01/2024 - Thoughts on Syndications / Investment Clubs

[Andres Mata]

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

[Evan Polaski]

To layer on Carlos' response about buying directly, as he notes, the risks are all yours, and the rewards are all yours.  I would argue that at the end of the day, there are good syndicators and bad ones.  There are good single family properties to buy and bad ones.  There are good stocks to buy and bad ones.  It all comes down to your comfort and knowledge.  And unfortunately, most knowledge will gained by doing.  You can read all the opinions on these forums you want, but at the end of the day, you will find people who have been burned by syndications and others that are more than thrilled with their syndication investments.  You will find people who ONLY buy single family homes directly and see all the value there, and others who have been burned and or see all the work required.

One thing I always agree with Carlos on is: there is no such thing as passive when it comes to your money, if you want to keep it.  Passive does have a definition from an IRS standpoint, but to everyone else: passive is a subjective term.  And, while you are taking risk by investing in anything, if you are buying single family homes, you should be touring them and managing your properties or your property manager, you should check in on them, watch the financial statements, etc.  If you are investing in syndications, you need to be keeping tabs on syndicator, the deals, understanding debt terms, operational performance, etc.  All of this is work.  The same is true for the stock market.  You can trade yourself, you can hire a financial advisor, but either way if you want to keep your money, you should be watching what your investments are doing, otherwise how would you know if you should be reducing your position in certain stocks, or if your advisor isn't giving you terrible advice.

[Justin R.]

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

I wouldn't lump Open Door Capital into this same group. The general partners of ODC are more conservative underwriters, and the assets they invest in are less likely to endure large fluctuations than the other two Syndicators you mentioned. 

I believe branch managers at the bank still get paid even with rates are low or zero, as management doesn't stop because of the cycle.

I respect your opinion, and you may be correct on a few of your points. Just offering my view.

Cheers!

[Calvin Thomas]

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

I wouldn't lump Open Door Capital into this same group. The general partners of ODC are more conservative underwriters, and the assets they invest in are less likely to endure large fluctuations than the other two Syndicators you mentioned. 

I believe branch managers at the bank still get paid even with rates are low or zero, as management doesn't stop because of the cycle.

I respect your opinion, and you may be correct on a few of your points. Just offering my view.

Cheers!

Just like when someone wants to own gold, silver or platinum. They can hold the asset or they can buy a stock or ETF. Should the stock or ETF go bust, they now own nothing. This is the difference between syndications and owning the actual building. I've started may years back, decades in NYC when it was tough. Rates were in the double digits and terms weren't the greatest. I've raised and torn down single family homes, gutted condos, and five and six story buildings.

I can tell you that owning the land and the building allows you to have options. Holding unregulated shares in these syndications is the wild wild west and most will lose your shirt. I do not know this Turner dude nor care to. I know he's a God here, but I am just laying down the facts and they are presented. They also stopped or "paused"; so I throw them into this bucket too. I will throw DJT back in the 80's with his version of junk bonds, I mean syndications (as they are now called for the smaller players). Mr. Trump did the same thing.

At least, there's some regulation with the high yield debt (regulated by the SEC). There is practically no regulation on these syndications aside from a statement from the stakeholder. This is snake sales through and through. Unless they have their own cash; and tens of millions of it, most will drown. None of them, Turner, Cardone, Ashcroft, etc. have ever been in a downturn economy. These are all yound turks (younger than 50, most in their 30's and 40's) who have zero experience in the downturn.

They purchased a few homes, renovated, and jumped on Bigger Pockets when it was young to establish themselves as authorities. I am not a authority, never said I was. I, and many who know me, know that I have been building buildings in the NYC area since the 70s, so I've seen just about everything. Just because some writes a book, goes on a podcast and is popular on social media; doesn't mean they actually know what is going on. Borrowing money at 3% at a 5 or 7 year ARM is fine at the beginning, but none of these clowns thought that maybe there will be aggressive rate hikes coming down the pike.

Honestly, that just shows their inexperience due to all of the TARP and PPP money which flooded the market. There was no chance that the Feds around the world wouldn't raise their fund rate to combat run-away inflation.

