All Forum Posts by: Charles LeMaire

@Greg Moran - On first read, I thought you were sponsoring a RE syndication of 5 units. My eyes crossed. I have to admit I am confused. How many units are there really? Is this is your first investment as a passive in a MF RE syndication? Or are you really a sponsor in the deal? Given I don't follow exactly what you have done, I make the following comment somewhat recklessly: 1. It is a problem to invest IRA money in a deal in which you are a sponsor (GP). 2. Putting IRA money into a leveraged investment puts you at risk of paying UBIT/UDFI taxes. Consider a Solo-401K asap. 3. The cost of syndication (attorney's fees) makes small deals poor economic choices. 4. I wonder about management; we always put professional managers on properties we invest in. Just my $0.02 cents and thoughts.

@Yonah Weiss -  Thanks for the mention and Happy Thanksgiving to you and all!

I like MF Syndications.  I have read many PPMs and OAs.  The deals are not risk free (buy an insured CD, if that is your desire) and Sponsors would be crazy to not have you sign these in this litigious world.  How big a cut would you think they would want if they bear all of the additional risk without these forms?

Consider the forms you get thrust in front of you when you go in for an medical procedure.  Humorously, if you go in for an ingrown toe nail, they include loosing an arm, an eye, a foot (that one almost makes sense), or even die.  

The PPM is the same kind of document.

Charles LeMaire

@Ken Martin - I gather you have investors that say they want to 1031 when the current property is sold. The rule as I understand it, is that the entity that sells is the entity that buys. I have seen this done ONCE and when asked I say it is technically possible, but practically improbable. If you select your investors who all plan very long term, if the lead team executes well such that all the investors are happy, if you make a profit, if none or very few want to take their profits out, etc, it is possible for the property owning entity, likely an LLC, to sell property A and buy bigger property B with the proceeds. I know of no way individuals in a syndication can take their portions and separately 1031.

The TIC was mentioned as that creates separate owners of property A, but they are then material participants in the business not limited partners. I seen this used with folks who are doing 1031s and rolling into partnerships with syndications, that is syndication and TIC are partners sharing the business.

The Cost Seg & Bonus Depreciation are great for the RE Pro (much better) and good the non-RE Pro (OK, but not on the first deal).  The RE Pro can offset earned income, this means not paying taxes today at a high income rate, but paying later at a Cap Gain rate (or passing on and avoiding this tax - but your DEAD!).  The non-RE Pro can use the depreciation against passive gains; say you are a serial RE syndication investor, when you sell one with that big gain, use the accumulated depreciation from previous properties and current purchase properties to avoid the tax on the gain.  My accountant has explained (multiple times) some related technique that enhances this, but to avoid sounding really stupid, I suggest talking with the real experts. 

Regards,

Charles LeMaire

@Paul Oscar  -- I would like to throw the Brad Sumrok towel into the ring for your consideration.  

I met Brad in 2010, got on-board with him and have done 50 passive deals with his students, in all I'm a happy camper.  He has an upcoming event, hit his web site:  https://bradsumrok.com/ 

Regards,

Charles LeMaire

Hey @Arn Cenedella,

Allow me to throw Brad Sumrok in to the mix:  https://bradsumrok.com/
I've found great success with Brad and his network for many years.  I am a passive investor currently in 30+ deals. Brad has helped hundreds become sponsors and more become passives.  Over 75 have used him and his network to made $1M on MF RE.  The network has done about 60 deals the past two years. 

Some of the above is always confusing. Deals are created by Brad's student becomeing sponsors, who invite folks to invest in those deals.  It is not Brad creating the deals and all the network.  Most every deal is 100+, some 300+, units. 

Regards,

Charles LeMaire 

Peter, you may not appreciate this, but this is for all the persons out there considering passive investing in a syndication.

I assume this is a Reg D 506 (b) or (c), so to invest one needs to be accredited (rich) or if (b) sophisticated (knowledgeable) and if (b) must have a relationship with the sponsor.  Every deal I seen has an Investor Questionnaire in which you declare the above.  If a (c) one must get an affidavit demonstrating accreditation.  If one fibs here, it is on them!

The above question seems to imply one of a few problems.  The question is a bit light on details, so this is a long shot set of guesses.  The sponsor or the deal turned out to be less desirable than first though.  Your situation changes and you need the funds.  Given that many deals have delayed or canceled, perhaps yours is among them and you now want out.

If either of the first two, you should have know. One, know your sponsor and understand the deal!  Two, don't invest your emergency funds!   I worry that a sponsor will include an investor (a BOZO) that will cause problems for the entire deal.  If a potential sponsor is too easy on investors, things can go wrong, so if he is too easy on you, avoid it.

