Trip7

That's patently false. Syndication payout structures vary, but most I've looked over an returns capital to the limited partner, plus a guaranteed IRR on that capital, before the Syndicator gets paid.

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notEnuf

Those are all paper agreements that protect the originators. I lost $62,000 when a developer went bankrupt and derailed the project. When it comes to settling the unforeseen, there are lucrative protections built in for the originators. We all lost our investments while the syndicator was made whole with first rights and was free to go on creating new deals.

Trip7

Sorry you had a deal go South. Your misfortune does not mean you have to write off the entire Syndication business as not profitable for passive investors.

Merry Christmas!

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notEnuf

My experience was a learning moment. It is in the past. The lesson I have taken from it was that the originator will always protect themselves and are more versed in the deal than any recruited investor. DYODD is always thrown out as the answer. In these cases an attorney is what you need to be diligent. Unless you fully understand divestment language and arbitration protocol of the deal you are uninformed (as I was) about the level of risk. Marketing materials are non binding. If you have a level of capital to consider these agreements you should also have legal council. Be sure to have your representative review the agreement and references cited in the agreement, such as, contractor non fiduciary clauses and originators rights of assignment. I hope this helps anyone considering a syndicated real-estate investment. Learning can be very expensive, I only offer free advice. I sincerely would advise people to avoid "low risk, high return" developments. Low risk may mean there are agreements that guarantee 12+% annual returns but those are often best case. Be sure to evaluate the downside and don't take a promise of returns as a guarantee. Everything works fine when the foreseen happens. It's when the unforeseen rears its head that these agreements are exposed.

Gunfighter

​​​​​​There are plenty of great syndicators. Deal terms vary widely and each PPM has different protections for sponsors and investors. I've had good success with a group called Lifestyles Unlimited out of Houston. Don't be afraid of the name, it's not a "lifestyle" group. They have offices in several TX cities as well as a strong presence in other states. The deals are weighted toward the passive investors, with simple fee structures and stabilization requirements before sponsors can raise funds on subsequent deals. Membership is pricey, but well worth it for the networking, deal quality and cost savings on syndication fees.

This may be the most arrogant thing I've said on APC, but here goes. I joined LU after making several million in real estate, because I wanted to network with other millionaires and do large deals with vetted sponsors. It's a humble group of millionaires who openly share their business processes, vendor lists and deal flow. Basic membership is an affordable way to access tons of useful info that is well organized and presented. They will openly admit the info can be found for free if you look for it. The upgraded memberships include more education and access to syndications. I've saved more in sponsor fees due to the deal structures, than I've paid for membership.

*Post loaded with choice-supportive bias and possibly some system justification theory.

Nantonaku

I have been following your posts for years and appreciate the information you have provided. Maybe you have posted about this in the past but I can’t remember, what/where/how do you recommend a beginner starts with this kind of investing? Despite reading numerous real estate books the past 20 years and kicking myself for numerous great deals I have passed up I have yet to put any money into anything other than a REIT. The above source seems more geared toward professional investors instead of someone just starting. Also, just curious, do you do this type of investing because you enjoy working with real estate or because you like putting the deals together or what makes someone good at this?

Gunfighter

Thanks for sharing. There are a couple key points that are worth emphasizing. First, the level of risk associated with a development deal is astronomical. Reaching pro-forma numbers that are tossed about in advertising materials or even a PPM requires near perfect execution in multiple areas. You need site selection, civil engineering, architectural, financial, construction, leasing and management perfection. There are multiple points of interference that can derail the deal from city officials, lenders and contractors. If none of the above collapse the deal, then another developer with more optimism, more cash, more risk tolerance and a lower cost of capital is likely to read the same market data and build a competing project. I've done development and although it was highly profitable, the projects would have failed without financial support from other property in the portfolio. As a stand alone company two of my best investments would have gone down in flames. It took cash flow from existing properties to get them stabilized. Development deals are often under capitalized due to overly optimistic projections by a syndicator that is looking to collect a fee for putting a deal together. The sponsor may not have any of their own money in the deal or possibly only a small amount.

Secondly, the fee structure of a syndication tells you most of what you need to know about the sponsor's motivations. If you see an acquisition fee, refinance fee, construction management fee and disposition fee you know they make a bundle even if there is no profit. When the sponsor only gets paid from the profit with a small override for asset/property management, they have different incentives. The only syndications I've invested in pay the sponsor based on profitability, not deal making activity. The property may not be profitable at acquisition, but if there is existing revenue with a clear path to add value by improving the property and/or the management, I'll invest. The sponsor must be investing at least double the amount I am committing to the project.

