All Forum Posts by: James Li

@James Li I would look at your current return on equity. You have $100,000+ tied up in the one property you purchased 5 years ago. By leveraging that $100,000 (plus the other amount you put on that property when you bought) you can buy a nice fourplex here in the Midwest that will cash flow (I would guess) greater than what you have now. And, not sure how much you love this property you currently own but you get more of what you want with your next purchase. I look to maximum leverage. A good calculation to tell you if this is a good idea or not is to use the Return on Equity calculation. I am happy to show you how this works in more detail. 

Hi @James Li! As a syndicator and fund manager, I find that our investors enjoy getting predictable returns each month or quarter. It's likely that your syndicator has the same experience. 

As was mentioned above by @Todd Dexheimer and others, its likely they are just leveling it out and will do a catch up later. It's also possible that excess returns from certain months are reserved to cover lower months. It's even possible that your syndicator uses some of these excess returns to make repairs and improvements to the park. 

One of the advantages of investing in a syndication or commercial real estate fund is that you don't have to wonder. You can call the syndicator directly and get an answer in minutes. Unlike investing in Wall Street and who knows elsewhere, you should have direct access to the CEO and management team of your syndicator. Good luck and happy investing! 

@James Li, IRR is completely different than most pref's, and distributions. But that can be a conversation for another time.

From my experience, neither is more or less market resistant.  Mobile homes are a "newer" investment class relative to multifamily.  They are in favor now, and may continue to remain that way long term, but 10 years ago, mobile homes were very much a mom and pop business, with little interest from institutional players. Smaller MF is a mom and pop business too, but the large deals (200+ units) have been in institutional portfolios for decades and decades.

As for the distribution amounts, it is 100% down to the sponsor.  As noted above, some sponsors knowingly "under distribute" to keep things consistent with various ways to catch up any over performance.  Some pay based on true cash flow.  The styles have zero correlation to one being more "market resistant" than the other.  I tend to favor multifamily and have no desire to invest in mobile home parks (personal reasons).  I see multifamily fundamentals as extremely strong overall.  I would not invest in just any multifamily deal, but overall I like the asset class.  

Mobile homes seem have a lot of security too, since you have a captive tenant base that is essentially "forced" to accept any rent increases because they can't afford not to pay.  They lose their mobile home if they don't pay.  And the tenant base commonly can't afford to move their "mobile" home, which in reality is not terribly mobile.  

@James Li, I will echo the others: different internal policies.  Pro's and con's to each.

I will note though, since this is a commonly misunderstood term: it is NOT a preferred return scenario.  You very well might have a preferred return in these deals, and the sponsors may be distributing that amount, BUT a preferred return is NOT the same thing as a distribution.  Distributions can, and often do, vary from the preferred return.  The preferred return is ONLY a defined rate of return in the subscription docs which the investor must achieve before moving to another tier in the waterfall.

Sounds like 2 different GPs and the way they distribute funds. We distribute a straight percentage each quarter, then have a catch up at the end of the year. Let's say cash flow says we can distribute 8.72% (annualized) to the investor, we would distribute 8% (annualized) to the investor. Then at the end of the year we would make up the difference. We do this to avoid the yoyo effect of cash flow. 

Red flags?  Probably not.  You need to read your operating agreement.  

Most syndicators have some flexibility in what they distribute.  Your operating agreements probably say the syndicator can choose how much to distribute each quarter.  Some like to distribute all of their operating cash flow each month, or maybe a certain percentage.  Others like to distribute a fixed amount until operations reach a level that they might jump to a higher fixed amount.