All Forum Posts by: Jordan Burnett

Does anyone have an actual (net after-tax) return breakdown from a multifamily syndication that they have participated in as a Limited Partner?

I'm particularly interested in Limited Partners who would not benefit from QREP status, nor a 1031 exchange.

I know you'd be subject to capital gains tax and depreciation recapture and I'd like to see if someone has an actual example or possibly a link to an actual example.

E.g. projected CoC returns were 8% and realized IRR was 18%, what is the actual after-tax return per annum after holding for 5 years and paying all capital gains and depreciation recapture taxes (or whatever the deal was).

Maybe the equity multiple was listed at 2.1X, but what was your actual after-tax multiple? Just want to see what the actual tax hurdles are for those of us not investing inside of a SD-IRA and not capable of taking advantage of 1031 exchanges or QREP status.

Thanks!

I somewhat agree, that is my issue with stocks and public equities in general. It's never just about the cashflow or cap rate. It's always about (cashflow + consumer sentiment about the future + general sentiment about the macro environment) and not in that particular order, thus some of the insane valuations we see currently. 

Good points. I guess my question was really more targeted at those REITs that hold the same types of assets that you invest in privately. I do know that a lot of the larger REITs invest in the big MSAs which may be why they're being hammered since there appears to be a big exodus from the major cities. 

Personally I've been a fan of the suburbs and sub-markets for a while just because of the trends I've seen with folks in my generation. 

Others have given you great advice. I would avoid this deal at all costs. However, I still recommend you read Brian's book and get on a few syndicator's deal lists. 

Take their provided projections and PPMs and compare them to what you find in Brian's book. Ultimately, you need to trust the sponsor. However, knowing how the numbers are being manipulated can give you insight into whether or not a sponsor is truly being conservative or if they're just conservative and hope you don't know the difference. 

I've seen some sponsors say that 5% economic vacancy is conservative, while others have claimed 12% economic vacancy is conservative. This is an investment where a 7% difference like that can drastically impact your exit returns. 

Also, be aware that a rising market with significant appreciation can cover a multitude of sins. 

I know this is not exactly a mulitfamily topic, but it is related. Are any of you taking advantage of the pricing arbitrage on public REITs during this pandemic to get ahold of some actual discounts? 

Pricing concessions don't seem to be occurring in multifamily sales (yet). However, public REITs that hold multifamily properties (like Equity Residential [EQR]) are down around 40%. If the underlying assets of the REIT are the same assets you're investing in with private placements or funds...why wouldn't you pick up shares of a REIT right now? Issue with the asset class? The volatility? Tax downsides? 

(The same could be said for self storage, mobile home parks, etc.) 

Just curious to get your thoughts. I do know that some investors actually take this route but I wanted to get the BP community's perspective. 

Read this book: 

https://www.biggerpockets.com/store/hands-off-investor-ultimate

Syndications also benefit LPs by leverage that doesn't show up on their personal credit. 

I have "no debt" per my personal credit, but will benefit from debt via syndication participation. 

I have no crystal ball, but if things continue like they are, then yes. 

Eventually, you may have some class migration (Class A Tenant->Class B Apartment and Class B Tenant ->Class C Apartment). However, evictions are currently limited many places, which may remove the normal vacancy pattern and thus keep pretty much everyone in place.  

Deal flow in my inbox for multifamily deals (100+ unit) has picked up in the past few weeks. From what I have seen so far, it's not so much of a COVID discount as it is a Fed Discount. A 4.7% cap property isn't a smoking deal with a 4.5% interest rate. However, a 4.7% cap rate property with 2.8% agency debt frees up a lot of cash flow even if collections head in the wrong direction (always want to verify DSCR, break-even, and default ratio though).

We'll see what happens when the unemployment benefits and stimulus expire, but Class A/B seem to be holding up on collections. Class C has reportedly had some issues as that demographic has been hit harder by small business closures. You can verify collections here: 

https://www.nmhc.org/research-insight/nmhc-rent-payment-tracker/

The real concessions in this market seem to be in Office/Retail while Multifamily/Self Storage/Industrial seem to be holding up well. 

You should listen to Michael Becker and Paul Peebles on the Old Capital Real Estate Investing Podcast. They give you realtime info every Monday on what they're seeing and what they're expecting.

https://www.oldcapitalpodcast.com/

James Eng also has a great YouTube channel where he goes over recent deals and how the financing looks going forward (he's mostly focused on Texas). 

https://www.youtube.com/channel/UC4NRATcTMmkodJ_CEP9MRWQ

Hey Chris! I actually meant dedicated co-working spaces in common areas as an added amenity (similar to fitness centers, etc.). However, I can see and have heard some folks talking about building more home/office type apartments. 

Personally, I see the value of having a completely separate physical space to work in that's not within the door of your apartment but that you still don't have to commute to. 

I can also see in-apartment cafes becoming a bigger deal.