All Forum Posts by: Ian Ippolito

Quote from @Hector Escobar:

Want to learn how to save THOUSANDS on the interest  of your mortgage? 

Looking to simply park some money and get a BETTER return than the S&P 500 or a money market account? 

At Blue Onx, we specialize in the horizontal development of residential land. We work directly with some of the nation's Top 30 builders and they have a say in our acquisitions to ensure once our lots are 100% pre-sold before even finishing the job.

I am looking for investors to help us raise 2.5 million for our next few projects.

What you can expect as an investor:

- Annualized 15% return for 3 years or 18% for 5 years.

- 15 years of experience delivering guaranteed returns to our investors.

- Constant updates on our project progress

Reach out for more information!!

 A *guaranteed 15% return*?

As you should already know, the Securities and Exchange Commission (SEC) considers any “guarantee” a major red flag for fraud, (and especially when paired with a very high claimed return) because no legitimate investment can guarantee a return. Even treasury bills, which are the safest investment around (and some of the lowest yielding), are not guaranteed and not risk free.

Also the SEC also actively investigates and prosecutes this issue.

Quote from @Dennis Silver:

Hello. I want to ask the community at Bigger Pockets about what you think about this gentleman out of Wisconsin advertising for BNB Accelerator (Nicholas Korom). I am a physician and work too much. I want to be involved in real estate but really don't have much time to get anything done. I earn >$500K / yr, and he advertises to people earning over s$400K / yr about how to get into a Air BNB property through seller financing, low down payment, and they facilitate the entire deal including cohosting the property. Obviously saying all the things I would love to hear, but is it too good to be true? Before that, I had contemplated working with Rent To Retire Group as they are a reputable group finding turn key properties for sale. What are your thoughts on all of this?, and would you have any suggestions for a person like me?

I invest in both direct real estate (via residential rentals) and syndication/crowdfunding passive investments. In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

I feel directly owned properties are great because they give me maximum control and the ability to tweak them exactly how I want. So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession. That's unusual and it would be very difficult to find a passive investment like that. 
 
Also direct control means I know exactly what's going on. And, for those people who have more time than money, they can put in sweat equity into directly owned real estate. This will increase the return above what can be obtained on a passive investment.

The flipside of having the power to control everything is that it can be alot of work (and a full-time job if a person is putting in sweat equity). Not everyone wants that or is willing to put up with that. It also requires gaining a level of sophistication and knowledge that not everyone has the time, inclination or ability to do. And someone jumping into this as a complete newbie can expect that they have a decent chance of making some expensive newbie mistakes.


On the other hand, I feel one of the main advantages of passive investments (via syndication/crowdfunding) is that I can hire a manager who has years more experience than I can ever hope to obtain myself. And once I finish the due diligence, my work is done: it's completely passive. Also, rather than taking a large amount of money and investing into one single directly owned property, I can split it up into much smaller chunks across many different passive investments. This gives much better diversification protection across geographies, asset types, strategies, investment subclasses etc. versus putting all the eggs into one basket.

The downside is that it's not for everyone, and a person has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone has the time and ability to do that and not everyone feels comfortable turning over control. So I feel it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time) is unlikely to find this a good fit.

You said you don't have the time to work on real-estate due to your extremely busy day job as a physician. So sweat equity is completely out (and probably anything that requires more work for you...like direct real-estate often does). 

So passive syndications/crowdfunding might be something you find to be a fit.

Quote from @Matthew Brown:

Thank you all! 

Ian - do you have any recommendations for a good securities law attorney? 

Evan Hiller was quoted in the Wall Street Journal article about the Nightingale/Crowdstreet deal debacle:
https://www.riggsdavie.com/team/evan-c-hiller

Quote from @Matthew Brown:

I'm looking to find others invested in the Fairway America Vivo Rancho Cordova syndication deal to discuss their experience with this investment and Fairway America, overall. 

Personally, I've felt the investment has been poorly run in almost every possible way. The updates they provide are bare bones and usually only come after I've reached out to them asking about the investment. The investment itself seems to have been under-performing since the very first quarterly report. You can't blame that on poor market conditions.

