What can go wrong with multi family syndications?

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misterno
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What can go wrong with multi family syndications?

Post by misterno » Mon Oct 02, 2017 12:04 pm

So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?

arsenalfan
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Re: What can go wrong with multi family syndications?

Post by arsenalfan » Mon Oct 02, 2017 12:17 pm

Look forward to hearing about everyone's experiences, including the pitch you had.

My understanding of RE syndications is:
1. You need to be "accredited investor"
2. Most ask for $50-100k investments; a few $25k
3. No return of primary investment for usually 5-7 years.
4. Have to really know/trust the syndication/be willing to take a $50-100k flyer for 5-7 years.

CrowdDD is an interesting website you may want to check out - a group of accredited investors trying to do group due diligence and discuss the various deals. Some folks post deals/details. Others look at "skin in the game", track record, region, asset class (self storage, mulitfamily, condos, trailer parks, sec 8 housing). There are even Syndicate "funds" where you buy into a multi-million dollar entity that has a bunch of asset holdings/developments.

I haven't done it, as my play money account isn't that big.

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Pajamas
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Re: What can go wrong with multi family syndications?

Post by Pajamas » Mon Oct 02, 2017 12:43 pm

misterno wrote:
Mon Oct 02, 2017 12:04 pm

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I have no experience at all with this but:

First off, I would want to know the motivation for the presentation. I wouldn't take the presenter as his word that he was simply there to inform you about multi-family syndications.

When evaluating any kind of "special opportunity" to make money, it pays to be very cautious and to really understand who is benefitting financially and how. I would doubt that my interests are foremost, just the opposite, I would assume that someone is trying to take money from my wallet to put in theirs.

Multifamily syndication is probably even more problematic than public non-traded REITs, with fewer benefits and more disadvantages.

https://www.finra.org/investors/alerts/ ... ful-review

Apparently many multifamily syndications even have multiple classes of investors with varying rights. Was that discussed?

First thing to look at would be how multifamily syndications are regulated and whether or not that regulation is effective.

https://www.biggerpockets.com/renewsblo ... al-estate/

Apparently at least some people are concerned about running afoul of the law:

https://www.biggerpockets.com/renewsblo ... al-estate/

Multifamily syndication might be appropriate for accredited investors with experience in real estate and this type of private deal, but anyone else should be extremely cautious.

arsenalfan
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Re: What can go wrong with multi family syndications?

Post by arsenalfan » Mon Oct 02, 2017 1:02 pm

Search for syndicated real estate.

viewtopic.php?t=179562

GibsonL6s
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Re: What can go wrong with multi family syndications?

Post by GibsonL6s » Mon Oct 02, 2017 4:15 pm

Short answer, lots can go wrong and the devil is in the details. In order to analyze the risk, you need to know the amount of leverage, interest exposure ie fixed or varaible. Is this a development deal or existing asset. Management matters alot. What are the splits or waterfall. Happy to opine with more info, thanks

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celia
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Re: What can go wrong with multi family syndications?

Post by celia » Mon Oct 02, 2017 7:19 pm

misterno wrote:
Mon Oct 02, 2017 12:04 pm
I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common ...
Never knew each other? I find that hard to believe. Why were the ones who weren't speakers even there if they already understood these syndications?
Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.
I also find that hard to believe.

jwaxjwax
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Re: What can go wrong with multi family syndications?

Post by jwaxjwax » Thu Nov 09, 2017 1:08 am

What is the best way to evaluate each syndication company? I found a site with a number of them: http://www.crowddd.com/investments?sort_by=overall

But the reviews seem limited. It's hard to find a lot of info on these companies, other than their own websites.

It seems like many of them offer "funds." They will have Fund 1, then a year later open Fund 2, etc. Each fund contains a number of properties (although mostly centered in a particular region). Is there basically a distinction between (1) placing your confidence in the comapny and investing in the fund, and (2) going on a crowdfunding site and picking a specific deal consisting of fewer (or 1) property?