Contrary to popular opinion, building and managing properties isn't easy. If you look at the bios of these companies, they have dozens of people filling unnecessary jobs and titles; it's hilarious. This is where the money is going. When they say the prop. management is taking a reduced fee. Guess who owns the PM firm? They do.  They are out of money or the banks are going to take control of the buildings and nothing is going to happen to them as they are getting their pound of flesh while the stakeholders are getting nothing. The properties, in time, will be repossessed and sold at auction. Nothing, again, will happen to the management aside from re-branding their company name; maybe. It's most likely a non-recourse loan, so everyone's personal credit is fine. No PG.

I've stated this was a fools game years ago. It's a shame this is becoming a reality. I've been in this business too long to see these schemes from a mile away.

Allow me to ask you and everyone else a question. We can use Cardone, as the example. If he is a "billionaire", why does he need your money? If he's getting 10-12% return, why not borrow at 8% and play the spread? You know why? Because he can't. He doesn't have the liquidity and it's less regulation and checks and balances through crowd funding than with underwriters.

Stay far away from this game; unless you like to lose money and increase your personal/family financial stress. 

[Rick Martin]

@Andres Mata the negative press will steal the headlines and become the front-page news. When it’s smooth sailing, we tend to float along, feeling good about ourselves and our investments in real estate, the stock market, crypto - any asset class. 

We learn about a person’s true character when faced with adversity. It’s no different when it comes to syndication. That’s when a team has a chance to prove its metal or run away and hide.

You probably do not hear the stories of how most syndicates are finding creative solutions to protect investor capital. When your stock or crypto is tanking, no one will be there to help you. For syndicators, it's their livelihood, and speaking for myself, I have relationships with many of my investors. Investors aren't numbers - they're people who are known and cared about. "It is a relationship business."

The right team will do everything possible to right the ship in the storm - which we faced last year.

Timing the market is never a good idea, but personally, I see it as a much improved time to buy, as pricing is down, some sales are distressed and sold at a discount, and interest rates appear to be heading in the right direction. Plus, teams are finding creative ways to increase cash flow in the face of these higher rates.

Make sure the market metrics are fundamentally sound and you know the true story of the deal. Understand the underlying assumptions of the underwriting (rent growth, revenue increases,  comps, exit cap), and ask all the questions you can.

Above all else, do your homework on who you invest with.

[Carlos Ptriawan]

Quote from @Evan Polaski:

To layer on Carlos' response about buying directly, as he notes, the risks are all yours, and the rewards are all yours.  I would argue that at the end of the day, there are good syndicators and bad ones.  There are good single family properties to buy and bad ones.  There are good stocks to buy and bad ones.  It all comes down to your comfort and knowledge.  And unfortunately, most knowledge will gained by doing.  You can read all the opinions on these forums you want, but at the end of the day, you will find people who have been burned by syndications and others that are more than thrilled with their syndication investments.  You will find people who ONLY buy single family homes directly and see all the value there, and others who have been burned and or see all the work required.

One thing I always agree with Carlos on is: there is no such thing as passive when it comes to your money, if you want to keep it.  Passive does have a definition from an IRS standpoint, but to everyone else: passive is a subjective term.  And, while you are taking risk by investing in anything, if you are buying single family homes, you should be touring them and managing your properties or your property manager, you should check in on them, watch the financial statements, etc.  If you are investing in syndications, you need to be keeping tabs on syndicator, the deals, understanding debt terms, operational performance, etc.  All of this is work.  The same is true for the stock market.  You can trade yourself, you can hire a financial advisor, but either way if you want to keep your money, you should be watching what your investments are doing, otherwise how would you know if you should be reducing your position in certain stocks, or if your advisor isn't giving you terrible advice.

Here's differences between stock index , GP syndication and and VC investments  in term of risk profile in general:

Stock index, the risk is shared with people all over the world, including people that's smarter than us (hedge fund manager for example). I dont have problem buying SPY at market peak because everyone 401k is shared in this index. This index would correlate to aggregate money being floated to the market. The return is limited and the downside is limited too and can be hedged appropriately.

