All Forum Posts by: Charles LeMaire

@Tasheena Cole - There are two common ways around SEC registration of a private placement.  Reg D 506(c) and Reg D 506(b).  The "c" requires all investors to be accredited, but the "b" allows up to 35 sophisticated (means you think you know what you are doing and I strongly suggest you put in some effort to being sophisticated!) investors. All investors in the "b" must have a pre-existing substantive relationship with the GP/sponsor (and I suggest you get to know the fellow, his character and capabilities, before you hand him your hard earned money. 

There are plenty of posts here that suggest books.  Look for meet-ups in your area or on-line to gain more familiarity.  There are coaches and mentors.  

Regards.

@Jacob Rosenkranz - I posted the below several years ago. Times were really good then. I am still getting good returns and still investing in MF syndications. I did find that one of the eight deals that sold last year was a big dog, I chose the wrong sponsor. One was a less than I thought it should be, 11% IRR; I think the sponsors wanted to bail. Three were pretty good, 14% -16% IRR. One was 22% IRR and two were 30% - 35% IRR.

See also: https://www.biggerpockets.com/...

If you also want to hear war stories, I have a few...

Regards,

Charles LeMaire

I started in 2010 and am a serial serial passive investor in MF syndications, just invested in #61, 26 have gone full cycle.  I was the other fellow with Kenny in the cabal to replace the sponsor mentioned above.  Both Kenny and I were trained by Brad Sumrok and I have invested with Kenny in 10 of his deals.  And yes MF has been very, very good to me!  

@Steven Le and  @Alex Le, DFW is a hot bed of meet-ups; go, meet folks doing this, ask & learn; most folks are helpful.  The Hand-Off Investor is a good book for passive investors.  Also consider Paul Moore's The Prefect Investment which is a quick read and a great primer.

This asset class has been very profitable, but I offer a couple comments.  

#1. One can use a SD IRA or a Solo 401K, but learn how they work! Do the math! All IRA gains are subject to UDFI; Solo 401Ks are not. All trad (non-Roth) retirements will add to your bucket that will come to you as ordinary income and forcible so when your RMDs start. If you are of the rich mindset, you will be paying taxes at a higher rate, RE pros possibly excepted. Also, neither IRAs or 401Ks enjoy the "step-up-in basis".

#2.  For the first time non-RE Pro investor today, you will not likely see any, perhaps minimal, benefit to all the hoop-la about Bonus Depreciation.  Yes, you will carry it forward to the sale of the property, but on your first deal, that works out to being about the same as not having it.  The benefit would be when you sell and buy the Bonus Depreciation on the purchase then will off-set your gain.  But by that time BD will likely be gone.  Sorry!  

#3. An investment in a syndication is not open to a 1031 exchange. Technically. it can be done, but practically not likely.  I've seen only one. 

With that said, I do not want to sound sour on this asset class, I've made big gains, I just want you to understand so that you are not over sold. 

Be sophisticated (learn how it works and know what you are doing).

Regards,

Charles LeMaire

Brian - I'm sorry that you've had that experience.  Of the now 61 syndication I have invested in, I think 2 or 3 were Reg D 506 (c) required only accredited investors.  The rest were Reg D 506 (b) that allowed up to 35 sophisticated investors, but required a substantive pre-existing relationship with the sponsor.  Look for meet-ups and groups in your area or that are on-line.  I assure you there are sharks looking for chum; and YES, vet those sponsors. I have to admit that I met a lot of future deal sponsors (GPs) in the mentorship group I joined.  There is something to walking into a room where 95% of the folks in that room are interested in MF syndications (5% are lost, in the wrong room).  

Be aware some meetups funnel you to a particular sponsor, some funnel you to a particular mentorship group, and some are actually non-denominational.  Keep your eyes open.

Regards.

Knowing NOTHING about RE, my wife dragged me to a meeting in 2010.  Met Brad Sumrok, who presented the two day program.  I jumped into MF as the math made sense to me.  I have become a serial Passive Investor; at first I like my job, now retired and I like my free time. Just invested in deal #61 (25 have gone full cycle, so holding about 35). We are invested in a lot of doors, but heck, I really only own the doorknobs, ie, a small portion of each property.  Never went the Sponsor route, but will say they do make more money and do a bit more work. 

In this hobby, one attends a lot of meet-up to make contacts.  During on such session, the presenter (a sponsor) spent the hour describing all the trials and tribulations of being a sponsor.  Honestly, the message I walked away with was "Invest in the Education!".  

Add Brad Sumrok to your list, he is worth checking out.

Regards!

Hey Nathaniel!

