All Forum Posts by: Evan Loader

I have been investing in private multifamily syndications for about 18 months. It was a great deal for me because I live/work overseas as a defense contractor supporting the US Navy. I want to participate in multifamily real estate but have been too busy and I am away from home too often to buy something directly. I save an outsize portion of my income as I have very few expenses with my company covering almost all of my costs, so syndications were a perfect way to get some cash flow, appreciation upside and enjoy the tax benefits of depreciation without having to buy/manage/rehab on my own. I also love the structure of a limited partner, in that you can lose your investment but wouldn't be exposed to liability beyond that. I've invested in 4 properties with good results so far, all properties are performing at or above projections even through the pandemic. 

The issue is I am still only a sophisticated investor. I am not yet accredited with a NW of $1 million(conservatively I am probably 3-4 yrs away from achieving that milestone), and the alternate  avenue to be accredited(2 yrs of income above $200k) wouldn't work for me since my tax return makes it look like I earn substantially less than I do due to the foreign earned income exclusion. The dilemma is I am earning very good money but am not yet accredited to participate in 506c deals, or even 506b deals by sponsors who only take accredited investors. 

This wasn't a problem until recently as all 3 sponsors I currently have investments with took money from sophisticated investors, and we had established relationships beforehand. However, 2 out of 3 of those sponsors are shifting to 506c syndications with accredited investors only in their upcoming deals. I understand why, as one wants to broaden their net to raise capital to advertise and the other is concerned about liability being a very public figure in the syndication space. It is frustrating because getting my foot in the door was tough not being accredited. It's an unsettling feeling having the money to invest in a deal and being told no due to something that is really beyond your immediate control. 

I am aware of the easy solutions to this. Getting to a $1 million net worth would solve this immediately, but I am not there yet and with that hand tied behind my back I feel like I am going to miss out on some great deals in the next 1-3 yrs. Any ideas that could be a decent alternative to address this? I know it is possible to buy being a long-distance investor, but I just don't want to go the active route right now. These passive syndications have been a perfect investment vehicle for me and my situation. 

Your average occupancy is 4 years for renters??? My gut reaction is that this is highly dubious(checked out your website), doesn't pass the smell test. I see you're based in Denver and it would make sense in that higher-level market that has a much higher barrier to purchasing a home. But certainly not affordable, sleepy towns in Indiana or Missouri. 

For those of you invested in syndications with preferred returns, how does your sponsor communicate and track that preferred return if it is deferred? In the early stages of a deal after close, the preferred return in my experience is either lower in years 1/2 or deferred until the property is stabilized, then paid out at an agreed upon date, at a refi/capital event or upon selling the property. In my experience, this would usually be communicated ahead of time before the deal closes, as it is planned for. 

However, with COVID-19 and moratoriums on evictions in many states, this has to change the projections a bit, not only on a preferred return but on distributions overall. I assume that sponsors will prefer to hold onto more reserves until everything stabilizes by deferring some preferred returns and regular distributions, which seems to be a perfectly rational response. It would make no sense to continue distributions as if nothing is wrong, putting the entire deal at risk of failure or reduced returns. The question I have is, how do sponsors keep track of a preferred return if it is delayed/accrued vs regularly paid out? Sponsors out there, do you have a process in place to address this? 

Be careful when you say 'skin in the game' regarding a syndication. Maybe I am just very cautious but when I hear those words in a syndication presentation my 'careful' radar immediately goes up. If a sponsor is putting his own money in the deal, great. But if he puts it in the deal only to window dress or legitimize his otherwise mediocre deal, that makes me very suspicious. If they have skin in the game ensure there is language in the PPM that keeps that 'skin in the game' there until a refi occurs, or that the PPM does not contain language to allow the sponsor to pull his money out as soon as the deal closes before LPs can. If and when I see a maneuver like that, I move on. 

Have any of you invested with Obsidian Capital in a syndication before? If so, how was the experience? Just trying to get some more ‘on the ground’ background before investing. Feel free to message me if you prefer it stay confidential. Thanks everyone.

 That is a bit of a blanket statement. Do you have any specific reasons as to why we should avoid syndications? The comparison to insurance salespeople that hock whole life & annuities is at best, lacking any substantive comparison and at worst....intellectually lazy. 

 @Joshua Myers, agreed 100%. There really is not an alternative as all other currencies are also fiat. We are all inflating together. If things got bad enough, there is a possibility that SDRs with the IMF could have a more prominent role. However, SDRs are also fiat by nature as well. It never hurts to hold some tangible assets like gold/silver to hedge your purchasing power, but they will not be the major forms of exchange. Also agree about China, their potential role as the pre-eminent global reserve currency was already dubious before this crisis. It is even far less likely now with the way they have behaved since President Xi changed the dynamics of their government going back to 2012. They won't back their currency with gold or any other commodity, and even if they did, they would de-link it as soon as the next crisis hit, as ALWAYS happens. 

DR does own a lot of real estate but does not have mortgages on any of his holdings. He mentions this often in his daily show that everything is paid for, do you have documentation or sources that proves he has mortgages now? He did have short term 90-day rollover debt in the 80s that led to his personal bankruptcy and creation of his current business.  He does recommend a plain vanilla 15 or 30 year fixed-rate mortgage for his listeners, but claims he doesn't have any. 

Even if that is a likely outcome, was it really necessary to say? Savage. 

@Trevor Ewen, thanks for the mention. Yes I do participate as a limited partner in private syndications long distance from overseas, three 200+ unit apartments so far across 2 deals with 2 different sponsors, both of which are reputable and have a solid track record. I am not yet accredited, sophisticated only. The way to get in touch with sponsors that allow sophisticated investors under the 506b exemption(in other words, unaccredited), is just start reaching out to people here on the forums and in local investment groups. I assure you, someone knows somebody that sponsors these deals that needs capital. I'm not saying that the first person you meet that wants your money will be the one for you, after all, you have to do your own DD on them as well. 

Once you get the relationship established, stay in contact with them. The right sponsor may not have a deal ready when you reach out, but if you maintain regular contact you'll be near or at the top of their list when they do get a deal and need to raise capital. I prefer syndications for myself as I work overseas frequently. I tried returning to the US last December promising I was done traveling. Here I am a few months later in Bahrain once again as a contractor. I love the work I do but still want to participate in real estate rental investing. Syndications offers you the ability to participate in deals that offer the same tax and appreciation upside that comes with real estate, yet you don't have to directly manage it. I also like the limited partner aspect, meaning that in the unlikely event the deal goes south you won't be subject to liability beyond losing your initial investment. Even if I was in the US I still will continue to invest in syndications, especially with solid sponsors.