GP syndication, is black box investing, we do hope and pray the GP is doing everything correctly. The risk is ourself, noone shared the risk except other LP. My neighbour would not care for me. The upside ? it's limited based on rent growth (we know $1000/mo can't be rent to $3000/mo tomorrow ). Typical IRR 8-14%. It has limited upside. However, GP has unlimited upside with limited downside. LP in other hand, has bigger size of downside with limited upside. Is mortgage-based investment always safe ? not really , it's all depend on valuation.

VC investment, is also black box investing, with higher risk but has unlimited upside when minimum one or two investment is succesful. If we invest to 10 companies, maybe 8 would go bankrupt, but two would make the return (hopefully) more than initial investment. It's very high risk. IRR can be 0 but can be north of 9999% too. Depending on market (lets say one invest at Tesla or OpenAI at the beginning).

So all these investment can be allocated appropriately based on investor risk perception, there's no correct answer for sure.

[Carlos Ptriawan]

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

At least, there's some regulation with the high yield debt (regulated by the SEC). There is practically no regulation on these syndications aside from a statement from the stakeholder. This is snake sales through and through. Unless they have their own cash; and tens of millions of it, most will drown. None of them, Turner, Cardone, Ashcroft, etc. have ever been in a downturn economy. These are all yound turks (younger than 50, most in their 30's and 40's) who have zero experience in the downturn.

biggest issue with syndication is these aspect of business has almost no financial transparency, it would change in the future for example.

they can at anytime stop redemption, stop distribution capital and issue capital call sometimes for their own mistake.

I can give name here : Crowdstreet LOL
this guy is asking capital call to pay for their fee (for their fund). Unbelievable.

And remind of their CEO that run away with investor money lol

[Carlos Ptriawan]

Quote from @Rick Martin:

You probably do not hear the stories of how most syndicates are finding creative solutions to protect investor capital. When your stock or crypto is tanking, no one will be there to help you. For syndicators, it's their livelihood, and speaking for myself, I have relationships with many of my investors. Investors aren't numbers - they're people who are known and cared about. "It is a relationship business."

We can always hedge our position in stock/stock index by placing order derivatives that would limit our downside.
I am quite mastering this aspect and this is what makes me more convenience for index investing (not stock but index).

In syndication we're literally on the mercy of GP (which hopefully a good guy) and the actual asset itself (hopefully they purchase the right asset without so many issues).

[Ian Ippolito]

I have 7 figures invested in both direct real estate (via residential rentals) and syndication/crowdfunding passive investments. In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio benefits from the diversification of both (and that's why I do both).

And, what I see on this conversation is that some people are looking at *one* particular type of syndication and assuming that *all* of them must be the same.

Those types of syndications (such as Cardone) are typically very aggressively underwritten (meaning higher execution risk), have sponsors who don't have full real estate cycle experience (meaning higher sponsor risk), have higher leverage ( meaning higher risk of default or suspended distributions), use floating rate loans ( meaning higher interest rate risk), have short-term debt ( meaning higher refinance risk), use financial engineering (meaning higher risk of missing the pro forma), lack signficant (or any) skin in the game (meaning higher risk of lack of alignment with conservative investors ). etc.

And it's 100% true that most of these are struggling now.

But at the same time there are many deals that weren't/aren't structured this way and are currently doing just fine.

So saying that *all* syndications are like Cardone (and thus too risky) is like saying *all* stocks are like Enron (and thus too risky). In reality there's a spectrum of risk available in the stock market and syndications and every other type of investment. And it's the job of the investor to make the choice that's best for them.

And yes, it's 100% true that many of those aggressive syndications also suffer from lack of sufficient transparency (and I personally find that unacceptable). On the other hand there are plenty of others that provide lots of transparency including all the way up to audited financials. 

And in addition many office investments (regardless of how they were underwritten) are struggling. But on the other hand, self storage and other asset classes are currently doing well. So things like asset class selection and strategy selection are important (and again...looking at just one doesn't mean all the others are going to be the same).

