Anyone has invested with Open door capital? How was your experience?

[Hemal Adani]

Hi, I'm curious to learn how your experience has been with Open door capital or something similar. Pros & Cons. Also post if you know something similar.

[JD Martin]

Quote from @Jeremy H.:

I am trying to understand the benefits of investing in a syndication - is it the monthly/quarterly distributions? Dividend stocks can do this. Is it the diversification? Stocks again can diversify (and frankly I don't see the benefit in investing in real estate related stocks - there are much better options) Are there any tax benefits?

Most of the reason I got into RE is because I control the asset. I control the price I buy at (equity gain at the buy), I can force appreciation on my own terms, I get the monthly cashflow, I get direct tax benefits, appreciation and loan paydown that directly affects my net worth since I own the asset. Without those benefits, I think I'd just stick the the stock market...easier, simpler, longer history, solid returns over the long term...

 Boiled down it's the idea of owning RE without any of the theoretical "headaches" of owning it - you don't have to come up with all the funds for purchase; you don't have to manage it; you don't have to unclog toilets; ETC. In theory, you have experienced people buying large value-add properties, bringing them up to snuff and then returning a good portion of the returns back to you in the form of dividends. 

So you're exactly right. There's no real tax benefit here, no forced appreciation (at least on your end), no loan paydown, etc. You're no better or worse off, as far as a vehicle, than any mutual fund you can buy from Fidelity or Vanguard or anyone else. Are you better performance wise? That depends, but you can see from a bunch of posts on here that so far you're getting shafted performance-wise because a bunch of people aren't getting any dividends during a time when they could easily be earning 4-5% or more in a basic bank CD. As far as I'm concerned if you invest in a syndication of any real size, where you are a seriously minority owner, you don't own anything better than a mutual fund. Now if you're one of 10 investing in something - say a million each into a $10 mil complex - that's a different story. In a situation like that, if the market is right and the research is right, you're earning essentially everything you would in just owning the property outright, other than the fact that you won't get the tax benefits (but your LLC will).

PS: If you take a stroll through the Reddit boards, you will see a boatload of unhappy investors, who are reporting many of the funds have frozen dividends, increased escrow and capital calls and management fees. This isn't necessarily just the fault of ODC - REITs in general have been taking it on the chin lately - but I think it's a serious wake-up call that being famous doesn't necessarily translate into profitability. It's also another reason I could think of a lot better places to put my managed money than in REITs, especially those that are catering to Class C or below tenants. 

[Carlos Ptriawan]

Quote from @Jeremy H.:

I am trying to understand the benefits of investing in a syndication - is it the monthly/quarterly distributions? Dividend stocks can do this. Is it the diversification? Stocks again can diversify (and frankly I don't see the benefit in investing in real estate related stocks - there are much better options) Are there any tax benefits?

Most of the reason I got into RE is because I control the asset. I control the price I buy at (equity gain at the buy), I can force appreciation on my own terms, I get the monthly cashflow, I get direct tax benefits, appreciation and loan paydown that directly affects my net worth since I own the asset. Without those benefits, I think I'd just stick the the stock market...easier, simpler, longer history, solid returns over the long term...

The actual benefit of syndication is only if there are special event where sponsor is so smart they can make 30 percent IRR in industrial space , but for multifamily no such thing exist ..

also with common waterfall these days most risks are taken by LP investor while GP reaps the most benefit.The actual benefit of syndication is we make GP very rich lol

[Carlos Ptriawan]

Quote from @JD Martin:

Quote from @Jeremy H.:

I am trying to understand the benefits of investing in a syndication - is it the monthly/quarterly distributions? Dividend stocks can do this. Is it the diversification? Stocks again can diversify (and frankly I don't see the benefit in investing in real estate related stocks - there are much better options) Are there any tax benefits?

Most of the reason I got into RE is because I control the asset. I control the price I buy at (equity gain at the buy), I can force appreciation on my own terms, I get the monthly cashflow, I get direct tax benefits, appreciation and loan paydown that directly affects my net worth since I own the asset. Without those benefits, I think I'd just stick the the stock market...easier, simpler, longer history, solid returns over the long term...

