All Forum Posts by: Jared Prevost

Quote from @Kristina Kuba:

@David Caradonna

The creative financing strategy of subject to is used best when there is no bank involvement because you are essentially transferring the deed but making payments to the mortgage company from an LLC. One trick I learned is, let's say you are doing a Tampa subject to deal, you can create an LLC like "Tampa property maintenance" and send the mortgage bill payment checks from there. This will not raise any suspicion with the bank.

I’ve never dealt with a subject of a foreclosure deal and I am assuming if the home seller wants to get caught up it would require some more legal ppw between the bank and yourself and things could get complicated. Let us know how you do. Best of Luck!

If you're dealing with a local bank that hasn't sold off the mortgage, there is a much greater chance of a bank pursuing the due on sale clause as they'll have their eyes on their own portfolio loans. Typically, most loans end up being sold off and repackaged into a mortgage-backed security fund. My understanding is that the best way to avoid the due on sale clause is by utilizing a land trust to hold the property

Quote from @Brett Goldsmith:

Usually subject to's work best when there is equity in the property. Spending 10k to pay off a lien to still be under water seems not ideal unless if there is some sort of huge upside in developing the property.

Hi Brett,

I respectfully disagree, I've found the best time for subject to for both the buyer and seller is when there is no equity in the property and the seller is looking for a way to be relieved of the mortgage obligation without having to cut a check to sell the property.

@David Caradonna Perhaps I'm reaching out a little too late here, but this sounds like a great opportunity to save the seller's credit and put a little bit of cash in their pocket. Subject to needs to be done very carefully in how you structure the deal. I'll dm you, but my partners and I specialize in these types of transactions.

Quote from @Brian Burke:

@Marc Warren, this is a great time to research potential investment providers, learn more about their companies, and investigate track records.  But if you are looking to make an investment now, be extra cautious.  

No matter what you see or read about any syndication sponsor, if they are offering you an investment opportunity now, scrutinize it very carefully. Maybe they have the deal of the century, and if so, great.  But in my humble opinion, which I'll probably take heat for, and maybe I'm wrong, is that right now isn't the best time to be buying.

There are two reasons why sponsors might be buying right now.  1. Because they have found a great deal (I haven't found any but that doesn't mean they don't exist).  And 2. to generate fees to keep their office doors open.  I suppose there is also a third reason: they think they found a good deal, but they are wrong.

As you do your research, seek out firms that are financially solid enough that they don't have to buy anything at all and can still pay their company overhead.  Watch out for groups that have built a huge mouth to feed and must transact to feed it.  There are more than a few of them out there.

If I had to guess, I would say more than 50% of investors calling themselves syndicators have been raising money for multifamily or other commercial real estate assets for less than two years. A lot of underwriting is going on from folks who learned from a coach but haven't actually seen underwriting become realized in a deal before.

Speaking personally, our group has shifted our investment criteria to invest in deals that are 'interest-rate agnostic'. In other words, we can hit our return metrics regardless of where interest rates go. The result... not moving forward with any deals that hit our criteria since July! A lot of investors in our database are stashing cash away now to invest in 2023 when it's believed that there will be more deals and fewer buyers (which of course means better purchase prices for investors).

If you like passive investing but are concerned with risks in the multifamily space, it might be worth considering a debt fund or private lending. You could also passively invest in small business funds.

Quote from @Moris Reyes:

Would you put your money in Syndicate or Fund? And why?

Syndications work great for some people, for other people it really doesn't make any sense.

Assuming you have some capital and like real estate as opposed to other asset classes, there are 3 key variables that can make the decision to be active or passive in real estate investing very simple and straightforward

1) Time - do you have excess time or is your plate too full? If you've got extra time on your hands, it may make more sense to invest actively in the single-family space

2) Experience - Have you successfully done deals before? If you have, then there's less justification to compensate someone else for the deal know-how

3) Return Hurdle - Is a return in the mid-teens a win to you? If it's not, then syndication probably isn't a good fit. (P.S. unless it's development or heavy renovation, syndicators promising returns above 20% are probably not very good at underwriting. Exceptions for the rare off-market deal)

To summarize: If you've got time, experience, want returns in excess of 20%, and have control of the deal, syndication isn't a good fit. 

If you're really busy, aren't uber-experienced in the multifamily space, don't mind outsourcing control of the deal, and mid teen's is a sufficient return to you, syndication could be a really good fit

Hi Michael,

Looks like you've got some great advice here. If it were me, I'd address a few things before deciding on a market.

1) Personal finances - as @Nathan Gesner mentioned, if you don't already have your personal finances in order make sure you get that taken care of. Buying real estate without having solid personal finances adds a tremendous amount of risk to your portfolio.

2) Ask yourself this question - do you want to invest actively or passively? In other words, do you want to buy the house in your name or the name of your LLC and have decision-making power and responsibility? Or would you prefer to give up the time and responsibility commitment in exchange for lower returns and less upside?

