All Forum Posts by: Kurt Granroth

@Joseph Gozlan - the tax aspect of apartment syndication is something I'm having difficultly nailing down past the high level concepts.  That is, using cost segregation to achieve accelerated depreciation is apparently a common strategy. In that case, I'd get a K-1 at the end of the year showing that my investment was a loss, even with my dividends.  But... exactly how much of a loss are those K-1s showing, on average?  I haven't found that out yet.

As far as alternatives go:

Bitcoin - Feels more like gambling or playing the lottery than any actual investing, over the long haul

Gold/Oil/Gas - I'm not all that familiar with the various commodities.  My impression is that they rarely out-perform the stock market over the long haul, and I'm not aware of them being considered a capital preserving income generator.

Stock Market - That's what 100% of my investments are currently in, so that's definitely my comfort zone.  I do want to diversify, though.  Plus, the best consistent capital preserving income source would be various high-dividend stocks.  Those maybe will pay out just under 10%, conservatively?   I would make that or more investing in private notes and potentially quite a bit more investing in apartments.

@Jeff Greenberg - the availability of this class of a deal is definitely an outstanding question for me.  A distinct requirement of the ladder I describe is that I could consistently find one or two every single year.  The thing is, the information I've currently come across, both in aggregate and in specific, suggests that 8% annual dividends and 2-2.1x multiples are typical estimates -- but is that so, only if "typical" means "rarely"?

@Michael Bishop - I'm absolutely in the process of vetting multiple potential sponsors now, and certainly invite more.  I've been so far very impressed with the detail provided by one sponsor, including dealing with various "worse case" scenarios.  But... I can be paranoid AF and so I need to find equally compelling alternative options.

Say I am an accredited investor and I want to allocate $500k for a type of investment that should be capital preserving; completely passive; and generates $100k annually in income.  In general that's a tough row to hoe, as the classic truly passive income flows almost never get near 20%.  But it does seem like even (relatively) conservative apartment syndication deals do hit that mark, over time.

Here's my thinking.  I take my $500k and I invest it into apartments in an investment ladder, with $100k invested each year.  That could be one property at $100k or two at $50k each.  Each year I invest $100k more until after year five, all of my cash is in between 5 and 10 apartments.

A typical deal, from what I've seen, may return 8% annually in dividends and 175% (including initial investment) during a sale in year 5.  That's a 2.1x multiplier.  This is what it looks like to me:

The 8% isn't a lot and it will increase to only $40k a year when all $500k is in play.  But on year 5, I get the original $100k back plus an extra $75k, leaving my annual return at $115k -- just above my target.  I then take my returned capital from year 1 and invest it again.

After this, there's always my one or two properties from 5 years earlier going up for sale, and so my annual return will stay at $115k (22%) indefinitely, until I finally stop the ladder.

When that happens, I will temporarily have an extra $100k each year for 5 years.

On the surface, this seems like it beats pretty much all other truly passive investments for annual income generation.   Therefore:

1. What am I missing?

and

2. What is better than this?

Investing in certain types of private notes requires an investor to be accredited.  I'll go with the simple definition of a net worth of $1m (not including primary residence).

The calculation of the $1m net worth is straightforward enough if the money is in stocks or if it's used to buy homes.  But how does notes investing come into play?

That is, say I did have $1m in stocks and I used some of that money to invest in three 2nd position private notes for $100k each.  That leaves me with $700k in stocks and $300k in 2nd position notes.  Is my net worth still considered to be $1m?

I'm going with the assumption that my 2nd position would mean that I don't have any ownership of the physical property itself.  Thus, if I can still consider those in my net worth calculation, would it be because the note itself is the asset worth $100k and is thus countable?

@Matt Motil - very interesting!  Your post has exposed a notable gap in my knowledge.  Can you describe in any level of detail you are comfortable with how you managed those 4 units using other people's money?

One way I am aware of doing Buy and Hold with minimal personal capital is using something like BRRRR where you refinance with a conventional loan after the seasoning period, thus paying off any initial funds (personal capital or hard money) and making it available for another transaction. But... now we're limited by the F*M* conventional loan limits of only 10 loans per person.

So you are clearly referring to something else.  I'd love to hear what!

Thanks, @Odie Ayaga - investing in notes is near the top of my education queue at the moment since it looks like it might be one of the mostly-passive REI types that could achieve the revenue I'm hoping for. I would need to get past the mental block of the entire concept of note investing being similar to the tranches that played such a big part of the 2008 crash. I know they aren't the same -- but man, they feel so similar. BTW, were did you find a JV to partner with?

Thanks, @Matt Motil - I am actually getting increasingly disheartened about using traditional buy and hold to accomplish my goals.  Quite a few examples on BP seem to suggest that the $100/unit/mo net is a reasonable estimate.  At that rate, I'd need 20 homes to meet even my minimum monthly net.  Gak.

I hear that!  I'm a complete noob and so have been reading voraciously and peppering people with questions.  Shiloh has been -- by far -- one of the most helpful and informative veterans to my many questions.  So to see this thread from Shiloh talking about suckers...  hmm... better think hard if I should be included in that list or not!

@Account Closed - thank you for doing this!  I had never heard of this option and to see it laid out compared to a typical Buy & Hold is a huge help.

The "Subject To" sounds exactly like the "assumed mortgages" that were so common in the early 80s, when mortgage rates were sky-rocketing.  I didn't even know they still did such a thing, although it does make a lot of sense looking at the numbers you presented.

Since the "Subject To" home wasn't through the MLS, I presume you got that lead through direct mail or similar?

When you choose an amount to charge per month to the Tenant Buyer, is it based on an internal "APR" that you have in mind, or it relatively "random"?

At the end of the 5 years, is the purchase option just the amount remaining on the loan?

Finally, how easy is it to find a Tenant Buyer in the first place?  Is that a common thing in the Valley?

I wonder, are other local investor's seeing similar results to the ones that Shiloh has posted?  Anybody investing in duplexes or other multi-family properties?

@Shiloh Lundahl - oh, a Rent to Own or Lease with Option to Buy?  I saw a title about that in the BP Forums but hadn't investigated.  Very interesting.  I suppose that's why the net cash is so high for some of them, if the tenant handles all maintenance, thus no budgeting for it?

How is the locked-in amount calculated up front, especially given such a long time frame that the tenant's option exists?