All Forum Posts by: Brian Burke

Quote from @Mike Iger:

 @Brian Burke What about taxation? If you're on the debt side is it taxed as ordinary income? 

 It is, yes.

I second @Chris Seveney and @Eric Gerakos.  We are buying real estate debt.  Sold 75% of our real estate at the "peak" 18 months to 24 months ago.  Probably won't be buying any real estate for a while, maybe 6 months, maybe two years, we'll see...

There might be some opportunity in home building (high interest rates are causing sellers to hold on so new construction might make up a lot of what potential buyers have to choose from), and smaller multifamily (the ol' "tired landlord" or owners with maturing debt and no way out).  And single family flips if you can find them.  

If you're really ambitious, office to residential conversions and if you have an iron stomach, office is in "buy low" mode--question is whether it goes even lower and how long will it take to be able to "sell high".  And how empty will you be in the meantime.

That's how we do it, except that we have a separate subaccount under interest for the rate cap reimbursements, that way we can track the interest paid and the rate cap payments received separately, as well as the net of the two.

Quote from @Matt W.:

Hi, I just found this thread 5 years later. (Currently reading "Hands Off Investor"). I'm coming at it from an LP perspective. I want to sell off my SFH rentals and get into passive investing. I originally planned to just sell my rentals, pay the taxes, and invest in various syndications. Now I'm hearing about 1031 DST's and how they might be better for me. I've talked to a couple DST "brokers" who were not that helpful, or possibly my understanding is just so low I can't grasp the difference of DST vs. Syndication. Any advice is appreciated.

Matthew, since you mentioned that you are reading "The Hands-Off Investor", see pages 230-232 for some info on DSTs and the dilemma of DST vs. selling and paying the tax.

Generally you pay the full interest payment to the lender, so you are recording the full interest expense when the payment is made. The rate cap provider pays the lender for the amount under the rate cap agreement, which goes into a lender controlled account. The lender then sweeps the payment to you, at which time you record the offsetting “negative expense”.

What sucks about this is there is always a lag between the time you pay the extra interest and when you actually get “reimbursed” for it.

The payment for the purchase of the cap goes on the balance sheet but is then amortized over the life of the cap. If the residual cap is subsequently sold, the money received is income or capital gain.

While you could certainly do the multi-step journal entry you described, it’s easier to just create a separate expense account for the rate cap payment received. Money received is a negative expense and offsets interest expense. GAAP compliant?  Probably not. But practically, the effect is the same. If you have to do GAAP, fine, but most don’t have to fully comply with GAAP. 

I think #1 and #3. Not #2, the government isn't interested in subsidizing commercial real estate. Proof: their interest rate policy in an intentional attack on asset value inflation—they want prices to fall. The insurance situation plays right into this effort. We are already seeing lower CRE prices as compared to a year ago, and I think we will likely see them go even lower. But this too shall pass…

@Brian Lucier, there is a whole chapter on this very topic in this BP book (written by yours truly):  www.BiggerPockets.com/syndicat.... 

Why isn’t the property at or above 90% occupied?  There could be a lot of reasons but I can think of three common ones:  poor management, asking rents too high, units aren’t fixed up and the sponsor bled through their rehab dollars.  More capital can only help with #3.  But it does beg the question—where did the rehab dollars go?

You say the property is bleeding 6 figures monthly…was the acquisition financed with a bridge loan at high LTV? If so, the deck was stacked against you day one. The only way additional capital fixes that is to do a cash-in refinance to get a better loan at a low LTV. That would likely take a LOT of cash…is the sponsor calling enough for that, or just enough to kick the can down the road for a few months?

Quote from @Jon Q.:

Brian,

So do you have a lot of Capital just sitting in the bank not generating returns? If not, curious about what you’re doing with it…

I always like mine working for me.  Now, I’ve got a decent amount in oil stocks.

Dry powder in money markets, yes, but also a lot deployed in a variety of things such as in my own debt fund, some oil/gas private placements as well as some series seed stock and a variety of public company stocks.  Real estate isn’t the only game in town…