All Forum Posts by: Evan Polaski

I love the analysis.  I am trying to find a research paper I saw a couple years ago that effectively stated that public REITs outperform private equity real estate over the longhaul.  

So, by and large, I will highlight a couple of items that are either missing or expand on a point you made. And, to be clear, when I am referencing REITs, I mean publicly traded REITs. Blackstone's BREIT is a public, non-traded REIT, which certainly limited liquidity. Or I am an LP in PERE Fund that holds the assets in a "sub-REIT" structure.

REITs, often, allow investors to own the management company and the property.  So you are not losing your 3-5% management fee, or 10-20% construction management fee to someone else's pocket.

REITs in many cases carry less than 50% LTV, so "less risky" is certainly true, and often are cash buyers.

REITs are often highly prioritizing steady cash flow, so are not buying highly speculative "value-add" assets.  Although most will have a relatively small development pipeline to grow their portfolio of core assets.

REITs do not pass through depreciation like a syndication will (although I find this "benefit" to be minimal for more LPs).

REITs pay dividends, which cannot be classified as "return of capital" like in syndications, regardless of depreciation allocations.

REITs have to be underwritten by "professional investors" as part of their IPO

Syndications, often times being a single asset, can be a homerun, but also equally as likely to be a complete loss or just "average".

REITs typically have a long-term horizon.  Syndications, in my experience, are often about fast churn of assets.

REITs don't have the "heads I win, tails you lose" structure that most syndications have.  4% acq fee, 1% dispo fee (is the 30-50% promote note enough), 2% asset management fee, 2% loan fee.  

So, while I am biased to syndications sponsored by truly seasoned industry professionals, I view the comparison of a public REIT vs syndication as completely different. A more realistic comparison is syndication vs meme stocks, since both rely primarily on marketing more then they do underlying fundamentals.

@Jonathon Cornell

First, there is a bit of the mindset component:
As noted, deals are hard to pencil now in any market.  Prices have not come down meaningfully. During the run up, which it sounds like you came in the middle of, prices were growing far faster than rents.  And now, assuming you are not a cash buyer, interest rates have more than doubled since you bought.  All combined, it does not make for the best investing climate.  So, to your mindset, would you rather buy aggressive with a higher likelihood of losing money, just so you don't feel like you are "falling behind" or would you rather be patient for the right deal that makes you good money?

To you direct question: out of state investing carries with it a lot of risks, too.  No one will have the same motivations as you.  If you are looking OOS with an agent, they only get paid when you buy, so while there are some good ones out there, there are also a lot that will likely downplay risks just to get you to buy a deal.  Property managers: again, probably some good ones, but I never had luck with the 4 I used.  More work on my part, managing the manager, and making less money.

As for just throwing out a lot of lowball offers, personally I don't like this approach. So, while I agree with Drew, that most deals are not worth their price, I also don't like wasting my time, or my agent's if I am working with one. So, yes, back into the purchase price like Drew says, but I only do that on properties I like that have been listed for 30+ days on MLS. I don't bother lowballing a new listing, because you will get turned down 100% of the time. Let it sit, the seller get anxious, the agent getting scared they won't make a commission, etc.

@Kathy Diamond, I have worked for private companies that sold to REITs.  They have their own criteria, like any other buyer.  Most public REITs are looking for core, core+ assets.  They need stability in cash flow.

So, a target CoC is irrelevant. A national physician group with A+ credit and a long term lease in a major medical hub with next to 0% vacancy will be a great buy to a core REIT, even if the CoC is 5%. Versus a 10% CoC property that sits off the beaten path in a secondary pocket of a tertiary city.

As for connecting with them: list your property with a major brokerage, and they will find it.  CBRE, Marcus, Colliers, Cushman, etc.  If they want it, they will offer.  

