Real estate syndicates: Talk me into (or out of) it

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MetaPhysician
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Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

Hi Bogleheads,

Background:
-Age 30s, married, dual high-income household
-Very limited time outside of main job
-I am a firm believer of having a high savings rate and low expense spending habit
-I am invested in VG index mutual funds (zero leverage) for the simplicity
-Income 400-600k/year
-VHCOL area, high state taxes, high federal taxes

I am interested in real estate for
-Tax benefits
-Diversification in terms of income + investments
-Liability protection

I do not want a time consuming, hands-on, get-rich-quick type of foray into real estate. Thus I have decided that real estate syndicates (or real estate funds with larger minimums) may be the proper channel for my goals. I do not believe that crowd-funding platforms with lower minimums are the best avenue for me since I feel like a) these companies make their money by the sheer volume (not the quality of deals) b) it requires higher fees because of the middleman involved and that c) I would not be rewarded for being able to invest a higher amount of money.

I have read through the various real estate syndicate posts here on BH. I plan on reading Bruce Peterson and Sean Cooks books. I have perused BiggerPockets, WCI, and PassiveIncomeMD.

I do realize that investing in real estate syndicates are a deviation from the traditional BH philosophy. In addition, they are not as regulated as public companies. The returns may not track the larger indexes. I recognize that given my income and spending habits there is a very high probability of me achieving my investment goals without real estate. In addition, I recognize that while I am knowledgeable about my profession that this expertise does not translate outside of medicine. With hubris I could be the mark. However, I may already be the mark and not realize it. And finally, I recognize that there may be a considerable amount of time learning about a sponsor, and in reality, this would only be 10% of my portfolio and thus may be a lot of work for not that big of a payoff.

Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor.

2. What is the ‘catch’? I imagine the projected number are just that - projections. And thus, may never materialize.

3. Why don’t large PE firms gobble up the good deals? I suspect the payoffs are in larger commercial deals.
Last edited by MetaPhysician on Sun Jun 21, 2020 6:52 pm, edited 1 time in total.
Dave55
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Dave55 »

MetaPhysician wrote: Sun Jun 21, 2020 5:28 pm Hi Bogleheads,

Background:
-Age 30s, married, dual high-income household
-Very limited time outside of main job
-I am a firm believer of having a high savings rate and low expense spending habit
-I am invested in VG index mutual funds (zero leverage) for the simplicity
-Income 400-600k/year
-VHCOL area, high state taxes, high federal taxes

I am interested in real estate for
-Tax benefits
-Diversification in terms of income + investments
-Liability protection

I do not want a time consuming, hands-on, get-rich-quick type of foray into real estate. Thus I have decided that real estate syndicates (or real estate funds with larger minimums) may be the proper channel for my goals. I do not believe that crowd-funding platforms with lower minimums are the best avenue for me since I feel like a) these companies make their money by the sheer volume (not the quality of deals) b) it requires higher fees because of the middleman involved and that c) I would not be rewarded for being able to invest a higher amount of money.

I have read through the various real estate syndicate posts here on BH. I plan on reading Bruce Peterson and Sean Cooks books. I have perused BiggerPockets.

I do realize that investing in real estate syndicates are a deviation from the traditional BH philosophy. In addition, they are not as regulated as public companies. The returns may not track the larger indexes. I recognize that given my income and spending habits there is a very high probability of me achieving my investment goals without real estate. In addition, I recognize that while I am knowledgeable about my profession that this expertise does not translate outside of medicine. With hubris I could be the mark. However, I may already be the mark and not realize it. And finally, I recognize that there may be a considerable amount of time learning about a sponsor, and in reality, this would only be 10% of my portfolio and thus may be a lot of work for not that big of a payoff.

Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor. Not sure if I understand your question but I'll take a stab at it. None. There are many small & medium sized private equity RE Boutiques (that syndicate deals), who alongside smaller professional investors and commercial brokers who are all looking for 1. a mis-priced deal, 2. value add component, 3. simple cash flow 4. price appreciation potential You would have almost no chance to compete with those entities in finding a good deal.

2. What is the ‘catch’? I imagine the projected number are just that - projections. And thus, may never materialize. I worked for several small Private Equity RE firms. They invited me to invest in every deal. I would ask the GP, "what could go wrong with this deal"?. He answered "everything". So yes projections were sometimes hit, sometimes exceeded, sometime not met. Occasionally a deal went sideways. The catch is you are betting on the jockey (the General Partner) with syndication deals.

