All Forum Posts by: Charles LeMaire

@Jeffrey Holst  - you are sooooo right.  I missed a zero.  Darn!!!

What are people paying for a car?  Seems to be about as clear a question.  There are a lot of variables and therefore no clear answer.  Even if that other fellow paid $XXX, you may not be looking at the same car.

Back to the 50 unit apartment: What CLASS (A,B,C,D)? What is the NOI? What is the CapRate? How well is it being managed? Yield play or Value play? What potential is there for increasing that NOI. Professional Management? (Go for 60 or 70+) Or are you buying yourself a job?

I feel that you need to learn a lot about how apartments are valued, operated, etc. before you jump into this.  Apologies for my lack of tact.

Regards,

Charles LeMaire

@Maria Luna - Thanks for the correction, much more reasonable.  Again, my world is MF and I am a passive investor.  The 3 year deadline is still a problem as they deals do not turn that fast.  My average annualized returns have been 30% for the 14 deals that have sold (2011 to present), but it was in year 4 (Started 2011, so in 2014) when the first deal sold.  So as a Sponsor or a Passive, it would be very hard to compound your money in MF.  MF has been a great way to grow, but not as fast as you want.  And the environment changes over time, I hit a very good time.  The returns will likely be a bit less for a while.  If you can swing the Sponsor position, especially as the Asset Manager, you have a better chance, around 250 units or so. Even as a passive only, if you have a bit more time, it could work.  I encourage you to look hard at MF. 

Regards,

Charles LeMaire

Seems the thing entered part way...  use the below.

$5000k cash flow per month  -- Perhaps I am reading challenged or just pessimistic or realistic, but $500K/month is $6Mil/year in cash flow.  As you say cashflow, I assume this does not include any Cap Gain.  My RE world is MF, so to get this one would have to do one or more of the following to sum to that amount: 

* Asset Manage - The AM gets 2% of gross, so on $1K/unit, $20.  So AM some 25,000 units.  

* Deal Sponsor or GP - The B shares earn 30% of net.  We may get about $100/unit to the bottom line, so say about $30 goes to the Sponsor.  So be a sole Deal Sponsor (GP) on 16,000 units.  Or Co-Sponsor on 32,000 units.   OK, say you are the AM and one of 3 GPs on 16,000 units, it would get you there.  BTW, Accquistion Fees would look to move you up, but they are not really "CashFlow" (not recurring monthly income) and in my small part of the RE world, they world they are not common.  And the Sponsor fees are usually 20% and the AM fees are commonly 1.5%, but I digress...

* Passive Investor - The Passive makes about 8% cashflow on his investment, some higher, some lower.  So simply invest $75,000,000 and you are home free.  If you can get 10% reliably, you only need $60,000,000. 

If you are really saying INCOME rather than cashflow, that is, including CapGain, you can get there, but.  I do not know any sole Asset Manager managing 25K units.   There are some companies doing that, but not a single.  I do know a couple that has 2K to 3K.  As for GPs, sole GPs rarely have 5K units or more.  Grant Cordon's web site indicated 5K last year, but he is an organization.  But if you have multiple properties and some sell each year, the CapGain can get you there, but here again, you need a lot of units.  Say you have an average 5yr hold, that you can make $2.5K to $5K per unit (these were two of my best deals, so this might be optimistic.  Both were sole Sponsor, for co-sponsor divide by 2, etc.) you need to sell around 1,200 to 1,500 units each year and have a pipeline of 7,500 units.  To get this working by year 3, I don't feel this is possible in my world.

To get into the Sponsor role, you need a track record and some trusting passive investors.  It is true that you are using OPM, but most investors want your skin in the game.  You are starting with $350K.  That might be enough to do 2 100 unit apartments.  But you are now locked in for a while.  Again the 3 years is hard.

To have 7,500 units under management, your net worth would be in the neighborhood of $8Mil.  Considering compounding, you would have to double your $350K about 4 times: $350K, $700K, $1.4M, $2.8M, $5.6M.  So you are attempting to double your money every 8 to 9 months.  

Most have thought you meant $5K not $5000K, but I take you at your word as that has not been corrected.

Charles LeMaire

$5000k cash flow per month  -- Perhaps I am reading challenged or pessimistic, but that is $6Mil per year cash flow.  I assume this does not include any Cap Gain.  My RE world is MF, so to get this one would have to do one or more of the following to sum to that amount: 

* Asset Manage - The AM gets 2% of gross, so on $1K/unit, $20.  So AM some 25,000 units.  

* Deal Sponsor or GP - The B shares earn 30% of net.  We may get about $100/unit to the bottom line, so say about $30 goes to the Sponsor.  So be a sole Deal Sponsor (GP) on 16,000 units.  Or Co-Sponsor on 32,000 units.  

@Lee Falkenhagen - there is a great Tue lunch meetup (MF) in Austin. And I am a Sumrok student; it has worked great for me.  