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White Coat Investor
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Re: What can go wrong with multi family syndications?

Post by White Coat Investor » Thu Nov 09, 2017 4:08 am

I have money invested in both funds and individual deals. None have gone round trip yet, so I can't quote you final returns, but due diligence into these deals suggests that the returns quoted to you are in fact reasonable and common. Just don't expect liquidity.

To answer your question "what can go wrong" I have one syndication that is below pro-forma. It didn't make the expected payments for like a year due to HUD withholding more money than anticipated for some reason. That money was eventually paid, but it's still below pro-forma. I suspect that one will still have a positive return, but maybe not double digits.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

euroswiss
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Re: What can go wrong with multi family syndications?

Post by euroswiss » Thu Nov 09, 2017 11:54 am

Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....

Alex GR
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Re: What can go wrong with multi family syndications?

Post by Alex GR » Thu Nov 09, 2017 1:28 pm

euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!

Valuethinker
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Re: What can go wrong with multi family syndications?

Post by Valuethinker » Thu Nov 09, 2017 2:14 pm

misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
My bet is you cannot get more than about 8% on apartments-- before fees. OK you can leverage, so if you are in the equity you can do better than that, at higher risk.

But how do you get 20% returns if the max the asset can do is 8% yield?

Price appreciation is NOT guaranteed?

Be interesting if he could show you numbers on a real deal (that was done and made money).
Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.
Do you believe that?

Don't you think that was merely said for legal & regulatory reasons?

Why would anyone "inform" anyone else, if there was nothing in it for them?
Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
Smells really bad.

You can' t make those returns (before fees) without being in the equity. Which means 100% loss is a possibility.

Valuethinker
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Re: What can go wrong with multi family syndications?

Post by Valuethinker » Thu Nov 09, 2017 2:15 pm

Alex GR wrote:
Thu Nov 09, 2017 1:28 pm
euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.

pkcrafter
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Re: What can go wrong with multi family syndications?

Post by pkcrafter » Thu Nov 09, 2017 2:40 pm

misterno:
From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part
I am skeptical as to the intentions of the 5 promoters.

shill: an accomplice of a hawker, gambler, or swindler who acts as an enthusiastic customer to entice or encourage others.

Anyway, here's some information I dug up

16 Lessions

http://joefairless.com/15-lessons-10000 ... dications/

Getting investors to invest

http://www.nreionline.com/viewpoints/re ... yndication

After a little reading it appears that the promoters are trying to raise money for their business. That means if you put money into it, you better be sure they know what they are doing.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Alex GR
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Re: What can go wrong with multi family syndications?

Post by Alex GR » Fri Nov 10, 2017 1:20 am

Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm
Alex GR wrote:
Thu Nov 09, 2017 1:28 pm
euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not arguing with you, just asking :happy . Thank you.
Last edited by Alex GR on Fri Nov 10, 2017 1:50 am, edited 1 time in total.

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unclescrooge
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Re: What can go wrong with multi family syndications?

Post by unclescrooge » Fri Nov 10, 2017 1:50 am

Alex GR wrote:
Fri Nov 10, 2017 1:20 am
Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm
Alex GR wrote:
Thu Nov 09, 2017 1:28 pm
euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not trying to argue with you just do my due diligence. Thank you.
Max LTV of 71% implies that 71% of the purchase price is a loan while only 29% is investor money.

The loan needs to be serviced. If there are any problems on the income side, or on the expenses, your returns could drop to zero.

If the property value drops 30%, the investors will be totally wiped out.

WanderingDoc
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Re: What can go wrong with multi family syndications?

Post by WanderingDoc » Fri Nov 10, 2017 2:07 am

misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I invest passively as an investor in large apartment syndications.

The returns they mentioned at not that far off. Those returns were typical for 2011-2015. From 2016+, I am seeing a 8-12% annualized return on cash, and a 80-100% capital return after 5 years, so roughly an additonal 15-20% return annualized from capital appreciation.

