All Forum Posts by: Joe Archbold

Alleah,

Sounds like your current hustle is working well. Investors should consider how much time they have if they want to be actively involved or not. The quickest way to get started and see positive returns would be through Passive investing. You can put some of your money to work while you decide how/where you want to invest the balance. You could make 7-10% annually and almost 2X your return in 3-5 years as a limited partner. Lots of good options out there.

Good Luck,

Joe

Justin, 

These are very good details for the Investor to better understand the Syndicators project plan.  Some other things to consider should include the experience or track record of the operator as well as their bio to evaluate their ability to meet the objectives set out in the plan. To further assess the risk you could look to the scope of work. Is the project a Class B value-add with minor improvements to reach B+ /A? Or is it a Class C conversion needing significant repair? Have they done this before?

regards,

Joe

Recently, a solid, all brick ranch home came on the market in one of the neighborhoods where I manage my investments. It is a 3 bedroom, 1.5 baths, home in a very nice area and seemed below market. I drove by, stopped, and chatted with him. He let me tour the house. As we talked, he mentioned that he had outlived his parents, siblings, and spouse (not an easy situation). I was, of course, complimentary of the home. It was obvious that he has been smoking in it for at least a decade. Everything was original from the 50s and in terrible shape, a serious gutting.

Trying to assess the basics of the project. I was concerned whether it be a bidding war for a total rehab? And what could I sell it for as it is the worst home in the neighborhood? And it needs everything. But I am not deterred. To get my bearings straight, I contact my realtor/mentor with more experience than anyone I know.

I told him that I thought this could be a good candidate for a flip. It’s in a good area. Blah, blah, blah. He sent me the listing, comps, and the bad news. He gave me the current status of our market for flips. The listing says, “calling all rehabbers… best offer by such date”. He said that since I would be competing against rehabbers that it’s gotten more complicated. Rehabbers in our area are looking to build the project into a job for themselves. Meaning project is their job, cover their costs and the payroll that’s it.

That was not my plan. I thought to outsource a bunch of work and make 50% at the sale. So spitballing, I invest approximately $100K and walk away with $150K. That not only sounds unlikely, but it also will be an extensive amount of my time.

Conversely, If I invest as a Limited Partner in a syndication, I can take that same 100K, and here is the possible scenario.

1. 1.) Contact a broker-dealer that I know, like, and trust. And let them know that I want to engage in evaluating syndications. They will ask some questions and ask to fill out an investor questionnaire for suitability.
2. 2.) Based on the information provided, they will start sending project details. Common projects are large multifamily apartment complexes focused on a value-add strategy to reduce risk, taking Class B products and improving them to Class B+ or A equivalent. The details for these projects outline the team managing the project and their strategy. It includes the market demographics and the business plan. This data will have been analyzed by the broker team and reviewed before inviting investors to participate.
3. The data will also include the investment structure. Many are structured as 7% preferred return + share of profits with 70/30 LP/GP profit split to 2x multiple. Basically, the investor should receive a target 7% annual income paid monthly. At the end of the project or sale, the LP will get 70% of profits to achieve 2X investment. Hold Period: 3 to 5 years.
4. 3.) The next step review/ sign the PPM (private placement memorandum) and fund the project.
5. 4.) Within several months, the investment is cash-flowing, unlike a house flip that could be hemorrhaging cash.

So in a 3-5 year period, an LP investor may be able to take 100K and achieve a 2X multiple.

Joe Archbold

Justin,

I think this is an interesting area. Passive investing or outsourced commercial real estate is a great option for someone just getting started in real estate, or someone who doesn't want active involvement. Accessing cash-flowing projects that offer tax advantages as well as a 2X multiple, or an IRR close to 20% can be an attractive alternative to many other options for investing.

regards,

Joe

There is a lot of great information here that points to how positive it can be to join a syndication as an LP. Are you aware that you can find great syndication opportunities with a broker-dealer group rather than vet each syndicator? You can evaluate options in different geographies with different syndicators. When Syndicators use a BD team, there is no additional cost to the investor. You participate at the same rate as if you go directly to the syndicator. The BD team can provide research for upcoming projects.