Charles LeMaire

Driton, you seem to be expecting 20% C-on-C out of the box: $60K on $300K. I agree with Curtis & Greg, that's on the high side. As a passive investor in MF, I have seen annualized returns (IRR) far above that number, but that was after holding for 3 or so years and selling; the big lump of money was at the sale, not during the hold. Syndicators in my deals have some "skin in the game" and on that they see the returns I see. But they also get some income for asset management, about 1% to 2% of revenue; but this is in the neighborhood of $1K to $2K per month on 100 units. There is the chance of a one time shot from the acquisition fee, but most of my deals have not had that.

In summary, you could get there, but not out of the box.  You will need to do grow into it.  Apologies in advance, but if you think this is a possible C-on-C number, you are not ready to be a syndicator and I am not ready to let you have my money.  (I don't need hate mail!  I just say what I think it looks like.)

Regards,

Charles LeMaire

Consider Brad Sumrok.  He has an Eco-System membership network with hundreds, maybe thousands, of trained individuals, both sponsors and passive investors. He has made 200 of his students millionaires.  The group did 52 deals last year and 42 so far this year (mid July).  The deals are nearly all 60+ units and mostly 100+ unit properties usually with minimum passive investments of $50K, sometimes $25K and $75K.  

A mentor is not required, but they provide a quick start to how it is done and avoidance of the mistakes you don't want to make. 

1. Do I need to be earning certain number of income?   The funds needed to be the sponsor include the syndication costs (attorney) and the likely hard money for the seller; the deal will need to be guaranteed, but you can enlist investors to help with that.  As a passive investor, see next.

2. Do I need to be a accredited investor?   Most of the deals are Reg D506(b) so there is no income limit as a passive.  But you must have a preexisting substantive relationship with the sponsor to invest in a Reg D506(b) deal.

3. Any course recommendation?  Suggestion above!  Read the books mentioned.  Also Old Capital pod casts.  

Regards,

Charles LeMaire

Regards,

@Stephanie Yi   I have over $1M passively invested in about 35 MF deals.  Each should last 3 to 5 years. Three that sold in the last 13 months, each returned about 35% (annualized), but I expect the returns to decrease a bit for the next couple of years as the CapRate moderates.  Conceptually a bit similar to a ladder of bond when interest rates were above the floor.  I describe it as a Ladder of MF and the returns have been much better than bonds.

I am a long-term Brad Sumrok student, which gives me access to many deals from many sponsors, who he has trained, in his "eco-System" (I call it Sumrok Institute of Multifamily).  For me it is very easy to meet and get to know these sponsors.  When a sponsor gets a deal under contract, he/she lets their contacts know, there is typically a web based presentation, and I have the opportunity to invest. Most of the deals have been Reg D 506(b), so one has to know the sponsor, but one could be sophisticated (knowledgeable) and not accredited (rich). To date I am part owner of properties in TX, OK, AZ, OH, FL, & LA - states that are more landlord friendly. 

As to your list of choices, I have no CDs, few bonds, no notes, I have only one SF where I live (never owned a SF to rent or done a Flip), and no construction.  I do have a fair amount in Wall Street (trying out a financial manager who is the reason for above bonds!).  I feel that my limitations in market focus me in mutual funds.

Regards,

Charles LeMaire

My perspective is MF.

@Alina Trigub - please realize that searching on Biggerpockets for a non-PRO member is not all that easy.  I know, pony up and pay the fee...  color me cheap.

@Duke Giordano - I'm not a CPA, but I think you will find it sort of works this way.  BTW, as you mention REITs, I assume you are attempting to be a passive investor (Limited Partner), so I am going MF/Comm route, not SF, and that you are not a RE Professional.  

Note that good tax planning is delaying tax or paying a lower rate or both. 

Say you put in $100K and they return C-on-C of 10% and a total return of 100% on a 5 year hold. [Making the numbers easy, this is a bit optimistic and they never go perfectly!]  The distributions (supposedly $10K/year) will usually come back as return of capital.  You will get a K-1 each year that will show your "Capital Account" (think basis).  The K-1s likely will have huge depreciation the first year and lower depreciation the following 4 years. The K-1s will show some gains or losses each year that apply to your 1040. On the last year, when it sells, you get a big check for $150K (your $100, plus the rest of the return).  You will get to use some of the depreciation, but you will get to pay Cap Gain on the increase, most of the $100K.  (Delayed until the end of the deal and paying Cap Gain rate on passive income!)  

If you had been a RE Pro, you would have used the depreciation each year to make your W-2 income go away, but would pay Cap Gain on more when it sold.  (Lower Tax Rate, that is moving earned income to Cap Gain rate and delayed!)  When you are not a RE Pro, you are limited to (I think) $3K against earned income.  

Say you buy into another deal the year the above deal sold; the depreciation on the bought deal will hide some gain on the sold deal.  If accelerated (bonus) depreciation (cost segregation) is still available, it will be a large amount removed from the prior gain.  

You may wish to form a pass through LLC so that the gains and losses are summed before passing to you. I'm not sure this makes a hill of beans, as it is pass-through, but my CPA seems to think it is better. Once you start getting multiple K-1s, you might let a pro do your taxes...

Regards,

Charles LeMaire