All Forum Posts by: Evan Polaski

$50k or 20%, whichever is larger.

While my average flip is $400k or more, I would not even take on a $100k flip if it meant I might make $30k.  That can too quickly be eaten up by unforeseen items.

@Chris Howell

As for what I am looking for as an LP is someone I know, like and trust.  This can come from many different directions, but most commonly it is people that you have a personal relationship with and/or a referral from a close friend that I trust, especially when you are starting out, and even then it is still hard because you need to not just have these friends, but they also have to have some liquidity to invest.

And to address your other question about track record in SFR vs MF, to some extent you are correct on the assessing deals. But, having met people that have done this, and a lot is in how you market it.

BUT, in my experiences, and I know a few contractors that have a fair number of rentals, the issue in this transition comes from experience running teams.  When you become a syndicator, you are running a company, not a bunch of properties.  Managing people and communication are two major skill sets needed to be successful.

So, while the 20 yrs of single family can be helpful, I would be more apt to invest as an LP if you told me you have a lot of great success in SFRs, but more so that you run a 40 employee GC business, with salaried admins, project managers, estimators, accountants, etc. 

@Vera Hendriks, what SEC exemption are you raising under?  Reg D, Reg A, etc?  If D, 506(b) or 506(c)?

Everything else about this post is irrelevant, without that info, both because options are different, but also because if it is Reg D 506(b) you are already in violation of SEC rules, so I would highly recommend you delete this post.

@Shannon Reburn

No direct experience.  My initial sniff test (read: looking at website) plants the seeds of a little skepticism, but that is my nature anyway.  

I would highly recommend you search each person listed on their site in LinkedIn.  

Overall, I would setup a call and learn more from them directly.  Specifically, if you are considering investing in a property they are presenting: are they the lead sponsor, or raising for someone else's deal?  Who will run the property?  What is their experience in the market/asset type? What type of loan are they getting on the property?  

If it is their private credit fund:
Who are they lending to?  What is their experiences underwriting borrowers?  What type of assets are they lending on?  What type of loan terms are they offering?  If they are offering 14-20% interest, why is the borrower coming to them versus a bank at 7% or private lender at 10%?  Private credit is probably harder than owning deals directly, since you not only have to make sure the deal itself is a sound investment, but also the borrower you are lending to.  

I am trying to think of any time cap rate would matter more to me, so cash flow would be the primary driver.  But, I invest in heavy value-add deals, so there may be no cash flow for a couple years, but upon stabilization I am getting significant cash flow as well as appreciation.  I also invest in more core+ type deals, where I am getting a decent cash flow from day one.  

But, in either scenario, the cap rate alone is pretty meaningless and only really used for exit valuations of the stabilized asset.  

This is all assuming I am buying with some level of debt.  If I am buying all cash, then your going in cap rate should be fairly close to your initial cash flow rate.

@Adam Lowe, it is interesting you mention "vacancy is up".  While I will assume this is true in the office world, in the retail world, occupancies are trending very low.  

And one other addition: be cognizant of all NNNs, not just CAM. If the tenant is signing a true NNN deal, insurance and taxes become tenant issues, too.

Similar to LL incentives, if a property has some vacancy that is struggling to be filled, a tenant is more likely to be able to get either a gross lease (no NNN exposure) or can negotiate caps to increases in their NNN rates, i.e. tenant pays proportionate share of actual insurance bill, not to exceed 5% increase over prior year's rate.

@Vaknin Ronen

While it feels like Ricardo's answer is from ChatGPT, it is pretty solid advice.

Specific to your last question: Do you have a deal that you are specifically trying to raise for?  

With a first deal, it is going to a balance between the deal itself and you are the sponsor.  Generally, your first investors will be friends and family, as they already know, like and trust you.  They will want to see a solid deal, well rounded business plan, risk mitigation, etc.  

As for "new" investors, you will be selling them a bit more on you and your capabilities.  Why should they trust you (and therefore the deals that you bring to them)?  

So where Ricardo has one slide for the team with short bios, you will really need to be making sure your bio packs a punch on what makes you qualified to both run the real estate, and be trustworthy enough for people to write you a check.

If you do not have a specific deal, I would have some "sample deals" that you have underwritten to provide.  While you may not be buying "that deal", it will show them the type of deals you are looking at, and allow you to display your business plan, risk mitigations, and potential returns you are targeting for your investors.