Its my new favorite way to invest. The only downsides that I see as compared with my regular real estate business in which I buy and control my own deals: 1. Tax benefits in syndications aren't as sweet for paasive investors 2. You don't have the ability to hold a property forever and have a payed off asset down the line, and cannot 1031 exchange.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

Alex GR
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Re: What can go wrong with multi family syndications?

Post by Alex GR » Fri Nov 10, 2017 2:29 am

WanderingDoc wrote:
Fri Nov 10, 2017 2:07 am
misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I invest passively as an investor in large apartment syndications.

The returns they mentioned at not that far off. Those returns were typical for 2011-2015. From 2016+, I am seeing a 8-12% annualized return on cash, and a 80-100% capital return after 5 years, so roughly an additonal 15-20% return annualized from capital appreciation.

Its my new favorite way to invest. The only downsides that I see as compared with my regular real estate business in which I buy and control my own deals: 1. Tax benefits in syndications aren't as sweet for paasive investors 2. You don't have the ability to hold a property forever and have a payed off asset down the line, and cannot 1031 exchange.
WanderingDoc, did you say an additional 15-20% return annualized on top of the 8-12% regular annual interest?
Am I reading that correctly? That's huge for passive... I am curious, did you calculate your XIRR?
May I ask what selection criteria do you follow for these buildings, through what company or companies(RealtyShares, etc.) do you invest? What is the minimum investment in each deal? Thank you!

WanderingDoc
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Re: What can go wrong with multi family syndications?

Post by WanderingDoc » Fri Nov 10, 2017 2:37 am

Alex GR wrote:
Fri Nov 10, 2017 2:29 am
WanderingDoc wrote:
Fri Nov 10, 2017 2:07 am
misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I invest passively as an investor in large apartment syndications.

The returns they mentioned at not that far off. Those returns were typical for 2011-2015. From 2016+, I am seeing a 8-12% annualized return on cash, and a 80-100% capital return after 5 years, so roughly an additonal 15-20% return annualized from capital appreciation.

Its my new favorite way to invest. The only downsides that I see as compared with my regular real estate business in which I buy and control my own deals: 1. Tax benefits in syndications aren't as sweet for paasive investors 2. You don't have the ability to hold a property forever and have a payed off asset down the line, and cannot 1031 exchange.
WanderingDoc, did you say an additional 15-20% return annualized on top of the 8-12% regular annual interest?
Am I reading that correctly? That's huge for passive... I am curious, did you calculate your XIRR?
May I ask what selection criteria do you follow for these buildings, through what company or companies(RealtyShares, etc.) do you invest? What is the minimum investment in each deal? Thank you!
I haven't yet calculated my XIRR, well in a sense I did since I am carefully tracking quarterly/annualized ROI. XIRR would only play a role upon exit. You have to figure.. equity multiples run in the range of 1.7 - 2.3 X.. so that is around a 100% return +/- .. this can take 3-7 years. So 100% return in 3-7 yrs. on average 5.

I don't use RealtyShares or similar sites. Those are a hybrid of buying a REIT (which is NOT investing in real estate - its investing in paper, at best) and investing in an actual apartment syndication. Thats being generous.

The best syndicators require $100K minimum. Keeps the tire kickers out. Hope that helps. I love to discuss real estate any time. Feel free to reach out with more questions!
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

euroswiss
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Re: What can go wrong with multi family syndications?

Post by euroswiss » Fri Nov 10, 2017 9:55 am

Follow the iFunding.co story. Has not played out completely yet, but good luck with recovering anything if you were invested in one of the most affected deals.

https://www.crowdfundinsider.com/2017/0 ... -may-done/


Note, I’m not knocking these companies. IFunding delivered nice returns for years, but things do go wrong. This is why most real estate crowdfunding platforms and syndicators focus only on accredited investors (less hassle with the Feds if things go South). Yes, in theory, most of these deals are backed by real estate with varying LTV, so theoretically it’s hard to go to zero, but when you deal with smaller syndicators, shady practices/bankruptcies/etc can tie up your investment essentially forever. So, even if you are theoretically not losing it all, for practical purposes your investment is still gone.
Last edited by euroswiss on Fri Nov 10, 2017 1:20 pm, edited 1 time in total.

misterno
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Re: What can go wrong with multi family syndications?