3. Why don’t large PE firms gobble up the good deals? I suspect the payoffs are in larger commercial deals. They do gobble up good deals, but its all about size/cost of the deal. All these firms seek out different range of dollars they are willing to invest per deal. For instance one of the firms I worked with would seek to acquire approximately 10,000 - 200,000 sq foot shopping center and be able to invest $2million - $20 million in a deal. There are great payoff's in small to midsize space too. I have seen it many times in shopping centers and multifamily apartments.
Bobby206
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Bobby206 »

I am currently reading the Brian Burke book and highly recommend it. It's called The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. Here's link on amazon:

https://www.amazon.com/dp/B086HSGYFM/re ... TF8&btkr=1
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Re: Real estate syndicates: Talk me into (or out of) it

Post by BillWalters »

They can be great, terrible and everything in between. The details matter. It is very hard to evaluate deals without experience. In general you want a hungry sponsor with a lot of their own money in the deal, a preferred return that gets paid current and is senior to any distributions and a clear understanding of all fees. You also want to avoid a capped upside and understand your ability to sell/transfer, if any. You’re really betting on the sponsor and the deal; if there is not a good answer as to why you’re being offered the opportunity, run.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

Dave55 wrote: Sun Jun 21, 2020 6:49 pm
Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor. Not sure if I understand your question but I'll take a stab at it. None. There are many small & medium sized private equity RE Boutiques (that syndicate deals), who alongside smaller professional investors and commercial brokers who are all looking for 1. a mis-priced deal, 2. value add component, 3. simple cash flow 4. price appreciation potential You would have almost no chance to compete with those entities in finding a good deal.
Thanks Dave for your insight. Sounds like you have a lot of advanced level insight.

To clarify - I mean what advantage do I have compared to any other individual looking to be a LP (or get involved in RE syndicates for that matter)? For example, let's take betting. The house must post odds for each event. The individual betting has the 'advantage' in the sense he or she does not need to put money down.

Now that I've mentioned RE and betting in the same thread I'll just kick myself off the forum.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

Bobby206 wrote: Sun Jun 21, 2020 7:01 pm I am currently reading the Brian Burke book and highly recommend it. It's called The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. Here's link on amazon:

https://www.amazon.com/dp/B086HSGYFM/re ... TF8&btkr=1
Thanks Bobby. From the looks of it, it sounds like it will be a wealth of knowledge. I'm curious, does he recommend any vetted RE syndicate companies? Or does he 'pitch' anything at the end?
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MetaPhysician
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

BillWalters wrote: Sun Jun 21, 2020 8:18 pm They can be great, terrible and everything in between. The details matter. It is very hard to evaluate deals without experience. In general you want a hungry sponsor with a lot of their own money in the deal, a preferred return that gets paid current and is senior to any distributions and a clear understanding of all fees. You also want to avoid a capped upside and understand your ability to sell/transfer, if any. You’re really betting on the sponsor and the deal; if there is not a good answer as to why you’re being offered the opportunity, run.
Bill, thanks for posting.

1) What questions could I ask or what numbers could I ask to see in order to assess whether the sponsor is hungry?
2) What would be a good answer to why I'm being offered the opportunity?
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Bobby206 »

MetaPhysician wrote: Sun Jun 21, 2020 8:48 pm
Bobby206 wrote: Sun Jun 21, 2020 7:01 pm I am currently reading the Brian Burke book and highly recommend it. It's called The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. Here's link on amazon:

https://www.amazon.com/dp/B086HSGYFM/re ... TF8&btkr=1
Thanks Bobby. From the looks of it, it sounds like it will be a wealth of knowledge. I'm curious, does he recommend any vetted RE syndicate companies? Or does he 'pitch' anything at the end?
I haven't gotten through the whole book yet but not yet at least. I am 99% sure he owns (or manages) a company that syndicates multi-family. I believe they are based in northern California but do a lot of their syndications in Atlanta area. So far it has not been a self-serving book though.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by playtothebeat »

I’d say first determine what product type you’re interested in. Apartments, industrial, self storage etc. There are major players in all these who allow accredited investors to invest with them (as opposed to only friends and family or only institutional partners).
Do some research on what some of the major players offer, their history, etc. how do they structure their debt? How do they pay equity returns? Where do they invest?
Some will offer “deal specific” syndications. Some will offer fund-level syndications which go and invest in deals across the state/nation/etc.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Sandtrap »

“Talked you out of it” (fill in with solid convincing case)

Done.
j🌺
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Dave55
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Dave55 »

MetaPhysician wrote: Sun Jun 21, 2020 8:45 pm
Dave55 wrote: Sun Jun 21, 2020 6:49 pm
Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor. Not sure if I understand your question but I'll take a stab at it. None. There are many small & medium sized private equity RE Boutiques (that syndicate deals), who alongside smaller professional investors and commercial brokers who are all looking for 1. a mis-priced deal, 2. value add component, 3. simple cash flow 4. price appreciation potential You would have almost no chance to compete with those entities in finding a good deal.
Thanks Dave for your insight. Sounds like you have a lot of advanced level insight.