[Carlos Ptriawan]

These are the track record of good core-based GP
2022 average exit 0.40 bps with 10 year fixed debt 50% LTV

As of 2024 we still have negative spread, so better wait til good market condition arrives. Timing the market is key

[Carlos Ptriawan]

one way to invest is also to check who is investing. If credible investor like  @Chris Seveney , @Ian Ippolito , @Evan Polaski
or @Jay Hinrichs put their own 100k to the deal .... then I'm probably interested to put my own 25k. The quality of LP investor is very important as well.

Otherwise, meh ! LOL

it's kinda similar like vc investment, who is leading the investment it is interesting......

[Jay Hinrichs]

Quote from @Carlos Ptriawan:

one way to invest is also to check who is investing. If credible investor like  @Chris Seveney , @Ian Ippolito , @Evan Polaski
or @Jay Hinrichs put their own 100k to the deal .... then I'm probably interested to put my own 25k. The quality of LP investor is very important as well.

Otherwise, meh ! LOL

it's kinda similar like vc investment, who is leading the investment it is interesting......

no one should invest just because i say so or I have invested with a certain syndicator.. appreciate the kind words but investors need to figure this out for themselves.

[Rachel H.]

@Andres Mata I've looked into this myself. If you're interested, I can send you a few resources. Feel free to DM with any questions. Hope that helps! 

[Jay Hinrichs]

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

I wouldn't lump Open Door Capital into this same group. The general partners of ODC are more conservative underwriters, and the assets they invest in are less likely to endure large fluctuations than the other two Syndicators you mentioned. 

I believe branch managers at the bank still get paid even with rates are low or zero, as management doesn't stop because of the cycle.

I respect your opinion, and you may be correct on a few of your points. Just offering my view.

Cheers!

Just like when someone wants to own gold, silver or platinum. They can hold the asset or they can buy a stock or ETF. Should the stock or ETF go bust, they now own nothing. This is the difference between syndications and owning the actual building. I've started may years back, decades in NYC when it was tough. Rates were in the double digits and terms weren't the greatest. I've raised and torn down single family homes, gutted condos, and five and six story buildings.

I can tell you that owning the land and the building allows you to have options. Holding unregulated shares in these syndications is the wild wild west and most will lose your shirt. I do not know this Turner dude nor care to. I know he's a God here, but I am just laying down the facts and they are presented. They also stopped or "paused"; so I throw them into this bucket too. I will throw DJT back in the 80's with his version of junk bonds, I mean syndications (as they are now called for the smaller players). Mr. Trump did the same thing.

At least, there's some regulation with the high yield debt (regulated by the SEC). There is practically no regulation on these syndications aside from a statement from the stakeholder. This is snake sales through and through. Unless they have their own cash; and tens of millions of it, most will drown. None of them, Turner, Cardone, Ashcroft, etc. have ever been in a downturn economy. These are all yound turks (younger than 50, most in their 30's and 40's) who have zero experience in the downturn.

They purchased a few homes, renovated, and jumped on Bigger Pockets when it was young to establish themselves as authorities. I am not a authority, never said I was. I, and many who know me, know that I have been building buildings in the NYC area since the 70s, so I've seen just about everything. Just because some writes a book, goes on a podcast and is popular on social media; doesn't mean they actually know what is going on. Borrowing money at 3% at a 5 or 7 year ARM is fine at the beginning, but none of these clowns thought that maybe there will be aggressive rate hikes coming down the pike.

Honestly, that just shows their inexperience due to all of the TARP and PPP money which flooded the market. There was no chance that the Feds around the world wouldn't raise their fund rate to combat run-away inflation.

Contrary to popular opinion, building and managing properties isn't easy. If you look at the bios of these companies, they have dozens of people filling unnecessary jobs and titles; it's hilarious. This is where the money is going. When they say the prop. management is taking a reduced fee. Guess who owns the PM firm? They do.  They are out of money or the banks are going to take control of the buildings and nothing is going to happen to them as they are getting their pound of flesh while the stakeholders are getting nothing. The properties, in time, will be repossessed and sold at auction. Nothing, again, will happen to the management aside from re-branding their company name; maybe. It's most likely a non-recourse loan, so everyone's personal credit is fine. No PG.