It sounds like you are ready, just afraid. I was scared to death buying my first rental property. I had imagined all of the possibilities from eviction to meth lab with fire, flood and lawsuits all scattered in between. At some point, you just pull the trigger and go. The Lifestyles Unlimited group has a simple, straightforward approach for bread and butter rentals. It is boring, basic, vanilla real estate investing, but it works. The entry level program is geared toward a novice single family investor who has never owned rental property. You can find everything they teach for free somewhere else on the internet and they do not hide that fact. You are paying a couple hundred bucks for the packaging and the spoon fed delivery.

You don't get into syndications with a basic membership. It will cost you thousands of dollars to join the group that does those deals. That group consists of two distinct sets of members. There are syndicators who are putting deals together and passive investors who are there for the returns. The syndicators range from experienced single family investors who are moving into multi-family property all the way to experienced sponsors who have done hundreds of millions of dollars per year. The sponsors follow a strict code of conduct that spells out compensation and behavior standards. You must approach a sponsor, they will not approach you to invest. The passive investors are mostly high earning professionals who have money, but not the time or interest for doing their own acquisitions. I've met many doctors, lawyers, engineers, pilots, a day trader, business owners and numerous retired people who moved their IRAs and 401ks into syndications.

I genuinely enjoy putting deals together, but have only done so with personal investment capital. I would lose some of the enjoyment if I had a responsibility for other investors money. Being responsible for bank money doesn't bother me, because there isn't a face or family attached to it. As part of our retirement and estate planning, we are moving capital into passive investments. As much as I enjoy creating passive income, I have other interests like family, travel, fitness and social activities that I want to do. I'm analytical and love playing the game Monopoly. It's also fun to play in real life.

Trip7

Gunfighter, absolutely fantastic posts. I've talked with my Syndicators and your knowledge and communication skills are right up there with the best of them. I thoroughly enjoy reading your posts.

There's a lot to be said about Analysis Paralysis but dare I say it right now is a good time to be stuck in that phase. The real estate crash in 2008/2009 provided a once in a lifetime to purchase investment property with a substantial margin of safety. For those that were "lucky"(When Opportunity meets Preparation) enough purchase during the downturn, substantial wealth was built.

Fast forward to today, IMO, this sky high prices, bidding wars, and compressed cap rates, IMO, this is not an amateurs market. In 2008/2009 just about any property available had substantial cashflow even after factoring vacancy and maintenance. Today's properties, especially SFR, a water heater breaks and years of cashflow is gone. And that's on a property with decent cashflow that an investor has to look thru 100 deals to find. This is part of the reason I decided to go passive and focus on premium pay opportunities at work. Luckily with the power of compounding eventually there will be a time where it's more efficient to focus on investment deals vs GSs



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notEnuf

I have come to the conclusion that real-estate (other than trade-able REITs) is no longer worth my time. I will never be Donald Trump or Steven Wynn, nor do I care to be. My success has allowed me to diversify and become hands off. This has allowed me to pursue my interests which is what you seem to elude to.

My generational endowment is sufficient and secure so I'm in more pedestrian low effort investments with sustainable returns. I only achieved this through early and often automatic contributions that have compounded over a 23+ year airline career. 401k stuff for sure but it's more about the commitment to regularly invest and add value regardless of the type of investment. A variety of vehicles were tried but as far as the reliable results that can be duplicated easily, I always return to low fee value funds and the S&P. I know, could I be more boring? My real-estate ventures have done well except the above mentioned loss so this is not a dig on real-estate, just that there are easier ways to generate wealth. Rolling equity rehabs worked well for me in the right market. Selling those investments correctly allowed me to buy a home I probably would not have afforded other wise, so my real-estate holdings have created equity in my family home. I've done OK for not using any of my own money. Carleton Sheets would be proud because I started with a 103% LTV VA loan and a two bedroom condo. I applaud those who make real-estate work for them but those properties are work. My point is there are much easier and more liquid ways. More than anything, start early and allow yourself to make mistakes because they teach you how to be successful.

Hawaii50

Great thread! Thanks to all the contributors. I hope we can keep it running as long as The Latest and Greatest thread.

I'll add a book for technical traders I found really valuable called, "A Complete Guide to Volume Price Analysis" by Anna Coulling.

Cheers All.