To clarify - I mean what advantage do I have compared to any other individual looking to be a LP (or get involved in RE syndicates for that matter)? For example, let's take betting. The house must post odds for each event. The individual betting has the 'advantage' in the sense he or she does not need to put money down.

Now that I've mentioned RE and betting in the same thread I'll just kick myself off the forum.
Answer: None. Even if one has experience vetting deals, that person could pick a deal that goes sideways. (Not too different from buying individual stocks.) I invested in these deals for decades, and I do not any longer because of my age, not wanting to be illiquid, and taking the higher risk that is inherent in syndicated deals. I would advise anyone, no matter your income or net worth to steer clear.

Dave
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Dave55 »

Sandtrap wrote: Sun Jun 21, 2020 9:57 pm “Talked you out of it” (fill in with solid convincing case)

Done.
j🌺
+1

Dave
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Re: Real estate syndicates: Talk me into (or out of) it

Post by ChiKid24 »

Bobby206 wrote: Sun Jun 21, 2020 9:07 pm
MetaPhysician wrote: Sun Jun 21, 2020 8:48 pm
Bobby206 wrote: Sun Jun 21, 2020 7:01 pm I am currently reading the Brian Burke book and highly recommend it. It's called The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. Here's link on amazon:

https://www.amazon.com/dp/B086HSGYFM/re ... TF8&btkr=1
Thanks Bobby. From the looks of it, it sounds like it will be a wealth of knowledge. I'm curious, does he recommend any vetted RE syndicate companies? Or does he 'pitch' anything at the end?
I haven't gotten through the whole book yet but not yet at least. I am 99% sure he owns (or manages) a company that syndicates multi-family. I believe they are based in northern California but do a lot of their syndications in Atlanta area. So far it has not been a self-serving book though.

I haven't read this book, but am invested in two syndicate funds that are run by Brian and his team at Praxis. So far they are performing as advertised, even despite the challenges of Covid.

Key to success in these types of deals IMO is your diligence on the syndicator. What is their experience, their evaluation process, their track record. That said, any deal can go sideways so even good, well run syndicates can hit a rough patch, just like a stock fund manager. But I do believe there are more market inefficiencies in real estate than there are in equities, so outperforming the benchmark is achievable with the right team.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

Sandtrap wrote: Sun Jun 21, 2020 9:57 pm “Talked you out of it” (fill in with solid convincing case)

Done.
j🌺
J, I enjoy reading your posts in other threads. Could you please share some reasons that you found convincing which have talked you out of it?
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

Dave55 wrote: Mon Jun 22, 2020 6:09 am
MetaPhysician wrote: Sun Jun 21, 2020 8:45 pm
Dave55 wrote: Sun Jun 21, 2020 6:49 pm
Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor. Not sure if I understand your question but I'll take a stab at it. None. There are many small & medium sized private equity RE Boutiques (that syndicate deals), who alongside smaller professional investors and commercial brokers who are all looking for 1. a mis-priced deal, 2. value add component, 3. simple cash flow 4. price appreciation potential You would have almost no chance to compete with those entities in finding a good deal.
Thanks Dave for your insight. Sounds like you have a lot of advanced level insight.

To clarify - I mean what advantage do I have compared to any other individual looking to be a LP (or get involved in RE syndicates for that matter)? For example, let's take betting. The house must post odds for each event. The individual betting has the 'advantage' in the sense he or she does not need to put money down.

Now that I've mentioned RE and betting in the same thread I'll just kick myself off the forum.
Answer: None. Even if one has experience vetting deals, that person could pick a deal that goes sideways. (Not too different from buying individual stocks.) I invested in these deals for decades, and I do not any longer because of my age, not wanting to be illiquid, and taking the higher risk that is inherent in syndicated deals. I would advise anyone, no matter your income or net worth to steer clear.

Dave
Dave, so you'd recommend putting that money in plain vanilla mutual funds - or something else?
WildCat48
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Re: Real estate syndicates: Talk me into (or out of) it

Post by WildCat48 »

We've had a lot of success, but we have only dealt with one sponsor over the past 20+ years and about 15 multifamily buildings in and around LA. Others have been less fortunate.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Leemiller »

MetaPhysician wrote: Sun Jun 21, 2020 9:06 pm
BillWalters wrote: Sun Jun 21, 2020 8:18 pm They can be great, terrible and everything in between. The details matter. It is very hard to evaluate deals without experience. In general you want a hungry sponsor with a lot of their own money in the deal, a preferred return that gets paid current and is senior to any distributions and a clear understanding of all fees. You also want to avoid a capped upside and understand your ability to sell/transfer, if any. You’re really betting on the sponsor and the deal; if there is not a good answer as to why you’re being offered the opportunity, run.
Bill, thanks for posting.

