All Forum Posts by: Tushar P.

Reminds me of the scene from Breaking Bad - how Jesse bought the house for steep discount when his lawyer threatened/blackmailed the owners (Jesse’s parents) for not disclosing the previous damages to the completely renovated house...

For anyone who has not been benefiting from the stock market bull run and volatility, it is always going to be easy to say that stock market volatility is the reason to stay away from it and therefore real estate is a better investment 😏

@Michael Plaks great post! I guess the easiest way to not pay any taxes is to earn very little 😉

In your 3rd example, if the rental property was sold by a single person with no job/income, they would have to pay taxes on $38k, with 15% on 8k and 25% on 30k - is that right?

If yes, then I guess Uncle Sam wants to make sure (via depreciation recapture) that people opt for 1031, which means they never see their gains and continue to pump money into real estate (and take associated risks). If they want to actually see the gains then they should earn very little to begin with or pay more in taxes than what they saved via depreciation. Uncle Sam seems to be the winner every time.

The issue of California competing with other high-tech centers in the world (instead of Rust/Bible Belt) may be easier to grasp for people who are reasonably familiar with geopolitics, global market trends, and the disruptive tech sector dependent on attracting the best talent. Perhaps watch this video excerpt: Start at 47:00 and end at 51:15

@Justin Thorpe not just that, but students in top schools all over the world dream about coming to California (and making it big), which is the epicenter of innovation - something that is very difficult to achieve by another state or country. Even non-tech industries (like real estate) have start ups in California. Higher real estate prices are just a reflection of a booming economy, not the other way round. Many clickbait articles write as if govt has made wrong policy decisions to inflate the real estate prices. Should the govt try to force the real estate prices to same as Midwest, Texas or Florida? And they talk as if California is going to become like the rust belt in Midwest. Good for clickbait but very unrealistic.

California is competing with other countries (not Midwest, Texas, or Florida) to maintain its status as the tech epicenter of the world, and the best competition is so far behind that they may never catch up.

I wasn’t assuming a new job either. My understanding was that companies would allow remote working outside California but apply cost of living adjustment. Someone earning $450k/yr in California would not keep earning $450k/yr if they relocated to Houston and started working remotely from there. They would earn much less. And how efficient is it to make the (high paying) critical jobs virtual is another consideration for the companies. Many regular functions (hr, payroll, finance, etc) are already outsourced to Mexico, Ireland, Poland, Philippines, etc.

By the way, those who are priced out of California are still fairly rich for Texas or Florida. I’ve heard builders/turnkeys have projects specifically designed for California residents. Locals in these places will not touch such properties/investments as they are overpriced for their market, but California residents (who are priced out in California) are still rich enough to go for such properties.

@Kellie Davis I don’t think anyone can make California salary while living elsewhere, but that’s great if it is possible for you. Unless you are talking about cost adjusted salary e.g. someone living in Houston earning $225k/yr claiming they are earning California salary because it is equivalent to earning $450k/yr in SanFran. Also, for many people, making cost adjusted California salary elsewhere may make sense only if the environment/climate  is better than that of California.

@Justin Thorpe the whole world went through the downturn in 2009, so I don’t understand how anyone could have picked SanFran to bet against, even when the downturn was not due to any tech bubble. I think the continuous ‘tech gentrification’ will continue to keep California wealthy and growing, until the innovation mindset/environment can be replicated elsewhere (many think that remote working efficiencies triggered by the pandemic can lead to that).

California’s tech industry is very innovative and attracts smartest people from all over the world, and this crowd keeps the tech economy booming and prices inflated. Most locals/companies can’t compete and find California unaffordable, needing to move to another state. The cycle will keep on going - fresh batch of smarter people coming to California and forcing many poorer locals (by California standard) out to another state, while the net population keeps increasing.

The pandemic may have changed the equation with the advent of reliable remote working, but I doubt that the most innovative companies in the world (which are based in California) will move their core mission-critical work out of California anytime soon. These big companies have offices all around the world - who is not willing to hire smarter people at cheaper cost (if they can find smarter people in a country that has the infrastructure to harness their smartness)? Moving out of US has been happening for a long time than the recent trend of moving to another states. If replicating an innovative environment was easy, we may see companies moving their entire business out of California.

Ever wonder why people are trying to get rid of their US citizenship to spend their retirement life in countries south of the border? 

@Rick Martin thanks for pointing out the resources. I wonder if these are more geared towards how to become a syndicator rather than what the investors need to be careful about. 

The ‘construction financing’ thing happened to me in one of the deals but maybe it happened because of covid. I guess commercial real estate lenders were in panic mode just after the lockdown. In the end, financing was secured, so all good. 

Based on my experience so far, there are some syndicators whom I will invest with without thinking much, while others I will think twice. Some I will decide not to invest within 5 minutes of looking at the deal. Though right now I have not had more than one investment with any syndicator.

I have invested in ~20 syndications in the last ~1.5 years (spread over multifamily, office, mixed use, industrial, student housing, senior housing, etc), and the projected returns are 1.5-3.5 equity multiples over 3-10 yr hold periods, which equates to 12-18% IRR. None have exited yet.

I don’t have the time or desire to be actively involved, so syndication works well for me for diversifying my investments (from stocks into real estate).

Need to be careful of the syndicators’ tricks - they may show substantial skin in the game by making a significant equity contribution but they may be collecting more in fees at closing, they may offer some coc returns during the hold period but the payment would not come from cash flow from operations but from a cash reserve created using LP contributions itself, they may claim during equity raise that lending is firm for a ground up development but say after closing that ‘construction financing’ needs to be finalized, etc.

I haven’t had any bad experiences yet. I don’t invest with mom and pop syndicators but that doesn’t mean sponsors who have been in the business for 20+ years and have more than $1B in assets would not try to scam the investors either. Need to do the due diligence and always ask the sponsor to clarify any doubts. I rarely reject any deal because of the business plan, but sometimes the proforma assumptions itself can be dubious.

I think a good syndicator will put a balanced deal forward, because they would value the investor’s time as much they value their own.