All Forum Posts by: Tushar P.

@Randy E. you may have sincerely tried to fix the issue but you haven’t delivered, and now the tenants are suffering. Does your insurance not cover for putting them in a hotel? Or you could offer some amount deducted from the rent.

The issue is not whether the market is red hot or not, or if retaliating with not renewing the lease is ok or not.

I’m not really crazy about stocks - both stocks and RE are passive investments for me. If I really liked any of these passive strategies, I would try to become an expert and get actively involved. But I’m too busy with what I like, and fully aware of the Dunning Kruger effect that Cramers will want you to forget ;)

Hot air? Like how Facebook was after IPO? ;) Zero effort index funds go 10x every 30 years - you can go back the entire century to track that. As for single stocks, I don’t invest randomly, and I have the capacity to dump more money when the stock declines. I have definitely lost money, but the gains will make the losses look negligible. Will my gains in real estate make the losses look negligible? Remains to be seen. 

Eventually you will need to understand your own risk tolerance and make the investment decisions yourself. There is no shortage of RE Cramers, so be careful ;)

Within commercial real estate, my understanding is that retail, office, and hospitality amount to more than double the size of multifamily. Anyways, I had an option to invest in a hotel to multifamily conversion recently. The appraised value was 20% lower than the cost basis that investor A paid and the “recapitalization” would result in investor B entering the deal at a basis 15% lower than the appraised value. The sponsor seemed keen to keep the “promise” to exit as per the original plan, rather and hold longer (after all they didn’t cause the pandemic). I wonder if investor A was left holding the bag here, and if the sponsor would do the same if they had their own money tied up in the deal. I didn’t invest because I can go for other (non real estate) investments with similar risk profile that have better return potential.

Since you seem to get the point, maybe you can explain how you think GP having no skin in the game doesn’t increase LP’s risk. What incentive does the GP have to bring the deal on track if it goes south? And if the GP really believes in their business plan then why not demonstrate that with skin in the game rather than just words. Currently, that’s the first thing I look for in any deal and I discard the deal right away if I see not enough skin in the game by the GP.

I would ask Brian too, but I respect that he doesn’t want to hijack your post.

@Annie R. are you really expecting a majority of people on biggerpockets to tell you RE is not better than stocks? Most will compare a concentrated risk like sfr/flip/syndication with a diversified s&p return, rather than an equivalent comparison with a single stock (like Tesla). It’s also easy to ignore on biggerpockets that most people who dumped money in stocks a year ago have at least doubled their money with zero effort (or 5x in 12 years with zero effort, via index fund investing). I personally had a stock do 47x in 5 years, but it required the discipline to hold it for the first 4 years when it was under water. But stock investing is not for everyone - it requires a tough mindset to go against the crowd and have the stomach to embrace the volatility. Most people can’t handle that, even if they understood what they are investing in.

I personally don’t see how RE can provide better return than stocks, if you compare equivalent risk profiles within each category. That’s why I use RE investment as a capital preservation strategy rather than capital growth. And since there is no guaranteed return for either stocks or RE, I diversify my risks accordingly. My current strategy is to not increase my RE investment to more than 20% of my total investments. While I have kept dumping money in RE syndications in the last 12 months, the RE weight has gone down over the last year from 17% to 11%, because of what happened with the stock portfolio. So I will continue to dump money in RE syndications (20+ so far), but that’s simply because of my diversification plan, not because I think RE will provide better return than stocks. The amount that I dump in stocks will always be much greater.

@Evan Loader if you clicked the link on my previous message, you will notice that I started dumping money into syndications only 1.5 yrs ago, while the first time I thought of real estate investing was 2 years ago. These are just my observations. I should not call them scams, as I guess these are not illegal activities. And everything is fine if the deal proceeds according to the plan. But who is going to left holding the bag when the deal goes south?

I see these practices to be increasing the risk for the LP so that the sponsor has practically zero risk. Will the LPs be ok with the projected return if they understood the risk, or will they expect higher returns? For me, sometimes the projected return is not commensurate with the risk, while there are other (non real estate) investments with similar higher risk that have much higher potential returns.

@Brian Burke thanks for the excellent explanation. I wonder about the LPs who made investments several years ago with the exit around 2020. Even an official appraisal would probably show the value to be depressed, and while the sponsor didn’t cause the pandemic, they made sure they had zero risk if something like that happened. Perhaps combine the recapitalization strategy with the fact that they collected more in fees than what they contributed to the deal. So for me, it’s a risk vs return issue. Looks like investor A is taking disproportionately higher risk for substantially lower returns, for the benefit of the sponsor and investor B. But I realize there are professional sponsors who would try to find creative solutions even during the pandemic to ensure it’s a win-win for all.

@Rick Martin I’m guessing you are talking about some of the experiences that I briefly mentioned in this post:

https://www.biggerpockets.com/...

I have many more to share - it keeps adding up with each deal I look at. For example, the sponsor has a gmp agreement with the development contractor, but there is a fine print in the distribution waterfall that the sponsor will first recover any costs above gmp before LPs get any money back. Wtf does that even mean? For such things, I don’t even bother to clarify, irrespective of how good the deal looks on paper.

There were suggestions that I should read books to understand the syndication business. But I haven’t heard of any books written by an investor, so I think my scam scanning abilities may get diluted if I read any books. My fresh pair of eyes are serving me fine so far, but I may reach out if I feel something doesn’t look right or looks too good to be true.

@Evan Loader I have put the scam here in plain English so you are able to comprehend it. Do you think you will be able to see it when the sponsor words it as a “unique optimization sourced via vertical integration to preserve capital and maximize returns for the investors”? I’m sure many LPs don’t even know they are being scammed, and they may never know even after the deal exits, and they may keep reinvesting with the same sponsor. The only person to blame here is the LP, who can’t see through the scam.

By the way, your name sounded familiar, and then I realized you are the guy who asked for help/guidance on tax filing:

https://www.biggerpockets.com/...

Many tax experts responded (@Michael Plaks et al) to help you and even answered your follow up questions. And then everyone repeatedly asked you for your feedback on what you did. But you didn’t respond at al. I would suggest go and post your responses there, unless you just want to get info/help from others but do not want to help others at all.

@Kiet Ho those who are accumulating cash faster than they can spend/invest, they learn very quickly that there is no point in taking any loan as the cash pile will keep getting bigger sitting in a savings account. Especially now, with almost all asset classes at all time highs, it is not easy to determine where to dump money. In any case, cash-out refinance can always be done after buying with cash.
It’s about what your situation is and what you think is the best approach.