1) What questions could I ask or what numbers could I ask to see in order to assess whether the sponsor is hungry?
2) What would be a good answer to why I'm being offered the opportunity?
Pretty sure your first clue they aren’t doing that well is they are pitching to someone with relatively low assets/NW compared to taking to someone like a private wealth manager with multiple clients with a $10m minimum. So yeah, why are they talking to a relatively small individual investor?
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Noobvestor »

Topic: Real estate syndicates: Talk me into (or out of) it // Username: Metaphysician (doctor alert!)

I don't know what it is about doctors, but as much as I admire the profession it seems like they are the most susceptible to scams. Ironically, as high-income professionals, you have less need to take risk, but seem more inclined to go for unlikely moonshots. Sorry to generalize - I know your question is situation-specific - but really, just sit back, relax, save, invest, rebalance, and don't be a sucker for the targeted snake oil.

Recent relevant thread: viewtopic.php?f=1&t=318270
I recognize that given my income and spending habits there is a very high probability of me achieving my investment goals without real estate. In addition, I recognize that while I am knowledgeable about my profession that this expertise does not translate outside of medicine.
Congrats - you're great at medicine .. expertise there doesn't translate to savvy investing, and you know it. Pick and stay a sensible course.
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor.
None, really. You can't diversify sufficiently as a small investor (by which I mean 5 to 8 figures - it's a big range). When I achieved 'accredited investor' status I played the field a bit, and did OK, but created more headaches for myself than it was worth. Would recommend avoiding. If I inherited a billion dollars tomorrow, I might do things slightly differently - a baseline annuity, for example. But venture/angel? Only for fun.
2. What is the ‘catch’? I imagine the projected number are just that - projections. And thus, may never materialize.
Projections aren't worth the paper they're printed on. I went to a series of YCombinator pitches a few years in a row. They were OK, but the bottom line was that all of them were clearly encouraged to just project the craziest high growth possible regardless of what was realistic. The charts were all essentially 'if we took over this entire market cap, our valuation would be X billion!' Yay, if you're the next FANG stock, but ...
3. Why don’t large PE firms gobble up the good deals? I suspect the payoffs are in larger commercial deals.
They do. What's left are high risk/reward investments that you should at least vet yourself if you're going to gamble on them. One of the better investments I made was in a home toward the end of the 08/09 crisis, but I researched it and wanted to live there, so ... YMMV.

The ~3% of my portfolio that is still in angel investments and venture funds has done OK. At this point, I'd cash out if I could just to simplify my tax paperwork, though. It's been years and still no moonshot wins, but a few moderate wins and few outright losses. Not worth the hassle.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Sandtrap »

MetaPhysician wrote: Mon Jun 22, 2020 10:44 pm
Sandtrap wrote: Sun Jun 21, 2020 9:57 pm “Talked you out of it” (fill in with solid convincing case)

Done.
j🌺
J, I enjoy reading your posts in other threads. Could you please share some reasons that you found convincing which have talked you out of it?
A list of possible financial investments can be roughly prioritized for the following aspects (and more):

Risk
Return
Stability (long vs short term)
Liquidity
Security of Principle
Ease of "buying in"
Ease of Exit (cash out)
Costs/expenses (one time vs reoccuring)
Management needed (3rd party vs self managed)
Deep vs Shallow pockets needed to sustain
Liability
Low vs Mid vs High "buy in" (IE: shares of an index fund vs 6 million for an apartment building)
Tax advantages and liabilities
Individual (only self needed) vs group buy in (Hui, Partnership, etc)
Complexity vs Simplicity
Management/Overhead and other costs VS cost of the productl (ratio per dollar). (the more complex, the more layers, the less actual $ going to the product. IE: REIT Index Fund vs Owning one R/E Rental by oneself and managing it by yourself.

*stress and sleep factor
*work (personal involvement in time/effort/etc. IE: hands on/off, etc)


Where would this investment sit in the above factors compared to:

Index/Mutual Funds?
REIT Index Funds?
An excellent purchase of a 12 unit apartment building in a prime rental area of high R/E appreciative value with good professional management or knowledgeable self management?
Owning 6 profitable mufler shops in great locations in the city?
Owning a pawn shop/pay day loan business?
Etc?

