All Forum Posts by: Daniel McNulty

@Ginny West

The above insights are certainly a great approach. However, absent a strong network and and a trust borrower, it is likely tough to source decent opportunities in the short term.

There are plenty of hard money syndicates and funds that offer the same opportunities with less work. Passive investing may be worth while if you do not have the first hand experience today.

Danny McNulty, Financial Advisor in Indiana 

@Ben Morris

Without much of the necessary details, its hard to say with much confidence what I would expect. A positive cash flowing property in addition to a operating business certainly isn't the worst decision. However, there is so much more information needed to truly understand this from a real estate perspective. Property comps, city / regional population growth rates, demographics, rehab costs, etc. To be concise, you should probably enlist a few pros in your area to help quantify your vision so you can more accurately evaluate the real estate side of this purchase. Your vision doesn't seem wrong, but the devil is in the details. 

@John Marchefka

Setting up and managing a fund is a much more intensive process than can likely be covered in a forum. One of the most expensive and important pieces will be the legal structuring of a fund and each deal. Arguably, the most important item of all will be a successful track record that speaks to your expertise in this type of development project. Your ability to prove prior exits is equally important. No one wants to invest in something that does not have an exit strategy. 

If I were to make a short list:

1. Line up well known, reliable service providers. This will satisfy most investors operational diligence process. This means reputable, accountants, legal, banking / lending and any others relevant to developing this venture.

2. Hire an experienced securities attorney in the RE development space to help you put together the offering documents of the partnership / LLC that will be created to facilitate these transactions.

3. Put together your pitchbook that should justify why your team should be trusted to purchase, develop, improve and ultimately sell 900M worth of real estate. Be sure to address your approach to mitigating important risks to investors such as legal and regulatory risk from the cannabis space, but also the collateral coverage in the event one or more deals go belly up.

@Lawrence Gillett

Valuation is in the details...

While revenue multiples or profit multiples will help give you an idea of its valuation, ultimately, few things are as beneficial as comps. Just like when evaluating real estate you look for comps in the area. Similarly, you use comps for comparable businesses. There are a number of subscription services that track millions of private business deals that might be able to offer insight into what this specific type of business trades at. A technology companies multiple will be much different, generally higher, than a brick and mortar business such as this. Without insight into the industry multiples and revenue streams its hard to offer any concrete advice on where an informed professional would put valuation on this.

Given that you mentioned its not profitable, it would most likely be valued using revenue, which coincides with a lower multiple than a profit based multiple. 

Depending on the size of the deal you are looking at, there are many industry professionals (attorneys and CPAs) who specialize in franchise transactions that would be able to assist. In my opinion it would be well worth their time to get specialized advice.

Danny McNulty, Financial Advisor in Indiana 

@Kim Newman Kanney

Kim - There are many financial planners / advisors that are not worth their weight in salt and are a detriment to my industry as a whole... Real estate is a fine asset class to own. If you are retired, you may consider syndicates or other more passive deals. As @Steven Ko  mentions, directly owning / operating will require work and involves substantially more execution risk for someone new to the industry.

No matter who you add to your team, you will ultimately be in charge of executing the strategy. In contrast, there are many syndicates or private funds that can provide the same opportunities with much less work. There is more than just balancing risk / rewards, you must also consider the effort.

Danny McNulty, Financial Advisor in Indiana

100% payment for the month of May. I cannot stress the importance of a thoughtful financial screening of your tenants. A few simple rules of thumb can save you from lots of headaches. 

Cliff there are plenty of fine operators in the midwest that can help you experience it first hand. It can be just as good an option to consider a strong syndicate / partnership. You'll learn more than you expect with much less work. 

I have to agree Alex. There are limited options if you are unwilling to accept less liquidity or more risk. A structured product might be the only thing not mentioned above, but still requires giving up some liquidity. You can't have your cake and eat it too. 

Paul - I can say with some confidence that the classic 60/40 model is not well positioned for the years ahead. It is however a more involved conversation. Its primary purpose to pay income and reduce volatility was reasonably successful by most metrics as the market reacted to the economic slump. 

However, going forward, bond returns are not only linked to  current fed rates, but also linked to the eventual fed rate hikes which will reduce demand for current issues, lowering price / returns. Alternatives to bonds certainly are merited in such an environment as you suggested. 

To be concise, people will likely being adding alternatives until fed rates rise again. The hunt for yield is never ending. 

- Danny McNulty

Ralph - To generalize, next years taxes are not likely to be materially different, at the current juncture at least. The tax code is a slowly changing beast, but that may all change if Covid continues for many more months.

From a long term perspective, such corrective action by the fed (monetary policy) and the government (fiscal policy) has several long term implications. 

1. Such a large increase in the money supply often leads to some amount of inflation, but that is tempered in the short term by the economic woes. As inflation picks up you will see the fed begin to hike rates again to combat this, which may have a material impact on your bottom line as an investor. 

2. The ever growing budget deficits may necessitate increased tax rates in the future to address our the growing imbalance. Granted people have been saying that for decades now...

All that being said, the tax implications next year would depend on your personal situation. 

Feel free to PM me if I can be of any further help.