I love the analysis.  I am trying to find a research paper I saw a couple years ago that effectively stated that public REITs outperform private equity real estate over the longhaul.  

So, by and large, I will highlight a couple of items that are either missing or expand on a point you made. And, to be clear, when I am referencing REITs, I mean publicly traded REITs. Blackstone's BREIT is a public, non-traded REIT, which certainly limited liquidity. Or I am an LP in PERE Fund that holds the assets in a "sub-REIT" structure.

REITs, often, allow investors to own the management company and the property.  So you are not losing your 3-5% management fee, or 10-20% construction management fee to someone else's pocket.

REITs in many cases carry less than 50% LTV, so "less risky" is certainly true, and often are cash buyers.

REITs are often highly prioritizing steady cash flow, so are not buying highly speculative "value-add" assets.  Although most will have a relatively small development pipeline to grow their portfolio of core assets.

REITs do not pass through depreciation like a syndication will (although I find this "benefit" to be minimal for more LPs).

REITs pay dividends, which cannot be classified as "return of capital" like in syndications, regardless of depreciation allocations.

REITs have to be underwritten by "professional investors" as part of their IPO

Syndications, often times being a single asset, can be a homerun, but also equally as likely to be a complete loss or just "average".

REITs typically have a long-term horizon.  Syndications, in my experience, are often about fast churn of assets.

REITs don't have the "heads I win, tails you lose" structure that most syndications have.  4% acq fee, 1% dispo fee (is the 30-50% promote note enough), 2% asset management fee, 2% loan fee.  

So, while I am biased to syndications sponsored by truly seasoned industry professionals, I view the comparison of a public REIT vs syndication as completely different. A more realistic comparison is syndication vs meme stocks, since both rely primarily on marketing more then they do underlying fundamentals.

@Jonathon Cornell

First, there is a bit of the mindset component:
As noted, deals are hard to pencil now in any market.  Prices have not come down meaningfully. During the run up, which it sounds like you came in the middle of, prices were growing far faster than rents.  And now, assuming you are not a cash buyer, interest rates have more than doubled since you bought.  All combined, it does not make for the best investing climate.  So, to your mindset, would you rather buy aggressive with a higher likelihood of losing money, just so you don't feel like you are "falling behind" or would you rather be patient for the right deal that makes you good money?

To you direct question: out of state investing carries with it a lot of risks, too.  No one will have the same motivations as you.  If you are looking OOS with an agent, they only get paid when you buy, so while there are some good ones out there, there are also a lot that will likely downplay risks just to get you to buy a deal.  Property managers: again, probably some good ones, but I never had luck with the 4 I used.  More work on my part, managing the manager, and making less money.

As for just throwing out a lot of lowball offers, personally I don't like this approach. So, while I agree with Drew, that most deals are not worth their price, I also don't like wasting my time, or my agent's if I am working with one. So, yes, back into the purchase price like Drew says, but I only do that on properties I like that have been listed for 30+ days on MLS. I don't bother lowballing a new listing, because you will get turned down 100% of the time. Let it sit, the seller get anxious, the agent getting scared they won't make a commission, etc.

@Kathy Diamond, I have worked for private companies that sold to REITs.  They have their own criteria, like any other buyer.  Most public REITs are looking for core, core+ assets.  They need stability in cash flow.

So, a target CoC is irrelevant. A national physician group with A+ credit and a long term lease in a major medical hub with next to 0% vacancy will be a great buy to a core REIT, even if the CoC is 5%. Versus a 10% CoC property that sits off the beaten path in a secondary pocket of a tertiary city.

As for connecting with them: list your property with a major brokerage, and they will find it.  CBRE, Marcus, Colliers, Cushman, etc.  If they want it, they will offer.  

Lastly, if you are pitching your deal direct to sellers, REIT or otherwise, there will be a level of desperation in the sale, which they will capture on. These are professional real estate investors. The acquisitions people at major companies tend to have loads of experience and make a lot of money to review deals. They are not going to overpay for anything. In fact, generally speaking, REITs are some of the most conservative buyers in my experiences. So, if your goal is to make the most money from a property sale as you can, I would simply list it for sale on the open market. REITs will see, private buyers will see it, syndicators will see it, and the exposure will ultimately get you the highest price the market will bear.