 Boiled down it's the idea of owning RE without any of the theoretical "headaches" of owning it - you don't have to come up with all the funds for purchase; you don't have to manage it; you don't have to unclog toilets; ETC. In theory, you have experienced people buying large value-add properties, bringing them up to snuff and then returning a good portion of the returns back to you in the form of dividends. 

So you're exactly right. There's no real tax benefit here, no forced appreciation (at least on your end), no loan paydown, etc. You're no better or worse off, as far as a vehicle, than any mutual fund you can buy from Fidelity or Vanguard or anyone else. Are you better performance wise? That depends, but you can see from a bunch of posts on here that so far you're getting shafted performance-wise because a bunch of people aren't getting any dividends during a time when they could easily be earning 4-5% or more in a basic bank CD. As far as I'm concerned if you invest in a syndication of any real size, where you are a seriously minority owner, you don't own anything better than a mutual fund. Now if you're one of 10 investing in something - say a million each into a $10 mil complex - that's a different story. In a situation like that, if the market is right and the research is right, you're earning essentially everything you would in just owning the property outright, other than the fact that you won't get the tax benefits (but your LLC will).

PS: If you take a stroll through the Reddit boards, you will see a boatload of unhappy investors, who are reporting many of the funds have frozen dividends, increased escrow and capital calls and management fees. This isn't necessarily just the fault of ODC - REITs in general have been taking it on the chin lately - but I think it's a serious wake-up call that being famous doesn't necessarily translate into profitability. It's also another reason I could think of a lot better places to put my managed money than in REITs, especially those that are catering to Class C or below tenants. 

 What people donot know is LP investor with 10 different syndicators are going nuts with how each syndicators are not performing , calling each of them in weekly basis lol …. There is no such thing as passive LOL syndication is actually the worst of everything in reality due to lack of control

[Ian Ippolito]

Quote from @Hemal Adani:

Hi, I'm curious to learn how your experience has been with Open door capital or something similar. Pros & Cons. Also post if you know something similar.

Every investor comes from a different financial situation and has different financial goals and risk tolerance. So the same investment that one investor thinks is great will look terrible to another and vice versa.

I'm a conservative investor and so I require my real estate sponsors to have full real estate cycle experience (with little to no money lost) so they're not learning expensive lessons with my money during a downturn. I also want high skin in the game, conservative leverage and reasonable fees.

Open-door isn't a match for me (and an easy "no") because they don't have that type of experience.

Also, I don't like the use of more exotic structures/financial engineering which increase risk ( and aren't necessary when good real estate is purchased at a good price with solid fundamentals). 

Also, their past decks don't provide the type of basic information that any sophisticated investor would need to evaluate them (like skin in the game etc.). This is often the case with sponsors who market to unsophisticated investors. And if that's the situation with them...then it would be another immediate red flag for me (because I find these types of sponsors always have multiple things I can't stomach).

Also there are other sponsors in their asset class that have better fees.

A different investor will have a different opinion (and may be completely okay with them)...and that's fine too.

[Ian Ippolito]

Quote from @Jeremy H.:

I am trying to understand the benefits of investing in a syndication - is it the monthly/quarterly distributions? Dividend stocks can do this. Is it the diversification? Stocks again can diversify (and frankly I don't see the benefit in investing in real estate related stocks - there are much better options) Are there any tax benefits?

Most of the reason I got into RE is because I control the asset. I control the price I buy at (equity gain at the buy), I can force appreciation on my own terms, I get the monthly cashflow, I get direct tax benefits, appreciation and loan paydown that directly affects my net worth since I own the asset. Without those benefits, I think I'd just stick the the stock market...easier, simpler, longer history, solid returns over the long term...

Jeremy, I own both directly own real estate and passive investments via syndication/crowdfunding. And in my opinion both have their pros and cons and neither is superior to the other (and that's why I have both in my portfolio).

Passive investments can be structured in virtually any way and usually they pass on the exact same tax benefits as direct (at least from the ones that I consider to be "acceptable").

And sometimes it can be a little bit better. For example: the multifamily sponsors will usually pay the considerable extra cost required to do a cost segregation analysis and this will increase the investor depreciation in the early years (versus an individual, direct investor who often will skip doing this because of the cost).

