All Forum Posts by: Henry Clark

Quote from @Greg Scott:

I have invested in over 50 syndications, of which about 45 are still active.  I have also done four syndications myself.  Of course, on the syndications we put together, we get some compensation for our efforts, so I'll ignore those when discussing my returns below.

Of the 11 deals we've had that have gone full cycle, we are averaging about a 40% annualized rate of return.  Of those 11, only one had net loss, and clearly the others did very well with outsized returns.

Of the 45 that are still active, the returns have been a little softer the past two years, and we had two small capital calls.  On the other hand, we also had three provide cash-out refinances.  My quarterly cash distributions hit bottom about a year ago and have been on the rise since then.  About 1/3 are still not providing distributions but their cash position is strong and I'm not concerned about them potentially selling at a loss.  Six of them just launched this year, so I wasn't expecting distributions anyways.

These syndications have change life.  I am truly blessed.

However, you should know that these syndications are not available to everyone.  I am a member of a private group that puts these syndications together ONLY with members of the group.  They have rules and best practices about how we put these deals together which has collectively saved us from much of the pain being experienced right now in the multifamily space.

 Thanks for insight.  When you say 40% annualized is that per year or over the entire life cycle.  Example if 3 years then say 13% return each year?  Or 40% each year for 3 years?  

Great job on the due diligence or Operational process you have going.  

Short answer not worth it for this deal. 

1.  Timing. As long as you bought in 24 doesn’t matter if you complete the study in 25 for the 24 tax year. 

2.  Cost segregation is being phased out. 2024 is 60%.  

3.  Let’s say both of you qualify and are 50/50 on this benefit.

4.  Say $200k, you said land is 20%.  Say $50 k of 15 year or less.  At 60%.  Divide by 2 for the both of you.  Just for simple math use average 20% personal tax rate.  So each of you $3k benefit this year.  If you sale in 5 to 10 years you recapture?????.  

I would only do it if you need the extra $3k cash flow this year less the cost of doing the segregation.  

All of the above numbers are wrong.  Used for a magnitude example.  

Money is in owning the lot as stated above.  Plus far less headache.  

Local is always better.  

As Dan H mentioned it’s the deals I passed on locally that were greater regrets than other state deals.  

Can other markets be better than your local market?  Yes.  We have done 8 self storage locations and 2 country subdivisions selling lots in the Omaha area and been very successful.  Helped my brother do a location near San Antonio.  His first deal was better than any of our deals.  Due to the higher priced market.  Easily repeatable.  But my market is still better because of my team and our personal enjoyment of non REI.  

Did a ride along yesterday with a friend who does industrial, SFH and MFH.  He just contracted a great deal on an industrial property.  Double his money on day one.  Easy to release if needed.  International company NNN.  Because of his knowledge of the market and his team brought him the deal.  Local is always better.  


Our commercial brokers have brought us 3 great deals because we are local and they know we are a team.  We would not have gotten these deals.  All three had not been listed yet.  Same for my friend above.  Local.  

Quote from @James Kerson:

@Henry Clark That’s the million-dollar question. Here goes:

Step 1: Obtain broker license in Michigan. I’ve got one in Ohio and meet Michigan’s experience requirements. The Michigan Bureau of Professional Licensing confirms that the some but perhaps not all of the Ohio coursework meets Michigan’s educational requirement, but if not, no big deal, I’ll take the additional hours. Then I’d sit for the Michigan exam.

Step 2: Form a Michigan Real Estate Broker Company (aka, a brokerage) per the MI Bureau of Professional Licensing’s requirements.

Step 3: Draft written listing and transaction management procedures and source and integrate necessary software programs.

