All Forum Posts by: Amit M.

@Robert C. hey shout out to Robert…long time no see!

@Jay Hinrichs shout out to you too Jay!

As to the quandary posed by the OP: The root of the issue is that it basically sucks to be an RE investor these days. It’s like everybody was gangsta 2012-2019, and then 2021-early 2022 was weirdly good too (due to market distortions caused by COVID.) Mid 2022 and onwards? Not so much ;)

So now investors are feeling the weight of dog properties…be it higher interest rates, non paying tenants, property values falling, government intervention (especially in CA), etc. Lots of advice given here, and each has of course it’s pros and cons. While syndications were the rage the last few years, I’m quietly hearing more about failures. Funny how it’s easy to find stories about 20-30% profits….but you really have to dig to hear about the losers. Remember syndicators run a business, and they invest in almost all market conditions. The question is if those investments make sense or not in *this* market. 

As for being a hard money lender. Could work, but remember people that need hard money usually need it for a reason. And those borrowers that are higher risk are risky for you too. Knowing this space well is important imo.  

With DSTs you need to make sure that the various fees don't negate your profits. Plus you have no control when they do an exit, and you're paying fees all over again to re enter into a new DST. Frankly I'm not sure how profitable they are long term. I haven't seen any longer term studies done, only promotional info when the RE market was generally rising.

Bottom line is that you need to understand which risks you’re capable of handling with these various options. No free lunch in this market!

FYI in my case I was lucky, as I profitably sold some properties late 2021 and early 2022. Not only was my market timing great, but I sold my less promising buildings and used the proceeds to pay down debt on my long term keeper properties, which have higher end tenants and are thus more stable and much easier to manage. So for me the decision was pretty straightforward, but it still required a lot of thought.

It’s not easy out there these days folks, best of luck!

I agree with the OP! A year ago when selling over $5mil of nicely appreciated properties I looked at both DSTs and regular 1031 exchanges, and decided both were not worth it. I passed on DSTs per what the OP wrote. I also passed on regular 1031 exchanges because you’re either transacting in an up market, where you often settle for lesser properties so you can complete your exchange, or you’re selling in a down market where your initial sale is compromised. You need a white elephant scenario where you can sell at a premium, and also buy in an opportunistic market. Hard to do!

So instead I paid cap gains (btw pretty low these days, may go up in the future.) You can mitigate by splitting sales over two years (which is what I did, end of 2021 and beginning of 2022, both great times to sell btw ;) Then I paid off all my debt on my keeper properties, thus maximizing rental income with fewer and better quality properties remaining in my portfolio. Another plus is that I now manage a lot less units, so PM is minimized. Then I brought with left over cash a long desired 2nd home overseas, which we will use 4 months and mid term rent the other months. Not a bad way to f-off from the RE rat race!

And moral of the story is to know when enough is enough. RE is highly cyclical and down markets can be painful for years…especially with leveraged properties.

Good luck out there :)

Schmucks…they sure made it seem like it’s a dst from their promo. They should be up front and clear about this.

I recently received a mailer from Kay properties of 2 DST offerings: an 8% and 10% preferred return (net lease income fund 28, LLC and opportunistic income fund 75, LLC). I was surprised as most DSTs I've seen are in the 5-6% return range.

So is there something new here? Is it that due to easily available higher interest rates (for safer investments), DSTs have had to up their game to attract investors? Or have higher return DSTs like this have always been available? I don't follow the DST market closely, so hoping those with in depth DST experience can comment.

It just seems to me that offering higher returns when we’re in a downward market = higher risks (although the above 2 funds claim to have no debt in their structure.) Something isn’t quite adding up here ;) 

DST companies tend to have their own pimps?

I agree completely with @Darius Ogloza on the tenant hassle factor. Maybe when you’re starting out you’re more willing to deal with tenant management hassles. But once you’ve been at this for awhile, that quickly becomes the least attractive factor of RE investing imo.