The advantage of the passive investment is that you don't do any work. You just have to perform due diligence on the sponsor and deal and then you're done. Also (if you choose well), you are hiring a manager who has many more years of experience than you can ever hope to have, and will avoid rookie mistakes.

The downside is that not everyone feels comfortable doing due diligence on sponsors.

Also, there is no ability to put in sweat equity and get an increased return (like with directly own real estate).

Also if someone wants to do something custom/unique, they may not be able to with the passive investment. For example I hold the core of my real estate holdings without debt (because I'm a conservative investor and I'm more concerned about preventing a loss of money than I am with attempting to maximize potential return). And it's pretty much impossible to find a passive investment for that (and can only be done directly).

[Mark F.]

Quote from @Devin Ponda:

Quote from @Chris Seveney:

@John McCullough

Companies that have good reputations are PPR, aspen and Labrador lending

 Chris, 

Would you be willing to let us know if you've invested in any of these 3?

-Devin

 Since Chris can't say this, I will. Chris runs a debt fund, 7E investments. You can find tons of info on YouTube, Google his name or company, his podcast (creating wealth Simplified) and website. People have posted about it on BP too. I invest in it and have been happy. Excellent communication by his team and hasn't missed a distribution in almost a year ive been invested. Minimum $5k investment and pays 8%. 

[Carlos Ptriawan]

Quote from @Travis Timmons:

My take is that if a fund has an influencer's name attached to it, they're core competency is promotion and fund raising rather than being a good operator. It's the equivalent of the guy with the expensive car and big house acting rich vs. the actual rich guy that lives in a modest house, drives an old truck, and buys his clothes at Costco. Give me the boring option that promises a modest return all day.

Yes ...

The problem with syndication mainly twofolds :
1. they are targeting newbie investors, many times with financial due diligence unawareness, these newbie investor doesn't know which syndicator has actually good operating company with established vertical or just two three people operation. You can't tell because they're private.
2. because they are under "private" business category, they are not bound like public company to give standard financial report, communication, due diligence or financial reporting like REIT.

I am pretty sure in future there're more regulations and restriction being put into syndication business.

[Jim Peret]

I invested in Open Door Capital's Sunbelt Diversified Fund.  Been 18 months and I received an annual return of 1.5% for 3 months and distributions are currently paused for a number of reasons. Low vacancy, tax increase, interest rate increases and insurance increases. I guess they didn't do much due diligence but then I didn't do a good job of it myself or I wouldn't have invested with them.  I know at least two more of their funds have paused distributions also. I mainly invested with them because Brandon Turner was running it. 

[Becca F.]

These comments are all very informative. I briefly looked at Open Door Capital because of Brandon Turner and decided to pass since it hasn't been around long enough. Syndication appealed to me because of the headaches of OOS investing and finding a property, managing the property manager, etc.

I've talked to 2 larger syndicators which I posted about in a separate post. They do public debt funds, apartment complexes (in Southern California and the Southeast), car washes and self storage. The apartments didn't look like Class C but looked to be brand new nice complexes with amenities: pool, gym etc. #1 has been in business for 10 years, not enough for a full estate cycle and #2 said they've been in business since 1988 (or at least some of GPs involved). #2 I may have considered (apartment buildings on SoCal or real estate debt fund).  

I talked to 2 smaller syndications, both were seeking investors in apartment buildings, one was in Michigan near the Indiana border. Syndicator #1 gave me the timeline for a 5 to 7 year hold then would sell. He said several NBA players were investing. I guess I was supposed to be impressed by that. For $100,000 investment, nope. Syndicator #2 buys apartment buildings in the Detroit area and is looking for a bigger project.

My hesitancy is that my money is tied up in that syndication and it would be difficult to get it out and I didn't see what the tax benefits were especially a real estate debt fund. I tend not to put my money in things I don't fully understand so I'm putting my money in HYSA and index funds for now. 

[Jason Allen]

I know of a property here in Columbus, Ohio where offerpad bought the property at 470k. They put 25k in to it. Then sold it for 434k. Not sure how one would make money on this.