Lastly, if you are pitching your deal direct to sellers, REIT or otherwise, there will be a level of desperation in the sale, which they will capture on. These are professional real estate investors. The acquisitions people at major companies tend to have loads of experience and make a lot of money to review deals. They are not going to overpay for anything. In fact, generally speaking, REITs are some of the most conservative buyers in my experiences. So, if your goal is to make the most money from a property sale as you can, I would simply list it for sale on the open market. REITs will see, private buyers will see it, syndicators will see it, and the exposure will ultimately get you the highest price the market will bear.

, 

https://www.stlreia.com/

Also, meetup.com looking for real estate investor meetups in your area.  There are a lot of free options out there. 

Books can be a great, inexpensive resource to start with, too.  

Not that anyone has pitched it to you yet, but I would be hesitant to pay more than maybe $1,000 for any courses at this stage.  It sounds like you just need very basic information, and beginner info is easy to come by for free, so I would only pay for the convenience of having structured lesson plan of information, not for the information itself.

Once you have the basics, then you can start seeking out experts in specific areas, where the value of their information is much higher because it dives deep into a specific topic.  

At a high level, 5+ units is no different than a single family.  You need to understand your incomes and your expenses.  The biggest difference is you are likely on the hook for more of the expenses: landscaping, any common area utilities, possibly trash/dumpster.  On the revenue side, you might have common area laundry, which might be coin based.  You can lease or buy these.

Lending side, you will likely be going to a local bank or credit union for financing. interest rates will likely be higher than single family, you will find 15-20yr amortization more frequently than 30, and your LTV will likely be no higher than 75%.

You will have 5+ tenants vs one, which means you or your manager will be called for personal issues, if any, between tenants.  Whether it is someone parking in someone else's parking spot, or unit 5A playing their music too loud and too late into night.  

But, at a high level, you fill your units, screen your tenants, collect rent and pay bills all the same.

@Kyle Reedstrom, there is no one "honey pot" that I have found in my years raising capital.

Friends and family are always the best places to start.  Referrals from them.  As noted, BiggerPockets or Passive Pockets.  I know more than a few syndicators that lean into their religious/church groups for investors.  I have spoken to people that are avid pickleball players and found investors through that network, there are a good number of "lifestyle clubs" like GoBundance, Lifestyle Investor, Tiger21 people have raised money from.  But, typically it is all of these pulled together.  A couple hundred thousand from friends and family, a couple hundred from church, a couple hundred from recreational sports, etc. 

And, like all good sales, they never start with an ask (or very rarely).  Typically it is join them, build the relationships, and over time attract capital into your deals over time.

@Jeff Earnhardt

It sounds like you are looking to move your business from a leased spaced to an "owned space".  I put owned space in quotes, because your existing operating business won't own the space, they will still be leasing, while you will own another business that owns the real estate.  

- What rent are you currently paying, and what is the market rent for the new space?  
- Will you have a mortgage on the property? If so, what will your monthly mortgage payment be?
- Are you budgeting for insurance, taxes, repairs and maintenance, etc? Is there the commercial equivalent of an HOA? Is it well funded and what does it cover?
- Will there be additional build out costs to subdivide the suite to allow for a couple other renters?  
- What is the market rent for the smaller units, and is there any actual demand to fill those?

While I will generally lean toward owning is better than renting, it only makes sense to own, as a business, if it will result in a net savings each month.  Even if the cash outflow is minimally more than current costs, it could be worth it.  But, a lot of details are missing to be able to provide a real analysis and feedback.  

@Chris Howell, so it sounds like you were not wanting feedback, but rather advertising under the guise of feedback for something you already have in the works.

Adding color to the deal, in my eyes, doesn't help the case.  The numbers you provided don't take into account any "fund level" costs, i.e. accounting fees and K-1 prep, systems like an investor portal to easily process distributions and allow investors clarity on project position, and most importantly the $10k in attorney's fees to setup and syndication with the legal docs and SEC filings.

But beyond that, your numbers do not create a strong enough return to overcome the risks.  @Chris Seveney, is your fund paying 12%/yr, current?