Step 4: Form exclusive relationships with a local title agency and mortgage broker. The key is to bundle buyer agency services with title/mortgage services. To minimize friction, we want as many buyers of our listings as possible to use our buyer agents. One stumbling block of another full(ish)-service discount broker, Homie, was that it paid market-standard (2.5-3%) buyer agent commissions. It only took $3,000-$5,000 in commission from sellers. This reduced the net commission expense to seller from 5-6% to 3.5-4% - a good start, but not so much that it differentiated Homie from competitors. A gross commission of 0.6% has sex appeal, but it can’t include the direct and indirect costs of listing, plus buyer commission, plus bundling title/mortgage services, plus a reasonable profit margin. Probably the listing commission exclusive of buyer-agent commissions and bundled title/mortgage fees is more like 0.75% to 1%.

Step 5: Settle on how to address the problems/opportunities of working with buyer agents. We cannot pay buyer agents anything close to market-standard commissions, lest we go the way of Homie. Preferably, buyers would directly bear the cost of their representation. Buyers would fall into three categories:

1. Unrepresented buyers: a tiny minority, and they pose no challenge.

2. Buyers represented by our company: A value proposition to buyer clients is that we would bundle the highly-commoditized title, closing and mortgage origination services with buyer-agency service if buyers use and directly compensate our agents. Most mortgages permit rolling closing costs other than buyer RE commissions into the mortgage principal. Buyers could pay for the direct costs of buyer agent time with fees charged per property visit, plus a la carte for assistance drafting offers, transaction management, etc. This is risky, but shifts the burden of paying the buyer agent from seller to buyer, and encourages buyers to avoid tire-kicking.

3. Buyers represented by agents of other brokerages: another challenge. We can’t differentiate ourselves on price if we pay full buyer commissions, but a substantial proportion of the buyer pool will be represented by agents from other brokerages. I’m thinking of a flat referral fee, maybe $1,000 or $2,000 to a buyer agent to reduce the risk of them steering their clients away from our listings.

Step 5: hire listing agents and buyer agents. 

Listing agents would not drive their own pipelines; they would be advisors, high-quality customer service reps assigned to clients. Instead of valuing sales skills among listing agents, we would seek agents who might be sales-allergic but knowledgeable about real estate transactions and empathic. The personality type I have in mind is that of an excellent Progressive Insurance CSR. They would not spend time or their own money developing individual brands.

After a lot of back-and-forth on and off BP, I acknowledge the need for buyer agents, certainly to help buyers understand the closing process and the PSA, but also for the mechanical act of conducting tours. Unlicensed door-openers are basically unworkable, and unsupervised buyer tours would be unpalatable to most sellers. 

Step 6: Launch brand, website, SEO, blogs, any marketing I can do to drive in-bound listing client traffic. 

This is not an exhaustive business plan, obviously.

 OP I’m not saying I agree with your product but keep taking the steps forward and to a lower level.  Also put together a Scaling model.  Examples:

A.  At some point you will need your own Title company for faster turn around.  And as a differentiator and cost reduction.

B.  Going to multiple states to scale you may need to franchise.  Or you have to add a development team along with an operations team by state.  

Take each of your line items and develop both the next lower level of detail and scaling. 

Both of your invest strategies above I don’t consider as RE investment.  An investment forum would be better for this post.

With that said let’s look at these two but also let’s look at Risk adjusted.  Find your own figures.

A.  S&P 500 is at a PE ratio of 30.  Price to earnings.  An example. A $300 investment would make $10 earnings per year.  Before personal taxes.  That’s roughly a 3% return.  
No investor would make that investment even before adjusting for risk.  Most commercial investors are looking for a 6 to 10% cap rate return.  

Take the top 5 stocks in the S&P out of the equation and see what the P/E ratio is.  A lot worse.  

But hey, money is pouring into the US stock market from all over the world. Smart people they have to be right.   .    
    
B.  RE syndications.  You said you have been reading several hundred hours of BP posts.  By now you have read all of the Syndication failure issues.  You should have boiled them down to the following lack of proper due diligence.

 1.  Short term debt used in longer term investment time frame.  They got caught short with the recent rate increases.  Investors already learned this lesson about 15 years ago with housing.
 There is a rule.  Intelligent people learn from other people’s mistakes. Smart people learn from their own mistakes.   Dumb people keep making the same mistake.  This was a very simple due diligence item that was missed by many people. 