There are no good or bad financial investments per se.
Just depends on levels of risk/reward/$ to buy in for each.

j :happy
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Dave55
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Dave55 »

MetaPhysician wrote: Mon Jun 22, 2020 10:46 pm
Dave55 wrote: Mon Jun 22, 2020 6:09 am
MetaPhysician wrote: Sun Jun 21, 2020 8:45 pm
Dave55 wrote: Sun Jun 21, 2020 6:49 pm
Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor. Not sure if I understand your question but I'll take a stab at it. None. There are many small & medium sized private equity RE Boutiques (that syndicate deals), who alongside smaller professional investors and commercial brokers who are all looking for 1. a mis-priced deal, 2. value add component, 3. simple cash flow 4. price appreciation potential You would have almost no chance to compete with those entities in finding a good deal.
Thanks Dave for your insight. Sounds like you have a lot of advanced level insight.

To clarify - I mean what advantage do I have compared to any other individual looking to be a LP (or get involved in RE syndicates for that matter)? For example, let's take betting. The house must post odds for each event. The individual betting has the 'advantage' in the sense he or she does not need to put money down.

Now that I've mentioned RE and betting in the same thread I'll just kick myself off the forum.
Answer: None. Even if one has experience vetting deals, that person could pick a deal that goes sideways. (Not too different from buying individual stocks.) I invested in these deals for decades, and I do not any longer because of my age, not wanting to be illiquid, and taking the higher risk that is inherent in syndicated deals. I would advise anyone, no matter your income or net worth to steer clear.

Dave
Dave, so you'd recommend putting that money in plain vanilla mutual funds - or something else?
After decades of having about 30% in syndicated deals and private REIT's and 60% in equity and bond mutual funds, I looked back and realized in retrospect I would have been a whole lot better if for those decades I just invested in blue chip stocks or the S&P 500 index. Here are two examples of why. One of my "suppliers" of syndications comes to me with a deal, and says it's a no brainier, very little risk and big upside. I went in with the same amount of $ he did. Well, the deal went sideways in a big way and after 15 years we got about 65% of our principal back and litigation is still ongoing (Lawyer is working on contingency so not costing investors anything). Another example is an apartment building in Sacramento that was a stellar deal, great property, huge upside and great income too. The hold was 3-5 years, we were getting 7% monthly dividend until the 08-09 downturn hit. The dividend went to zero. The syndicator did not want to show a loss in their track record so they (and we the investors) held the deal for 15 years so we could eek out a 5% annual return. Yes there were deals that were home runs too. Anyway, about 8-10 years ago I stopped investing in syndicated and private deals and now exclusively use equity index funds, index bond funds and a few actively managed bond funds. I am retired now.

Dave
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Jack FFR1846 »

My first argument against: What is it about a syndicate that attracts you vs a REIT? Is it the allure of being in an exclusive investment? Is it being locked into something that you can't retrieve your money, so when things go way bad, you can't get a dime out? Is it the lack of regulation because, well, the govermint can keep their noses out of your business?

My second argument goes further and against even REITs: Simple question. Can you name a listed company that does not own any real estate? That's what convinced me that I don't need REITs.

Do I have an alternate investment for all that excess money hanging around, doing nothing? Sure. Put in an order for a new Pagani Huayra. Prices have been steadily climbing. If you don't want to put down $5M on a new one, I know where there are several used ones at various price points. Look them up on Miller Motorcars. No price will be listed, but you can see what's available used. For less initial investment, you can lease to own. $800k up front, $35k a month for 39 months, then a $1.2M buy at the end of the lease. After the up front, you can turn in the car and end the lease at any time.
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Re: Real estate syndicates: Talk me into (or out of) it

Post by arsenalfan »

I do primary real estate, and have been curious about a lot of syndications. Most I've gotten through email are garbage. I did get a great one from a friend of the family for a Brooklyn development near Barclays Center, proven track record, etc etc, and felt I missed the boat on that one ($250k to play). Then Covid hit - it prob will do just fine, but I no longer have as much FOMO.

I did sign up for the 506 investor group, which is a crowd DD source on various syndications. Maybe look at that. And I read with interest WCI's portfolio on syndicates.

I may do some Equity Multiple deals. They had a good one on an Amazon Distribution Center in the South, and the $5-10k investments are the right size for me. I understand they invest their own money also.

But when push comes to shove, I just end up buying something more liquid instead, usually an sector index like tech or consumer staples.

