All Forum Posts by: Christine Bellish

I have had great experience with DirectedIRA as well - I have a SD-IRA with them and helped many family, friends and investors get theirs set up too. Great customer service, and straight forward account set-ups and investment process.

Hey Edwin - do you have any experience as an LP (passively investing in a syndication)? If not, I'd recommend investing passively first before trying to GP yourself. Main reason is to learn - learn what you like/don't like about how the GP team runs their deal, what you would do the same/differently, how they UW their deals, how they choose markets, what their business plan is, how they communicate with investors, and more. When you are evaluating what deal/s to passively invest in, you should interview multiple GP teams, evaluate multiple deals, and even before investing, that process of evaluating, will help you learn. 

Personally, I think if your goal is to ultimately be a member of the GP team yourself, then you need to make sure you passively invest with someone who will give you the time of day and be there to help you learn, but it's your responsibility to make it what you want. People contact me every day saying they want to be GPs and they want to learn, but the truth most people don't rise to the occasion and make the most of the learning experience. It's not the GPs responsibility to come up with a lesson plan for you - you need to raise your hand and ask questions. Most people won't mentor you for free - it's pay to play, either pay for a mentorship program, or pay to invest and learn that way, etc.

This is how I got started. I did my research, decided who I wanted to passively invest with, built a great relationship with them, figured out that I could add value using my background in the advertising industry to help consult on their business for marketing strategy and investor relations strategy - after a year of working for free and investing passively 2x I asked for my opportunity to partner as a GP and have partnered on multiple deals as a GP now.

Being an LP also can help down the line when you ultimately want to raise capital yourself - if you can't relate it's difficult to get others to invest with you.

Message me if you want to set up time to chat more - happy to share more about my experience!

Many multifamily deals I've seen out there right now are offering lower COC returns during the hold right now because of higher purchase prices, higher interest rates, higher overall costs (construction, labor, etc). I've personally diversified into other types of investments right now for that reason:

1. net lease - turnkey cash flowing properties occupied by essential business tenants with long term leases and built in rent increases - COC return isn't as high as the value-add multifamily deals of the past, but if I'm going to get lower COC returns I'd rather it be in this space versus multifamily because there's more consistent monthly income, versus the volatility you experience in the first few quarters or years of stabilizing multifamily.

2. development - ground up and office-to-multifamily conversion. With the cost of existing B/C class multifamily properties so high, and immediate cash flow pretty hard to come by these days, it's becoming more attractive to just make something brand new, wait a few years for construction and lease up, then refi to get a major return of capital and stay in the deal to cash flow with a new property, less maintenance/capex issues, higher quality tenants, etc.

If your goal is immediate consistent cash flow you may want to consider investing in other asset classes, like net lease, storage, etc. If you are patient and willing to wait for a bigger payoff, multifamily and development would make sense, or a combination of both - diversification is important.

Also for cash flow - perhaps you should look into participating in deals that are debt structure versus equity - many of these deals are still offering 10%+ guaranteed COC annually - catch is that you don't get the tax benefits or benefit from the upside, you're just a lender.

Hey Jack - honestly that seems like a lot of fees, and I don't love when sponsors charge acquisition fees because it means they're getting paid before they make investors a dime, but if this is a team you've vetted and they have a solid track record of performance, whatever they are getting paid doesn't matter so much as long as you are confident you will get paid the returns they are projecting.

Generally I understand the construction fee or developer fee because there are many costs that are paid out of pocket up front before sponsors even market the deal to investors and they need a way to recoup that, but charging acquisition and construction and guarantor seems like a lot....although, again, who really cares what they're getting paid as long as you get paid what they're projecting.

Also, don't love the asset management fee taken as a percentage of the estimated gross income - personally think that should be of gross collected (actual) rents.

Regardless, like the others who already responded mentioned, the projected returns are usually calculated after the fees are already taken into consideration, and if you are happy with those projections and they meet your investing goals then that's what matters most!

@Louis Marciano also wanted to add that if you can't take full advantage of your write-offs in a certain tax year you can carry them forward to use in future years - again, not a CPA, but just speaking from personal experience.

