All Forum Posts by: Andrey Y.

@Andrey Y. Congrats on your returns. I own both rentals directly and involved in a syndication. I found the due diligence time was more on the syndication just because of the scope and size of the deal. For diversification and balancing your liquidity I would argue do both

I own a number of rental properties and to be honest I spend very little time on them. I BRRRR'd them all so most of the items have been replaced. Very few calls. I also self manage. The only real time is to fill vacancies and there usually rented in two weeks at the most. I do not find it stressful at all. I still work full time. My return is infinite as I do not have any money stuck in these.

I like the fact that there are numerous ways to make money in real estate.  

I live off of my investment portfolio and so I have both passive syndications/crowdfunding and directly owned real estate (a portfolio of single-family rentals).

I’m glad to hear you are happy with your returns and your decisions.

However, at this point you really don't know the return of your portfolio. By definition the first couple of deals in any portfolio that are fortunate enough to exit early will generate huge IRR.

These are almost always going to be balanced off by the majority that take longer and have lower returns. And then, depending on how much risk you’ve taken in choosing the investments, you can expect the possibility of losses.

 Based on my experience it is not reasonable to expect anything close to a 30% IRR going forward.
I’ll also add that since I am both asset classes I feel both have their pros and cons and neither is superior to the other. In my opinion, a good portfolio should have both.

Direct investments give you the control to structure things exactly the way you want. And for those that are looking for it, there is the option of putting in sweat equity to increase the returns above what a passive investment can make.

 Passive investments require a lot less work to maintain although they do take considerable work on the front end to do appropriate due diligence (at least if you are a conservative investor). And in exchange for paying a management fee and promote, you can usually hire someone to manage your investment that has years more experience than you can ever hope to gain on your own. It’s also easier to diversify because usually you can put in a smaller amount as a fractional owner, rather than having to purchase the whole property like in directly owned.

 But not everyone is willing to turn over control to a third-party like that nor is everyone able to do the appropriate due diligence. So passive investing is not for everyone either.

@Scott Mac if he ends it completely, how will SSI and Medicare get funded? Just curious as I’m 38 and have already paid a couple hundred K into the system. Not sure if I’ll ever see a dime of that

Sorry! I find that being a passive investor is has the highest risk and is the most dangerous type of real estate investing a person can do.  While this OP may have run into one or a few syndicators who did well for him you will find that a very high percent of syndicators are ruthless and unscrupulous sharks who don't have the mental capacity to perform as promised.

It comes down to this. Never ever allow someone to control your money and that is what you do when you become a passive investor. Syndicators have too much control of your money and you get to watch them do very bad things as your investment money whittles away to nothing.

I was a passive partner in two separate deals for two K-Mart shopping centers. I had an attorney review the 600+ page placement memorandum before I invested. I had a financial expert review the deal. Everything looked great until the day after I put exactly $1 million into the deal. It is funny how life is. Obviously, I was excited before I invested my $1 million. I was promised that in 7 years I was going to get a check in the mail for $2.3 million and my earnings was going to be tax-free. That part was absolutely true since you will see that I did not pay one penny for income tax.

K-Mart had four 25-year lease options with no rent increases. That meant the value of the property would remain stagnant for 100 years. Was someone sleeping with someone to get this deal? The general partner purchased each property for $18 million and sold it to the limited partners for $25 million. Simple math! He made $7 million. The general partner paid himself $1 million per year for 5 years to manage each property. He made another $10 million.

Then, the general manager drove the profits into the ground with maintenance issues, upgrades and so many other expenses the limited partners got nothing. We (the limited partners) filed a class action suit for $50 million since there was 50 of us. We won the $50 million, but the general partner was insured for only $50 million and the attorney took almost every penny. 

This following statement is not a joke nor an exaggeration. The payment I received from the lawsuit was $39.00. I literally threw the check in the trash.