I've been in contact recently with the Fairway America team and they've been utterly useless. 

I know it's a long shot, but I'm currently having lawyers review the signed subscription documents to see if there's any way to minimize the losses here. 

I'd love to find some other people who are currently invested with Fairway America and - ideally - in this exact investment.

Thanks,

Matt Brown

Fairway has put out a ton of deals in a variety of real estate asset classes and strategies.

None were a match for me personally and many were not a strategy I wanted or too speculative (such as opportunistic strategy which is the riskiest strategy or investing in tertiary markets which also tend to be the first to go belly up when there is trouble etc).

You probably actually want to look at your operating agreement to see what rights you have to books and records, etc. Additionally, there typically are additional state protections (outside of the agreement) based on where the fund is located. For example Delaware has additional default rights and processes that an investor can follow if they feel they are not getting old books and records. A good securities law attorney will be able to advise you, on your specific situation.

Quote from @Spencer Ware:

Looking to start expanding portfolio.  Would like to be more hands off as well. Seeking connections, advice, deals. Thanks 

Hi Spencer, I have a seven-figure portfolio that is a combination of both hands-on (direct real estate) and hands-off (syndication and crowdfunding)

In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

I feel directly owned properties are great because they give me maximum control and the ability to tweak them exactly how I want. So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession. That's unusual and it would be very difficult to find a passive investment like that.

Also direct control means I know exactly what's going on. And, for those people who have more time than money, they can put in sweat equity into directly owned real estate. This will increase the return above what can be obtained on a passive investment.

The flipside of having the power to control everything is that it can be alot of work (and a full-time job if a person is putting in sweat equity). Not everyone wants that or is willing to put up with that. It also requires gaining a level of sophistication and knowledge that not everyone has the time, inclination or ability to do. And someone jumping into this as a complete newbie can expect that they have a decent chance of making some expensive newbie mistakes.

On the other hand, I feel one of the main advantages of passive investments (via syndication/crowdfunding) is that I can hire a manager who has years more experience than I can ever hope to obtain myself. And once I finish the due diligence, my work is done: it's completely passive. Also, rather than taking a large amount of money and investing into one single directly owned property, I can split it up into much smaller chunks across many different passive investments. This gives much better diversification protection across geographies, asset types, strategies, investment subclasses etc. versus putting all the eggs into one basket.

The downside is that it's not for everyone, and a person has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone has the time and ability to do that and not everyone feels comfortable turning over control. So I feel it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time) is unlikely to find this a good fit.

Here are some good websites for seeing the variety of deals that are available for hands-off investing/passive.

1) CrowdStreet.com
2) 1031Crowdfunding.com
3) Ark7.com
4) Finresi.com

Good luck!

Quote from @Cheryl A.:

Quote from @Chris Seveney:

@Cheryl Abram

Out of curiosity what type of return were they promoting?

Curious as another poster is intrigued by the 24% but it sounds like your return is negative 100%.

Common syndicator game of throwing out huge returns when other funds are going under because they want you to only look at that shiny number and not what their past performance has been

@Chris Seveney

25.7% Annualized Return / 21.7% IRR.

This was my first passive investment and yes I was under educated, naive and attracted by the expressed returns. I did what I felt was good amount of due diligence, but in hindsight I missed some deeper layers of analysis. 

My biggest frustration isn't with the deal failure itself, it's more with the operating performance of the GP and honestly I'm not sure how an LP can really determine this. Ask for references which are hand picked by the GP? I don't think so. Social media seems the best resource for this nowadays.

Out of curiosity, what recourse do LPs have when GPs fail to operate according to the operating agreement? Fail to produce K-1s in time for LP tax returns to completed on time, refuse to communicate with LPs, when LPs start to express frustration.

Cheryl

 Cheryl, I'm sorry to hear this.

Many investors learn expensive lessons with their early investments.

Knowing nothing about this deal (because I didn't invest) I can already tell you the 24% projected return was a major red flag (in my opinion). That is just not realistic in this current market.

