All Forum Posts by: Paul Moore

Hi @Monica C. and all.  Great post and replies. As an investor in syndications and a fund manager, I can see both sides of some of these issues. One thing that stands out is the issue of hitting the preferred return on a periodic basis. Unfortunately, the preferred return can be a misnomer. In my mind, it is simply a hurdle rate. As an investor in someone’s syndication, I know that I will get 100% of the distributable cash flow up that that level.  Above that Pref level, I know the syndicator and I will have a split on the cash flow. So when viewed this way, I’m not disappointed when the Pref is not hit. 

Here’s an example: I invested in a self-storage deal that’s made very few payouts as it ramped up to stabilized occupancy. The Pref (hurdle rate) is always constant at 8%. This means I’m accruing 8% times the number of years that will flow to me - with no split - once more cash is available (through operations, refinance, or sale or all of above).  So I’m not disappointed at all and don’t view the operator as falling short of the Pref.  

The real issue is how is the investment performing compared to projections.  If the operator planned 12% annual cash payout and hit 10%, though exceeding the 8% preferred hurdle, they are falling short. If that same operator projected a lower payout (say 8%) but a higher Pref (say 12%), their performance would be applauded (yet below the Pref) at 10%.  I hope that all makes sense. 

Hi @Lawrence Kutsovsky. I would definitely recommend the syndication route per your last comment. Whether you plan to operate and syndicate, or decide to invest passively, I’d recommend you read The Hands-off Investor by Brian Burke.  This handy guide will give you the info you need to take your next steps in either role   Good luck!  

Hi @Jacob Ellsworth. Welcome to BP and the REI world. I'd recommend you assemble a list of criteria to evaluate locations. Like net population migration, unemployment, diversity of jobs, housing and multifamily starts, etc…. Then apply these criteria to a handful of markets easiest to get to in one nonstop flight (if possible). Good luck!

@Ashutosh Gupta. I agree with @Arie Van Gemeren. With or without a refinance, I recommend a return of capital first. This can be most tax efficient for the investors. Then you can start paying them profits on their investment later.  Time value of deferring taxes can be powerful.  Good luck!  

Hi @Mark Seery. Great question. Lots of great feedback. I’ll recommend exactly what I do myself.  I would do a significant amount of due diligence to find the best possible syndicator in the asset class you want to invest in. Passive investing with a pro is a great way to protect against downside risk and provide predictable returns.  With virtually no effort on your part after sponsor selection. 

I would start by getting @Brian Burke’s book The Hands-Off Investor.  Then check out The Real Estate Crowdfunding Review to find reviews on the best syndicators and avoid the bad guys.  Good luck!  

Hi @Arianne Hellewell. I would never buy and/or operate a faculty with stakes this high without training, experience and a team.  I’d recommend going to (say) a weekend training on RALs as a first step.  Then you’ll have some basis and info and access to resources to valet started.  Good luck!  

Hi @Account Closed. You got some great advice above. 

I'm not an attorney but one of our attorneys said that, in general, deals under approximately half a million dollars can be joint ventures rather than syndications. I doubt the SEC has defined it this way, but she said that's a general principle she follows. I'd recommend a simple JV when you can.

@Andrew Cowles. Likewise, thanks for serving our nation. I’ve invested in real estate for over 20 years. Almost all the best investments have been in partnership with a team of specialists who know far more than me. To this day.

 I wrote a book on self-storage investing to be published by BP this Fall.  But I would never buy a facility like you’re talking about. Way too hard. Way too much risk.  Unless you focus on it 100%. And have training, a team, and a bit of experience.  Best of luck!  

Hi @Margaret Curtis. As a passive investor in many different types of commercial real estate, I can confirm the comments above. MHPs are the best accelerated tax vehicle I know of.  When using safe leverage, the year one writeoff can exceed the entire investment.  Ex: A $100k investment can generate a legitimate $150k annual writeoff. Hard to beat!  

Hi @Bennett Schwartz. I recommend you study several PPMs by experienced syndicators.  The most well known syndicator who does the structure you want is Ken McElroy.  You may want to check out how he does it. He apparently gives the investors a preferred return, then a split above that. Then he eventually refinances the property and uses those funds to buy out investors from what I understand.  Then he owns the asset entirely. 

Best of luck!