All Forum Posts by: Kyle Kovats

@Carlos Medina well the first question I would need to know is why are you investing and what are your goals? Do you want to go bigger? Do you have the capital necessary to do things yourself? Do you need/value having a partner?

 Brian Burke pretty much covered all of it above. Personally, I've found Joe Fairless's book to be the most comprehensive, content packed book out there that covers all things syndication. 

@Greg Dickerson thanks for your insight, much appreciated. My thought would be treated it as a heavier value add then I normally do and find something a little more outdated than I normally like. Kind of like a test run before doing it on a large scale property.

Recently I've seen some people take on some smaller value add apartments between 15-30 units and do really well after implementing a value-add plan. The challenge here naturally is how do you manage the property from a maintenance and leasing standpoint. At the moment the smallest property in my portfolio is 68 units and we can afford to have full-time staff at the property. 

I am looking into purchasing a smaller value-add deal for a short-term hold between 20-30 units (without syndicating) for myself and was curious if anyone has a property of this size and how you handle the mgmt/maintenance of it. Thank you in advance! 

 I second this take, Alina. One of the deals that I am invested in has a sponsorship team of 5 but like you mentioned, it appears they've partnered up to simply be able to take the deal down. It's performing mediocre at best. It also seems to me as if they haven't really delegated tasks too well, in other words too many cooks in the kitchen. A smaller sponsorship team or at least ones with defined roles seems to operate best. 

@Kayla V. Hey Kayla. I primarily invest my money passively along with putting together 1-2 syndications a year. But after investing nearly $1,000,000 passively here are the main questions you should ask sponsors to vet the deal.

• Are you putting your own money into this deal? Not from an acquisition fee but are you putting current liquid capital into the deal and if so how much? Reason: I want to make sure they have at least some skin in the game

• Will there be an acquisition fee? Reason: I understand a nominal flat type of fee, it's a pain in the *** to put together a syndication. However, when syndicators are buying communities for $40 mill., beating out other syndicators and institutions and then on top of it asking their LP's to pay them an extra $800k-$1.6 depending on the acquisition fee I want to know why you think you've earned that. I think is is a conflict of interest as they know all they have to do is push the deal across the finish line and whether it winds up being crap or great, they've made a good nut up front. 

• What is the asset management fee? Reason: Ideally I want to see 1.5% or under. I also want to know if they plan on re-investing any of that into the property. 

• Is there a preferred rate of return or straight equity split? Reason: I personally am not a fan of the pref structure, I think it doesn't keep LP and GP interests lined up. What if there's an 8% pref and year 1 is only 4%? Year 2 is only 5%? Now in year 3 the GP is starting the really get behind the ball and if they can't catch up I worry they sell at an inopportune time. Also, usually when there's a pref there's usually waterfall structures on the back end. I prefer just a simple straight split no higher than 20GP/80LP. 

• At the time of sale, do I get my initial capital back before you get a dime? Most of the time the answer is yes for obvious reasons. 

• Have you personally “shopped the comps” and visited them and why are you confident that this property is comparable or better? Self-explanatory. I want to make sure they honestly know the market and didn't just underwrite from another time zone and have never visited the property. 

• What is the number one concern you have with this deal? There should always be a concern or two that the sponsors have, if not they're lying. I appreciate the honesty and want to know how they plan on tackling this concern. 

• How did you come up with your numbers for property taxes on the pro-forma? Depending on the state this can make or break a deal. 

• Does your insurance policy cover loss of rental income in case of a fire and does your insurance policy cover the FULL cost to rebuild in the case that 5 or 25 units are damaged by fire? very very very very important that the property has comprehensive insurance. I want there to be code upgrade insurance, replacement cost, debris removal, business interruption, etc. 

• I’m not going to hold you to it but what upside is there that wasn’t spoken about? Sometimes there's some real nice value-add components that the GP's don't talk about because they don't want to set expectations too high so I always like to ask this one. 

• What Is your relationship like with the property management company and how many properties do they manage in the area? Also are those comparable properties? Extremely important. The PM company will make or break the deal. 

• What is the most recent deal you did and how is that performing? Can I see the webinar/projections of that deal along with your most recent monthly report to compare it with actual performance? I want to see how they're on previous deals they've done. Are they the type to over promise and under deliver or vice versa. 

• Are any of your family or friends investing in this deal? I know it's a weird question but I think it's important. If there's one group of people you don't want to let down it's your family and friends and I feel GP's feel an extra level of accountability to family and friends. 

@Spencer Gray Thanks for sharing that. Moving forward what have you done on future deals to keep the sellers PM company in check until closing?

All also add that I like to see HOW they generated their returns on their prior deals. Was cash flow pitiful but they just benefitted from a rising tide and 90%+ of the total return came from cap rate compression? How the return was generated is telling.  

Totally agree with this Greg. I think they're great to serve as a filter to determine which deals are worth spending time on. At the end of the day, it's best for you to know your cap ex plan and for you to be confident in what different cap ex projects will bring to the property. 

 Hey Lucas, I've learned a ton of lessons, most of which I outline in an above post of 13 questions I use to vet sponsors now. That pretty much helps me decide whether or not I will invest my capital with them. I am on a ton of syndicators lists and get on a ton of webinars and some of the deals I see some people putting together right now just make me shake my head. 

If I were to say what the #1 thing you can do is, I'd say ask them for a copy of their recorded webinar and investor marketing material for their most recent syndication and along with that ask them for their most recent monthly report on that property that was sent out to investors along with financials. I basically want to look to see what did they project vs. what actually happened. In other words I want to know if they're all talk and no walk.

I'd be happy to come on your podcast, shoot me a PM and we can discuss dates and times further.