All Forum Posts by: Haydn Zeis

@CJ M. good question. Yes, if they're halting the distributions across the board, the limited partners (investors in his deals) would not receive their returns for Q2. It's important to note, that most syndication structures will call for distributions to accrue. So it's probably not the case that the money is lost. They'll just get it at a later date, per the terms of their initial agreement.

I would not look at this as something that's a terrible thing. This is likely a risk mitigation technique to pad their reserve fund.

If GC has a preferred return, waterfall structure in place, he only gets paid AFTER the investors get paid. If my company were to halt distributions, that would mean I wouldn't get paid. Not something I'd want to do, but something I would do to protect my investors, if necessary.

I'm sure GC's company has reserves.  Though these are going to be reserves for typical expenses and economic downturns. Residential real estate and some sectors of commercial have been hit especially hard; there's not a single investment company that I know of, who has set aside reserves for a pandemic. 

My investment company (a syndication company) has reserves set aside for typical expenses. We're fortunate to have had all of our tenants pay full rent for April. That said, we are going to hold more capital back than we typically do for Q2.  We want to pad our reserves a little more so that we are in a better position if tenants have a hardship during the this shutdown. We're still going to pay our investors in full, for Q1, but not the full amount we typically would because we're padding the reserves.  That means that I'm taking a pay cut as well as the investors.  It's not something I want to do, it's something that's necessary.  

Just as a disclaimer, I've never looked at one of GC's deals. I'm basing my assumptions off of what we do for our deals.

@Brandon Goldsmith, educate yourself as much as possible and go to as many meetups as you can (when we're done sheltering in place).  Map out the route you want to go based on your current real estate knowledge, then constantly be adjusting the direction you're headed as you learn more and more.

You hit the nail on the head, this industry has several different avenues to take; beware of shinny object syndrome, because just as you start gaining momentum in one direction, you'll be pulled in another.  Sometimes the grass is greener, sometimes it's not. When you do change directions, make sure your path is clear and you understand exactly why you're making the change. 

It's hard to tell you what first steps to take because I don't know you or why you have an interest in real estate. Everyone's real estate journey is personal and there's no right or wrong place to start.  I started out thinking I wanted to sell residential houses.  I soon found out that wasn't where I wanted to be and readjusted. You'll find things you love to do and others you don't. Starting a career in real estate is very exciting, try to understand what you're good at doing and what you're not.  Some people are amazing at raising money, some people are great at numbers, some can find deals better than anyone else.  Understand your strengths and when you partner with someone, make sure you're good at different things.

Good luck!  

@Paul B. you're right, the terms @John Stanley mentioned are good terms and contrary to popular belief there are groups  who offer deals without acquisition fees.  Pref return is good because it aligns the interest of the General Partner and Limited Partner; but like you said, this can be debated.  All the terms in the PPM should be considered.  There's not one right or wrong way of doing things.

@Andrey Y. these types of terms are out there, (albeit 15% is hard to come by). Though, putting up $1M or becoming a GP isn't necessary.  Again, like Paul mentioned, depending on the company, you could put as little as $50,000 down. 

@Louis Gilliam I wrote this article about the payout structure of our funds.  Hopefully you'll find it helpful!

https://www.biggerpockets.com/member-blogs/12714/88841-investment-waterfall-structure

@Jayson Bell utilizing your SDIRA is a great way to diversify an existing retirement portfolio.  We have plenty of investors who invest in our investment fund using their SDIRA; especially now that the stock market is so high.  However, as @Jaysen Medhurst stated you can't benefit from the account until you're 59.5.

To answer your question, we'd really need to know more.  Do you currently have rental property or retirement savings, like an old 401k from a previous employer, etc.

@Taylor L. last year we paid our investors an 8.77% cash-on-cash return.  We use a waterfall structure, 8% preferred return, then we take our asset management fee, then split the rest based on the deal's equity split structure.  We're in somewhat of an overlooked market allowing us to purchase at higher caps.  We invest in office, flex, and retail. 

@Ryan Lauretta, if your time is limited and you have the extra capital, syndication or NNN investing is the way to go when it comes to owning real estate. They're both extremely passive, syndication's more so. SFR's, even with a property manager, will require your time; you'll be managing the manager. Depending on how many properties you have, will depend on the time requirements. I like your strategy on diversifying multifamily and commercial syndication's. When interviewing sponsors, make sure to find out how much leverage they're using. We're at an interesting time in the market, the less leverage the better. We're putting 40-50% down on our deals to mitigate risk.

Ahhh, @Leslie Awasom which came first, the chicken or the egg?  I'm fortunate enough to have co-founded a company with two seasoned real estate investors, who thrived during the great recession and have a proven track record, which predicates investor trust.  It's much harder to convince potential investors, that proforma numbers, or actual numbers for that matter, will produce any given return without first having practical experience.

@Nelson Lin as others have stated, 80/20 is a good split in a syndicated model.  Make sure to understand if there's a preferred return.  I wrote this article to explain how a preferred return can work: 

https://www.biggerpockets.com/member-blogs/12714-real-estate-investing/88841-investment-waterfall-structure

Good luck and let me know if you'd like me to help evaluate the deal!

@Barry Je, that is an interesting situation.

Here's what I'm reading:

1. There's high cash-flow over the next four years.  
2. No time, not even to manage a property manager.
3. End Goal, have $10,000 of cash-flow at the end of four years.
4. Have easily manageable assets at the end of the four years.

Ultimately, you've got to decide exactly how passive you want your investments to be.  You said you're not as concerned with returns, as you are having something easy to manage.  If that's the case, syndication investing, where you have equity in each of the deals is a good option.  I'm biased, because I'm a sponsor on syndicated deals.

Forgive me if you're familiar, but for those who don't know, real estate syndication is simply pooling people's money together to purchase real estate assets.  The assets are managed by a sponsor, the general partner (GP). The majority of the capital for the investments is brought by the investors, or limited partners (LP).  The GPs manage all aspects of the deal from the initial due diligence before the purchase, through the sale of the asset (typically 5-7 years down the road).  Beyond the initial time spent researching the sponsors and deal, the LPs have very little responsibility, mainly just receiving their distribution check.  This is a very passive type of real estate investing.

If I had $30,000 to invest per month, with very little time, I'd invest in syndicated deals that have an 8% preferred return where the LPs get paid before the GPs.  I'd also make sure I had a stake in the equity and the depreciation gets passed through. Rather than using $180,000 to invest in houses, I'd invest $180,000 every 6 months into a syndicated deal.  Additionally, I'd roll all the cash-flow earnings from those deals, back into another syndication.  If you did this, you'd earn more than $200,000 of cumulative cash-flow by month 48.  So this means at month 48, you'd be able to invest the regular $180,000 plus an additional $200,000 from the cumulative earnings from the previous 8 syndication deals.  You'd have $1.65 million of assets, rather than $1.4.  You'd also cash-flow around $11,000 per month, passively (more passive than owning 8 or 9 residential houses).  You'll likely be able to increase your monthly amount when deals mature and are sold or refinanced.