All Forum Posts by: Spencer Gray

@Nathaniel Jones Definitely, shoot me a PM sometime. Still in Indy.

@Nathaniel Jones

Larger multifamily offers many advantages over duplexes or smaller apartments. There are better economies of scale with larger assets including onsite management, the ability to afford cost segregation analysis to maximize depreciation and one roof for every 20, 30, 50, etc units vs one for every 1-4 units.  

Not to add on what other have said but in addition to these individuals just not being sold on real estate or your ability to close or not, most people don't like doing anything that is "against the grain." 

They've been told by their parents and friends that if you get a good job and contribute to your 401(k) that's not only enough, but that's what "reasonable" people do. They think that their 401(k) will probably be enough (I ean that's what their parents are doing/did) and that Social Security and Medicare will fill in the gaps. (cue Bobby Kiyosaki saying "now see my rich dad...")

They see Real Estate as more risky, full of speculation and can only think back to 2008 as an example of why not to invest in real estate. There will always be these people. They see the public markets as being regulated and safe, I mean they are "public". This of course is all ridiculous as public equities can have more speculation, are heavily manipulated and can be extremely volatile.

That is all changing, however, as more and more individuals don't see the value in their money managers or financial advisors who sell them mutual funds with excessive fees. More and more public market investors are using low cost index funds and managing their own investments as you don't really need an advisor to tell you to buy the S&P500. As this occurs the next step for the "woke" investor is to look at alternative investments, specifically Commercial Real Estate as way to diversify and hedge against inflation and recessions. 

Many people get this right away out of intuition or luck and never go to the public markets and go straight into real estate investing, however for busy professionals who are the most common passive investor they started investing into their 401(K) because their company offered it and haven't had the time to jump into real estate investing. 

By building real relationships and telling a true story of why you are doing what you are doing not just what you are doing goes a long way to show them the light.

 Just keep going and eventually you'll have success. It may take 25, 50, 100 meetings but it'll happen if you persist.

I mean it is New York City so nothing would shock me.

In the deal I'm looking at there is a significant amount of new employment opportunities and office development surrounding the airport with little apartment product in the vicinity. 

Has anyone bought a deal in proximity to a relatively busy airport? What was your experience?

Is the noise enough of a turnoff to residents that it effects leasing and/or retention ? How about when it comes to sell? 

Thanks in advance BP team!

@Matt R. You make some good points. 

Do you think rent control is the cause of the appreciation and increased value in those markets or is it simply correlated to being in areas of high population density and attractive places to live?

I'm just wondering what the value and appreciation would be without price controls not to mention the societal impact of a more balanced supply. 

Also, who get's to decide on the "perfect" rental rate or increase? Should it be determined by the market or by politics?

@Jacob Morris I started out by investing as a limited partner in syndications with the the goal of building a diversified portfolio of cash-flowing commercial real estate, primarily large C-B class multifamily assets. Along my journey friends, family and others have joined me and I've had the privilege of deploying over $20MM primarily as LP equity diversified across 8,000 apartment units. We've also invested in other stabilized cash-flowing asset classes (medical office being the next largest asset class). Since then I've been co-sponsoring syndicated deals with partners while performing asset management for my investors.

So to answer your question about is it possible: yes, absolutely. 

However @Greg Dickerson is spot on: you have to have enough capital to invest to replace your income and leave a significant buffer in the event your portfolio doesn't perform as expected. There are faster ways to multiply equity, but they come with more risk.

Here is my biased pro/con list for syndication vs SFR/small multis.

Syndication Pro: Ability to scale and diversify, economies of scale, aligning yourself with professionals to remove the learning curve and reduce risk, almost totally passive (you still have to do your own DD on the sponsor and need to be able to identify what a good deal is and isn't), limited liability (no debt to guarantee, etc), max leverage LTV is usually around 85% via FHA/HUD, more tax advantages via cost segregation (cash-flow is typically tax sheltered for first 7 years).

Syndication Con: No control over operations, upside is shared with sponsor, fees, no control over sale, sponsor and LP's interest may not always be aligned.

SFR/Small Multis/BRRRR Pro: Total control of business and operations, upside is all yours (higher potential return), control of sale/exit, no fess besides third parties, max leverage via FHA is 90-96%,

SFR/Small Multis/BRRRR Con: Not passive and will require significant time commitment, difficult to scale and diversify, occupancy risk is more significant, major repairs have a more significant impact on returns, mercy of the SFH market, harder to force appreciation via increased NOI.

My bottom line and why I chose to do what I did and why I steer individuals and family offices towards syndication: 

Syndication may not have as high of a potential return vs doing it on your own but it is by far the greatest risk adjusted return. If you need control, you like the emotional aspect of owning a few properties yourself and think that being a landlord is going to be a fun thing to do as a part time job, then doing your own deals is what you need to do.

If you are pursuing real estate strictly as a vehicle to provide cash-flow and to multiply equity over time and you buy into the thesis of Multifamily real estate or other asset classes then syndication is the way to go. 

Let me know if I can answer any questions or go into any more detail of my experience with different sponsors, etc.

Is your plan / strategy to build and develop duplexes? If it's not I would not get distracted, move on and stick to your plan. If you do want to develop I would probably just be looking at analyzing the land. 

I don't think 7% interest and a 50/50 equity split is a bad of a deal if he is totally passive. I would structure the interest rate as a preferred return that accrues if there's not enough cash to pay. That would make him a straight equity partner which he may not want. If he wants to be more of a lender than an equity partner maybe give him a 15% interest rate, 5% is paid annually and the remaining 10% gets paid out at a sale/capital event or after a certain amount of time (3 years). I'm not familiar with the going rates in Denmark so you'll have to adjust to what makes sense in your market.

What is a bad deal is being exclusive to him and not being able to do other deals yourself. For this I think that your partner would also need to commit to doing enough deals to satisfy your goals ($15 MM ?). You should also take several fees, such as a management fee based on total gross rents (in the US it's usually 10% on singe family and 3-5% on larger properties). I would also charge another fee for keeping you exclusive and forcing you to pass up on other opportunities. This fee has to be based on what you value your time and skills and could be a side letter agreement unrelated to any one property. You would in a sense be working for him, so a fee equal to a salary you can live on sounds about right (at least to negotiate). My gut tells me when you say something like "ok, well for me to be exclusive I'll need a large capital commitment and a fee to tie my valuable time up" he'll drop the whole exclusivity covenant.

These are just my thoughts and a different approach. Good luck!

@Brian Burke nailed it. Check with your lender to make sure they are on board and you aren't in violation of the loan covenants. In many ways it can be easier to raise the funds because many of the unknown factors that are discovered when first taking over an asset are now known.