All Forum Posts by: Joel Owens

One of my friends has his securities 7 license and does lots of raises for DST's and other various sources of capital needs (inventions, business start ups, etc.)

More than anything I myself look at the DIRT. If the dirt is amazing then if problem with the sponsor, the structure type, the tenant type, the debt type in the future you generally have options to cure. The reason is so many potential types of tenants and developers will desire that dirt. Now if you paid an insane price or above market rents with an ultra low cap rate and used really low fixed debt for 10 years not hardly ever seen again then you better have some great rental increases and mortgage paydown to help offset.

Multifamily lots of times the raisers projections are crap. When market shifts they do not meet those projections. If you go into a DST as an option you want it stable and predictable otherwise might as well look at value add with higher cash flow potential and equity upside.

Example if I am looking at Sams Club to buy all cash for 12 million with my raise that is absolute NNN at 7 cap. I buy for cash and then pay about 6 pref to start to investors but I KNOW Sams Club covers all the variable costs because it says so in the lease. Multifamily if the rent growth flatlines and the costs increase your bottom line erodes heavily and you the GP can't make the projections that were given to LP's to start.

Cap rates are not all equal which many people do not understand.

If I buy a Sam's club in Riverdale for 8 million at a 7 cap in no way is that worth the same as a Sam's club in Buckhead GA for 12 million at a 7 cap. One is a phenomenal area Buckhead and the other is more mediocre at best.

How to analyze investments whatever they are regular syndications, DST's, TIC's comes with experience and time.

REITS can be more highly volatile where they have super strong years and really negative years for returns.

An UPREIT is another tool in the toolbelt of investing. There is no magic pill out there that gives ultra returns and is ultra safe there are many investments along a SPECTRUM of risk and potential upside with varying degrees of potential tax benefits and deferment strategies. 

You have told us nothing of your specific situation and why you are asking these questions.

I typically deal with investors on NNN type properties where net worth as an individual is 7,8,9 figures. What they want to invest in and why is very specific to the individuals goals and age in life.

Someone might be worth 100 million and own no NNN and want to be ultra safe for their first one and go Chick Fil A with long term lease. They prioritize in their mind safety over yield. Chick Fil A's are often ground leases where rent is heavily below market. You get rental increases and if Chick Fil a ever leaves the site you often have upside converting to absolute NNN leases with a new tenant closer to market rents. Ground lease own just the land so no tax depreciation usually so not tax advantaged like absolute NNN. Sometimes people are really old like in their 80's in age or older and want to own Wal-mart with long term lease and not worry about anything. They already made their money and in wealth preservation mode.

Some investors are always focused on yield.

Without knowing your goals it's a bunch of noise without direction.   

DST's have lots of limitations. What appreciation do they have you ask? Not much in a bunch of cases. Just talk to securities 7 dealers that do raises for capital for DST's.

Cap rates of 3 IS NUTS. You are just asking for failure investing in that. That is why lots of multifamily larger deals are imploding right now and investors are losing tens of millions as LP's. 

WHY do people invest in DST's? They are often lazy and do not want to put the work in for choosing the right commercial property to own direct. They want to just sign some papers for their 1031 exchange and be done with it. Doing that way comes with lots of risk as you are just believing what is being sold to you without asking many questions. DST's have their place and purpose but are not the end all to be all investment.

You need to still make sure the deal is sound and if you need to exit the DST is it allowed later and at what discount would you need to sell off your shares.

Yeah I noticed newly accredited investors that make maybe 150k a year when they put in 25k to 50k want to the world. Not all but lots of them. It's just like people wanting me to broker their deals as NNN investor and used to buying houses and they think 400k is lot of money then I tell them minimum for good area and commercial tenant 1 million plus down payment and 3 million and up price.

In their mind it's tough to spend that kind of money. The accredited who make 500k and up a year to millions it's easier for them to put 200k here and 300k there etc. into syndications. 

Also a person worth 2 million who invests 200k into a syndication might take them many years again to invest with you because of limited capital.  

I try to buy what we think will be grand slam deals we syndicate. That way hopefully worse case we hit a single or double and still do well.

The syndicators using debt with the timing of the cycles and the stars to pull anywhere close to initial projections on the raise play a game of musical chairs where risk to loss is high.

Keep integrity. If it means doing less deals to syndicate then so be it. Keep a track record of success versus trying to grow net worth at all costs. I could not imagine deals having losses like that and the devastation to the investors and their families. I would not be able to sleep at night regardless of what the agreement said. Having said that a syndicator can never 100 percent predict what will happen with an investment. I think there is really trying to do your best as a syndicator and then gross negligence projecting deals that are riskier than they are but painting a picture of less risk to induce capital to purchase. Be upfront with investors and let them decide their risk level from a position of clarity. There are some syndicators who simply do not know what they are doing or not that experienced.

