All Forum Posts by: Greg Scott

Good post. New news for me.  Thankfully I have no property in NY.

I loved this quote which shows just how clueless people are about housing issues:

“Housing instability is at the root of so many problems facing our city, such as exacerbating homelessness and hunger, failing to meet our children’s educational needs, and undermining public safety,” said the CWTU in a statement. “Passing Good Cause is not only a step toward tackling these systemic issues—it is the vital foundation to any meaningful action.”

In a free market economy, how will those providing housing react to a law that forces them to house non-paying tenants for free?  Any rational landlord will double or triple their screening efforts because nobody wants to accidentally put a deadbeat in their property.  Any prospective resident with bad credit or a prior eviction is going to have an impossible time finding a place to live.  

I predict this bill will increase homelessness in Rochester NY or will force people to move outside of the city to find housing.

What you have calculated is not cash on cash return.   

Cash on cash describes how much cash a rental property is putting in your pocket on an annual basis divided by the cash you took out of your pocket to buy it.  If you rented this home and it was putting $3K positive cashflow yearly in your pocket, the returns would be 3/4=7%.   Appreciation is never part of the cash on cash calculation.

FWIW, I would talk to a CPA before turning an appreciated home into a rental. 

I never bough SFRs with tenants in them.  The rehab of the vacant was part of the business plan.  We fixed everything in the first 3-5 weeks, plus paint, carpet, landscaping, then rented it out. There were very few problems after that.

Yes, you should do a rate and term refi, which you should be able to do if the valuation is at least $220K.  I recommend you contact Capital Concepts out of Las Colinas.

I have not every purchased property in Canada, but my wife is Canadian and I've seen some of the issues her family has had to deal with.  You will want to fully understand the tax reporting burden you will face.  The US taxes global income which dramatically increases the reporting requirements.

David:

We have the same definition of waterfall returns, so let me explain my reasoning.

Ignore for a minute that many syndications have all kinds of fees, acquisition fees, construction management fees, refinance fees, disposition fees, etc, and assume that the syndicator is mostly focused on the returns they will make from the deal itself.  There is no cleaner alignment between GP and LP than with a fixed % of profits.  The return that maximizes profit for the GP also maximizes profits for the LP.

With a waterfall return there are plenty of scenarios where returns are maximized for one but not the other.  Here is one example.  What if a deal was struggling.  It looks like it could deliver a 7% gain.  There is a 20% chance it might do better and a 80% chance it will do worse, potentially lose money.  In a waterfall, the GP is incentivized to stay the course, gambling the LPs equity, because the GP only makes money above 7%.  Look at all the deals going bust right now.  How many of them are failing because the GP is gambling with the LP's money?

Under the same scenario, a GP with a fixed percent return would probably make the choice to sell and take profits because they would see the 20/80 decision as a bad bet.  It is a bad bet for both the GP and the LP.  They would choose a small profit over a bigger loss.

Quote from @Jay Hinrichs:

Quote from @Greg Scott:

Quote from @Paul Azad:

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Quote from @Henry Clark:

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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.  

This image summarizes my syndication returns on deals that have gone full cycle.  I haven't added the 11th, the one that lost about 60% of value.  They haven't fully closed out the deal yet, so I don't know exactly where it will end up.

 Congratulations Greg, Those are amazing returns from. 2014 to 2023 over a 10 year span to average 40 per cent is phenomenal. What are some of the guidelines you and your group have used to keep you out of trouble? And get those incredibly good returns? Were all these deals multifamily value add or any core deals? Thank you.

Paul:

The answer to your question is the rules we have within our group.  It really forces the syndicator to be more conservative in their underwriting.  The key rules are as follows:

1) Syndicator MUST have significant skin in the game, including 10% of the money raised in the first deal, 8% of the second, and 3% of the third
2) The only fees allowed are 5% of revenue for property / asset management, which is enough to put food on the table, but not incentivize people to just buy, buy, buy
3) The only compensation is 20% of the profit (less on the first 2 deals)
4) Rapid acquisition is not allowed.

5% Is minus all operating cost correct ?  so they put up 10% of the cash going in get no fee's when you close get 5% during the hold and then 20% of the profit at the end.. .

do you find it hard to find quality folks that will work under those splits etc.. ?? especially no up front money to pay for set up .  Plus they have to put cash in.. I would think many would just do it themselves ?  Just questions  .  The one syndicated deal I did.. although not really a syndicate the way these are structured as there was only 6 investors .. But I kind of did what you describe.. I took no up front money and I only get paid for success.. However my back end split is better.. since I sourced it ran it and had to front all costs to get to the profits and returns to investors are about what your talking about. I agree with the aligning of interest.. I never take up front fee's on any deals I do and I only get paid for success at the same time my investors gets paid.. But a little different structure as my investors are only one investor per deal.. So they can boot me anytime and they are on the checking account and can see all transactions I find that about as transparent as I can make it.. Different product though than MF.

Jay:

You are correct 5% of revenues and 20% of profit, period.

I have done four syndications within the group.  The downside is that my profits are severely restricted compared to outside syndications.  However, this structure provides two main benefits: 1) I don't have to build a big marketing machine to raise money.   (Our last deal we raised $14M from over 150 investors in the group in about 48 hours.) And, having ready access to capital allowed us to scale more quickly.  2) Because the compensation is so balanced, it makes passive investing much more attractive.  Many of the people that I have invested with, have reciprocated and invested with us.  We've made each other some nice profits, so we get to argue over who picks up the check at dinner.  :-)

The risk you are describing is really the same risk every investor faces. There is no 100% guarantee out there.

Managing your property properly and having great insurance are probably the two best ways to protect yourself.