As for doctors being susceptible to alt investments, I'm sure there's a WCI analysis. But IMHO it's the fact that after all the academic grind/thrill of starting as an attending, you realize in your 40s what everyone realizes in their 20s when they enter the workforce: you're in it for the long haul and grinding. Add to that a higher income/fancy accredited investor status/investment decks coming across your email, and voila: hey, I'll diversify my income!
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Re: Real estate syndicates: Talk me into (or out of) it

Post by MetaPhysician »

arsenalfan wrote: Tue Jun 23, 2020 9:17 am As for doctors being susceptible to alt investments, I'm sure there's a WCI analysis. But IMHO it's the fact that after all the academic grind/thrill of starting as an attending, you realize in your 40s what everyone realizes in their 20s when they enter the workforce: you're in it for the long haul and grinding. Add to that a higher income/fancy accredited investor status/investment decks coming across your email, and voila: hey, I'll diversify my income!
Maybe we want to diversify it because we see medicine is in a severe decline? Many physicians wouldn't recommend their kids to become physicians. And sure why not? 320k in debt. Declining reimbursements. Competition with people who take online courses and weekend seminars. Anti-scientific beliefs. Withering trust from the public. With all due respect residents and fellows in their 20s and 30s are grinding and in it for the long haul already.

Or maybe we're usually curious people who like to analyze things that are important? When we see a new treatment we don't reflexively reject it. Most of us use a methodical approach, put the findings in context, talk to a colleague, look up previous studies and then reach a conclusion. Maybe at the end of the day buy and hold investing *is* the answer. And maybe at the end of the day the current treatment is correct. However, we're still going to analyze the options.

Jesus, if you consider this to be an alt investment then I'd invite you to come into the OR and hear about bitcoin, pre-seed VC deals, and someone's medical startup.
Jack FFR1846 wrote: Tue Jun 23, 2020 8:57 am My first argument against: What is it about a syndicate that attracts you vs a REIT? Is it the allure of being in an exclusive investment? Is it being locked into something that you can't retrieve your money, so when things go way bad, you can't get a dime out? Is it the lack of regulation because, well, the govermint can keep their noses out of your business?
Great question. The allure isn't part of it. I view REITs as not as tax efficient, do not reward me for illiquidity, and do not provide me with as good of tax treatment. I'm open to hearing differing thoughts.
Dave55 wrote: Tue Jun 23, 2020 8:09 am Well, the deal went sideways in a big way and after 15 years we got about 65% of our principal back and litigation is still ongoing (Lawyer is working on contingency so not costing investors anything). Another example is an apartment building in Sacramento that was a stellar deal, great property, huge upside and great income too. The hold was 3-5 years, we were getting 7% monthly dividend until the 08-09 downturn hit. The dividend went to zero. The syndicator did not want to show a loss in their track record so they (and we the investors) held the deal for 15 years so we could eek out a 5% annual return.
Ouch. Thanks for sharing.
Sandtrap wrote: Tue Jun 23, 2020 7:33 am There are no good or bad financial investments per se.
Just depends on levels of risk/reward/$ to buy in for each.
Well said.
Noobvestor wrote: Tue Jun 23, 2020 3:44 am I don't know what it is about doctors, but as much as I admire the profession it seems like they are the most susceptible to scams. Ironically, as high-income professionals, you have less need to take risk, but seem more inclined to go for unlikely moonshots. Sorry to generalize - I know your question is situation-specific - but really, just sit back, relax, save, invest, rebalance, and don't be a sucker for the targeted snake oil.
Who says this is a scam and targeted snake oil?

High-income professional? Depends on the regional. Good luck buying a home in SF with a two physician income. Try outbidding the tech people and foreign money. Same story for Boston, Seattle, LA, Manhattan etc.

Job security? Its not a secret medicine is corporate now. COVID exposed to the public what many of us already knew.
Noobvestor wrote: Tue Jun 23, 2020 3:44 am Congrats - you're great at medicine .. expertise there doesn't translate to savvy investing, and you know it. Pick and stay a sensible course.
I literally said my knowledge doesn't translate to other endeavors and thus is the reason why I am asking the BH community for input. How is this not a sensible course requesting feedback and insight, vetting a sponsor, accepting the investment may go to zero, living below ones means, maxing out retirement funds, filling up HSAs, and putting a minor part of the overall portfolio in this?
Noobvestor wrote: Tue Jun 23, 2020 3:44 am The ~3% of my portfolio that is still in angel investments and venture funds has done OK. At this point, I'd cash out if I could just to simplify my tax paperwork, though. It's been years and still no moonshot wins, but a few moderate wins and few outright losses. Not worth the hassle.
How are we equating angel investing, venture funds and real estate? I view these as different animals. Different tax treatments, different risk profile, different expected pay outs, different strategies, different method of investing. I'm sorry but I don't view RE syndicates as moonshots.
Leemiller wrote: Tue Jun 23, 2020 12:51 am Pretty sure your first clue they aren’t doing that well is they are pitching to someone with relatively low assets/NW compared to taking to someone like a private wealth manager with multiple clients with a $10m minimum. So yeah, why are they talking to a relatively small individual investor?
Well said. Thought provoking. I imagine the private wealth manager has a team to scrutinize the deal and the clients with NW > $10M have a team of attorneys to look over the paperwork while little ole me has some basic Amazon books and blog posts :(
WildCat48 wrote: Mon Jun 22, 2020 11:20 pm We've had a lot of success, but we have only dealt with one sponsor over the past 20+ years and about 15 multifamily buildings in and around LA. Others have been less fortunate.
Congratulations! What made this sponsor successful? And how would you recommend one replicate that success? I acknowledge it is a loaded question. Is there anything else besides their track record, skin in the game, exit terms, amount of leverage etc that is recommended?
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Noobvestor
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Noobvestor »