 Hi @Louis Marciano sorry for the late reply here! I don't check my notifications here as often as I should. Anyway, it looks like you started some other threads where people have been giving good advice on how to get started investing out of state. My top advice is to partner with someone who has more experience than you - better to split the potential profits than learn the hard way on your own (and pay for it all yourself). I speak from experience in saying this - there is endless opportunity out there, so splitting the profits (and costs) is definitely more of a benefit than burden, especially while you are still learning.

Also, you definitely need a team that's familiar with the local market you're investing in, regardless of how much research you do on your own, you should have some boots on the ground where you're investing.

You also asked "Do partnered syndication deals get tax benefits for all parties?" First, I am not a tax professional, so this isn't tax advice, just info for educational purposes. Second, there are a million ways to structure syndication deals, so I can't give you a blanket answer for this one, but I can speak from experience and tell you about the the deals I am personally involved with (as an LP and a GP):

- any deal I am involved with as an equity partner on the GP side or LP side I get tax benefits proportionate to my ownership percentage, aka if there is a $300K write-off in one year for the whole deal, and I am a 1% owner, I get a $3K write-off. The management team usually hires a CPA to take care of the accounting for the deal, so they will furnish you with a K1 that you give to your accountant that shows your portion only. Usually you can only use the write-off against the income you generated in that deal for the year, unless you have other passive income (from other syndication deals or rental properties usually), or if you are a real estate professional (or married to one and file jointly).

- if you invest in a deal where you are providing debt (and you are not an equity partner), aka basically acting as a private or hard money lender you don't get tax benefits. Example: you invest $50K in exchange for 10% annual interest.

@Chris Seveney yup! A lot of people assume syndications are only open to accredited people because those are the only ones that can be advertised, but I know a bunch of people (myself included) who offer 506b syndications, which are open to both accredited and non-accredited people. It does take more work to find 506b deals because you need to actually know the person you are investing with personally, but that why networking is so important!

@Louis Marciano going to respond to both of your questions hereL

"Hi I am from New York and have the same issue, I have capital, how can I find someone experienced for an out of state deal"

Best way is networking, like you are here. Reaching out and asking for recommendations, setting up time to chat with people, etc. You can do so here on BP, at in-person or virtual events and meetups, etc. I met my partners at a meetup in Manhattan right before the pandemic started.

Ask other people who invest in syndications who they invest with and why. You'll meet a lot of people that way - there are a ton of deals and a lot of different operators out there once you seriously start looking.

"Do partnered syndication deals get tax benefits for all parties?"

The way each deal is structured varies, but generally speaking, yes there can be tax benefits when you invest passively in a syndication - it's a major draw for syndication investors. Each year around tax season the person/company you invested with should provide you with a K1 which is a tax document that outlines your profits/losses for the year. Lots of times even if you made money, it shows up as a paper loss. It of course varies based on your individual circumstance, and I am not a tax professional so you should chat with one, but for educational purposes: If you invest in a deal passively as an equity partner (as opposed to a debt structure) you should get your share of whatever depreciation is associated with it.

If you are not a real estate professional you can only use those write-offs against whatever gains you make in that deal or other deals like it, but it's still awesome because you are keeping more of your gains. AKA if you are only invested in one deal and you get a $50K write-off, but only made $20K on that deal you can write off the $20K and carry forward the other $30K to use against future profits.

If you are invested in multiple deals, you can use the $50K to write off against the other profits you made in those too.

If you are a real estate professional or married to one you can use the $50K write off against your or your spouses active income. This is what my husband and I do - I am a full time real estate professional and he's a W2 employee, so we can use the write offs we get from the deals we are invested in against whatever profits we make in those deals and against our other income. Real estate professional status does not only mean realtor - it's a tax status the IRS created. You have to meet a minimum number of hours to qualify.

Some deals get more depreciation faster because it makes sense to do a cost segregation study which means you can take more depreciation up front, and bonus depreciation is still in play too, so usually you get the biggest write-offs in year 1 and then some additional write-offs moving forward. There are deals you can invest in to seriously shield capital gains - if that's your goal you should get involved in opportunity zone deals. 

Happy to set up some time to chat more about my experience and introduce you to some other syndicators if you are interested. 

