All Forum Posts by: David S.

 Can you share the data to support the 20%-30% average returns? Also, are these gross returns are returns net to the LP, after the GP's fees and split? In anycase,  it would be great if you can share the source of this information.

 Sorry for your loss. 

According to press release found on the web, it was a 2021 purchase...so that's a huge loss over just 2 years.

https://www.westernwealthcapital.com/western-wealth-capital-...

For those looking to learn, can you share why they were forced to sell so soon? Expiring rate cap? Didn't get the rents they were projecting? High than expected operating expenses? Did they attempt a capital call to save the deal? Did GP sell to avoid being called by lender on personal guarantees under the mortgage debt? Can share a recent report?

Based on the below, I think lead in older buildings in San Francisco (and the rest of the Bay area for that matter) is pretty common but I would not personally downplay it given how harmful lead can be to a child's development. See the below article to see what can be done to minimize exposure.

 My guess is the lead level disclosures came about because the previous tenants complained. Otherwise, you could buy a house that just comes with a general lead risk disclosure and still might get a house with a yard/soil that has high levels of lead. That 3,700 reading does sound very high when compared to "The EPA’s standard for lead in bare soil in play areas is 400 ppm by weight and 1200 ppm for non-play areas [EPA 2000a]" per the CDC. Astro Turf might work but it will break down over time.

Depending on how much you like this house and its location, you could negotiate for lead remediation to mitigate the risk or continue looking.

Btw, what neighborhood is this in San Francisco?

https://www.sfdph.org/dph/EH/CEHP/Lead/InfoOwner.asp

https://www.atsdr.cdc.gov/csem/leadtoxicity/safety_standards...

https://sfbaypeds.com/Lead-Is-a-Poison-What-You-Need-to-Know

Congrats on your success!

Can you please share further details on this as I am interested to learn if this set up could be feasible for me?

You paid 445K to purchase as a fix and flip....so how much did you put in as additional capital for the fix?

You invested cash of 42K. This implies you may have at least 403K in debt...What are the terms of the debt? What is the annual debt service?

How much are the annual operating expenses for the property?

In what city of the Bay area is this located? Does the municipality have restrictions that govern how many days you can AirBNB for?

 To answer you questions, I think the investment could be viewed as an unsecured junior loan (behind the first mortgage) and you get compensated by a preferred (not guaranteed) return of 6% plus return of your equity before the sponsor can share in any of the profits. The sponsor only gets their 30% promote after you have gotten all your capital back and the 6% preferred return. It appears the plan is to refinance the debt in years 3 and 10 so that your capital can be returned.

Yes, your return will be entirely based on how the underlying property performs. If the property does not perform and is unable to make the payments on the first mortgage, the property could be foreclosed on or sold for less than what it was acquired for and all or most of your equity would be lost. If the property performs as planned, you will have gotten al your equity back by year 10 and the sponsor's pitch is that from there you will be getting infinite returns. You and all the other LPs still own 70% of the equity and no longer have any invested capital. 

I once reviewed a syndication based on a forever hold. However, when I reviewed the PPM, there was a provision that allowed the sponsor to buy out the LPs at any time after their capital had been returned and had earned something like 2 or 3% more than the preferred return. I did not like that since it meant that once the property had been de-risked, my potential return was capped. I would have had effectively loaned money to the sponsor. All of the equity could have been lost if things did not go well and yet my upside was limited due to the sponsor's buy out price. So take a close look at the PPM and Operating Agreement.

If the intent is to hold the property for 30 years, I think Warren Buffet would recommend investing into the S&P 500 instead. However, you would have to be able to handle the inherent volatility that comes from investing in stocks. And you don't get the depreciation benefits...passive losses that can be used to offset other passive income.

These issues came up about a year ago in this thread linked below...Also, due to Fund 1's investment period, proceeds from early sales were not returned to fund 1 investors but rather re-invested into new potentially riskier assets at what would have then been higher prices.

https://www.biggerpockets.com/...

My understanding is you will be subject to San Francisco's rent control ordinance if you rent out the downstairs unit. See this link...

https://sf.gov/information/par...

To quote,

"A single-family dwelling with a legal in-law unit constitutes a two-unit building and is not exempt from the Ordinance. A single-family dwelling with an illegal in-law unit also constitutes a two-unit building and is not exempt, unless both units are rented together as a single tenancy."

and

"A house occupied by an owner who rents out more than one room as separate rental units, in a situation akin to a boarding house, may not qualify for exemption as a single-family dwelling."

Given the situation you described, you will not look like a bad person for evicting this kind of family member.  Per this link, you have "just cause" for eviction in San Francisco,

 https://sf.gov/information/ove...

So I would personally look for a lawyer to help me get them out. It may cause you some upfront financial pain but will be worth it in the long run so you can move onto renting out the rest of the house in a manner that you want.

Finally, you should consider joining this group. $100 for a year will get you access to monthly meetings with other members who own small rental properties... who could offer you advice. You will also get to use their their standard form lease especially written to cover San Francisco's rental environment. 

https://www.smallprop.org/

This building is vacant. There are a lot of vacancies in San Francisco now, due to the exodus of tech workers to out of state. Things will improve but I would think lease up will take time especially at the suggested rental rates. I don't think many banks will lend at lend at 75% of purchase price and at the 3.5% rate advertised on a vacant income property. How do you plan to finance the purchase?

@Mark S., I have been on the look out for a good MF offering in Florida. Are you willing to share the pitch deck?

I do not live in the Tallahassee area but if you are interested, you can check out this Berkadia link for their recent Tallahassee MF market reports  

https://www.berkadia.com/resea...

If the landlord can prove reasonable cost to repair (such as via 3rd party estimates or bids), I don't think a landlord has to do the repair right away or ever if he can prove that you caused the damage. 

However, your situation strikes me as a bit of a money grab, especially from property management companies who's fees are tied to how much they collect in terms of rent and other related income. Or from unscrupulous landlords who think you won't have the energy to fight after you have moved out.

Depending on how long you lived there and how different the floors looked before and after, it would seem an argument could be made that this situation falls under "normal wear and tear". Similarly, old windows can develop small cracks from weather effects which eventually turn into long cracks. So not entirely sure how the landlord can prove you caused the damage except to argue that you should have reported the cracks sooner and since you did not, you must have broken them.

Having said all that, the landlord has your money and if they are not willing to budge, your only recourse would be to pursue a claim through small claims court.