires-two...
https://www.kxan.com/business/press-releases/ein-presswire/6...

To tag onto Chris's remarks: I may have picked a few of their capital raiser deals to google, but if my 3-4 searches are correct, they are not the primary sponsor, and likely not the operator, in any meaningful way, on the deals they have listed on their website.

I am not implying that capital raisers are bad.  A good capital raiser will have a plethora of syndicators they work with and can help direct you to ones that best align with your goals.  Unfortunately, a lot of capital raisers also just hitch their wagon to the operator or two that pays the capital raiser the most, and the capital raiser just becomes a "commission based sales rep".

Chris provides a lot of good questions to ask them to better understand what their roles are, how they are vetting and overseeing projects, etc. 

The one question I would add to Chris's list: where is the current raise, and my investment, falling in the overall capital stack on this deal?  Unfortunately, I have seen some recent raises that are effectively hidden pref equity into failing deals.  Not to imply that is always the case, but something to be on the lookout for.

@Chris Seveney, while I do think there can be a double standard, there is also a vastly different level of interaction between a public company with the owners of its stocks, and syndicators and their investors.

Many, many syndicators are out their building trust by acting as an advisor first and foremost.  It certainly works. I just saw a post on LinkedIn post yesterday from a syndicator (and syndicator adjacent) talking about how syndicators lose investors (or never attract them) by putting their offering first.  Instead, the more effective approach is to determine the problem the investor is trying to solve for (passive income, security in investments, diversification from the stock market, etc) and then position what you are selling to solve that issue.  But with this approach, the syndicator is no longer NVIDIA.  They are the commission-based financial advisor.

So, a better analogy is: would you sue your financial advisor if you asked him to build a secure-income generating portfolio with minimal risks, and instead went into NVIDIA, a commonly viewed growth stock with next to no dividend yield?  And to that, I would say, yes.  A lot of people would sue their advisor for such a mismatch of stated goals to outcomes.

@Druce Asah

Run you own numbers like you would any other deal.  The only number I look at from a wholesaler is their asking price, and even that is simply to determine if I am even in the ballpark.

Two things to remember:

1. Wholesalers allegiance to you is over as soon as you buy the house.
2. They do not know the quality of your rehabs, which can greatly impact potential ARVs.

I view wholesalers as another lead source, like the MLS or any direct marketing you do. Just like I would not buy a house off the MLS without running my own rehab estimate and ARVs, I wouldn't, and don't, assume the wholesaler knows anything about my business.