[Al Pat]

All of the syndications I invested in are performing very poorly. All have stopped distributions and are less than 0.75 DSCR, so refinance will be hard as well. I am not sure what the outcome will be but I have STOPPED investing into syndications and focusing on my own rentals that I can control and manage. My two cents, stay away from syndications for now for a long time, I may never enter into them ever again but that is me.

[Carlos Ptriawan]

Quote from @Al Pat:

All of the syndications I invested in are performing very poorly. All have stopped distributions and are less than 0.75 DSCR, so refinance will be hard as well. I am not sure what the outcome will be but I have STOPPED investing into syndications and focusing on my own rentals that I can control and manage. My two cents, stay away from syndications for now for a long time, I may never enter into them ever again but that is me.

 syndication is actually buying and selling cap rate, cap rates currently went down 200 bps so whatever they do it's guaranteed they would lose money.

one biggest issue with syndicator is during 2021 (low interest rate era) they purchase very low cap asset with floating debt while CPE is increasing, that's suicidal if they know a bit of macroeconomics.

sorry guys....

[Carlos Ptriawan]

Quote from @Al Pat:

All of the syndications I invested in are performing very poorly. All have stopped distributions and are less than 0.75 DSCR, so refinance will be hard as well. I am not sure what the outcome will be but I have STOPPED investing into syndications and focusing on my own rentals that I can control and manage. My two cents, stay away from syndications for now for a long time, I may never enter into them ever again but that is me.

 even during good times, you would perform better by buying direct asset compare to invest as LP syndicators.

[Carlos Ptriawan]

Quote from @Becca F.:

These comments are all very informative. I briefly looked at Open Door Capital because of Brandon Turner and decided to pass since it hasn't been around long enough. Syndication appealed to me because of the headaches of OOS investing and finding a property, managing the property manager, etc.

I've talked to 2 larger syndicators which I posted about in a separate post. They do public debt funds, apartment complexes (in Southern California and the Southeast), car washes and self storage. The apartments didn't look like Class C but looked to be brand new nice complexes with amenities: pool, gym etc. #1 has been in business for 10 years, not enough for a full estate cycle and #2 said they've been in business since 1988 (or at least some of GPs involved). #2 I may have considered (apartment buildings on SoCal or real estate debt fund).  

I talked to 2 smaller syndications, both were seeking investors in apartment buildings, one was in Michigan near the Indiana border. Syndicator #1 gave me the timeline for a 5 to 7 year hold then would sell. He said several NBA players were investing. I guess I was supposed to be impressed by that. For $100,000 investment, nope. Syndicator #2 buys apartment buildings in the Detroit area and is looking for a bigger project.

My hesitancy is that my money is tied up in that syndication and it would be difficult to get it out and I didn't see what the tax benefits were especially a real estate debt fund. I tend not to put my money in things I don't fully understand so I'm putting my money in HYSA and index funds for now. 

 Here's basic rules :

If cap rate is less than 5 year yield, never invest to any commercial real estate. When the curve flips, invest.

[Jeff Lacher]

I was looking for this kind of info. Thank you for the informative posts on your experiences.  Have they done any capital calls?  Did anyone look at how they have projected for a rise in insurance and labor costs?  The timing and underwriting of previous funds has made me hesitant to pull the trigger.   Out of the first 9 funds how many are outperforming their projections  and yielding positive experiences for investors? 

[Rudy Bello]

I'm part of one that's very good. Hit me up for more details.

[Brice Craig]

Anyone else invested in their fund 10?

[John G.]

Returns are low likely because ODC overpaid for everything and dont have anyone experienced with mobile home parks on their team. They are marketers, not operators. Beware syndicators active on social media. The best ones are the ones who dont heavily advertise in my experience

[Sean Barber]

I’m in Fund 4, Cypress and Sunbelt. All performing poorly and all have stopped distributions. Sunbelt is 94% below projections. That doesn’t happen without poor underwriting, I don’t care how many economic disadvantages they’ve had to endure. Run from ODC!

