All Forum Posts by: Jim Groves

 Most of the deals I see on CS, RS, etc have minimums of $10K-$15K.  But to Bryan's previous point, the pool gets a lot more shallow.  Google Adwords will be a very expensive way to find those leads.

I find it amazing that so many BP members are looking at crowdfunding as a way to get rich but it really should be viewed in the context of a balanced investment strategy.  If alternative investments should make up 10% of your portfolio, and you'll need 10 investments to be reasonably diversified in RE, that would require an investor with $1MM+ of investment assets to be a reasonable candidate for a $10K minimum investment

 I agree with @Amy Wan on this.  Although I don't have the direct experience she has, I've been studying this business for a long time and tested a few marketing strategies.  Forget the legal formation costs--the real costs will be in your customer (investor) acquisition.  Figure you're looking at $750-$1000 per registered investor, and maybe only 1/5 of them actually write a check to you at $1K-$5K average investment.  You don't have to be very good at math to know those numbers don't work.  The costs necessary to build an investor base are the real barrier to entry in the business, and the initial excitement over crowdfunding has worn off so acquisition is even harder now.  You'll need to do more than one fund to justify the costs.

As others have mentioned in different threads, the sponsors are typically using the technology to more efficiently process their existing investors and the new investors simply complement them.  If you cannot identify 75% of your investors right now with your existing contacts, you will likely not succeed.  Even the folks in Indiegogo admit that at least half of your donations come from people you know will donate prior to launching the campaign.  Same thing applies in this business.

I believe you're better off launching through Crowdstreet or Realshares on your initial fund.  They already have a base of investors that will look at your offering, and the seal of approval from them gives you a decent shot of attracting money.  The fees you will pay them will be a fraction of the costs necessary to launch this on your own.  If you're successful launching the first fund, then consider doing the second on your own.

 Important point--passive losses are limited depending on your income UNLESS you qualify as a real estate professional.  Based on the OP's profile, I doubt he can get the tax benefits unless he has some passive income to offset.  If most of that salary is W2 related it won't reduce your tax bill.

If the project was placed into service in 1990, the GP should be out of the 15-year compliance period.  As for the tax implications, that's impossible to really know without knowing their cost basis in the project, but from a LIHTC perspective they should be fine exiting the partnership

 I agree with these comments, I own a rental property in the north side and my prop taxes are less than 1.5% of value.  Cook County taxes are not the cheapest in the country, but the county does get a disproportionate amount of its taxes from businesses and commercial property so the residents do not have to carry as much.  As a comparison, the collar counties like Lake, Will, Dupage, etc pay almost twice as much.

Crime is also more headlines than reality.  Not to downplay the crime, because the murder rate is very bad, but it is concentrated in certain areas.  More reason to focus on your neighborhood and block.  

Population is also flat but shifting to certain neighborhoods.  For example, the west side near the United Center used to be a terrible place to be after dark.  Now there are restaurants, condos, etc.  Much like NYC, the more people out on the street, the safer the neighborhood.

I do have concerns about the government finances.  Property taxes are most at risk for increases to fill the pension fund gaps.  The state income tax (3%) is still fairly competitive but also at risk for increases.  

If you've ever read the work of Richard Florida, you would be bullish on the city.  His theory is that centers of culture tend to have the best growth prospects.  Corporations are recognizing that they need to come back into the city to continue to recruit young talent, and Chicago is seeing a lot of the influx of these HQ's.  

 Nobody builds affordable new unless it comes with subsidies like the LIHTC.  Affordable market rate is basically aged housing stock from the 70's and 80's

Barry, you've asked a lot of good questions so I'll try to cover them all with the disclaimer that this is how I would do my own due diligence if I was comfortable enough to even spend the time pursuing.  So here goes:

- Verification of funding: This one is fairly easy as the property acquisition would close through a title company, and the title company would need to make sure there is sufficient equity to satisfy the lender requirements.  My concern wouldn't be whether or not the money is there, but where the money is coming from, particularly the GP's $50K.  I've seen situations where the GP throws cash in that they got from some other source, and the money that they represent is theres isn't really.  There is no great way to verify this other than ask for legit account statements showing that they have the ability to write that check.

-Verification of financials: I'm assuming this is an existing property, and as such there should be a rent roll and some reasonable operating statement (even if unaudited). The biggest ongoing operating expense is the property tax.  That can be verified online in most counties.  Utilities can also be verified by contacting the utility company.  Right there you've identified 30-40% of the operating expense.  Insurance can be determined by calling a couple brokers.  You get the picture.  In multi, expenses are the most difficult to underwrite.  Rent is as simple as touring the comps.  I found that most leasing agents for apartments are young and like to talk a lot.  You'll get a lot of good info by touring around with them.  The property proforma is exactly that--a proforma.  It's anybody's guess.  Just question whether the assumptions they make for expense reduction or rental increases sound reasonable.

-PPM/Partnership Agreement: It's probably worth it to have a lawyer look over the partnership agreement just to make sure you know what you're signing up for.  Things like capital calls can be contentious, and know how decisions will be made, dispute resolution, etc.  That reminds me--you should have a decent idea of who the other LP's are as you'll be in bed with them and they may need to write checks.  Make sure they can.

As far as the suitability of the GP/Sponsor, I don't have great ways to determine as how do you really know if the person you deal with is a good person? Google at a minimum. Be wary of embellished predictions.  It's not easy, and I tend to always see the best in people so I should be more skeptical.

Good luck

 @Leslie Pappas- We can agree that DSTs and TICs may be suitable investments for older passive investors and those seeking to defer cap gains tax.  But we should also agree that @Gen Young is not a 50 y.o. seeking retirement income, nor is she seeking to defer cap gains tax from a prior investment (I base that on the OP). 

@Mark Robertson is correct that these are fee heavy investments.  I think his bigger issue is that you seem to be recommending these to just about any one that suggests they have money to put to work.

Also, an LLC is NOT the same as a C Corp. There is a very different filing requirement and additional costs. This would be a very highly unusual entity to create for real estate investing unless you plan to bring in outside investors.

I've thought about it myself and a case could be made that the normal business expenses in your LLC necessary to invest in real estate shouldn't matter if its direct or CF. I suppose that it would be kind of hard to justify phone and internet costs when there is limited due diligence and processing involved.