I've stated this was a fools game years ago. It's a shame this is becoming a reality. I've been in this business too long to see these schemes from a mile away.

Allow me to ask you and everyone else a question. We can use Cardone, as the example. If he is a "billionaire", why does he need your money? If he's getting 10-12% return, why not borrow at 8% and play the spread? You know why? Because he can't. He doesn't have the liquidity and it's less regulation and checks and balances through crowd funding than with underwriters.

Stay far away from this game; unless you like to lose money and increase your personal/family financial stress. 

the main risk for those you mentioned is Reputation and I think investors especially heavy BP followers rely on reputation bias quite a bit. In other words it has to work so and so would never risk his reputation losing my 25k.

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Carlos Ptriawan:

one way to invest is also to check who is investing. If credible investor like  @Chris Seveney , @Ian Ippolito , @Evan Polaski
or @Jay Hinrichs put their own 100k to the deal .... then I'm probably interested to put my own 25k. The quality of LP investor is very important as well.

Otherwise, meh ! LOL

it's kinda similar like vc investment, who is leading the investment it is interesting......

no one should invest just because i say so or I have invested with a certain syndicator.. appreciate the kind words but investors need to figure this out for themselves.

 LOL I understand, in one of our investor club, the most seniors/experienced members chime in whether the offering is good. It's very very rare that they found something that's appalling for everyone.

Sometimes I see how GP and LP interacts is like a shark and small fish on the pond

[Evan Polaski]

One thing I will often ask is how many employees (non-partners) of a company will invest in the offerings of a syndication.  The challenge with many syndications that focus on the typical accredited investor (or sophisticated investor) is the actual partners will earn out their "investment" many times over as soon as a deal closes.  I.e. if the group is buying a $50mm apt complex and has a  2% acq fee, that is $1mm returned to GPs as soon as they close.  Now, let's assume the GP has two partners and each has $100k in the deal, collectively $200k.  The partners just made 5x their investment back the day they closed.  

Yes, I understand the cost of doing business and I am not opposed to a group making money.  But back to my point, if the W2 employees of the company are also putting in capital on a regular basis, it builds credibility for the company, as well, since these are likely also people with behind the scenes knowledge of the company, but without the same incentive (or market demand) to invest in the deals, like the partners have.

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

There's very recent research from Viceroy Research showing one lender has their weighted-average loan DSCR is now 0.61x ........

If private lender itself is collapsing who is going to have the ownership of the apartment ? or maybe someone is buying the lender for cheap ??? LOL

[Carlos Ptriawan]

Quote from @Evan Polaski:

One thing I will often ask is how many employees (non-partners) of a company will invest in the offerings of a syndication.  The challenge with many syndications that focus on the typical accredited investor (or sophisticated investor) is the actual partners will earn out their "investment" many times over as soon as a deal closes.  I.e. if the group is buying a $50mm apt complex and has a  2% acq fee, that is $1mm returned to GPs as soon as they close.  Now, let's assume the GP has two partners and each has $100k in the deal, collectively $200k.  The partners just made 5x their investment back the day they closed.  

Yes, I understand the cost of doing business and I am not opposed to a group making money.  But back to my point, if the W2 employees of the company are also putting in capital on a regular basis, it builds credibility for the company, as well, since these are likely also people with behind the scenes knowledge of the company, but without the same incentive (or market demand) to invest in the deals, like the partners have.

that's asymmetrical risk/reward ratio..... less reward and more risk for average investor like me lol

[Carlos Ptriawan]

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

are you saying paused distribution is okay ????

what's your affiliation with your syndication group ? what syndication group ? i would never invest at your investment/club if you think pausing distribution is okay.

[Calvin Thomas]

Quote from @Jay Hinrichs:

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

I wouldn't lump Open Door Capital into this same group. The general partners of ODC are more conservative underwriters, and the assets they invest in are less likely to endure large fluctuations than the other two Syndicators you mentioned. 

I believe branch managers at the bank still get paid even with rates are low or zero, as management doesn't stop because of the cycle.

I respect your opinion, and you may be correct on a few of your points. Just offering my view.