But the last one is outside your prior knowledge and if the deal has not closed and is not about to close, that is, the sponsor is holding the funds for no good reason, you should demand your funds back.  As reputation is a big part of the business, include the entire story here.  Be a squeaky wheel.  

Regards,

Charles LeMaire

First, sorry for you loss.

Financial advice is so dependent on the recipient and their current state, so please take this with a grain of salt.  You mention you both work (full & part and I hope that is going well in this somewhat trying time).  You don't mention bills other than the mortgage.  You don't mention your investing skill.

There are Dave Ramsey folks that follow the baby steps (this is an RE site, so not that many here).  I happen to like Money Guys, but not there stance on RE.  Are you emotional or mathematical? If emotional, pay the smallest bill and pay off that mortgage.  If mathematical, consider the interest rates when you make these choices.  Say RE will net you 10% to 12% return, why would you pay off the 3% mortgage faster than needed? 

Are you the type that buys the fancy watch & car today or do you invest such that the investment funds your toys in the future?  I suggest the latter is a better plan, but that is not the common mindset in the US.

Say RE is your passion or direction. There are a lot of different ways to do RE. In residential, some folks wholesale, some fix & flip, some BRRR. In commercial, there are syndications for storage, apartments, office, retail. How active or passive do you want to be? Do you plan to be active or passive? Hire management or self-manage. Local or distant?

None of us in BP land can tell you what to do.  We can say what has worked for us - there are many ways that it works - how it works and the pitfalls.

Here is one way, my story.  And it may not be right for you or what you want.  Having saved some funds, at 57, my wife dragged me to a RE investing group meeting in 2010.  They presented SF and MF (single family and multifamily).  I had not interest in SF, a lot of hands on.  But the math behind MF made sense to me and we jumped in with both feet.  We took the passive option, I invest funds in syndication created by others.  I was still working, enjoyed my job, and continued to work, but kept the idea of leading a deal as a back-up if the job went south.  There are pros & cons: little to no effort on my part, little to no control on my part, the location is mostly irrelevant (I have investments in 9 states), you need to be sophisticated (knowledgeable), you have to get access to folks that are creating deal (folks that you develop a trust relationship with!).

All that said, think about your options.

Regards,

Charles LeMaire

I think IRAs/401Ks (both trad & Roth) are different for different folks.  For the non-save, they are a great thing as they force savings.  For the person who can save, not so much.  

Consider that one's win or lose is completely driven by the tax rate at contribution vs distribution. Income is a factor; a really high income in work may push one to a traditional. But then there is the issue of the large traditional balance in retirement.  The initial RMD (now at age 72) is about 4% or $40K on $1M.  Add this to your SS or other income and you move up the tax rate scale.  If you can arrange to make poor investments in your traditional, you can get the small amounts out at low rate - There are books and classes that teach this!  Not my plan.

Roth likely beat traditional in almost every case. But this is BP, so consider RE; if an IRA (even a Roth IRA) investment, has a loan on it, your IRA gets to pay UBIT/UDFI (tax free my butt!). A Solo-401K avoids this.

I can see the desire to pull funds out of traditional into one's pocket or into a Roth.  If you do the math to compare traditional, Roth, traditional converted to Roth (at various ages) and your money, the Roth will win most of the time.  Surprisingly your money, if you are making it with Cap Gains and avoiding UBIT, can beat both traditional and Roth.  My calc says about 45% has to be Cap Gain, but the debate then turns to how good is my model and did I select the correct inputs (future tax rates). 

In general with respect to traditionals, I really hate the fact that Cap Gains are paid out to me as earned income in the future.

I think a contribution to a traditional IRA or 401K at today's tax rates is crazy. But it is a bit painful to pull out the funds and pay the tax, but it is likely a good decision.

Sorry for the rambling...

Regards,

Charles LeMaire 

Where to start...  First, I would be rather hesitant to invest with a sponsor that asked "Would it work?".  I would like to think that he worked out the numbers!  Second, the raise is for the down payment etc.  The rest comes from a lending institution (agency, bank, etc.).  They will not loan that part if you are borrowing the down payment, such that you have no skin in the game.  Third, mentioned above, the rate on hard money would eat up a lot the profits - remember the proforma that you apparently didn't do.  

Personally, I am simply a passive investor in syndications (50 so far).  But I don't think raising the money is the hard part.  Finding a deal that works is a big part of winning in this arena. 

Regards,

Charles LeMaire