All Forum Posts by: Ed Matson

@Nelson Del Castillo - That's what generally happens :).  Glad its working our OK for you.

No, a positive for borrowing/leverage.

In addition to the ability to scale, the use of leverage should allow a higher return on capital albeit at a higher risk level.

What if you bought a new home for your family, sold the existing home, and invested proceeds into a small MF? You are indicating that you do not need to sell the existing home to buy the larger one. Will the equity in the old house get you where you need to be? Or get a HELOC on old house and invest?

The op expense is 40%. My guess is it doesn’t include professional management which will be required for an out of state investor. Is there a local management company who can/will handle this type of property?

If 11/19 units have no private bath, then this is a rooming house, not a MF apartment house. Much more management intensive. Lower quality/higher risk tenants. 

@Marcus House - ROI Is normally measured over the life of an investment. So to answer your question, it would include all five years including sales proceeds. However, I think @Greg Dickerson provided an excellent answer to you.

@Duke Giordano - You have done a good job in laying out the pros/cons of funds vs. individual passive investments. In a fund you are much more investing in the sponsor and his operating philosophy than the merits of the various projects within the fund.  I have done both and have been more satisfied with the fund experience due to the risk mitigation. I now only invest in individual deals (debt or equity) when I have intimate knowledge of both the operator and the project. Even with top quality operators you can get a significant variance in performance from project to project. I see this in the quarterly reports issued by my best sponsors. For me, I am ok with passing up on the individual home runs to also avoid the strikeouts.  The fund structure allows for this.  

I am unfamiliar with exactly which operators would fall into the "smaller fund" category you mention.  But, I would concentrate on the sponsors' experience/track record and the number of projects within the fund. For example, a fund with two or three properties seems to provide the worst of all worlds. Not enough diversification, but you get all the negatives of fund investing. Also, I see many newer sponsors "jumping into the syndication game" without a good track record and they frighten me. When I invest in a fund I want to benefit from the operator's experience, knowledge, and skills, and not pay for his education. As one example, there is a small sponsor who three years ago was promoting his single family rental fund in which he bought thirty thousand dollar SF homes, rehabbed them, and rented them. I didn't like the idea of investing in low cost SF homes in C/D areas in a fund with ten properties, so I passed.  In a long phone conversation he was strongly selling the low price SF model, and basically told me I was wrong.  Now I see the same sponsor exclusively doing MF value add projects in his funds. These MF investments are his first MF investments. This sponsor may eventually be very successful.  But, I won't use my money to pay for his education.   No thanks. 

I have both active and passive MF investments. When evaluating passive deals I look at sponsor first, deal second. An inexperienced sponsor is a no go for me, regardless of deal quality. The answer to question 1 is to become experienced. Either partner with an experienced investor to build a track record as part of a GP team, or start small with our own money and grow your business and experience to a point where you can raise funds. 

@Matthew Church - I think @Greg Dickerson's advice is spot on. I partnered with a new investor who was eager to get into buy and hold RE. We are 50/50 partners in the LLC, and split the earnings equally. We have an agreement on who does what. We source properties together. He is the "landlord". I look after the business side of things and provide the financing to the LLC as a private lender. We each contributed equally to the properties' down payments. This arrangement is working well for about three years now.