Cheers!

Just like when someone wants to own gold, silver or platinum. They can hold the asset or they can buy a stock or ETF. Should the stock or ETF go bust, they now own nothing. This is the difference between syndications and owning the actual building. I've started may years back, decades in NYC when it was tough. Rates were in the double digits and terms weren't the greatest. I've raised and torn down single family homes, gutted condos, and five and six story buildings.

I can tell you that owning the land and the building allows you to have options. Holding unregulated shares in these syndications is the wild wild west and most will lose your shirt. I do not know this Turner dude nor care to. I know he's a God here, but I am just laying down the facts and they are presented. They also stopped or "paused"; so I throw them into this bucket too. I will throw DJT back in the 80's with his version of junk bonds, I mean syndications (as they are now called for the smaller players). Mr. Trump did the same thing.

At least, there's some regulation with the high yield debt (regulated by the SEC). There is practically no regulation on these syndications aside from a statement from the stakeholder. This is snake sales through and through. Unless they have their own cash; and tens of millions of it, most will drown. None of them, Turner, Cardone, Ashcroft, etc. have ever been in a downturn economy. These are all yound turks (younger than 50, most in their 30's and 40's) who have zero experience in the downturn.

They purchased a few homes, renovated, and jumped on Bigger Pockets when it was young to establish themselves as authorities. I am not a authority, never said I was. I, and many who know me, know that I have been building buildings in the NYC area since the 70s, so I've seen just about everything. Just because some writes a book, goes on a podcast and is popular on social media; doesn't mean they actually know what is going on. Borrowing money at 3% at a 5 or 7 year ARM is fine at the beginning, but none of these clowns thought that maybe there will be aggressive rate hikes coming down the pike.

Honestly, that just shows their inexperience due to all of the TARP and PPP money which flooded the market. There was no chance that the Feds around the world wouldn't raise their fund rate to combat run-away inflation.

Contrary to popular opinion, building and managing properties isn't easy. If you look at the bios of these companies, they have dozens of people filling unnecessary jobs and titles; it's hilarious. This is where the money is going. When they say the prop. management is taking a reduced fee. Guess who owns the PM firm? They do.  They are out of money or the banks are going to take control of the buildings and nothing is going to happen to them as they are getting their pound of flesh while the stakeholders are getting nothing. The properties, in time, will be repossessed and sold at auction. Nothing, again, will happen to the management aside from re-branding their company name; maybe. It's most likely a non-recourse loan, so everyone's personal credit is fine. No PG.

I've stated this was a fools game years ago. It's a shame this is becoming a reality. I've been in this business too long to see these schemes from a mile away.

Allow me to ask you and everyone else a question. We can use Cardone, as the example. If he is a "billionaire", why does he need your money? If he's getting 10-12% return, why not borrow at 8% and play the spread? You know why? Because he can't. He doesn't have the liquidity and it's less regulation and checks and balances through crowd funding than with underwriters.

Stay far away from this game; unless you like to lose money and increase your personal/family financial stress. 

the main risk for those you mentioned is Reputation and I think investors especially heavy BP followers rely on reputation bias quite a bit. In other words it has to work so and so would never risk his reputation losing my 25k.

 These people, in my humble opinion, used their low tier celebrity or the craziness of the real estate market to sucker people in. Many people watch these reality tv shows about real estate and think it's easy. As I am sure you know, it's not. They are all snake oil salesman; through and through.

I don't know any of them, but one has the ego the size of a mountain, one is from BP fame and the other is just a bunch of nobodies who convinced people this was easy money. We need regulation. This is what government should do. Too many con-artists which are using social media to lure in innocent people.

I never raised outside capital; just used the BRRR method and multiplied from there. If I wanted to get with the 100 million dollar club, I'd just buy a REIT. I prefer owning the asset; not owning a share of the entity. Seems more like a co-op setup if you think of it; just worse. You own actually nothing of intrinsic resalable value.

[Carlos Ptriawan]

Quote from @Calvin Thomas:

Quote from @Jay Hinrichs:

Quote from @Calvin Thomas:

Quote from @Justin R.:

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

Do you believe active investments have no risk, and pay an exact return each month?