Post by misterno » Fri Nov 10, 2017 10:17 am

WanderingDoc wrote:
Fri Nov 10, 2017 2:07 am
misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I invest passively as an investor in large apartment syndications.

The returns they mentioned at not that far off. Those returns were typical for 2011-2015. From 2016+, I am seeing a 8-12% annualized return on cash, and a 80-100% capital return after 5 years, so roughly an additonal 15-20% return annualized from capital appreciation.

Its my new favorite way to invest. The only downsides that I see as compared with my regular real estate business in which I buy and control my own deals: 1. Tax benefits in syndications aren't as sweet for paasive investors 2. You don't have the ability to hold a property forever and have a payed off asset down the line, and cannot 1031 exchange.
Man, if I believe all these returns, I would sell my shirt and jump on the bandwagon

But I cannot believe it. It just sounds too good to be tru

WanderingDoc
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Re: What can go wrong with multi family syndications?

Post by WanderingDoc » Fri Nov 10, 2017 1:38 pm

misterno wrote:
Fri Nov 10, 2017 10:17 am
WanderingDoc wrote:
Fri Nov 10, 2017 2:07 am
misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I invest passively as an investor in large apartment syndications.

The returns they mentioned at not that far off. Those returns were typical for 2011-2015. From 2016+, I am seeing a 8-12% annualized return on cash, and a 80-100% capital return after 5 years, so roughly an additonal 15-20% return annualized from capital appreciation.

Its my new favorite way to invest. The only downsides that I see as compared with my regular real estate business in which I buy and control my own deals: 1. Tax benefits in syndications aren't as sweet for paasive investors 2. You don't have the ability to hold a property forever and have a payed off asset down the line, and cannot 1031 exchange.
Man, if I believe all these returns, I would sell my shirt and jump on the bandwagon

But I cannot believe it. It just sounds too good to be tru
Not believing something, doesn't have any bearing on whether its true or not.

You need to do your due diligence, meet and speak with the company, read 100+ page PPMs, speak with several folks who have invested with that particular sponsor.. THEN you can start drawing conclusions :D
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

Derby
Posts: 121
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Re: What can go wrong with multi family syndications?

Post by Derby » Sat Nov 11, 2017 12:00 pm

To anyone interested in learning more about this kind of investing, I highly recommend this book: https://www.amazon.com/gp/product/B01IW0G0S0
Investing in Real Estate Private Equity: An Insider’s Guide to Real Estate Partnerships, Funds, Joint Ventures & Crowdfunding

Sean Cook is a pseudonym for an experienced insider; there's no hidden sales pitch in this book. Five dollars is pretty cheap when you're thinking about investing tens of thousands.
Carpe Diem.

jwaxjwax
Posts: 30
Joined: Fri May 05, 2017 3:46 pm

Re: What can go wrong with multi family syndications?

Post by jwaxjwax » Tue Nov 14, 2017 8:49 pm

Also, see this article re: how to vet a sponsor - https://docs.wixstatic.com/ugd/fa41db_1 ... a7c374.pdf

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: What can go wrong with multi family syndications?

Post by Valuethinker » Wed Nov 15, 2017 4:13 pm

Alex GR wrote:
Fri Nov 10, 2017 1:20 am
Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm
Alex GR wrote:
Thu Nov 09, 2017 1:28 pm
euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not arguing with you, just asking :happy . Thank you.
You get what 8% cap rate on multifamily apartments?

To get above that you have to have leverage. A 100 per cent equity investor gets 8 per cent.

Or say you find 10 per cent. Are the asset managers really not going to take 2 per cent in fees?