@Ron Singh yup, as a passive investor in a syndication where you are an equity owner you get a K1 when tax season comes around. Everyone who invests in the deal gets their own tax form. The syndicator hires a cpa that takes care of doing that paperwork and just furnishes you with the document, which outlines your portion of the tax benefits from depreciation etc based on your percentage of ownership in the deal.

Someone who invests $10K owns less of the deal than someone who invests $100K, so the person who invests $100K is going to get a bigger write-off...it's all relative based on your ownership percentage.

The amount of depreciation will depend whether they are doing a cost segregation analysis for the deal you are investing in (which most do) because a cost segregation analysis speeds up the depreciation - rather than depreciating everything over 27.5 years, some things can be depreciated over 5 years, 7 years, 10 years etc, which means bigger write-offs sooner.

Additionally with bonus depreciation still in play at 100% this year, the write-offs in year 1 are the biggest by far. Thanks to cost segs and bonus depreciation I've gotten 50% write-offs in year 1 - meaning when I invested $50K, I got ~$25K write-off.

This was a paper loss even though I received distributions from the cash flow, which means I didn't have to pay taxes on those distributions.

People who aren't real estate professionals can only use these write-offs against passive income (like the returns you are getting from the syndication deal itself, or if you are collecting rental income from other properties you personally own you can use it against that too), whereas real estate professionals or those who are married to real estate professionals and file jointly can take the write-offs against their regular income. 

Example: my husband has a W2, but I am a real estate professional and we file jointly so we can use all our write-offs against our real estate income and the income from his W2 also :)

If you are not a real estate professional and the write-off you receive is higher than the passive income you get in a year you can carry the rest of the write-offs forward to future years and use it then. Example: if you make $5K in passive income but get a $25K write off, you can write off the $5K and carry the other $20K forward to use in future years.

Disclaimer that I'm not a tax professional, but just sharing my experience and understanding of how this works for educational purposes only. Definitely always talk to a professional about your specific circumstance.

Hey @Ron Singh - 

How did we start on syndication? My husband and I are based in NJ and we started by purchasing small rental properties locally here, but there were so many headaches associated with it (not landlord friendly, very expensive, high taxes, nightmare contractors, etc)...so we looked into investing out of state - we wanted to be more passive and hire a PM, thought that would be possible in more affordable areas. We actually ended up going to a meetup for buying multifamily out of state, but it ended up being about syndication- that's where we heard about it for the first time. The speaker was Kenny Wolfe, he is a very experienced syndicator, has more than a decade of experience, 7000 units under his belt, $450M in assets under management - we were impressed with his experience, and the returns he was talking about providing to passive investors, so we spent time getting to know him more, and did more research on syndication in general. Met other syndicators, got on their email lists, started evaluating opportunities, and after 9 months of education and rapport building, we decided to passively invest with Kenny. We have invested with him passively multiple times, and we've also partnered with him as co-GPs on a few deals. Love the guy.

What risk do I feel is there? The biggest risk is WHO you invest with. Making sure you are investing with someone who has a track record of success and can do what they say they are going to (and has demonstrated that before) is the most important. For me personally, I don't feel that there is very much risk relative to other types of real estate investing because I feel more confident in trusting a professional to do what they are good at versus going it alone. They should already know how to find the best deals, secure the best financing terms, and manage large projects. The hardest part as a passive investor is vetting the syndicator. Yes, once you do that, you should also vet the deal you are investing in as well - is it in a market where they have experience already? Is the underwriting conservative? I'd rather someone under promise and over deliver, than over inflate projections and hope for the best. If the average rent in the area for that asset class is $800, they better not be using $900 for their projections.

When people ask me about the worst case scenario in the syndication deals I am personally involved with, I tell them that it's possible that we may not get as big of a return as was projected, but we underwrite very conservatively to try to avoid that happening. The timeline may also end up being longer (or shorter) than projected since we can't predict what the market is going to look like in 5-7 years.

People ask what are the chances that we would lose our initial investment, and listen, that is a possibility in any investment, but the idea that the properties would become valueless is so unlikely. Even if the properties burned down we have so much insurance that we would probably make out on the deals (that's obviously not something we want though!!). Luckily in real estate there are a number of exit options - refi or sell, or hold and keep cash flowing until the time is right.