So in my opinion it's important to expose yourself to a large number of deals, so you can develop an intuitive sense of what's reasonable and what's not (and quickly discard the ones that aren't).

And it's true that there is no way to 100% protect from fraud (and not just in passive real estate investments but even in public stocks etc.). But there are many things that can be done to greatly reduce the chance.

For example, many sponsors are audited which provides an additional set of eyes.

A sophisticated investor will also typically ask for the entire claimed track record and then run it through the wringer. They will do things like compare with public records/Internet records. And for example if they see a property was taken back by the bank and is not shown on the track record as a huge loss, then that is another type of red flag.

Internet searches can also be done on the sponsor looking for lawsuits, etc.

Quote from @Zach Howard:

First of all, feel free to make any and all comments you wish; there's no need to sugarcoat anything. I appreciate almost any feedback where the poster makes a sincere attempt to share their opinion, regardless of what it might be. Thanks.

I really like the idea of using OPM to invest. Here is my current situation - I can probably secure a personal loan for about 200k at around a 3-4% interest rate with a 5-year tenor. Repaying this shouldn't be a problem assuming I don't suddenly lose my job.

I am thinking about starting off in some class C neighborhoods and will be handling everything remotely. Perhaps I'll try to acquire around 3 properties in cash deals that need fixing up, rent them out, and then hold onto them... forever? Based on my previous investing history (completely unrelated to real estate), I would describe myself as a buy-and-hold kind of guy. Hopefully, things will go relatively smoothly with the rehab, vetting tenants, and so on. If the rent stabilizes, I can then consider refinancing these properties using DSCR or other valid options (please educate me, and let me know what other options you think are valid). What are your thoughts on this plan?

Alternatively, do you think it might be better to use the 200k to make down payments on higher-quality homes, i.e., ones that are almost rent-ready, and finance the remainder of those purchases with DSCR, etc.?

I'm entirely new to real estate investing, but I have a high risk appetite because I have seen other people achieve amazing things that many say cannot be done. I often look at them and think if they can do it, probably I can have some level of success too.

Other key info I may have left out above:
1) I am not in the US, and have no plans to visit or move there
2) I am not a US citizen, but possibly have a credit history there (maybe none) since I attended university there many many years ago
3) I am completely new to real estate - I've been reading crazily and consuming lots of content. Next step will be to start analyzing deals for practice and asking others for feedback on my analysis. Once I've done that multiple times and I'm getting positive feedback on my numbers it will be time to begin the real journey. 

Thoughts please. Thanks again. 

Every investor has a different financial situation, set of financial goals and risk tolerance. So something that looks great to one will look terrible to another and vice versa.

As a conservative investor, I personally would never touch class C. I have seen far too many times where these do not hit pro forma due to unexpected problems like theft, crime, etc.

And, on top of that you are not even going to be in the US and have no ability to supervise and make sure that the people that you hired (who are not aligned with you) are looking out for your best interests. In that situation, I personally would not be investing in direct real estate at all.

If I wanted exposure to a foreign real estate market, I would invest passively and hire a manager that has years more experience than I could ever hope to gain, and whose job is to supervise and watch everything and make sure that it goes well.

Just my $0.02.

And whatever you decide to do: good luck.

Quote from @Jonathan S.:

Hi Everyone,

I am looking to develop passive real estate investment opportunities, but I am not sure if I completely understand what investors look for when investing in certain passive real estate investments, or real estate in general. Before finalizing anything, I wanted to get a better understanding of how to evaluate different real estate opportunities and what challenges might be posed. 

I would appreciate any comments on any of these questions:

1. What is the most important factors when considering passive (or even non-passive) real estate opportunities?

2. How do you determine a reasonable target return?

3. What are the challenges of passive investing as opposed to traditional real estate investing? 

I want to ensure that the structure of these investments I am working on correctly address key issues for investors. If anyone has any questions or is open to discussing further, please feel free to let me know!

Thank you!

Jonathan, you said:

What are the challenges of passive investing as opposed to traditional real estate investing?

