All Forum Posts by: Jeff Kehl

@Michael Behrens I've been looking at a few NNN properties recently and I'm curious how you think you could make enough money to pay investors from one? Most syndicators have a value add component that increases the exit price and provides the hefty return needed to pay the synidcator's cut plus a nice return to the investors for taking the risk.

As a simple example, let's say you buy a small NNN deal for $1,000,000 using half investor money and half a 5% interest only loan. Let's say you bought at a 6 cap. Your total return on that is $35,000. $60,000 in rent - $25,000 in debt payments. That means your investors made $35,000/$500,000 a 7% return assuming THEY PAY YOU NOTHING.

So unless you are able to source really incredible deals or find one where you can exit in a few years for a much higher price I'm not sure why it would benefit you or the investors.

@Manik Sewak why purchase with hard money? Are you only looking at distressed property? You should be able to just directly go to commercial financing for a stabilized property.

As for areas to look, I'm a big fan of the Southeast or Texas because you have population growth pretty much by default. The large cities in those area like Dallas, Charlotte, Atlanta, Orlando I think you will find prices fairly elevated. So look at smaller cities around them that have favorable demographics and job growth.

@Ariel K. I do both and enjoy doing both. Buying a property yourself I see as higher risk/reward/work for the larger properties. When you're in syndications the risk is spread out better amongst the pool of investors and the sponsors. Also, I think many of the syndicators I look at have an easier time finding good large deals because that's all they do full time. And most of them have existing relationships with property managers, contractors, etc. I don't have that advantage. However, if I can find a good deal on a larger property that I can take down myself I will do it if the returns look good enough.

If the returns are equal AND I BELIEVE THEIR NUMBERS, I would be lazy and go with the syndication all day long.

@Dushyanth Malkud I lived in Rome for about 13 years and just moved to Charlottesville in June. I own around 200 units of small mutli-family and houses in Rome so I can answer any questions you might have.

It's been sort of an undiscovered area in that it's an hour from downtown Atlanta and has a good economy and growth but until recently there hasn't been many investors there and so the prices are still pretty reasonable.

Let me know if I can help out.

@Ray S. I'm selling off some of my properties and doing some combinations of about everything you say. Couple things I would add to the discussion. 

First, the OZ rules now are looking like the 180 days to make the investment starts on December 31st of the year you sell. So you can sell now and you have until the end of the year to decided whether to put it into an OZ investment.

Also, I would say a lot depends on whether you're looking for another active investment you would manage or a more passive one. OZ funds would be more passive. But you can also invest in say an apartment syndication and get fairly high losses in the first year from cost seg/bonus depreciation that might offset a lot of your capital gain.

If you want to be more active I would definitely suggest going bigger and looking at other types of commercial real estate since multifamily has gotten so expensive.

@Alicia Yoder I think you answered your own question in that warehouse is all about distribution/logistics these days. Unfortunately it's mostly huge 32' foot height Amazon or big box stores that cover many acres. So not so easy for smaller spaces.

But, having said that, there are probably more local/regional businesses in your area that sell on the web and need warehouse space. Have you tried the local chambers of commerce/economic development? They usually have a good handle on who is doing what in the area.

Also, since the area is mainly oil and gas I wouldn't discount their need for warehouse space. Maybe see if you can attend a local industry meeting/convention and try to get some ideas.

@Alicia Yoder the brrrr strategy is very common in commercial and has been for years. It's just not called that. 

Getting the financing can be harder because the dollar amounts are larger but there are many lenders these days that specialize specifically in 'bridge loans' which are short term 1-3 year high interest loans that play the part hard money does in residential.

The thing I like about commercial value add other than the potential rewards being higher is that there is a lot more room for creativity. In commercial it's all about the quality of leases you get in place. So you can do value-add just by attracting better tenants with longer term leases.

Or by changing use. For instance, if it's legal in your state you could take an old vacant warehouse no one wanted and lease it to a marijuana grow operation. Or take an old Kmart and make it into self-storage.

@Bryce Campos there are those types of investors on BP. But they tend to have access to many deals. Most of them with experienced sponsors and outsized returns. So the odds are they are not going to invest with someone they meet on an online forum. But here's a few suggestions for you.

- The suggestion to go to meetups is a good one. I invested in a deal of someone I met at a syndication conference.

- Try to meet/talk with groups of people in certain professions. Physicians for instance or high tech if you happen to live in a city with lots of high tech. You need one good contact and to treat them right and they will introduce you to more.

- Go where wealthy people hang out. Charities, Country clubs and private wealth managers are all good places to look.

But as was stated above you need to have something good to offer them or meeting them will be a waste of time.

@Spencer Gray I like this kind of macro economic analysis and enjoy spending a lot of time looking at it. 

I've personally been very critical of apartment syndicators that base returns on near unprofitable deals that are based on raising rents by doing cosmetic upgrades to units. The interesting thing is that often they can get the rent increases whether they spend the money on upgrades or not. Which suggest there is just a structural lack of supply of affordable apartments.

That's what I see in my market. We barely put a vacant apartment up for rent and it is snagged up. And I keep good solid rentals but I don't do cosmetic upgrades as a general rule.

So this tells me rents will continue to rise until this problem is fixed somehow. I don't see any Black Swan which will stop it, inflation, deflation there will still be a lack of affordable basic homes. But I guess that's the definition of 'Black Swan' something we don't see coming :)

@Kayla V. some good advice above. Just to add a few things. I have had luck using some of the crowdfunding sites to find good sponsors. I especially like Realcrowd and Crowdstreet so far. Realcrowd has some great educational material on their site and a good podcast. The nice thing with them is you can get started with a smaller dollar amount an if you click with a particular sponsor then you can continue with them.

The last comment I would make is you specifically said 'apartment deals'. Why is that? I look at a lot of offerings in many different areas of commercial real estate and of all of them apartments scare me the most at the moment because of the price sponsors are paying for some deals.