2.  Bankrupt brand names, Broadway shows, crypto investments.  These investors didn’t risk adjust these syndication investments.  

These investors were looking for Passive income, but they didn’t realize they had to fill the role as an Investment banker and they didn’t have the skill set or systems to do that.   Are you an Investment banker? 

If you're looking for an REI strategy state your financial objectives, resources and time frame and ask for suggestions.

OP.  Go for it. You should have a lot of real world experience in this model within 2 months.  Then tweak.

Couple of notes.   
1.  Our county has 15,000 people in it.  Our realtor spends $30,000 per month on advertising.  His office has 90% of all the listings in our county.       
2.  His office has about 20 agents.  The majority of his listings are thru 5 agents.  
3.  Our specific agent may show a house 10 or 15 times.  Each showing he is also showing that same customer 2 or 3 more houses.
4.  Had our agent break the commission split down.  Him as listing agent.  7% commission.  Say 3% to buyers agent,2.5% to sellers office, 1.5% to him.  

5.   Belize commission is 10%.   Small market.   Properties stay listed for 2 to 4 years.  Our first property we bought was listed for 15 years.  A great property.  Agents don’t show or seek out other agents properties.  If you’re buying you have to go through several listing agents.

6.  Italy 2%.   But you have to add immobilairie (lawyer) and Geometra (engineer but more).  Unless you’re doing cash.  More costs than just the realtor.

A.  There are several models out there but for different reasons.  Try yours.

B.  Commission versus hourly wage.  To me a non starter.  You want the driven people and they won’t work for hourly.

You have gotten a lot of input.    
What are your next steps to implement?  Your past the discussion phase.

OP if I am presumptive apologize in advance.  

We are doing a Teak plantation in Belize in subtropical zone.  Minimum wage is $2.50 USD per hour similar to Zimbabwe.  Looks like Zimbabwe is 40% under 15 years old.  Belize is also young.  Belize has ocean front.  Close to the U.S.  And lot of expats.  Doesn’t look like Zimbabwe has oceanfront. Don’t know about expats moving in.

There are many real estate investment strategies.  Also your resources, expected return and time frame.

I would identify the path you want to take given the above.  

Decide on cashflow or appreciation.  Could be both.  As you’re starting out you might want to go after forced appreciation versus cash flow so you can scale.

A.  Housing.  We are building a 30 x 40 footprint home for one of our workers.  30x30 will be the house with 10x 30 being a porch.  This is actually a nice size house in Belize.  Would rent for around $200 USD while they make $2.50 per hour or roughly $400 per month.  This isn’t worth the effort from a financial standpoint.  Will end up costing about $30,000 not including the land.  This will be a concrete block house with metal frame and roof.  
B.  Could do a multi unit for less cost since we could leverage the land, water/ sewer/electric hookup.  But still not a good investment for us.  But that is gauged versus our expectations.

C.  Commercial - we raise Tilapia, started ducks and feeding some hogs.  I would not do these if your going to do them in an industrial approach with commercial grain and feed.  With your Agricultural engineering background if you could develop a repeatable business plan then keep building locations and selling them.  You can utilize aquaculture and permaculture models.  Dont follow the oil based industrial approach.

D.  Commercial- go vertical.  Take the food from the above and move to restaurant locations.  Make money on building the restaurant, starting the business then selling   The value of commercial buildings is having a tenant.  

Key is to identified trends in your market.  Develop a plan that takes advantage of those plus your resources.  

Start small and Make Your Big Mistakes Early.  

OP.  Are you in Zimbabwe or the US?  I would also try to use your Agriculture Engineering background as part of your strengths in Real Estate investing.

As noted above, your housing is the very first place to start.  You will get the greatest returns and have more control.  Find someone your comfortable discussing your personal situation, possibly at a Real Estate meetup in your town.  There are many angles to make far more money thru your housing, versus investing somewhere else.