And this even goes for expensive locations like core Bay Area. During market upswings you invest in up and coming areas hoping they will become more prime. Like Hayward, Redwood City, or the southeast neighborhoods of San Francisco. And once the market starts turning, your tenant base may go backwards in quality. So it’s always a tricky calculus. In my case I did very well in some areas of SF, which are very solid and I keep those long term. In another case I took strong profits and exited in 2021, which was great timing. At this stage I’d rather keep great core properties with no debt/minimal tenant management, then have more properties (some in lesser locations) with debt, and ALOT more tenant management issues. Life is short. If you reach your number, secure the gain and…take the money and run!

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my2c

@Robert C. wistful thinking looking through that rear view mirror. ha ha! 

But in reality of course, we had no idea that RE was going to blow up like that 2020-2021. Remember we were on the edge of a major financial disaster mid 2020. Now it’ll be interesting to see how much of those gains in recent high flying states (AZ, FL, etc. etc.) will get rolled back as the economy slows down (recession) over the next 1-2 years. Although not the same circumstances, that was the case in the GFC of 2008-09.

So this takes us back to fundamentals, and having good properties in solid markets, without too much leverage is what will give you stability to ride out a slow economy. I can tell you that RE is going to seem a lot less sexy to people who made most of their money in the last 2 years.

For better or for worse, we’re definitely living in interesting times ;)

For passive 1031 exchange, she can also consider DST's.

@Dan H. what's your take on DST's vs NNN vs paying cap gains and investing in syndications?

I know people who have done each of these. My issue with syndications and DST's is that we're in a downward market, and I highly doubt the returns going forwards will be anything near the returns of the last 5-7 years. Remember these are in essence investment companies soliciting for your funds to invest in their projects. They collect fees as a primary driver. So they continue purchasing even in down markets, which may not always be the best thing for the passive investors. I'm leary of NNN as well as cap rates are so compressed right now- you really need to know your local market to make wise NNN purchases imo. If you're relying on superficial knowledge from a broker's brochure and some basic stats, I think you're at risk. So how can you look at NNN across the country and get enough inside knowledge on a specific location without relying heavily on what the broker tells you? That's totally different from investing in the city/region you personally live in and have been following from a variety of information sources, plus your first hand experiences. Buyer beware imo.

@Carlos Ptriawan so how do you think the advent of remote work impacts your engineers-will-go-where-jobs-are thesis, if more and more engineering jobs can be done remotely?

Oh fun, the CA appreciation vs everywhere else in the USA. Man there are tons of archived threads on this topic from several years ago. Worth rereading imo!

As someone who did very well with San francisco RE over the last two decades, my sentiment has been of course with prime and costal CA, and it has worked wonders for me. I basically benefited from this:

…And there is another leg up from 2017-2021 btw :)

But the question now is what will be best going forwards 10-15 years. Certainly if you own appreciated CA rentals in great locations (i.e. professional tenant base), you’re golden. Just sit and enjoy it, which is what I’m doing. But I’m more cautious about buying, especially now in prime Bay Area. OTOH I also wonder if recent high flying markets like Austin Boise, Vegas, etc., etc. are merely going to “correct” 10-15%, or will they see a 2008-9 GFC correction of 30-40%. There are just so many crucial macro economic factors at play right now such as inflation, interest rates, economic growth, global slowdown, etc. Not to mention the national migration trends that were borne out of Covid. We’re already starting to see some zealots who relocated out of CA roll back after suffering searing hot summers, lack of cultural variety, bland geographies, etc. And work from home is getting some challenges from employers. So anything-goes-party-time is over at least for some, and winter is rolling in (both economically and metaphorically.) Plus at the end of the day, yes there is more tech in other states, but the Bay Area is still the primary tech playing field, it’s just not as one sided as it was prior to the pandemic.  

Personally I’m still pro Bay Area CA on long term values, which is why I’m keeping mine. But I’d just sit back and see how 2023 plays out before making any new moves. So I’ll answer your question the way Bob Dylan would…the answer my friend is blowing in the wind, the answer is blowing in the wind.