Well put, Justin. I think this points to how a strong operator or syndicator can supercharge an investor's portfolio. Some operators will even shorten that hold time based on performance and bring in that 2X in a 3yrs. You don't have to be an all active or all passive investor. a blended approach can also work. 2X in 3-5yrs is tough to beat.

Regards,
Joe

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $470,000
Sale price: $507,000

This property was very unique for the area. The prior owner over the years house hacked and lived in every one of the 5 units and completely remodeled to excess. granite and stainless in every unit. very ornate tile showers. It needed very little on the interior. To Acquire this building I used an outside investor who provided funds via his SDIRA and we had a promissory note for his investment.

What made you interested in investing in this type of deal?

It was a very unique property. A very large Victorian style home turned into a 5 unit.

How did you find this deal and how did you negotiate it?

My realtor had created 4 or 5 different searches for me so I will receive notification for anything in my desired area that meets the criteria, I would review, drive by them and contact my realtor.

How did you finance this deal?

I used an outside investor who used his IRA. We worked through getting an SDIRA set up. We used Midland IRA. they were very helpful. To control the agreement we had an attorney set up a simple Promissory Note. His funds covered the down payment. I used none of my money to acquire this property.

How did you add value to the deal?

The place needed lots of TLC as an older Victorian. Cleaned exterior and cleared debris in yard. Had an amazing Pergola and trellus for tenants to share. all needed cleaning and made for a great common space.

What was the outcome?

Although we would get top of market rents, the maintenance was complex with all the high end fixtures and appliances. It also had some larger capital expenses coming. It would take a little extra time to rent as it was costly as some of the units were pretty small. It did not have separate utilities so we billed back based on Sq footage. Although were cashflowing well, when we would have a vacancy it took too long to re-rent, more so than my other units.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $372,000
Cash invested: $85,000
Sale price: $615,000

Initial plan was to buy and hold. Due to market conditions we pivoted and took to full renovation remodeled basement, remodeled kitchen to all new appliances and cabinets. Removed interior walls on main floor to improve floor plan. replaced windows and siding. Planned to move in as primary residence if market continued to soften but we sold.

How did you find this deal and how did you negotiate it?

This was an off golf course property that had too much disparity between home prices on the course versus off course.

How did you finance this deal?

No real insight here. We used traditional lending to get started. some of our own savings and by the end a handful of credit cards.

How did you add value to the deal?

This is tricky as we were going to turn it into a rental. there were too many issues that needed to be addressed and in short order the kitchen was removed. That is when we changed the strategy.

What was the outcome?

The home was a beautiful place. We started to get emotionally attached. As the market started to soften we had both our primary home and this home for sale at the same time. really started to get an understanding of getting trades in and out without too much delay. Construction was strong at the time and many good trades available.

Lessons learned? Challenges?

I took on too much myself. From setting cabinets to replacing windows. I am sure I was much slower than a outsourced company. But I was also a little cheaper.
My game plan was to make this a rental. When we decided to remodel we were already in it and with the clock ticking we just got after it without having the luxury of time to plan.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I have used a realtor friend of mine that has become an amazing resource. We have looked and walked through almost 100 houses, or multi family units by now. He is a great sounding board and more than 15 yrs later brings so much value to my business.

Bonnie nailed it. Dont let rent increases become a conversation at all. Just point to the rent escalation that is in the lease agreement that they signed. I tell every new tenant there is a 4% escalation for taxes etc.. I have never had it become an issue. This will also keep all your leases closer to market rents. I do offer some tenants an option to sign a 2yr same rate lease.    

@David Stelzer,

The opportunity to invest either in a SFR or small multi-unit versus a syndication is really about your time. Because both can perform well. The real benefit to Syndication is about your time. How much involvement do you want to have? additionally with 1 single family home your vacancy rate is very digital meaning it is either 100% or 0%. In a Value added syndication they may be working on a cash flowing project with 100s of units which actually can reduce the risk.

Good Luck,