MetaPhysician wrote: Sun Jun 21, 2020 5:28 pmI recognize that while I am knowledgeable about my profession that this expertise does not translate outside of medicine.
That's a great thing to acknowledge, but then you wrote later ...
MetaPhysician wrote: Sun Jan 03, 2021 8:17 pmOr maybe we're usually curious people who like to analyze things that are important? When we see a new treatment we don't reflexively reject it. Most of us use a methodical approach, put the findings in context, talk to a colleague, look up previous studies and then reach a conclusion. Maybe at the end of the day buy and hold investing *is* the answer. And maybe at the end of the day the current treatment is correct. However, we're still going to analyze the options.
It seems like you went from acknowledging you didn't have special insight to suggesting your medical training can help you develop or uncover superior investing methods. As for new things coming along: sure, when TIPS hit the scene, I researched (and got) those, but that's a very different asset class - deep, liquid, diversifying. You're talking about taking on a lot of concentration risk, a niche product for the ultra-rich, which is why I brought up angel and venture investing. Anyway, I stand by my point: it's dangerous to think you're smarter than the market. Diversify, buy, hold, rebalance. Or don't. Good luck.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Road2Wealth
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Road2Wealth »

I do not have a lot of experience with syndications (only invested in one), but my father has done several so I have seen the different forms they come in (e.g., multi family, mobile homes, self storage, development, etc.). He likes them because he understands real estate, he is rewarded for having large sums of money (i.e., paid for illiquidity), the tax benefits (e.g., you can receive annual distributions as scheduled but still receive a tax loss with the K-1), they come with different risk profiles and time horizons (e.g., MFH usually safer than building from scratch), and they are a hedge against inflation.

The absolute most important aspect (according to him) is finding a trusted syndicator/sponsor. Your are turning over a large sum of money and you need to believe they will invest it wisely. But it is hard to find the right sponsor because securities laws prevent most syndicators from advertising. So far the the best way to evaluate I've seen is the book mentioned by Brian Burke (I am also reading it and find it very informative). It provides all sorts of "red flags" and questions to ask a prospective sponsor. You really need to get on the phone with the sponsor and interview them (once you have an understanding of how these deals work). Because you are a doctor, I would reach out to PassiveIncomeMD for his personal recommendations. He seems to really understand real estate and might be able to make some recommendations.

I think they are a defensible way to diversify into real estate and provide better returns than a REIT without the headache of direct ownership.
Lexx
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Lexx »

When I did my last 1031 tax deferred exchange, I looked into DSTs (Delaware Statutory Trusts) which are another form of syndication. The common thing I found with all of them were:
1) The general partners had all the control and most of the benefits
2) The ROI on most are not much more than what the stock market has returned on average (and many were quite a bit lower)
3) The time horizon was too long for my taste in many instances making it very illiquid
4) The fine print was ridiculous. I didn't bother to read it all but what I did read told me that I would have basically no control over this investment. I would be turning over a large sum of money for someone to do as they please.

All of that made me very uncomfortable. In my case I ended up doing a 1031 into commercial RE because I simply did not want the management headaches of residential RE.

As a retired dentist I will say that I identify with how you feel. I did a lot of surgery in my practice and folks like that often feel very sure of themselves. You have to. But we are neophytes in the financial arena. If you have a MD/DDS after your name, you are an easy mark. It doesn't mean you're not smart. It just means that you have the security of knowing that you can always recoup a loss in the back of your mind and it therefore makes it easy to rationalize a bad investment. I bought a lot of expensive cars that way lol.