WanderingDoc
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Re: What can go wrong with multi family syndications?

Post by WanderingDoc » Fri Nov 17, 2017 1:43 am

Valuethinker wrote:
Wed Nov 15, 2017 4:13 pm
Alex GR wrote:
Fri Nov 10, 2017 1:20 am
Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm
Alex GR wrote:
Thu Nov 09, 2017 1:28 pm
euroswiss wrote:
Thu Nov 09, 2017 11:54 am
Those returns are not unreasonable for these types of deals. They are real. BUT: the reason why they pay out those rates is that they are much more risky than a CD, a treasury, a Blue Chip, or even a small Cap stock. They can and do default (i.e. you can easily lose ALL of your investment) at a reasonably regular clip. I have been in some that made huge money, and in some that went broke - on average, it is worth it to me, but it is by no means something you want to put all your nest egg into. No free lunch - otherwise we'd ALL be in syndications.....
Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not arguing with you, just asking :happy . Thank you.
You get what 8% cap rate on multifamily apartments?

To get above that you have to have leverage. A 100 per cent equity investor gets 8 per cent.

Or say you find 10 per cent. Are the asset managers really not going to take 2 per cent in fees?
I'd suggest you learn a little about large apartment investing, particularly the VALUE-add type. Sure, you may earn an income of 8% (15% leveraged), but that is not what makes real estate attractive.

The play is how apartments are eVALUE-ated. An only $150 bump in rents per unit can generate millions $$ in equity. $150 x 12 months x 300 units = $540,000 increase in NOI (net operating income). Now follow me here, $540,000 with a capitalization rate of 8 now results in $6.75MM in added valuation. Now keep in mind, you (investors) initially put down $3M and rehab and holding costs were $1M.. so $3M down, $4M "all-in". When bought at $10M, your $10M now became $16.75MM. You have almost tripled your money upon exit.

Experienced operators can do what I described in 18 months or less. The "8%" you describe is only peanuts compared to the profit that is made. This is real estate. This isn't investing in index funds and being happy with 8% returns.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

TXinTN
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Re: What can go wrong with multi family syndications?

Post by TXinTN » Thu Mar 29, 2018 3:34 pm

WanderingDoc wrote:
Fri Nov 17, 2017 1:43 am
Valuethinker wrote:
Wed Nov 15, 2017 4:13 pm
Alex GR wrote:
Fri Nov 10, 2017 1:20 am
Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm
Alex GR wrote:
Thu Nov 09, 2017 1:28 pm


Euroswiss, hi, could you explain how exactly you can lose *ALL* of your investment? I mean, they loan at a specific LTV and from what I can see the highest on Patch of Land for example is 71% (most are lower). If the thing burns down-they collect insurance. How exactly can you lose *ALL*? Thanks!
The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not arguing with you, just asking :happy . Thank you.
You get what 8% cap rate on multifamily apartments?

To get above that you have to have leverage. A 100 per cent equity investor gets 8 per cent.

Or say you find 10 per cent. Are the asset managers really not going to take 2 per cent in fees?
I'd suggest you learn a little about large apartment investing, particularly the VALUE-add type. Sure, you may earn an income of 8% (15% leveraged), but that is not what makes real estate attractive.

The play is how apartments are eVALUE-ated. An only $150 bump in rents per unit can generate millions $$ in equity. $150 x 12 months x 300 units = $540,000 increase in NOI (net operating income). Now follow me here, $540,000 with a capitalization rate of 8 now results in $6.75MM in added valuation. Now keep in mind, you (investors) initially put down $3M and rehab and holding costs were $1M.. so $3M down, $4M "all-in". When bought at $10M, your $10M now became $16.75MM. You have almost tripled your money upon exit.

Experienced operators can do what I described in 18 months or less. The "8%" you describe is only peanuts compared to the profit that is made. This is real estate. This isn't investing in index funds and being happy with 8% returns.
Have you personally invested in any real estate syndications? Do you have any that you would suggest to an interested investor?