I was a passive investor in two other syndicated real estate deals that went bust. I can write all day. So, I will ship the other two stories.

A few weeks ago, I wrote about a 25-unit apartment building that is next to the commercial building I live in. The syndicator has about 20 similar projects in the Los Angeles, Arizona area and Texas. I did a little work for this company as a neighbor and the company has failed to pay me $10,000 that was due last November. So, I know a lot of the the details.

Every passive investor doing business with this company is getting ripped off on every project, but I will explain only the one project next to my property. They purchased a 25-unit building worth about $4 million through a short sale for $1.7 million. Terrific start.

Now!!! Make believe you are a passive investor. This company has projects in Texas, Arizona, California, a really impressive-looking office and beautiful brochures. You sit through their sales pitch and you are positive these people have more business knowledge than you and they promise to triple your investment capital in 5 years. You give them your $500,000 cashier check that took you a lifetime to earn and as soon as it is laid on their office desk you get a lump in your throat because now you can't do one damn thing about how they spend spend your money. 

Before you gave them your cash they answered their phones on the first ring every time you had a question. Now, that they have your cash every time you call the person you want to talk to is in a company meeting. 

Now, I am going to tell you about what control you do not have and what control your syndicator has. The rental income for this 25-unit property was about $48,000 per month and the condition of the property was a little less than fair. So, this bigshot syndicator evicts every tenant at the same time. This was two years ago and the property is still vacant today. The project looks like it is going to run into a little over 3 years. That is a $1.8 million loss of rental income from a building that did not need remodeling, in the first place, or it could have been entirely remodeled a few units at a time during the same 3-year period. Is this how you wanted your $500,000 investment managed...so this company could absorb a $1.8 million loss.

The syndicator brings in illegal and unlicensed immigrants and guts the inside of every apartment. There are no foremen, no building permits and the illegals do everything wrong that can be done wrong.

So, after wasting about $700,000 on bad work a building inspector catches them and shuts the project down for about 9 months and makes them pull out every new window in every unit and replace them with the correct windows. 

Meanwhile, the syndicator gets a $3.4 million loan against the property, but he uses all the money for his other projects that are going bust. So, he still does not have the money to finish the property you invested your money in. And...there is not one thing you can do about it. You can't even sue him for Failure To Perform because your contract stipulates that he has 3 more years to prove that he can perform.

After you wait 5 years and lose all your hair you finally get to pay an attorney $50,000 to sue the syndicator, but the project is an LLC corporation and you can sue only that corporation. In the case of my deals, we also sued the syndicators, but as stated, out of $1 million investede the return on my money was $39 after paying attorney fees.

I've made $millions and lost $millions. I don't feel nowhere near as bad about losing money when it is my fault, but it is a miserable and long-lasting feeling when you find that someone you trusted lied to you and stole or misappropriated your money and lived high-on-the-hog (whatever that means) with your money.

Very few people in this world ever perform as promised! Investing in real estate syndicates is similar to investing in the stock market since there are good and bad managers and market conditions for both stock and real estate is constantly changing.  Always have 100% control of your money and 100% control of decisions pertaining to controlling the actual investment. You need to have the ability to make changes on-the-fly,  the ability to cut your losses in an instant, and the power to make all critical decisions that will make the deal perform they way you want and not the way some unscrupulous syndicator wants.

@Andrey Y. I'm super glad to hear you're having such great success with syndications. I remember reading your posts a few years ago when you were having trouble with some OOS SFR properties that you had bought from turnkey operators (if I'm not mistaken?). I was looking into OOS turnkey companies at the time and reading your posts was helpful in deciding not to go that direction, so thank you.

However, I don't think it's fair to make the assertion that syndications are that much better than SFR's based on the two experiences you've had with each. I think you dealt with lousy turnkey operators. Variously, considering your great returns in syndication, you obviously found a great sponsor. It's apples to oranges in my opinion. Your fortunes could easily have been reversed in either space.

