All Forum Posts by: Rick Martin

@Marc Warren The climate has certainly changed. 2022 has been a challenging year, with interest rates squeezing cash flow down from where we were a few years back. That is just the reality. Still, you want to continue the velocity of your money. I may be in the minority, but I think there are still suitable investments to be had, as long as it has the proper debt structure and the assumptions are defensible. For instance, if you can find a deal with fixed-rate debt that factors in inflation and possible rising cap rates (I believe in the near term), this is better than letting your money erode with inflation. You could then be looking at attractive refinancing options two to four years down the road. "Retrade" had been a bad word for the longest time (you never want to nickel and dime a seller), but we have had to (justifiably) renegotiate prices this year to factor in rising interest rates, rising costs, and insurance rates. This has led to some healthy improvements in a deal once under contract to close. At the very least, it has provided us with a buffer. We have a severe housing shortage and that simple economic fundamental balances out the FED's action. I see that problem being around for a while. We need housing.

Oh yeah, I should answer your question. There are good operators out there. Start having conversations with some, knowing what is important to you. Be careful, but don't be scare either. "Scared money, don't make no money."

@Isaac Lane of course it will be different for everyone. For this current environment, if you can find something that yields an average COC of 5-6%, 8% Preferred (accrues), 70/30 split, 2.0x multiple, 15+ IRR, with a hold of 5 to 6 years, that is pretty good.

Of course, all the assumptions will need to be verified: Make sure there isn't a refinance built into the COC% (if it is upwards of 8% be skeptical), verify current/market rents, check organic rent growth, inflation, property tax, and insurance. Check the exit cap against the prevailing market cap.

@Aastha Shrestha Keep pushing the seller to deliver vacant. Getting a tenant out is very difficult in CA, but by not paying rent, the tenant has given the landlord a clear path to eviction. Tenants can ask for 20k-30k buyouts, and we all know how slow the eviction process is in California. I would also pay for a qualified RE attorney with experience in evictions, get an accurate and documented estimate of the costs, and come back to the seller with this.

Since this is an intentional recession by the FED, we will probably feel the most pain of their current policy in the 2nd half of 2023 (sometime this summer). Historically opportunity comes out of a recession, putting us in the first half of 2024. If you can get good debt now or are already in deals, you have to weather this (relatively short) period. New construction of homes will continue to decline, squeezing supply even further, and this will compress caps and place upward pressure on rents coming out of the storm.

@Adriel Cisneros start welcoming new, non-accredited into your biosphere and invite them to your educational outlets like YouTube, etc. By engaging and learning from your content, they are beginning that relationship and familiarity with you. Invite them for an educational phone conversation where you can learn about each other. Try to verify their financial wherewithal, as you do not want to be wasting each other's time.

Though they may not meet accredited status, they must still have a substantial net worth and liquidity. As a rule of thumb, a minimum investment should make up at most 10% of their net worth. So if your minimum investment is $50k, they should have a net worth of $500k. Above all, verify their understanding of the investment, i.e., make sure they understand it is illiquid and have read over a sample deck and PPM. Another rule of thumb is that this verification process takes about 30 days, but there is no hard and fast rule. Friends, family, and referrals (I would confirm this one) can come in right away.

@John P.

As you mentioned, the buy-ins are not for the faint of heart. We've welcomed numerous investors into our syndications via a 1031/TIC. While most have gone smoothly, one should be aware of some risks. The lender has to give final approval and verification of the TIC investor, which can make the syndication team a little nervous as it is out of their control. On the syndicator's side, we can hold a $1M slot for the TIC investor, and if something goes wrong (like the 1031 investor's buyer backing out), the syndicator can now be left scrambling to fill the lost Million in equity.

Also, the 8% preferred rate is paid and accrued, so it doesn't mean the investor is guaranteed 8% COC annually. Whatever comes up short will accrue and be paid out at sale or refinance (maybe you understood this),

As an LP, you can only 1031 out if the entire deal/syndication is doing a 1031. You can 1031 as a group into an identified property, but not as an individual. As a TIC investor, you can 1031 with the syndication, or you can defer your basis into another syndication as an individual. The cost of setting up the TIC and investing as a 1031 investor can range from $1500 to $3000, from my experience. This covers a variety of legal setup (like an LLC). The positive of this cost is you get most of the work taken out of your hands and get all your T's crossed and i's dotted. DM me if you'd like a copy of our setup cheat sheet.

The good news is, it can be done and is done.

If you are looking for free models that are good, and offer guidance, look into Rob Beardsley's underwriting model or Adventures in CRE's models. Google each, and you will find them.

Everything looks good, but I would be nervous underwriting 2% vacancy. Does this consider turn/make ready time? It doesn't leave any margin.

Can you rollover the inherited IRA into a self directed ira or solo 401k(if you are self employed) and continue to defer?

@Amar Modi

I am hearing you may not have time to take on a real estate business. If this is the case, passively investing is the best action. REITs aren't really investing in hard real estate. You are investing in companies that purchase real estate. It is very similar to buying stock in a company; thus, you don't get the same tax advantages as buying real estate. The advantage is it is liquid, and you can invest smaller amounts.

When you invest in a syndication, you become a partner in the asset, theoretically higher returns, cash flow, and tax benefits. However, these are illiquid investments (2-7 years on average), and have higher minimum assets (50k, 75k, 100k). Suppose you settle in with the right operator(s) after doing your DD. In that case, it can be a successful investment model as you can develop multiple income streams and build equity while not having to manage tenants and hunt for deals. Plus, you can leverage the team's network and invest anywhere in the country that you wish.