If you want to invest actively, there are a lot of great suggestions on this thread about long-distance investing.

If you want to invest passively, there are options to be so in a debt position as a private lender or in an equity position as a money partner on a deal or in a syndication. If you're interested in investing passively, I'd be happy to provide you with some direction on how to do so successfully

It seems like every real estate celebrity has a syndication these days. It's not for no reason - acquisition fees alone on a $10 million dollar fund can make the general partner $200,000 without having to put money into the deal (to be fair, they may have to guarantee the loan and pay for due diligence and soft costs).

Real estate celebrities have the audience, brand recognition, and trust of real estate investors. They also have the budget to make a beautiful website, put together wonderful marketing assets, and record high-quality videos. The result is that celebrities can raise a lot of money for their deals, as a passive investor this is a red flag. Easy money isn't diligent money.

I won't name any groups, but I've met people who have worked with celebrity-owned syndications and worked for one myself and I'll share the risks I've experienced (especially true for fund models).

1) Looks vs. Performance - You'll see many celebrity groups buying class-A apartment complexes or new developments because it's flashy, sexy, and elevates their personal brand. However, these types of assets tend to have lower returns and be more subject to rent risk in a market decline.

2) Excess cost of capital - Having the capacity to raise capital is great, however, you then HAVE TO put that capital to work. In a fund model, the syndication group cannot afford to pay preferred returns on cash, the capital must be deployed into deals. The issue becomes having the team and management capacity to locate, underwrite, negotiate, and execute the due diligence. Personally, I've seen groups buy terrible deals just because they had the money to spend.

3) Uninvolved Visionaries - True story, you can have conversations with celebrities running funds and they may not even know what assets they own or have in the pipeline. These are the same people on the Instagram and YouTube videos talking about their investing philosophies and how they locate and analyze deals. P.S. they may also brag about how little they work.

Here are my two cents. Searching for an operator you can trust and will get good returns with is a lot like looking for a good vendor. The vendors that have amazing marketing budgets and campaigns and are name-brand will probably overcharge and underperform. However, if you can find a vendor that is known locally, has a lot of experience, and actively runs the business themselves, that's when you're going to get a great bang for your buck and know you're being taken care of.

@Randy Smith Lots of great points.

One thing I would add as a major con is the incentive for acquisition in a multi-asset syndication fund model. I have personally worked with a group that ran a fund model. Ironically, they were so good at raising funds that it caused serious problems in their business.

Because they raised funds so readily (real estate celebrity owner) they had serious pressure to acquire new deals to put the capital to work as the preferred returns are constantly accruing. It led to very poor acquisition, terrible due diligence, and an overwhelmed management team.

In a single-asset fund, the syndication team does not feel the same pressure to put capital to work as there is no cost of capital.

Quote from @Anna Sam:

Hello Everyone 

I am Working on our goals for the next 12 weeks in order to come up with strategies and a market to buy properties in. I am located in Florida and own some smaller multi family properties here. But market is super hot still in Florida and not seeing too many deals on MLS. I have not yet started marketing anywhere else yet considering the very high prices.

I wanted to ask for market suggestions where there is good cashflow. Open to NC,GA, SC and TN. Looked on MLS for some GA and NC properties but prices still high and no positive cashflow. I would be an out of state investor and would need a good property management company too if I buy outside Florida.

Please share your thoughts.

Hey Anna,

Given the current state of the capital markets, I think it's a lot less about what market you buy in and how you buy. If you're buying multifamily from landlords, you NEED to be pitching seller finance (let me preface by saying you first need to thoroughly understand how to structure this kind of deal legally and the implications). Sub to also if you're sophisticated enough and can legally protect yourself from risks of purchasing that way (due on sale clause).

As far as a market goes, I'd investigate LakeLand, FL. Solid employment and population growth, located between Tampa and Orlando - hard to beat overall.

@Jennifer S. There's an awesome meetup in downtown Ybor in Tampa every month that a couple of local capital/syndication groups put on. Shoot me a message and I will send you the link.

The meetup is actually tonight and typically the event is catered

@Wayne B. I can't say I'm very familiar with the Orlando area, but I know Pasco well. Pasco's prices are considerably less than Tampa or St Pete and it's a very easy area to invest in for a few reasons:

- Majority of buildings are 1970s or newer and block (don't buy frame in Florida if you like appreciation)

- Very easy to comp for both rents and sale price to make sure you're getting a good deal. Developers built a lot of copy-and-paste type homes and many of the neighborhoods have similar layouts. 

- Relatively less competitive than other areas in Florida so you have more negotiation power for listed and off-market deals.

The big thing to keep in mind with Pasco is that there are a lot of sinkholes in that county. Sinkholes or remediated sinkholes can cut the value of a property by 30-50% so make sure your bases on covered on the sinkhole status of a property!