My minimum per accredited investor is 200k per deal. I have been in NNN for 20 plus years though.

Newer syndications what I see investors do that have tens of millions or higher is they will drop a small amount like 25k or 50k into those deals. It's like gambling for them but will want a much higher pref and much higher equity upside from syndicator because of little to no track record. If they lose some or all of their capital the LP with newbie syndicator then they make it up in a month with other investments and have tax write off. They only like to go deep in bigger amounts with proven performers and more regular prefs and split ratios.  

I have opposite problem. Lots of requests to have me on podcasts but finding the time..lol

Chris G sorry to hear that. Just remember ground up type project deals can sometimes have the fattest projections but also the most variables and risk. Construction can have unforseen costs, construction loans for rounds of funding can be more expensive over time, rent markets can drop, vacancies in market can increase.

Typically entitlement phase of land most risk, followed by development, followed by vacant building turn around, followed by half vacant building, followed by mainly full building with value add component, followed by brand new building with market or below in place rents and everything new with good location.

Along that spectrum of course you go from heavy equity upside potential to mainly just the cash flow return and hopefully price appreciation over time.

Investors have to decide on the spectrum of their risk assessment to capital over what period of time how they will allocate between all one type of investment or multiple and what percentages. That is an individual answer specific to each one's situation and risk tolerance level. 

I pay all cash double digit cap rates with NNN syndications. Buying in this way can weather cycles for optimal timing to exit and 1031 or refi with low debt. I have not been a believer in massaging debt to make the capital raise pref look appealing to accredited LP investors.

A bunch of years ago I sold some apartment buildings. One client had about 230 units across 7 buildings. The portfolio was being dragged down by the bad buildings taking all the good buildings cash. So they were doing a bunch of work for nothing. That taught me don't buy just to buy. Purchase based on feeling very confident and conservative about the deal. The portfolio might not scale as fast but the quality should be there with less headaches and more equity upside yields. Everyone is different that is just my approach. I remember me saying on here somewhere in a post many years ago that cycles can be a game of musical chairs when no more spots the investors crash. There was one investor who took short term 3 year debt so he could shave 30 basis points off the rate versus the 10 year fixed. Now the rate has over double and paying many millions more a year in interest because he got greedy.  

I can offer a unique perspective. I have been a NNN real estate broker for 20 plus years. I am also a syndicator as well where I am GP on value add and stabilized syndications we typically take down all cash.

I have been on this site a very long time pretty much since the beginning and have seen it change a lot over the decades. 

Unless you have developed software or paid someone to do it people often do not understand the cost involved. I am currently building a back end NNN software for my website at an initial cost close to 100,000. Even when it is completed there is ongoing monthly cost to keep the code from breaking and keep it secure and updated. This does not even cover more costs to keep improving and adding to the software. You can get software built cheaper overseas initially but it is often junk and you still end up paying the same from all the ongoing fixes and have less adopters use the software because of the initial problems. Coders overseas know many businesses want something for cheap cost so they slam out junk with lots of bugs and then charge them over time to fix it.

So when you build software the money has to come from somewhere. The users and or sponsors or BOTH have to contribute to keep the site going.

For syndicators you can put everything out there for diligence and accredited investors still invest with some groups I would not invest with. The LP investors thought process is they make millions per year at job or business and do not have time for deep dive into every nook and cranny with a syndicator offering. They put 100k here plus here and there over dozens of deals and hope the portfolio average stays positive over time.

I know I deal with very wealthy people on a daily basis and have talked to thousands of millionaires over the phone through the decades. I am wealthy myself so I know how hard it is to earn the money and make the money. What people need to watch out for is newer syndicators with little experience trying to build teams and have to keep doing mediocre deals to feed their team to survive. Also syndicators massaging debt to make deals pencil to entice LP investment and are now struggling with existing deals blowing up. I like buying all cash because we can decide when to use debt if any and when to sell. We are not chained to debt markets or what lenders want for our business model.   

Mohamed,

Each situation is different. Starter NNN deal for one of my clients is 3 to 4 million purchase price single tenant NNN property putting 35 to 40% down. For good areas strong suburban or better. That's about what they cost for quality. You can sometimes find one at low 2 million in good area but get gobbled up by cash buyers at 5.5 cap rates using no debt. Those type of buyers are trying to beat the bank for yield they can get there.

I typically ask what a potential clients goals are with their current income from a job or business, age, family info, how much passive income they want to eventually achieve annually, current net worth, and liquidity levels. Based on those answers we hop on a call,

If they are not accredited investors want to buy 1 million type retail condo I don't have time for that.