[Mark Lopez]

I am in the ODC Sunbelt portfolio fund and, like others mentioned, seen very poor performance since inception. Performance continues to degrade with latest update. I invested in 3 other syndications around the same time with other sponsors and ALL are outperforming ODC.

The business case was not well designed. Looks like a young group of professionals with not enough experience, navigating through various market cycles to produce an accurate  business case.  I don’t think they  accounted for any degradation in the first year(s). This caused then to have to suspend distributions and lost a lot of investor confidence.   I think this is the case of a group that did great when the market was but does not know how to navigate the current market

Frankly, the ODC group feels leaderless. I don’t know how involved Brandon Turner is, but seems like he is spending more time focused on other end endeavors. 

[John McCullough]

What other syndications have you invested in that you have been happy with the performance?

[Mark Lopez]

Quote from @John McCullough:

What other syndications have you invested in that you have been happy with the performance?

Two groups that I will consider investing with again are Colony Hills Capital for multi family and FNRP, which specializes in grocery and big box store anchored retail spaces. 

[Lu Kang]

Quote from @Carlos Ptriawan:

one biggest issue with syndicator is during 2021 (low interest rate era) they purchase very low cap asset with floating debt while CPE is increasing, that's suicidal if they know a bit of macroeconomics.

sorry guys....

 Not all syndications purchase properties with variable rates, if anything the group hit hard are those that raised money during 2021 & 2022 at record low rates and pushed quick turnaround value adds. Those who couldn't rehab in time are now stuck with higher rates / rate cap insurance. If you got in but with a fixed rate, you have more runaway but I'm sure rent projections are also coming down. 

In the prior years it seemed all syndicators made money due to cheap debt, now it seems you have to be able to capitalize on somebodies mistake and get in cheap, same as buying a SFH.

, now if specify those who sydincators who did 

[Chris Seveney]

Quote from @Lu Kang:

Quote from @Carlos Ptriawan:

one biggest issue with syndicator is during 2021 (low interest rate era) they purchase very low cap asset with floating debt while CPE is increasing, that's suicidal if they know a bit of macroeconomics.

sorry guys....

 Not all syndications purchase properties with variable rates, if anything the group hit hard are those that raised money during 2021 & 2022 at record low rates and pushed quick turnaround value adds. Those who couldn't rehab in time are now stuck with higher rates / rate cap insurance. If you got in but with a fixed rate, you have more runaway but I'm sure rent projections are also coming down. 

In the prior years it seemed all syndicators made money due to cheap debt, now it seems you have to be able to capitalize on somebodies mistake and get in cheap, same as buying a SFH.

, now if specify those who sydincators who did 

 Exactly, for example we run a fund and have zero debt. Interest rates have no significant impact on our investments. 

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Lu Kang:

Quote from @Carlos Ptriawan:

one biggest issue with syndicator is during 2021 (low interest rate era) they purchase very low cap asset with floating debt while CPE is increasing, that's suicidal if they know a bit of macroeconomics.

sorry guys....

 Not all syndications purchase properties with variable rates, if anything the group hit hard are those that raised money during 2021 & 2022 at record low rates and pushed quick turnaround value adds. Those who couldn't rehab in time are now stuck with higher rates / rate cap insurance. If you got in but with a fixed rate, you have more runaway but I'm sure rent projections are also coming down. 

In the prior years it seemed all syndicators made money due to cheap debt, now it seems you have to be able to capitalize on somebodies mistake and get in cheap, same as buying a SFH.

, now if specify those who sydincators who did 

 Exactly, for example we run a fund and have zero debt. Interest rates have no significant impact on our investments. 

Other than new construction development same here we have no senior debt its all cash.. of course unlevered returns are are a little less but man is it so much easier to manage and not worry about paying the senior debt all the reporting One has to do etc etc.. having been through a terrible down cycle with syndication decades past and watching what the guys I worked for went through and lost I just decided if we cant pay cash I am not going to do it.  On development deals we have to but I only use my bank that I have a 30 year relationship with and I put in our loan docs up front an unwind clause if it comes to that so the only way they would call a loan is if I walked away and deserved to have it called.. You get into bed with these big lenders and all the fine print its like the Paul Simon song there are 50 ways to default and they will find one.