WanderingDoc
Posts: 1294
Joined: Sat Aug 05, 2017 8:21 pm

Re: What can go wrong with multi family syndications?

Post by WanderingDoc » Thu Mar 29, 2018 4:12 pm

TXinTN wrote:
Thu Mar 29, 2018 3:34 pm
WanderingDoc wrote:
Fri Nov 17, 2017 1:43 am
Valuethinker wrote:
Wed Nov 15, 2017 4:13 pm
Alex GR wrote:
Fri Nov 10, 2017 1:20 am
Valuethinker wrote:
Thu Nov 09, 2017 2:15 pm


The described investment sounds like equity. 16-20% returns on Real Estate are not possible without leverage.

If you have leverage, then the equity can take 100% losses.
Valuethinker, while I have a lot of respect for your knowledge and reputation(post count) I still don't get it. Could you take a look at the Patch of Land web site? The returns are not 16% but 10,5-11% but I fail to see how I can lose *ALL*. In fact, I don't see how I can lose anything.
The properties are secured in the first position and max LTV is 71%. Most are much lower. If some unexpected event occurs (ex.: fire), then insurance will pay. I understand foreclosure can be expensive, but they will still recover at least the principal due to LTV. Obviously I am not investing in one loan but more like 50 loans, so if a couple have a problem it shouldn't affect me much. Is there something else I am not taking into account?
I am not arguing with you, just asking :happy . Thank you.
You get what 8% cap rate on multifamily apartments?

To get above that you have to have leverage. A 100 per cent equity investor gets 8 per cent.

Or say you find 10 per cent. Are the asset managers really not going to take 2 per cent in fees?
I'd suggest you learn a little about large apartment investing, particularly the VALUE-add type. Sure, you may earn an income of 8% (15% leveraged), but that is not what makes real estate attractive.

The play is how apartments are eVALUE-ated. An only $150 bump in rents per unit can generate millions $$ in equity. $150 x 12 months x 300 units = $540,000 increase in NOI (net operating income). Now follow me here, $540,000 with a capitalization rate of 8 now results in $6.75MM in added valuation. Now keep in mind, you (investors) initially put down $3M and rehab and holding costs were $1M.. so $3M down, $4M "all-in". When bought at $10M, your $10M now became $16.75MM. You have almost tripled your money upon exit.

Experienced operators can do what I described in 18 months or less. The "8%" you describe is only peanuts compared to the profit that is made. This is real estate. This isn't investing in index funds and being happy with 8% returns.
Have you personally invested in any real estate syndications? Do you have any that you would suggest to an interested investor?
I have invested in 5 deals with 3 sponsors. I don't think advertising specific firms is appropriate on here, though.

Looks like a 6-15% annualized return, then a 1.5-2.5X equity multiple upon exit is typical these days. Say they sell at year 5.. $100K invested, $40-50K in cash flow, $200K out ($100K capital back + $100K in gains).. so $150K in profit on a $100K investment is a 30% IRR roughly. Gotta find the highspeed operators though :beer
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

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Meg77
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Re: What can go wrong with multi family syndications?

Post by Meg77 » Thu Mar 29, 2018 4:14 pm

I've invested in 8 multi family syndications over the past few years.

Most are with one group of principals who specialize in value add - "fix n flips" if you will. They buy B-C class 20-30 year old buildings run by mom and pop types. They renovate half the units (often adding things like washer dryer connections that allow you to boost rent), do a facelift to the exterior, rebrand it, add amenities like a pool, dog park, and splash pad (a thing here in TX), and cut some fees like insurance due to their scale. Then they refinance or sell 24-36 months later once new (higher) rents stabilize. They use a fair bit of leverage - 80% loans, some interest only - so it's risky for sure. But the returns reflect that. (They renovate half the units to leave some more room for upside for the next investor/buyer).

