Spark Rental Investing

[Cliff Garcia]

Has anyone tried their syndication investment club? I`m hoping to find someone thats had some success utilizing this platform 

[Jerry Lakey]

I'm also interested in them.  Have you found any good/bad info on them in the past 2 months?

[Stephen Heebner]

I literally just joined their investing club a few days ago, joined one of their club meetings via web call... I have been listening to their podcasts for some while now and finally pulled the trigger on joining the club. Brian and Deni seem down to earth and sincere. I emailed Brian to introduce myself and simply see how long it takes for them to email back. Within 12 hours I had a reply. They seem to be well liked and the reviews I have found are seemingly always very good. It does not seem like they are out to get your money, but actually help people through co-investing (I understand it does help them to). So I committed to doing at least one syndication with them with the minimum investment amount and see how it goes. So I look forward to finding out for myself, and I am HOPING I found something with long term positive results because over the past couple years I have been trying to find "that right investment". I have some money with Arrived and Ground floor, but not much. Am hoping to get into MANY syndication deals! 

[Cliff Garcia]

Youve basically done what I concluded. Invest the minimum amount and go from there. The main thing I learned from looking into syndications is properly vetting whoever you're investing with and finding out how they weathered major hurdles like the 2008 crash. And find anyone that has reinvested 

I`d like to keep in touch because I will be doing the same shortly.

[Stephen Heebner]

I have not yet been a part of their club meeting when vetting a new syndication deals/sponsor, but I am looking forward to being part of that soon I hope. My understanding is we will vet them as a group and any club member may ask questions and raise concerns, etc. I will stay in touch! 

[Evan Polaski]

I am not sure what everyone on this thread's experience with syndications are, and I have not invested with Spark Rental Investments.

When I look at their portfolio, I see several properties owned and operated by Rise 48, and a couple quick google searches show they are not the primary group behind a couple others.  This would imply they are running a fund of funds or co-sponsoring other's deals.  Nothing inherently wrong with either, but something to be clear on before investing money, since the controllable successes or failures of a property are going to come down to who is actually putting the deal together and who is running it.

I would also be certain how the capital is flowing from deal, through primary sponsor, and down to you, the Spark Rental investor.  Let's assume you invest in Spark Rental, then they turn around with their pool of capital and invest in a Rise48 deal (I have also not invested with Rise48, so don't know their waterfall).  But let's assume it is 7% preferred return and a 70/30 split between Rise and Spark Rentals.  Then Spark has a fund of funds that have an 80/20 split, and some fees for putting everything together.  

As a Spark investor, you are effectively paying double fees (Rise48's and Spark's) and then the cash flow coming from Rise48 is stripping 30% off for their carry, and of the remaining, Spark is stripping another 20% for their carry.  

Again, I cannot stress enough: the example above is just an example.  Rise48 may offer Spark a 90/10 split (better than they offer direct investors) and Spark's carry may net you ahead of what the Rise48 direct investors get, but it is something to understand.

The questions I would ask in this arrangement:
-Who is the actual owner and operator of the deal?  What is their track record, experience?
-How are their (owner operator) fees and carry layered in with your (spark's) fees and carry?  -What is the impact to me, by agreeing to this arrangement?
-What is your value proposition, besides coming in for $5,000 vs $25k+?  This is especially true if Spark is charging fees/carry at their level.
-Why shouldn't I just go direct with the group that is actually controlling the deal?

This is just a start to many questions I would be asking.  With this arrangement, assuming the actual underlying assets are not owned/operated by Spark controlled entities, involves not just trusting Spark, but also the people they are choosing to invest in.

[Cliff Garcia]

Thanks Evan, these are the type of answers I couldn`t seem to get specifically unless it was through non accredited investors that been around the block in those circles (outside of Rise 48 and Spark Rental). Its interesting because I asked about whats the role of the non accredited investors? Is it they are taking on more risk or getting less percentage when its all said and done?

[Evan Polaski]

@Cliff Garcia, it is certainly something to understand.  Maybe Spark is coming in to these deals as a co-sponsor, meaning they are making their money from the GP side, not you, per se.

Based on what I saw on their website, it appears they are syndicating into their own offering, since you invest with them into their LLC/Partnership structure, then they use that LLC to invest into, say, Rise48 deal. So basically, to know if you are getting less return than the direct to Rise48 people, Spark would need to disclose their arrangement with Rise48 and you would need to look at your own subscription docs with Spark to see if they outline their own fees and carried interest.

Although, I can speculate with pretty strong certainty that you are receiving a slightly lower return than direct to Rise48 investors. If Spark creates an entity, operating agreement, blue sky filings, SEC filings, etc, that all costs money this is cost a, presumably, the LPs are reimbursing for. This could very well be $15,000 give or take. 

Additionally, since they are pooling investments at the Spark level, then investing as one entity into Rise48.  Rise48 is issuing a K-1 and the requisite accounting fees that go along with that, and then Spark will have to take that K-1 and split it apart to get to you, another set of accounting fees each year.  Depending on amount of capital raised, these costs may be de minimus, but they are real costs that are being incurred somewhere, and in a common syndication (or as Spark calls it "co-investment"), they typically are born by the investors (you).  Other downside in this arrangement, Spark can't do anything for your K-1 until Rise48 issues their K-1s.  So, if Rise issues on March 31, that is when Spark can START their work, so you are likely looking at extensions every year in your personal taxes.

[Stephen Heebner]

I am in the learning phase with syndication deals and I am not accredited yet I find these deals very attractive for my desired investing goals. Spark Rental seems super legit as I am learning more about them and syndication. Thanks for your thoughts!! I will keep following this thread.

