All Forum Posts by: Nate R.

The restrictive policies in Austin amount to regulations that constrain supply, which in turn drives up prices. So far, I haven't heard about imposing rent control, but I've heard things like mandated affordable housing for new projects. Which is just another way of restricting supply, which will maintain property values in the long run. The City Council and other leaders are all property owners - they know what's good for the goose is good for the gander.

You need to find reasons to eliminate options.

For example, I have no time to pursue and manage any more SFH's due to work commitments. The only thing I have time to do is analyze deals and hand someone else a check to do it for me. That narrows it down to syndications and other forms of passive investing (like REIT's).

Within that space, there are all kinds of sectors but I chose multifamily, as I had access to good mentoring and a network of MF investors local to me.

 I wouldn't recommend this approach, and here's why:

- Credibility and experience and important in a deal sponsor. Someone who's never done a multi family transaction, either as an independent rental owner or a passive partner, will have none of either. I wouldn't invest with someone who is just putting a deal together to collect fees and has never bought or managed commercial property, although there might be some people with too much money and no sophistication or knowledge you could take advantage of.

- Commercial lenders and brokers will not take someone with no multifamily experience seriously.

- If she has never done a multifamily deal and she tries to navigate the process, some new information could come up and she needs to re-trade or back out, then the deal could fall through and she would be out those due diligence costs. Or, the investors will be lose a portion of the funding, which will be bad for her reputation as a deal sponsor. 

Reading BP and listening to podcasts on how to raise money is not enough of an education to overcome these hurdles. There's no substitute for coaching/mentoring and actually doing deals. 

That's why others are suggesting being a passive partner on the first one or two. That experience will be taken seriously by lenders and brokers, and if she is active in the process, such as volunteering for feasibility studies, then it can be educational as well.

Unlimited mentoring and education from successful real estate investors is worth a lot to me. Continuing education in general is worth a lot to me. Not everyone finds value in the same things. 

I'm a LU Preferred Investor Group member and feel I have gotten good value. The membership has paid for itself with over $100k in equity gains, a 90% cash-out refinance and several thousands in distributions from the two deals I've gotten into as a passive investor, which I would not have found without the network of LU members and lead investors. Plus, I think of my membership as buying into a club of like-minded people that I enjoy being around because we share common goals.

That said, there are no guarantees that anyone will get the same results, just like anything in life. Actually doing it requires some effort. Not all deals will turn out well, either. I agree there is a lot of hype to sell people on LU. However, I know several people who are either multimillionaires or well on their way as a result of investments they made as LU members.

This describes my experience exactly.

There was one with a $100k minimum and time pressure to decide. It was supposed to be a hybrid deal (yield with some value-add). NOI and distribution rate are unchanged nearly two years later.

He has bought another property and is raising money for his next deal. Don't know what happened to the rehab plan for our property or why the projections are not being met, and he doesn't respond to questions about performance.

Incentives are not always as aligned as they appear. Sponsors get paid whether they increase value or not, and it's easy to create pro-formas that make a deal look good on paper.

One of the problems with this space is it's hard to diversify properly, deal minimums being what they are. It should not come as a surprise when the actual returns vary from the averages for a particular strategy, due to all the risks inherent in underwriting multifamily: management risk, changes in submarket, cap rate and interest rate fluctuations (if refinance is part of the exit strategy), etc.

Syndications can be OK, just don't be in a rush.

Don't put it all into one deal unless it's a really *great* deal. Which you might not recognize until you've seen a few.

I feel the same way. Surrounded by people who think 401k contributions (and working long enough to collect social security) is the "smart thing" to do, while I am trying to focus on RE. Except the pressure to conform isn't from colleagues, it's from family, in-laws in particular. 

All my rich mentors say "focus on one thing until you get rich, then you can afford to diversify", all my middle-class friends and family believe in "diversification" and are focused on safety and security.

It opens up a lot of opportunities that otherwise wouldn't be available. If you're accredited, there are many private placements you can get into as a passive investor. Most deal sponsors use SEC exemptions that require investor accreditation to allow them to quickly find capital through advertising and other forms of solicitation.

As a non-accredited investor, you're limited to either deals you do yourself, or if you can cultivate relationships with deal sponsors, there are limited numbers of private placements that will allow "sophisticated-but-unaccredited" investors. There will be fewer of these and it will require some networking to create those relationships. 

Until you can be accredited, here are some of the options I see:

1) Stick to being an independent rental owner. This is a lot of work but you will have total control and the only limitation is access to your own capital.

2) Become a syndicator: Also a lot of work, but it gives you access to a large pool of capital and you don't need to be accredited, but you need credibility (experience, knowledge) with investors before they will invest their money with you.

3) Get to know deal sponsors so that when they do an offering, they can take sophisticated investors that they have a previous relationship with.

4) From your question, I'm assuming you have an interest in just investing and letting others do the work for you. If you just want to be passive and aren't interested in pursuing private placements because you aren't accredited, consider one of the following options:

a) Turnkey rentals: This is mostly hands-off, but there is some due diligence and paperwork required for every single transaction. It is no more scalable than being an owner of SFR's but at least someone else (the turnkey provider) does all the upfront work, and a professional property manager handles the operations.

b) Buying securities like REIT's (publicly traded or unlisted REIT's like those offered by Fundrise, Realty Mogul): Advantages are instant diversification, low investment minimums, liquidity (this varies), the ability to play in all kinds of sectors of real estate (residential, office, industrial, storage, etc). Disadvantage is you get none of the tax advantages of direct ownership, so these are best purchased in a retirement account.

5) Continue saving and investing smartly until you reach either $1M in net worth or you earn $200,000/year in income!

I agree it will impact any of these cities, but especially cities with already-tight housing markets and infrastructure that can't handle the influx of 50,000 new residents. Due to the tight labor market, I am assuming that wages would go up to attract new residents to fill those jobs, or that Amazon would transfer employees from other locations. The net result, though, is population increase and more money in the local economy.

I live and work in North Austin, where there is already a big tech presence. Amazon has a big engineering office at the Domain mall, and there are other big tech companies near as well (Apple, Dell, etc). 

Traffic -- an intractable problem in this metro for reasons I won't get into -- seems to get worse daily, and neighborhoods that were once considered suburbs are now part of the new geographic center of the Austin metro area. It's hard to imagine plopping down 50,000+ people down here and not having any impact.

So, maybe there are places with better infrastructure or more cheap land that will be in the running. Austin could be a contender but I just have a hard time imagining how we could handle Amazon HQ.

 Thanks, James. Still thinking about whether we should pick up some properties in Cleveland. :) Your company is one of the reasons I've seriously considered that market.