Another company we've just started using - Waypoint Residential if you want to check our their website - is much more conservative. 60% LTV; they buy or develop new properties (many class A), and they get longer term fixed rate financing. Target returns are 4.5-5% monthly cash flow plus another 5-6% upon sale. Hold period is 8 years in general.

So far so good, but of course a lot can go wrong. A recession or simply an incorrect forecast could prevent rents from rising or even lead vacancies to rise. If the cash flow isn't there, you don't get paid. If the rents don't rise, you don't get appreciation. Worst case *usually* would be you have to hold a lot longer than anticipated. Which is *usually* not a problem unless you have short term risky financing (a balloon note for example) and financing options dry up.

Our first deal sold only 11 months after acquisition last summer and gave us a 59.28% annualized total return (IRR) net of fees when all was said and done. Proceeds from the sale were 1031 exchanged into 2 additional deals that I'm currently in. Hold period was supposed to be 2-3 years but the principals got an offer we couldn't refuse. This was one of the value adds that just went quickly and perfectly. Plus timing was good with the market conditions and new investors hungry for more deals.

Our second deal is about to sell this month after almost exactly two years. This one struggled and didn't pay us at all for over a year after acquisition - which is not expected. Normally occupancy plunges during renovation then comes back up, but in this case that took a lot longer than expected. Plus renovations went over budget. However we are being told that based on the sales price they have under contract, we should end up with about a 30-40% annualized return after fees at the investor level if this sale goes through.

The others are all just sitting there paying us varying amounts monthly. The Waypoint deal started paying us 6% in month one as promised. The other value add ones are all over the board. One is paying nothing (struggling with some bad tenants but should be OK long term now that they've kicked a bunch of ppl out); one is paying 12% - it's been stabilized for awhile and may sell this year. Two newer ones (acquired last fall) are paying 9% and 3% right now. It definitely pays to be able to afford to spread out your risk in these things.
"An investment in knowledge pays the best interest." - Benjamin Franklin

denovo
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Re: What can go wrong with multi family syndications?

Post by denovo » Fri Mar 30, 2018 2:39 am

misterno wrote:
Mon Oct 02, 2017 12:04 pm

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
Were you investing or following real estate between 2007-2010?

That's what can go wrong.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Dave55
Posts: 379
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Location: Colorado

Re: What can go wrong with multi family syndications?

Post by Dave55 » Fri Mar 30, 2018 3:06 pm

misterno wrote:
Mon Oct 02, 2017 12:04 pm
So I attended my very first local multi family syndication meeting thru meetup. 40 people attended, 35 of them were clueless but 5 of them were kinda experts and invested in several multi family syndications. 2 people were talking which both had invested in more than 10 syndications and they were some in together some not co-sponsors

From the 1 hour meeting, I understood that the returns are extremely higher than I can believe. I was really suspicious but when I raised my concerns these 5 people which never knew each other before, assured me that returns over 10% is very common and this is cash on cash basis not even counting the capital appreciation part

So I emailed the presenter and received the reply below
---------------------------------------
That 7% is not high. It's probably higher than most people are used to because most people don't have access to syndicated multifamily deals. Most people are used to CDs and money market accounts and at most index funds. But I don't buy deals unless the projected returns for my investors at 10+% yearly COC and overall return (meaning including the profit from the sale) of 16-20%.
---------------------------------------

Now the presenter was not there to solicit or sell or trying to recruit people as passive investors. Because I asked them. So he was just there to inform us about Multi family syndications.

Any thoughts experiences that anyone of you would like to share? What should I be looking for and how to avoid the rats?
I have invested in dozens of multi-family syndications from 1990 - 2010. To answer your question, "What could go wrong"? Answer: "Everything". Of course that rarely happens, but things can go wrong, they can over pay for the apartment building, their projections may not be met due to local supply demand and other economic factors, they can misjudge the location, they can buy at the top of the market and then have to extend the hold period in order not to incur a loss when selling. Also fees and loads can be a drag on returns.