Yes, paused distributions cause frustration amongst investors, but it is reality. If you start seeing these big syndicators losing investors capital, then that is what most would consider the benchmark for failure. A paused distribution not so much. 

I wouldn't lump Open Door Capital into this same group. The general partners of ODC are more conservative underwriters, and the assets they invest in are less likely to endure large fluctuations than the other two Syndicators you mentioned. 

I believe branch managers at the bank still get paid even with rates are low or zero, as management doesn't stop because of the cycle.

I respect your opinion, and you may be correct on a few of your points. Just offering my view.

Cheers!

Just like when someone wants to own gold, silver or platinum. They can hold the asset or they can buy a stock or ETF. Should the stock or ETF go bust, they now own nothing. This is the difference between syndications and owning the actual building. I've started may years back, decades in NYC when it was tough. Rates were in the double digits and terms weren't the greatest. I've raised and torn down single family homes, gutted condos, and five and six story buildings.

I can tell you that owning the land and the building allows you to have options. Holding unregulated shares in these syndications is the wild wild west and most will lose your shirt. I do not know this Turner dude nor care to. I know he's a God here, but I am just laying down the facts and they are presented. They also stopped or "paused"; so I throw them into this bucket too. I will throw DJT back in the 80's with his version of junk bonds, I mean syndications (as they are now called for the smaller players). Mr. Trump did the same thing.

At least, there's some regulation with the high yield debt (regulated by the SEC). There is practically no regulation on these syndications aside from a statement from the stakeholder. This is snake sales through and through. Unless they have their own cash; and tens of millions of it, most will drown. None of them, Turner, Cardone, Ashcroft, etc. have ever been in a downturn economy. These are all yound turks (younger than 50, most in their 30's and 40's) who have zero experience in the downturn.

They purchased a few homes, renovated, and jumped on Bigger Pockets when it was young to establish themselves as authorities. I am not a authority, never said I was. I, and many who know me, know that I have been building buildings in the NYC area since the 70s, so I've seen just about everything. Just because some writes a book, goes on a podcast and is popular on social media; doesn't mean they actually know what is going on. Borrowing money at 3% at a 5 or 7 year ARM is fine at the beginning, but none of these clowns thought that maybe there will be aggressive rate hikes coming down the pike.

Honestly, that just shows their inexperience due to all of the TARP and PPP money which flooded the market. There was no chance that the Feds around the world wouldn't raise their fund rate to combat run-away inflation.

Contrary to popular opinion, building and managing properties isn't easy. If you look at the bios of these companies, they have dozens of people filling unnecessary jobs and titles; it's hilarious. This is where the money is going. When they say the prop. management is taking a reduced fee. Guess who owns the PM firm? They do.  They are out of money or the banks are going to take control of the buildings and nothing is going to happen to them as they are getting their pound of flesh while the stakeholders are getting nothing. The properties, in time, will be repossessed and sold at auction. Nothing, again, will happen to the management aside from re-branding their company name; maybe. It's most likely a non-recourse loan, so everyone's personal credit is fine. No PG.

I've stated this was a fools game years ago. It's a shame this is becoming a reality. I've been in this business too long to see these schemes from a mile away.

Allow me to ask you and everyone else a question. We can use Cardone, as the example. If he is a "billionaire", why does he need your money? If he's getting 10-12% return, why not borrow at 8% and play the spread? You know why? Because he can't. He doesn't have the liquidity and it's less regulation and checks and balances through crowd funding than with underwriters.

Stay far away from this game; unless you like to lose money and increase your personal/family financial stress. 

the main risk for those you mentioned is Reputation and I think investors especially heavy BP followers rely on reputation bias quite a bit. In other words it has to work so and so would never risk his reputation losing my 25k.

 These people, in my humble opinion, used their low tier celebrity or the craziness of the real estate market to sucker people in. Many people watch these reality tv shows about real estate and think it's easy. As I am sure you know, it's not. They are all snake oil salesman; through and through.