And finally, my biggest concern: in the world of real estate, $60k is not a lot of money.  Which creates two red flags: first the deal itself.  A $35k house in today's market screams war zone area, super rural with limited demand, or almost falling over (necessitating far more than $20k of renovation).  Second red flag is why you even need the money.  You note having successfully done this for 20+ yrs.  I get everyone's definition of success is different, but in the world of real estate, I cannot understand why you would even need $60k to begin with.

Again, I am not your target investor, I get it.  But you asked for feedback, so this is my feedback as someone who has done BRRRRs and flips for the last 15 yrs, worked in the syndication space for 18 yrs with $25k investors up to $100mm institutional investors, and studied real estate in college prior to that.  I am an LP in syndication deals.  

If you want someone to consider this type of investment, I would reach out to your friends and family.  They are more apt to trust you, foremost, and likely aren't looking at a lot of other types of deals, both actively and passively, to compare your deal to, therefore making them hear "12% backed by real estate, with someone I know.  That sure beats my 8% index fund.  I am in"

This is such an all over the board question

For me, it is about 6 months from close to close.  So that is about 4-5 months of actual work from demo to Cert of occupancy and listing.  That being said, the deals I do are almost always MAJOR renovations with a near complete gutting, reworking floor plans, rewires and new plumbing, etc.  

@Chris Howell, so is this a recorded lien position, with foreclosure rights?

This is not really a structure that speaks to me for a few reasons:
1. If I am a lender, I want a higher interest rate.  I can go to Chris Seveney and get 10-12% in a true lien position.  And I want recorded lien protections.
2. If I am equity, I don't want to cap my upside like this. 
3. It is overly complicated. Ultimately, this sounds like a pref equity structure, but with far more variables. Most pref equity is fairly straight forward: 7% paid current brought to 13% IRR on exit. There are often key decision rights, too, i.e. can force a sale, personal guarantees from sponsor, etc.

Am I the only one has started reading a lot of these types of posts (there was another one the other day too) as thinly veiled solicitations for LPs to reach out?

@Katie Talamantes

To directly answer your questions:
1. Attract LPs: these will be the people who already know, like and trust you.  So, your mom and dad, your best friends, and likely your coworkers.  People who already have your personal number and seen your successes with the two rentals you already own.

2. Thanksgiving, Christmas, birthdays, etc.

3. Thinking you know anything about what you are doing.  I am assuming you are not currently an asset manager for large self storage company.  So...
Who will you call to fix your gate, what management system are you using, what is your advertising budget for the property, who many employees will you have on site, what is your retail mix, how many carts will you own on the property, what is your balance of interior climate controlled and exterior units, will you allow RV and boat storage, how do you handle someone living in a unit or running a business from your self storage unit, what is the real demand for storage in that market, does your client base have enough expendable income to afford storage and/or absorb your rent increases, how long of free rent or other promotions are you providing to get your units full, are you planning on expanding the property, how much are you co-investing, what are your fees, what is your carried interest, what relationships do you have with brokers or owners, what markets are you focused on, how are you different than the hundreds of other self storage syndicators, how much time are you dedicating to this venture versus your "day job", do you have the net worth to secure a loan yourself, what terms are you finding for the loans, are you providing the personal guarantee or relying on someone else, fixed or floating rate, what auction company are you using for unit sales, what have you done professionally that would give me the confidence that you will figure this out on the fly, how frequently are you paying distributions, how can i monitor the health of my investment, how frequently will I be getting updates, do you have an investor portal, have you setup a website and professional email address, who is your management company, how many did you interview before settling on them, how many are operating in that market in case you need to replace them, will this be branded units or creating your own brand...

At the end of the day, the reason you will be raising money from your friends and family is because they typically won't even know to ask these questions.  They will already trust you and therefore invest on your relationship and wanting to help you get started more than viewing it as a prudent investment with minimal risks.