You did not mention what the target investment was. You did not describe the program: larger targets allow syndication for instance. Buying MF is more complicated than SF (flip, BRRR). There is also RAL, Storage, Hotels, RV, etc.

I joined a program in 2010.  I enjoyed my job so my intent was to invest in syndications passively; the mentorship was for training to know what I was getting into.  I have attended a few meet-up presentation by folks that are very proud about not wasting money on a mentor; the horror stories were such that I come away muttering they should have paid for the mentor.  But it can be done, there are good books and lots of meet-ups and podcasts.  I think it is a speed and hand-holding issue.

So all that said, the program I am in, which targets MF (60 to 600 units), is about that price for GPs, but the terms are a bit different.  You get two years, but like a gym if you don't show up, you waste the fee.  Ours has a large ongoing network of GPs and LP (lower price), that enhance the value as there is tremendous interaction and mind-share among the members.  

Dear Moderator: I do not work for Brad Sumrok!

Regards,

Charles

David - I invested in one syndication with an SDIRA.  Because of UDFI (a tax on the gains relative to the mortgage on the property), I moved to a Solo401K, which avoids UDFI.  A buy and hold avoids this as you pay it off; syndications usually sell in 5yrs, still holding debt.  BTW, I have not done it, but I have heard of buying a property with/in a SDIRA, but there are complications as it must be arms length (you can't work on it or loan it money). 

More money is better, but realize that using a trad IRA/401K, you are turning what would be Cap Gain in non-qualified funds into future earned income in that trad IRA/401k; Roth avoids this. You did not mention which you had.

If you are holding trad IRA money, I suggest you spreadsheet your future tax issues. A large IRA at age 72 will force you to have substantial RMD income, which, with growth, will push you up the tax brackets. It is a delicate balance of ACA fees, IRMAA, SS, distributions/conversions, and income. Once RMDs begins, there is no (cheap) way to stop them. Taxes are "on-sale" until 2026, so if your situation allows, now is a good time to convert or distribute. I invest in syndications and I prefer real funds over IRA funds for this; I target Wall St for the IRA funds.

Also, that SDIRA turned Solo401K I mentioned at the beginning did wonderfully; in the future I have will have to pay regular income tax on all the profits, rather than Cap-Gain. This is not a glass half full, it is the wrong size glass, as I should have funded it with my money, not IRA money.

Regards,

Charles LeMaire

Hey @Jack Martin - Thanks for the article. I note he does not follow through to the sale. Year to year is not the problem, it is the sale.

My example is as follows: I put $100K of retirement funds into an apartment syndication. At 2.5 years, we got a supplemental loan, returning $67K. At 7 years, we refi'd, we got $240K. All the while the property has distributed at 6 to 10% per year, about $100K. And I expect to get another $200K or so when we sell. It is leveraged at about 80%. If this were an IRA rather than a S-401K, I would expect a large UDFI bill. Say about 40% of 80% of the $500K profit or about $160K of tax.

So saving the $160K is good.  But realize that all of the $500K profit, that would have been Cap Gain, will come to me as income and taxed as such.  As it is trad money, it will cause larger and larger RMDs over time.  This will push me up the tax brackets, to the top if I live long enough. And if I don't, then my spouse gets the joy of the high tax rates.  Alternatively, I can attempt to convert as much as possible, which is a balancing act, which today's bonus depreciation is helping with.

PS. I don't expect sympathy!  Yes, no matter what, this was a great investment.

All in all, I wish that I had used regular money rather than qualified money. 

@Jack Martin - you could easily be correct, but I am scratching my head a bit.  I have no experience with a Mobile Home Park, why/how are they different?  Correct me where I run off the rails...

Assuming this investment is in a trad SD-IRA, depreciation is moot. All of your gains will become income in the future and taxed as such. But if the property has a mortgage, your IRA gets to pay UDFI on a portions of the gains; if the mortgage is paid off, that goes away. Right?

So how does depreciation help offset the impact (btw, which impact?)?  

If the IRA is a roth, then the future taxes disappear. But that does not fix UDFI.

If a Solo-401K, then UDFI disappears.  I'm not sure if Solo 401Ks come in a Roth version;  if so, that would help.

Regards & Thanks.

I assuming this is a trad 401K that you can not roll over or withdraw w/o penalty, and therefore the elaborate scheme.  

Honestly, I don't see the benefit of earning what could be Cap Gain money, but put it in a deferred account to someday pay earned income rates on it.  If it is Roth, maybe, but that does not avoid the job change risk.

I know you want it now, but I think you need to redirect excess 401K deposits (above match) and delegate the would be payments to saving for a real money investment.