I invest in both direct real estate (via residential rentals) and syndication/crowdfunding passive investments. In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

I feel directly owned properties are great because they give me maximum control and the ability to tweak them exactly how I want. So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession. That's unusual and it would be very difficult to find a passive investment like that.

Also direct control means I know exactly what's going on. And, for those people who have more time than money, they can put in sweat equity into directly owned real estate. This will increase the return above what can be obtained on a passive investment.

The flipside of having the power to control everything is that it can be alot of work (and a full-time job if a person is putting in sweat equity). Not everyone wants that or is willing to put up with that. It also requires gaining a level of sophistication and knowledge that not everyone has the time, inclination or ability to do. And someone jumping into this as a complete newbie can expect that they have a decent chance of making some expensive newbie mistakes.

On the other hand, I feel one of the main advantages of passive investments (via syndication/crowdfunding) is that I can hire a manager who has years more experience than I can ever hope to obtain myself. And once I finish the due diligence, my work is done: it's completely passive. Also, rather than taking a large amount of money and investing into one single directly owned property, I can split it up into much smaller chunks across many different passive investments. This gives much better diversification protection across geographies, asset types, strategies, investment subclasses etc. versus putting all the eggs into one basket.

The downside is that it's not for everyone, and a person has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone has the time and ability to do that and not everyone feels comfortable turning over control. So I feel it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time) is unlikely to find this a good fit.

 
How do you determine a reasonable target return?

This is going to vary widely depending on the strategy and real estate asset class. The more conservative, the lower projected return and vice versa.

You will need to look at multiple deals that are targeting your strategy and asset class, before you will intuitively "know" whether something is in line or not.

What is the most important factors when considering passive real estate opportunities?

When vetting a passive deal, every investor will do it differently because every investor has a different risk tolerance, comes from a different financial situation and has different financial goals. So a deal that look great to one investor will look horrible to another and vice versa.

I'm a very conservative investor and may look through a hundred deals a month, and at the end of the year only invest in 4-5. Here's how I do my due diligence:

1) Portfolio matching: (takes 30 seconds per deal)

a) Have an educated opinion on where I think we are in the real estate cycles (financial and physical market cycles)

b) Then and only then do I pick the strategies, capital stack, and specialized asset subclasses that make sense for that opinion. For example, I am a little concerned about some aspects of the business cycle recovery and a potential for a double-dip so I lean toward the safest part of capital stack which is debt (or low-debt equity). I won't go with the riskiest opportunistic strategies, and will stick to core and core plus mostly with some value-added. I won't be investing in the riskiest/most supportable asset subclasses such as hotels, and tilt my portfolio the ones that have historically been more stable such as multifamily and single-family housing. I also don't want refinancing risk, so any deals with only 3 to 5 year debt are out for me. For someone that's not as conservative, or a different view on the cycle, they might have a different opinion than me on all of this.

2) Sponsor quality check: (takes about 45 minutes per deal)

I believe that a great sponsor can take an average looking deal and make it great, and that in mediocre sponsor can take a fantastic looking deal and make it bad (especially if there is a severe recession). So I start with the sponsor first. Again, others might disagree.

a) Track Record: Get the entire track record for the strategy. As easy as this sounds, it's not simple and usually like pulling teeth. Many times they will claim it's wonderful and then try to hide their worst deals by only showing completed deals. Make sure to get unexited deals. Or if they are doing value-added multifamily, they will show you their hotel experience. That doesn't cut it for me. I want a specialist that's an expert, and not a jack of all trades and master of none. Also, in a mainstream asset class like value-added multifamily, I see no reason to take a risk on a sponsor that doesn't have full real estate cycle experience or that lost anything more than a small amount of money (and prefer no money lost). Again, other might feel differently here.

b) Skin in the game: as a conservative investor, I understand that the dirty secret of industries that the waterfall compensation is in the line with me and incentivizes sponsors to take more risk. So I require skin in the game (average is 5% to 15%) to offset this. Contrary to popular belief, this is not set because I believe it will give me a higher return. I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses. Someone that is more aggressive, may want lesser even though skin in the game. Also, if the sponsor is new, I am fine with less skin in the game as long as it is significant to their net worth. On the other hand if they are a sponsor that is experienced in stopping a skin in the game, that's a huge red flag for me.