At the end of the day, I recall what one of my financial advisers told me. "You are better off spending time developing your practice. Make that the economic engine that drives everything else. Then shelter as much of your income as you can from taxes. Put the rest into market tracking funds. That way you don't have to worry about your investments and your practice." That was great advice and I did moderately well in the market. My bonus was I had a lot of experience in owning and managing residential real estate because of my parents. So I was able to watch and learn. And then I bought well. And this was in the Bay Area before the prices zoomed up. So yes I was smart, but I was more lucky.
simas
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Re: Real estate syndicates: Talk me into (or out of) it

Post by simas »

MetaPhysician wrote: Sun Jun 21, 2020 5:28 pm
I do not want a time consuming, hands-on, get-rich-quick type of foray into real estate. Thus I have decided that real estate syndicates (or real estate funds with larger minimums) may be the proper channel for my goals. I do not believe that crowd-funding platforms with lower minimums are
Questions
1. What advantages, if any, do I as a high-income person have compared to someone else in the real estate space? I already know that not everyone can be considered an accredited investor.

2. What is the ‘catch’? I imagine the projected number are just that - projections. And thus, may never materialize.

3. Why don’t large PE firms gobble up the good deals? I suspect the payoffs are in larger commercial deals.
So I read this thread and it made me think again of 'seeing advice is seeing confirmation of decision you already made' given how much you resist being told that this idea is
a) sucker bet
b) you are the sucker that would feed it (or 'mark' if you wish)
c) temper your greed that is speaking in trying to get into it

if you are dead set on this, there is nothing anyone could say to prevent you from being separated from your money. It is your life, your finances, run them as you wish.

however , if you are actually listening (not just looking for validation of what you already decided to), the people in this thread told you
- bad idea
- high stress
- low/uncertain return
- no real diversification
- there is nothing that makes you more or less qualified for these opportunities, not due to income, not due to profession, etc. you are the perfect 'mark', eager and greedy for over market returns.

You also head very good advice on instead focus on your career, be good (be the best) at what you do professionally. Shelter that income in ways that make sense (dont inflate cost of living, get reasonable help on taxes), and use that sheltered income to build foundation that would carry your financial life forever forward.

take this for what it worth.

And lastly, the whole 'woe is me in SF' - with median household income in San Francisco being under 100k, please stop with complaining about how hard it is when you alone is making many multiples of that - it smells of arrogance and ignorance (the "1% first world problems"). No one is entitled to super mansions with live in staff , in mansion swimming pool or other BS, hundreds of thousands of people in the same area are living their lives at significantly less than that income. Put this into perspective before speaking of 'two physicians not able to buy a house in SF'. Look outside your ivory tower and see how real people live around you every day and what real life looks like , it is not just 'foreign money' or 'tech'..

Good luck in whatever you will do. Stay away from real estate (or timber, or alternative investments, or whatever), or you can not resist the siren song of greed come back 5-10 years later and tell us how you feel about this then. could be a good learning for others.
heyyou
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Re: Real estate syndicates: Talk me into (or out of) it

Post by heyyou »

Meta Physician, you are going to get rich slowly with savings from high income put into index funds, but you want to get richer, sooner with real estate investments structured to attract only those with high incomes. Risk and reward allow very, very few to be extra successful, while thoroughly penalizing the vast majority of us trying to get richer sooner.

The most dangerous result is to be successful on the cautious first small deal, then invest 10x more, expecting the same result. Been there, done that with my small inheritance (size of two years of my work income) from my Dad (Mom was still alive then). What I resented the most after the second deal's failure, was that the deal promoter had always taken his 10% fee from my initial investment (not from the expected later profit), besides charging for all of the expenses of the deal. Only one participant made money on the second deal, the promoter. Later, there was even an IRS claw-back on my previous annual income tax deductions taken for my interest paid during those years before the deal's collapse. Those personal tax deductions for the interest paid during the property's holding period, were touted as rosy advantages in the initial selling of the real estate investment.

If each deal is certain to do well, why is the syndicator willing to sell you a portion of their deals? Oh, the syndicators are spreading their risks to you and others, but your risk is concentrated. Why are they marketing to high-income individuals when some large real estate corporation could buy the entire property, but hasn't?

My deal promoter left Phoenix for San Diego after he could no longer continue to be successful here. Now I wonder if the first little deal was deployed to intentionally attract its successful investors to the future, much larger (10x) minimum investment deals?

Why not just buy stock in some other giant real estate investment business? Why haven't we heard as much about their successes as we have heard about other investments? Look to see what my $50K loss in 1978 (my age 28) would now be worth if it had been invested in the S&P 500 index fund.
Dave55
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Re: Real estate syndicates: Talk me into (or out of) it

Post by Dave55 »

I talked to 2 different syndicators I used to work with as a consultant and I also invested in their deals. Both are based in L.A. and both do deals in the western 1/2 of the USA. They both said it is vey challenging right now due to COVID. Multifamily is less challenging, collections are around 90%. Commercial retail is very challenging both for properties they currently own and for finding ones that would meet their current acquisition criteria.


Dave
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