[Dan Rowley]

Seems clear they are running a 'fund' model and they are not the lead sponsors/GPs.  It appears that the appears that very low investment minimums are a key selling point. 

You'll want to make sure you understand the K1/tax filing implications because if you own very small piece of let's say 10 properties in 10 different states you would potentially receive 10 K1s (one for each deal) and 'may' have tax filing requirements in 10 states.  Consult your CPA but this may be way more trouble than it's worth for very small $ investment(s).

[Cliff Garcia]

Thanks again Dan and Evan. This is exactly the kind of feedback I was hoping for. Not just for myself but others too that are looking to invest safely outside of the typical 401K/403b 

[G. Brian Davis]

Hey, figured I'd chime in as the cofounder of SparkRental :-) 

To clarify: We're not a fund of funds. We're not a sponsor or capital raiser, we don't get a cut of any of the money invested. 

Instead, we charge a flat membership fee. If you think of an old school investment club where members get together every month to discuss and vet stock investments and then invest together, it's like that, but instead of stocks we focus on passive real estate investments. 

We bring in different sponsors each month to vet together and review their current deal. Any members who want to invest can do so (minimum $5K), and we form a joint venture LLC as the singular investor (the limited partner) in that syndication deal. Collectively, we meet the minimum investment for the syndication.

You're right of course that we're at the mercy of sponsors for K1s. We encourage all members to file extensions for their personal tax returns, because we just don't know when each joint LLC will receive K1s. And then an accountant has to split the K1 into each individual members' K1s. Accounting costs are shared among LLC participants, which do slightly reduce take-home returns, but that's the price of going in on these deals together with small amounts per person.

Hope that makes sense, and feel free to message me any time with questions!

[Christie Gahan]

G.Brian Davis:  How do you handle funds that due a cost seg study?

[Evan Polaski]

Thanks for confirming, Brian.  While I was trying to be clear about not having any experience with you, I don't know if many people understand the fund of funds or co-sponsor structures and if/how they bring any value.  Particularly with all the 506(c) offerings marketing themselves, and having $25k minimums, as many do, it is a hard sell to see how a Fund of Funds, who will have their own fees and carry make any sense.  

Clearly, what you are doing is different, as it is a membership model first and foremost.  Out of curiosity, are you only investing in 506(b) and Reg A offerings?

Also, if the groups that you are investing with offer any type of tiered structure, are you typically pooling enough capital to fall into a higher tier? If so, are you sharing that capital directly to all the members in your LLC? I have seen some people that don't come in as a GP or fund of funds, but they are pooling $500k+ together, which may get them an 80/20 split versus 70/30. And in these instances, the "fee" the pooler gets is that 10% difference, i.e. LLC collects the 80% of profits, and pooler takes their 10%, leaving the standard 70% of profits for their members.

[G. Brian Davis]

Quote from @Christie Gahan:

G.Brian Davis:  How do you handle funds that due a cost seg study?

Hey Christie, in most deals the sponsor does a cost segregation study, which helps accelerate depreciation. That shows up as an on-paper loss on the K1 for our joint LLC, which then gets split up proportionately to individual K1s for each participating member.
Bottom line: it works the same way for us as it does if you were to invest individually in a syndicate.

[G. Brian Davis]

Quote from @Evan Polaski:

Thanks for confirming, Brian.  While I was trying to be clear about not having any experience with you, I don't know if many people understand the fund of funds or co-sponsor structures and if/how they bring any value.  Particularly with all the 506(c) offerings marketing themselves, and having $25k minimums, as many do, it is a hard sell to see how a Fund of Funds, who will have their own fees and carry make any sense.  

Clearly, what you are doing is different, as it is a membership model first and foremost.  Out of curiosity, are you only investing in 506(b) and Reg A offerings?

Also, if the groups that you are investing with offer any type of tiered structure, are you typically pooling enough capital to fall into a higher tier? If so, are you sharing that capital directly to all the members in your LLC? I have seen some people that don't come in as a GP or fund of funds, but they are pooling $500k+ together, which may get them an 80/20 split versus 70/30. And in these instances, the "fee" the pooler gets is that 10% difference, i.e. LLC collects the 80% of profits, and pooler takes their 10%, leaving the standard 70% of profits for their members.

Great questions Evan. We only consider investments that allow non-accredited investors, which in most cases means 506(b), Reg A, or Reg CF filings. We've also occasionally invested in notes that allow non-accredited investors.

As for better profit splits and preferred returns, we are just now reaching the size to be able to hit the higher tiers. We've hit it on one deal, and are hoping to hit it for this month's deal as well. The higher splits go directly to the participating investors, we don't take any cut. We try to make it very clear that we aren't selling securities, and therefore aren't allowed to take a cut of profits or investments. It's purely a flat fee membership model.

[Denise Supplee]

Hello All,
I am Deni from Spark Rental. Let me start off by saying WE ARE NOT A SYNDICATOR. We are simply a real estate investing club that vets and invests in various deals together. Spark Rental manages the day-to-day stuff. We do not have any affiliate relationships with any syndicators. That would not be fair to club members and our goal is to offer passive investing and learning as a group!  And as for Rise 48. We have had nothing but good experiences with them thus far. But we do not favor them over any one! Our mission is to bring truly passive real estate investing to every one with as little as $5K to invest. We strongly believe that diversifying the various investments is important and offer extreme transparency. 

Any questions you may have, feel free to reach out!