I don't know any of them, but one has the ego the size of a mountain, one is from BP fame and the other is just a bunch of nobodies who convinced people this was easy money. We need regulation. This is what government should do. Too many con-artists which are using social media to lure in innocent people.

I never raised outside capital; just used the BRRR method and multiplied from there. If I wanted to get with the 100 million dollar club, I'd just buy a REIT. I prefer owning the asset; not owning a share of the entity. Seems more like a co-op setup if you think of it; just worse. You own actually nothing of intrinsic resalable value.

 100% in agreement.

[Terra Padgett]

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

Syndications and Investment Clubs are not the same thing. While they may have a similar characteristic; as in pooling capital, they are quite different. True investment clubs are people coming together, reviewing opportunities, and pooling their capital together to invest in said opportunity.

I personally lead a passive REI club and I’m also a member of another one and we invest in real estate; syndications, funds, debt, equity, etc. Many benefits but diversifying with smaller amounts of capital across a wide array of assets/markets/operators really helps to avoid the horror stories of losing $50k/$100k. Nobody wants to lose any money, but losing $5k or $10k is a much easier pill to swallow than losing 50k or 100k. So I would highly recommend joining an investment club to help with the vetting and due diligence process of a syndication investment. 

I love discussing this type of stuff so feel free to DM me if you’d like to chat more and I can share some of my insights and experiences. 

[Ian Ippolito]

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

Andreas,

First, syndications and (true) investment clubs aren't actually the same thing. 

A syndication is a sponsor offering an investment opportunity to investors (and generally comes with lots of marketing spin). A true investment club is a place where investors can talk about a huge # of different offerings in a neutral setting (and away from sponsors and their spin).

What you're probably referring to are what I call "pseudo" investment clubs which limit their  discussion to a relatively tiny # of deals that also happen to be ones where the club is taking a cut from the sponsor (usually via a referral fee from the sponsor or a portion of the promote). And these generally cater to investors who are not sophisticated enough to know that they can access the exact same deals (and/or similar ones) directly (and/or through other means without paying that).

Regarding your question on timing: Every investor will have a different opinion on when to invest, because they come from a different financial situation, have different financial goals and have different risk tolerances.

As a conservative investor, I personally want to see only the sponsors that have long experience over at least one full real estate cycle with little to no money lost. I also want to see low leverage, fixed rate financing, long-term debt, high skin in the game and competitive fees and promotes. This is relatively rare to find.

And with these types of sponsors I personally employ a vintage year strategy which is similar to dollar cost averaging in the stock market. In other words, I don't invest all my money in a single year because you can't tell in advance if it will be a good or bad one). Instead I invest small amounts every vintage year.

On the other hand, many investors will invest in syndications I personally will touch ( newer sponsor, aggressive underwriting, high leverage, short term debt etc.) And if I were such an investor then I would be especially wary of investing in a time like now where a significant number of these types of deals have imploded...or are making unplanned capital calls to avoid implosion.

[Scott Trench]

The only thing more risky than picking syndications when you don't know what you are doing is attempting to pick funds of funds managers. 

On average, you increase your fees without decreasing any risk. 

[Ameet Mehta]

Hey Andres!

Investing in syndications and investment clubs can be a fantastic way to get into real estate without the hands-on hassle of managing properties yourself.

But given today’s market with all its ups and downs—economic uncertainty, inflation, and rising interest rates—it's totally understandable to feel a bit cautious. These conditions can affect property values and rental income, which might lead to lower returns or even paused distributions. That said, if you're thinking long-term (2-3 years or more), you might be able to ride out the current volatility.

To keep things on track, it’s smart to spread your investments across different types of assets and regions. Do your homework on the syndicator or investment club you’re considering—check out their track record, team, and investment strategy. Make sure you understand their plan for getting your money back and how they aim to provide returns.

Staying informed is vital for newcomers—learning about the market, connecting with other investors, and maybe starting with smaller investments to get your feet wet. You might also want to explore other options like Real Estate Investment Trusts (REITs) for more flexibility or even direct ownership of smaller properties if you want a bit more control.

But remember, even though the current market might feel a bit intimidating, focusing on long-term goals and making informed choices can help you navigate it confidently.