c) how open to scrutiny are they? I always discuss investments with others in an investor club because other people might think of things that I might miss. And even though virtually every sponsor agreement allows me to share investment information with others who might be advising me on it (especially when club members are bound by an NDA), I still ask the sponsor if I can share it, because it's a test. Most are fine with that, but a few will have problems with it and claim there are legal issues, etc.. That's a red flag for me.

d) death by Google: I Google everything I can about the sponsor. I check the SEC, FINRA, ratings websites for inside information on the principals in the company. I also look for lawsuits and see what happened in them. Many times it's an easy red flag. Sometimes it's ambiguous, but even then, why should I bother with the company that has numerous unresolved lawsuits, versus another company that is virtually the same but has none. Again, others might feel differently here.

3) property level due diligence: (takes seconds to weeks per deal): here is where I drill in with the low-level details.

a) pro forma popping: I examine all the assumptions, and see if they are overoptimistic or not. I look at every single item in the pro forma and imagine that it is complete BS, and see if I can challenge it. If there's a hole, it may be a red flag.

b) sensitivity analysis: I examine all the assumptions, and make sure I can live with the worst case scenarios.

c) "Stall and see": if they are getting money over multiple years, and there is no penalty for investing later, I would usually wait so I get some real performance data, versus having to look at theoretical pro forma information.

d) Recession stress test: I will not invest in anything, until I subject it to recession level stress and see if I can live with the result. And I take the worst recession I can find in the recent past. Sometimes there is only great recession data, and that recession was pretty mild on some asset classes, versus previous recessions. So I will usually 1.5x or 2.0x the stress. If the deal collapses and I would lose everything, I'm out. Others might be fine with taking risk, but least by doing this a person can get an idea of what might go wrong.

e) Legal document analysis: it will usually take a few days to go through the legal document properly, as almost inevitably there are tons of gotchas that either have to be explained, or mitigated with a side letter.

That is the very short summary of what I do. If you want more information, p.m. me and I can give you a lot more details.

Quote from @Kyle Fitch:

Hello, 

I’m new to real estate investing and was hoping some of you would share your thoughts on why it is better to invest in real estate over the stock market. 

So far, I’ve only invested in stocks and the idea of investing in real estate seems somewhat risky to me.

Kyle, A couple of years ago, the Federal Reserve Bank of San Francisco released a groundbreaking research paper called "The Rate of Return on Everything, 1870-2015".

And it found that over the long term, real estate trounced treasuries and bonds. And in the modern era, real estate and stocks returned practically the same amount (within 1%).

However, what the study didn't look at is the post tax return (and which is the bottom line and the most important thing).

And real estate typically has much better tax treatment than the stock market. For example, most real estate deals throw off significant depreciation which can provide a very nice short to medium-term tax shielding benefit. And if someone implements a " defer, defer and die" strategy they can avoid paying taxes on real estate indefinitely.

That's the quick summary. If you want more information on any of the above then PM me and I can send them to you.

Quote from @Lauren Giglia:

Hello! I am interested in investing in a syndication for the first time. I have been learning how the process works and there are a lot of resources for how to interview a sponsor and review the deal, but how do you initially access the deals to review? I see there are some recommended companies on here. Can anyone point me in a direction to start? I am an accredited investor, looking to invest 50k to start since it’s my first one, and predominately interested in multifamily as my only previous experience is a rental I manage on Airbnb. I am mostly interested in appreciation/pay out at the end rather than cash flow each quarter. I also joined and posted on PassivePockets. Thanks in advance. Lauren

 Lauren, there are hundreds of syndications (and crowdfunding deals which are essentially the same as syndications but are available on the Internet) available each year.

A good place to get an idea of what they look like is to go to one of the crowdfunding sites. And then you can use that information to start to develop your own personal due diligence method: Crowdstreet.com, 1031 Crowdfunding, Akr7, Finresi etc.