I migrated to the simplicity of total stock market index about 7 years ago.

Dave

boglebill2015
Posts: 83
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Re: What can go wrong with multi family syndications?

Post by boglebill2015 » Sun Apr 01, 2018 12:05 pm

Derby wrote:
Sat Nov 11, 2017 12:00 pm
To anyone interested in learning more about this kind of investing, I highly recommend this book: https://www.amazon.com/gp/product/B01IW0G0S0
Investing in Real Estate Private Equity: An Insider’s Guide to Real Estate Partnerships, Funds, Joint Ventures & Crowdfunding

Sean Cook is a pseudonym for an experienced insider; there's no hidden sales pitch in this book. Five dollars is pretty cheap when you're thinking about investing tens of thousands.
I just read it, its very useful. The writer is clearly smart and experienced. Since he's writing anonymously, he clearly isnt selling anything, other than his 5 dollar book.

He may well have his biases and blindspots, as do we all. But it's a solid read.

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nedsaid
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Re: What can go wrong with multi family syndications?

Post by nedsaid » Sun Apr 01, 2018 12:20 pm

White Coat Investor wrote:
Thu Nov 09, 2017 4:08 am
I have money invested in both funds and individual deals. None have gone round trip yet, so I can't quote you final returns, but due diligence into these deals suggests that the returns quoted to you are in fact reasonable and common. Just don't expect liquidity.

To answer your question "what can go wrong" I have one syndication that is below pro-forma. It didn't make the expected payments for like a year due to HUD withholding more money than anticipated for some reason. That money was eventually paid, but it's still below pro-forma. I suspect that one will still have a positive return, but maybe not double digits.
I have counted three people on this thread who have invested this way and had some success, posters that I regard as credible. I would advise caution in the area of illiquid investments, it is all in the due diligence and the trust you place in management. As for myself, I just lack the expertise to invest in such ventures. In other words, I don't know how to tell the good deals from the bad deals. But yes, this can be done and done successfully.

I have chosen to invest in REIT funds instead. They are liquid and I can get out whenever I want. Maybe I won't get the very best deals but I know the market values these investments on a daily basis.
A fool and his money are good for business.

John88
Posts: 45
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Re: What can go wrong with multi family syndications?

Post by John88 » Mon Apr 02, 2018 6:06 pm

A lot can go wrong, many of us who invested in TICs Tenant In Common investments in 2003 to 2008 lost a lot of equity some lost all of their equity. Do a search for Tenant In Common investments and fraud. If you still want to do a group investment deal-remember you were warned here. If I had known about this forum and not invested in TICs I would have been able to retire already instead we lost close to 7 figures. First off the purchase price is much higher than the Fair Market Value. I assume the Syndicator may have had to overbid to get the property, next they need to enough profit to pay themselves and the Broker Dealers or whoever is marketing it. So you could be paying a premium of 10 to 20% above the fair market value of the property. Real estate income is lumpy not straight even monthly returns so they will likely use reserves to even out the cash flows. Part of your upfront investment will go towards the reserves so in down months you will just be paying back yourself with your own money you funded at the time of purchase. Worst case is extensive repairs combined with lower occupancy cause net income to be lower. A lender will place a value using a Cap Rate and the net operating income or NOI. Because you are likely buying an inflated investment to begin with combined that with a lower NOI and the loan balance can easily get higher than the future estimated value.

subdude
Posts: 2
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Re: What can go wrong with multi family syndications?

Post by subdude » Thu Oct 11, 2018 4:08 am

I also evaluated TICs in 2005, but after performing my due diligence, I rejected the investments. It was clear to me that the marketing commissions, fees, and inflated purchase price of the TIC real estate assets made them a great deal for the sponsor, and lousy for the investor. It was all in the offering docs, but most folks didn't bother to dig into them. I've invested in over a dozen real estate private placements and syndications, and they have all been quite profitable, far exceeding my stock returns. If you evaluate the sponsor and the deal carefully, you'll find some great offerings.

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