All Forum Posts by: Brian Burke

@John Prorok when you invested, did you sign a subscription agreement?  Were you provided a Private Placement Memorandum and a copy of the company Operating Agreement?

Thanks for the kind words, @JD Martin.

William, I don't have anything to sell, but BiggerPockets does--I wrote a book for them on this very topic:  www.biggerpockets.com/syndicationbook.

1. Banking regulations won't allow this, nor is it prudent. Equity investments can suffer a 100% loss—the FDIC doesn't want to pay this claim.

2. They do.  HNW and family office are major sources of capital for syndicates.  BUT, a sponsor doesn’t simply “connect with a family office and get funding.”  If only it were that easy….

Any good syndication sponsor already has solid lender relationships.  But a lender will only go so far on the risk spectrum in exchange for a 4% to 6% return.  That means they’ll loan the syndicate 60% to 75% of the purchase price.  That contains the downside risk.

So where does the remaining 25% to 40% (plus closing costs, renovation costs, etc) come from?  Passive investors who are willing to go out further on the risk spectrum, in exchange for higher potential returns.

Short answer: banks won’t give all the capital needed to execute no matter how good your relationship is. That’s not their business model.

@Brandon Craig totally understandable that you'd regret making this investment.  All of us who have invested in real estate for decades like Jay and I have regretted investments here and there over the years.

This investment didn't meet your expectations for a few reasons outside of the fact that it was a real estate investment.  Real estate investments can be great so hopefully you can apply what you've learned here so that if you decide to try it again you'll get a better outcome.

I think what may have went wrong here is you invested in real estate at the wrong time, and with the wrong operator (syndicator), and perhaps didn't have the expertise to sort either of those two factors out.  

What might help you for the next attempt is to read (BP's book written by yours truly--The Hands Off Investor), and network (join a community where investors discuss deals, trade advice and observations--coming soon will be Passive Pockets, an offshoot of BiggerPockets which recently acquired the popular passive investing group Left Field Investors).

Great advice, @Don Konipol. One piece of advice I often repeat is that the goal of diversification is to reduce or eliminate any single point of failure.  This means investing across asset classes, geographical locations, strategies, and sponsors.  Don’t put everything in one deal, with one sponsor, or only one type of property.  And to broaden out further, invest in things outside of real estate, too.

That’s a great way to land you and your capital raisers in jail.  Paying a commission for raising capital is illegal unless the person bringing the investor is a licensed securities broker/dealer.

This is such a perfect combination, @Scott Trench.  @Jim Pfeifer built an incredible community and BP/PP can take it to the next level.  Really excited for this--the passive investing community needs this resource to help them make sound investment decisions.  Really looking forward to watching this grow.

A DST is not simply a syndication that allows investors to invest with 1031 dollars.

DSTs have a specific legal framework that limits what DSTs can do. Behind the scenes, the industry calls these provisions "the seven deadly sins." Among other things, these provisions prohibit the DST from doing things like making substantial capital improvements, refinancing, raising additional capital, and other things that are typical in real estate operations.

This limits what DSTs can invest in and dictates how they must be structured.  This leads to lower returns and higher fees.

If you wonder if DSTs are a good investment, simply ask this:  Does any investor not using 1031 invest in DSTs?  I think you'll find the answer is no.  DSTs aren't successfully raising millions of dollars because they are great investments, they are successful because they help their investors defer tax.

This is a classic example of letting the tax tail wag the investment dog.

@Zaid Mahmood BP has a book on syndication:  www.biggerpockets.com/syndicationbook