All Forum Posts by: Anthony Vicino

Quote from @Eli Shicker:

Quote from @Charles Carillo:

@Eli Shicker

The acquisition fee is a fee paid to the general partners for putting together the deal. 2% is a pretty standard acquisition fee. A disposition fee is a fee paid to the general partners when the property sells. Disposition fees are not as common as acquisition fees.

 Got it.  Do syndicators want to see a disposition fee in addition to equity? Or if they're getting equity in the syndication agreement is that fee waived?

That's correct, Eli. Syndicators will generally take the fees + equity. Very rare that you would see a group simply taking fees and not the equity.

As a prospective Limited Partner, I'd be super dubious of any group waving equity and only going for fees. This creates an inherent misalignment of interest as the GPs only goal will be to sell the property as soon as possible (so they can cash in on the fee).

Also, in this scenario the GP has no incentive for the deal to perform well besides the reputational damage they'll incur with their investors, thus making future deals less likely.

I'm a bit confused.

First, if it's a true syndication (even with family), then absolutely get an SEC attorney involved.

Second, if you're taking out a "private loan" from family, then that is not a syndication. You have a debt structure, whereas the syndication model is typically an equity structure.

If your family is giving you a loan, then a simple real estate lawyer will suffice.

Depending on where you live, there may be some government subsidies available to help offset the cost of going low-flow. Oregon is just one example. A recent deal a friend did there involved swapping out 20 showerheads/toilets. State funding paid for all the materials.

A 100% agree with that, @James Hamling!

I don't disagree in principle, @James Hamling, there are certainly great micro-rural markets with some decent deals, but in application that's not exactly the situation Jeff was presenting.

Jeff is talking about picking up a duplex that'll appraise for $30-40k. That suggests a real rough market, which is why I specified "sub-par assets in sub-par markets".

Are there great rural markets? Absolutely?

Is the one Jeff's looking at one of those? Me thinks not.

On the mobile home park front, it's a bit unfair to compare a MHP with a duplex.

Sure, they might both be in rural areas, but the MHP has benefit of scale coupled with incredibly low overhead. This is why it's the kind of CoC.

Again, there's nothing wrong with buying in a rural market, but the question all investors must answer before walking into a deal is: How are we exiting this thing?

As the illustrious Bill Hamm recounts his flight school instructor's lesson: "Takeoffs are optional. Landings are mandatory."

The fact that there's no competition in acquiring the asset might suggest there's going to be no competition when it comes time to sell.

Could be problematic.

That's awesome to hear, Jeff! I'm in Minneapolis. Shoot me a DM and we'll set up a lunch!

"Pessimists see difficulty in every opportunity. Optimists see opportunity in every difficulty." - Winston Churchill

True, some new ordinances have made it more difficult for landlords to operate and for investors to make a buck.

Still, there's no shortage of opportunities out there. The problem for most people is they fail to recognize the opportunities for what they are and therefore miss the ride entirely.

I would second @Adam Tafel's point that 2-12 units is a big spread because the loan vehicles you're going to utilize for these assets are drastically different.

Consider focusing either on 2-4 units or 5+. These are different beasts entirely.

For what it's worth, I vote 5+, but I'm horribly biased.

I generally agree with you @James Hamling , but I want to push on the concept that you "make money when you buy".

Technically all you've done at purchase is drop a bunch of money and take on even more debt for the opportunity to make money by successfully executing the business plan in the coming months and years.

Too many new investors jump into the game thinking they just have to "buy right", and they completely overlook the "execution" phase and how difficult that can be.

You're dead-on in the assessment that @Jeff Holmberg is going to make things more difficult than necessary by seeking out sub-par assets in sub-par markets.

Jeff, we get the urge to just do a deal, but Buffet's rules of investing (rule number one: don't lose money. rule number two: don't forget rule number one) are critically important.

Don't buy a negatively cashflowing asset as a new investor. You're setting yourself up for trauma.

Also, think long and hard about your exit strategy. There's a reason $70k duplexes in the sticks are selling for that.. it's because the cash flow is poor and they're in a low-demand area.

Sure, you can find a cheap deal out there because there's not a lot of competition, but it's that very lack of competition that makes these assets incredibly difficult to dispose of when you're ready to cash out.

Great questions, @Dimitri Savidis. Your mind is definitely already in the right place.

One of the things that's helped us scale multiple businesses relatively quickly has been to build from day one the systems and infrastructure necessary for the size company we intend to be in the not too distant future.

Of course, this forces you into the position where in the early days you're spending more time, energy, and resources laying a foundation that isn't technically needed quite yet.

Then again, it's really difficult to scale when you're constantly having to redesign or upgrade systems.

My best advice, hire sooner than you think you should, and build longterm systems from the very beginning.

So that's a general high-level take on scaling (which you're welcome to totally disregard if it doesn't apply to you!).

To answer your questions specifically.

1) If you have property management in-house then you can definitely realize the synergistic effects of having multiple properties within close proximity with one another.

If you're outsourcing to third party, well, you probably won't get too many benefits.

There are definitely discounts to be had on buying materials in bulk (appliances, floors, paint, etc...) which you can more easily justify when you have a larger portfolilo. When you're small, you'll be stuck more or less paying retail at Home Depot.

A massive synergy that is often overlooked is that when you have multiple properties within a certain vicinity, you have the ability to graduate tenants or laterally shift prospective tenants.

Example, you have a vacancy on a 2-bed unit at Building A and a tenant living in a 1-bed at Building B with a lease ending next month and who is now looking for a larger space. Wham, you're able to upgrade them to fill the 2-bedroom.

2) We're all about buying properties within a certain area of one another. We built a property management company from day one with the idea that we'd be scaling aggressively and wanted to be in full control of our resident's living experience. Keep in mind, building in-house PM is a different sort of headache, so think long and hard if that's the direction you want to go before running that way.

As with everything in life, the best way to set yourself up for success is to begin with the end in mind. From there, simply work back to where you are to decide what strategic moves need to be made next.

My question to you, Dmitri, is: What's the desired endstate you're building towards?

@Charit N.You're absolutely right about the midwest being overlooked (but still a fantastic place to find that magical combination of cashflow and appreciation).

Tons of growth happening around these parts.

We're focused exclusively on the Twin Cities (MPLS and St Paul), but know operators in pretty much every major midwest market you could possibly want to play in.

DM me and we can connect you to some awesome players.