All Forum Posts by: Justin Goodin

👇Unpopular opinion about sponsor acquisition fees

They are 100% necessary.

If you didn't know, sometimes sponsors charge what is known as an 'acquisition fee' when they buy a deal.

Typically 1-3% of the purchase price of the asset.

Sometimes sponsors spend months (or years) researching and underwriting deal after deal to no avail. The acquisition fee is what keeps the lights on, so to speak.

And helps afford all that time & effort during/between deals.

✅ If you don't agree with the sponsor acquisition fee, you must first understand that sponsors do not share in the profits (most of the time) until the sale, because of a preferred return.

Fees sometimes get a negative connotation...

→ You pay fees for your 401K.
→ You pay fees when you buy a car.
→ You pay fees when you buy a house.

Would you be willing to pay a fee for an awesome investment opportunity?

Sponsors should clearly show any/all fees in our investment summary.

Learning about and understanding the fee structure is one more checkbox checked toward being an informed investor.

0 Votes

Indianapolis, Indiana

Quote from @Scott Trench:

@Melanie P.

I agree with your overall sentiment of the syndication space, but not of your callout of the people on this thread. I asked, they answered. They have theses they believe in, otherwise, they wouldn't be putting together the deals.

I'm a massive bear on the multifamily space in 2024, and not afraid to say so. I will come out in the next week or so with 5,000 words discussing why another 30% drop in values from the present is possible this year.

That said, there are regional variances, and the people on this thread feel opposite to my views. Which is why I asked.

Of course, you are right that this is the wild west. How can it not be? The assets are sized in that sweet spot of $5-$10M, where it's too small to afford a compliance department, but big enough to meaningfully impact the lives of the operators, investors, and tenants who are all interrelated.

There are fortunes to be made, and lost, in this space. There are scammers, bad operators, the unlucky. There are also those who are honest, try their best, believe, and who will win. And the BiggerPockets community will be forever obsessed with it, as I am. It's the obvious next step for real estate investors who have amassed large portfolios, but aren't ready to move into instutitional assets.

I wonder - what's the right way to make this productive for these investors? I don't want to wait for the SEC, and would rather democratize this here on BiggerPockets. I think that we need to hold two groups accountable:

- The Syndicators

- The LPs who invest with them

Syndicators should aspire to ever greater professionalism, legal, diligence, and compliance bars.

LPs should aspire to the same, and to being able to identify "good", differentiate it from "bad" and call out and share their experiences for the community to collectively improve.

Hi Scott,

I wouldn’t waste too much time trying to reason with Melanie. Every comment she posts in the forums is extremely negative.

Anyways, we have an exciting opportunity that I will send you. Thanks.

1 Vote

Quote from @Robert Rixer:

I wouldn't dismiss them, if buyers were paying 3% caps you'd almost be a fool not to sell. But yes no doubt it definitely shielded some poor investments and made the guys vacuuming up properties in 2015-2019 look like geniuses.

Great point Robert 👌

1 Vote

Indianapolis, Indiana

An interest rate cap is essentially an insurance policy on a floating interest rate loan.

This caps/limits the maximum interest expense exposure for a borrower using a floating-rate loan.

Lenders also benefit as they can require an interest rate cap at a rate threshold that helps ensure the borrower can service interest payments comfortably, limiting the risk of non-payment in a rising interest rate environment.

Floating interest rate debt has 2 components:

✔️ Benchmark Index
✔️ Spread

Benchmark Index + Spread = Total Interest Rate

The interest rate cap will set a maximum threshold for the index used.

Let me know what questions you have about interest rate caps below!

0 Votes

Indianapolis, Indiana

This metric helps answer the question if the return on capital invested in the project is sufficient to overcome a project’s initial cost.

This is beneficial to look at in development deals and value-add acquisitions.

The formula:

NOI / Total Project Cost

What’s a good Y.O.C.?

Keep in mind, this is subjective. What's considered a good YOC will vary with different investors.

Generally speaking, most investors would agree anything above 6% - 7% (stabilized) is acceptable.

Are you calculating YOC for your acquisitions?

1 Vote

Indianapolis, Indiana

I don't care about deals that were 'successfully' exited in 2021.

Here's why:

→ Real estate market was on fire
→ Interest rates were at historic lows
→ Market appreciation was outrageous

Sponsors could buy a property
do basically nothing to it
and sell 1-year later for a huge profit.

Those days are over.

The market in 2021 saved a lot of bad deals (and sponsors).

Longer term holds, operations, and successful asset management practices will be critical moving forward.

- -

✅ How can you verify a successful exit?
→ Compare actual performance to original underwriting projections.

Was the property sold due to market appreciation? Or based on the real value from a strong NOI?

What are your thoughts about this? Should passive investors care about deals that were exited in 2021?

1 Vote

Indianapolis, Indiana

Quote from @Robert Rixer:

@Justin Goodin Good point on the compounding, even just frontloading heavier increases to the earlier years will inflate the pro forma. Organic rent growth should typically match inflation. If sponsors are aggressive on rent growth, expenses should be given similar treatment.

Yes! Exactly my thinking as well.

1 Vote

Indianapolis, Indiana

@Justin Goodin Love this post, we have been very conservative with our projections looking at 2/3% increases year on year but mostly veering towards 2. Investors are definitely in danger when having a propensity towards an immutable 5%... in fact that would be a concern for many limited partners we know.

It is always healthy to be conservative, especially considering we are seeing rent decline in various markets. That being said, there is always opportunity to improve the model in other areas such as occupancy, expenses etc.

I couldn't have said it better! Thanks for the reply!

0 Votes

Indianapolis, Indiana

Quote from @Melanie P.:

I laughed at your casual use of the word, "sponsors," as though it is typical for investors to send their money off to heavily marketed investment schemes. Real estate isn't that complicated. Cut the sponsors out of your investments and you'll do better.

Yep it’s pretty common for investors to invest in syndications. Thanks for the insightful comment like always.

0 Votes

Indianapolis, Indiana

Quote from @Trevor Richardson:

In Reno, NV a good cap rate for stabilized multifamily is 5-5.5%. That means it’s new or a renovation was done.

We have seen some proforma cap rates hit high 7s or even 8s like a deal we just closed in Carson City (8units).

Basically since high interest rates northern Nevada has moved a full 1% up.

Great breakdown!

1 Vote

Indianapolis, Indiana

All Forum Posts by: Justin Goodin

Justin Goodin has started 180 posts and replied 968 times.

Post: 👋Unpopular opinion about sponsor acquisition fees

Post: Anyone Raising a Single-Asset Multifamily Syndication or Know of One?

Post: 👋I don't care about deals that were 'successfully' exited in 2021.

Post: 👋Interest Rate Caps 101

Post: 👋 Yield on Cost Simply Defined

Post: 👋I don't care about deals that were 'successfully' exited in 2021.

Post: 👋Organic Rent Growth is Dangerous

Post: 👋Organic Rent Growth is Dangerous

Post: 👋Organic Rent Growth is Dangerous

Post: 👋What is Considered a Good Multifamily Cap Rate?