For example, a relative of mine invested in an apartment syndication deal that went belly up in a big way. The company had a great track record, leading up to then. The shifting market and a crooked operator threw a curveball at them they couldn't dodge, and that was the end of syndication investing for him. He now invests in SFR's n Silicon Valley and is doing very, very well with it. Just like you had trouble starting out with OOS turnkey SFR's, there are many people like my relative who invested in the wrong syndication deal, at the wrong time, and suffered complete loss of capital. If you lost all your money, got dragged into a prolonged expensive lawsuit with a random group of other investors, and spent years digging the hole deeper before finally giving up, you'd be singing a different tune about syndications I'm sure!

Bruce Petersen, a well-known syndicator who has been the GP in over 1,100 units, says in his book Syndicating is a B*tch, "About 40 percent of people do their first syndication deal and never do another one" (speaking about the GP). There are a lot of moving parts to syndicating projects, lots of entities to satisfy, lots of hands in the cookie jar, lots of things that can go wrong. The concept is simple but the execution is complicated. It get's a lot more complicated and difficult to pull off when market conditions aren't perfect (like they were from 2017 until now). When times are tough, syndications probably fail at a higher rate than individually owned assets because they aren't as easily liquidated, LP's are less likely to keep pumping in the necessary capital to weather a storm, and the stress and liability GP's have to deal with during difficult times is tremendous.  

Again, super happy for you on turning things around with your RE career by investing in syndications instead of OOS SFR's. Nice work pivoting away from what wasn't working, persevering and doing the research to pick the right syndications. I prefer investing in multifamily deals directly, REITs, and blue chip dividend stocks personally. I'm sure there are people who invest only in OOS turnkey SFR's, who have systems in place to make it easily scalable, who are doing much better than both you and I combined. To each his own. Cheers to your continued success!

@Andrey Y. That's great news! Of course, we have been on a bull run for a while here. So from 2017-2020 would be some great returns. It will be interesting to see how many syndicators actually hit those high IRR's on current deals with the upcoming economy transitions. Everyone looks great when the tide is high :)

However, given all that is going on in the economy. Real estate or these type of investments are a great place for capital with today's dollars. They provide great returns, are easier to understand and represent a tangible (see it/touch it) asset with nice tax benefits.

For those interested in investing with syndication groups. Consider reading "The Hands-off Investor" by Brian Burke. Some great recommendations for vetting a sponsor, the real estate deal and overall business model. Credibility, honesty and alignment of interest are also some valuable criteria when selecting a syndicator.

Not currently, but interested. Will PM you.

If you've been studying real estate for the past six months, it's probably time to act. I'm guessing you've listened to the BP Real Estate podcast, which means you've heard Brandon and David talk about analysis paralysis. Too much studying and not enough action might trick your brain into feeling rewarded without actually getting the deal, and you will certainly find it harder to act the longer you sit on the sidelines.

Nothing taught me more than my first purchase. I learned more from screening my first tenants than I did from all three hundred plus BP Podcasts I listened to. Laying floor in my first property, painting walls, taught me more than reading J Scott's THE BOOK ON ESTIMATING REHAB COSTS.

You won't study yourself into any better of a position, but if you find a deal and make an offer, you'll soon deposit your first dollar toward visiting the wonders of the world. And while you begin the search for your first investment, make a goal to be active on the forums, as the people you meet along the way may be of great value to your journey as you go. Welcome to the forums, and best of luck on your investment journey.

Do you have a college degree? If so, in what field?

Has that helped you in your real estate investing? Or do you think you could have done with out it?

I am a firm believer that our path in life has lead us where we are today, I'm just not sure how my degree in History has helped me, LOL

I would love to hear others' take on this.

@Daniel Hyman @Dovid Preil @Simcha Davidman @Jason Appel @Emmett Bond @David Nacco @Moshe Jungreis

@Moshe Jungreis