All Forum Posts by: Jared K.

Lots of really great advice!

@Mark Robertson makes a really good point in making sure the syndicate has real skin in the game, and that it is not from GP funds. 

I also would advise, as some have on here, that you pay close attention to the distributions and fee structure. Does your dollar buy the same amount as everyone else and the GP, or is it tranched? I believe the best investment relationships are pari passu. You should also see how much, they themselves, are putting into the deal and that their equity has their own dollars invested and not just the syndication fee.

Whenever someone new is looking to invest in something we do I always try to offer them any information they want with the expectation that they are going to ask a ton of hard questions and nothing is off the table. It is a relationship that goes both ways and the harder the questions you ask the more I like you!

@Mike Dymski

I work for a private firm and principal investor who does just what you are interested in for commercial and multi-family real estate around Kansas City. We are also a property management firm, which helps us protect our investments even more.

If you are interested, I would love to connect with you. I had previously send you a colleague request and cannot do so because it is already pending.

I am a maybe again. Depends on how soon the better half gets back into town that day! Hope to be there.

How large is your portfolio?

Ha! @Abel Sng does it again! Great answers to both @Kate Weinberg and @Mike Dymski. He's faster than me!

We are a very similar model to Abel only in the Kansas City market. Our investors generally need 8-10% cash on cash and IRR in the 20%+ range over a 7-10 year hold.

@Abel Sng took the words out of my mouth. (Except I have never lived in Provo!)

Meet and know the people. You need to get an idea of their model and their values. If you still like them after that, try with small amount or single purchase. Then be diligent and pay attention to every detail. Don't be a pest, but protect your investment. Spend some of the time you will save from doing it yourself to make sure they are the people you want. Once you know you have the real deal, in terms of the company, then you can really be passive. 

Great conversation! I want to try and respond to the original question and reply to several comments:

@Mike Dymski I am not currently living off of my own passive investments through syndication but I am working towards exactly that goal. However, I do work for a firm that does real estate syndication and about 1/3 of our investors do live off of their passive income from syndication.

In reference to your questions about stress testing and how a real estate investment handles economic downturn:

This website is full of individuals who are working towards or who have achieved the ability to live off of passive income from their own single family home cash flows. I would put syndicated investments up against any of those because of a few simple points.

1. It is more easily diversified. You can more easily own different types of property in different markets without building your own teams or relationships, and instead leaning on a group that does it professionally.
2. Leverage is powerful. We all know it, but we don't want to have our butts on the line for too much debt. In syndication the limited partner is not on the hook for the note. So you get the benefit of using leverage to make bigger deals but you are not personally on the hook for the loan.
3. It is ACTUALLY PASSIVE! I don't like when my "side" job takes up as much time as my 9-5! (This is after I have spent a good amount of time getting to know the sponsor)

So how do you know how it will do in an economic down turn? @Ned Carey made an excellent point that MFH did the best of any commercial segment during the crash. But, even so, the guys that had deals that weren't speculative, were in good locations (like any RE investment should be) and weren't over leveraged survived and thrived. Rather than worry about stress testing a single syndicate, I would suggest following these guidelines when looking at each individual syndicated deal:

• Don't invest in a syndicated deal that is speculative. (Construction, development, is reliant on new deals yet to be inked. If you do, make sure you are being properly compensated for the additional uncertainty.
• Don't invest if the debt isn't locked in long term
• Don't invest if the deal isn't the kind of real estate you want to own in 10 years.
• FINALLY...Don't invest in a syndicate that can't explain exactly what they did in 2008-2010 (This is a great question to stress test any syndicate in a single question!)

The truth of the matter is, that many of the people who live comfortably off of real estate investments are deploying upwards of $20MM into real estate and can comfortably live on $1MM a year. For those guys the investments we do are CRAZY good, because the average $20MM investor isn't buying a ton of $60k SFR. But for people like me, I would rather keep plugging away at my day job and create a steady TRULY PASSIVE stream of income. I will take the slightly lower return in exchange for being able to insulate myself by buying more doors, not have my name on the loan, easily get into different markets, and not need to spend 20 hours a week on my "side" business.

@Ivan Barratt I couldn't agree any more with your statement about the need to know your LP's finances, and being mindful of it as a GP. We do the very same when putting together an investment. Great advice and input.

@Ingrid J.I think anyone in syndication would agree with your statement, and say that the sponsor (your trust in them and relationship with them) is the most important success factor of a syndicate.

@Joel Owens Your comment "Passive income as an investor investing in syndicates you might need to be very conservative on numbers. You invest in 10 different ones as an example and plan on 2 to 3 failing and taking a small loss, a few that do a little bit better than break even, and 4 to 5 that do really well." Is essentially the warning and concern given to any investment in any asset class. You can live off of passive real estate investment in the same way someone can live off of any other investment. 

This is the second discussion about syndication I have seen in the last two weeks. I love the dialogue!

@Ivan Barratt Agreed. I will continue to develop and strengthen other streams, and my investment in real estate are almost entirely because I know and trust the team I do it with. We can all do the math on investments, the bigger decision making point for me on any investment or asset is the people behind the investment.

@Mike Dymski Great point on my poor phrasing. My invested capital is at risk. A better way to put what I like about it, is that I am not the one guaranteeing the note.

Didn't look at this thread the last few days. It has blown up!