All Forum Posts by: Jason Merchey

Well this truly validates stuff I remember reading in Brian Burke's book about how the sponsor and the decisions they make and the operations they run are CRITICAL in the success or failure of a syndication/fund. Also how "fairly new" is a recipe for, as he puts it, "like a pilot who is inexperienced, such a GP might just be flying you to the scene of the crash." 

 Those are key questions, Zach. I believe probably something like a Google calendar kind of thing that is "live" so one can see who chooses which days/weeks. One thing I would appreciate would be a scenario where on Jan 1, folks can choose what weeks they get in that calendar year, but I would probably hold back 10-15 days so that I could "plug in" last minute 1-2 night visits here and there. I think as long as I were willing to clean up after myself fastidiously, it could be accomplished last-minute and free of any cleaning charge. That is because I am a pretty spontaneous person, and would want to live within an hour, so therefore I could say to my wife on a Wednesday "Hey Thursday and Friday nights are free at the house, do you want to reserve those and do a last-minute trip?" It would behoove my partners because they fewer weeks I take, the greater the availability there would be for them to choose weeks over New Year's, Labor Day, the prime season, etc. etc. 

Just a few thoughts. 

Price-wise I would want to see it be real transparent and not a lot of add-ons and such. Groups like Pacaso, as far as I can tell, have admin and overhead that means you might own 15% of a house and get 15% of the time, and yet pay maybe 25% of the purchase price. Get what I mean?

Oh my God, LOST $230 million? Wow they really screwed the pooch on that one. If you wouldn't mind IMing me and telling me the name of the sponsor that would be great. 
Jason

Hi there, 

I invested in Class A shares with Ashcroft about two years ago. Haven't missed any. Though I am a bit concerned to learn about them dropping the return from 10% to 9% (if I read you right). In an environment such as this, 9% is only 4% above the risk free rate, which makes me wonder why they would do such a thing. At any rate, I am not sure I would re-invest my capital into a fund with Ashcroft (my two investments are single entity syndications, not a fund) but I can't say anything negative about them that I can substantiate, either. Vaya con Dios amigo.

 Hi Mitch, thank you very much for the reply. I think I have too many concerns around "a loan in one person's name." But thank you for all the info!

I too have gotten into 5% CDs and treasuries as a way to "barbell" my higher risk with apartments and other CRE. It's just too good of a return to ignore. In fact, if I were a few years from retirement, I would be very interested in a 10 year treasury note. Right now I need to aim for a higher average return than 5%, but 4-5% going into retirement is a great thing. It used to be that bonds were an important part of a typical portfolio--until bonds started returning near zero (which was pretty instrumental in pushing stock prices up as more dollars crowded into the stock market).

As to the OP, I am also wondering if the IRR can be lower than the COC--or if I am just uneducated as to how that could technically happen. I'm thinking if one were to simply drop out of a 5 year investment in year 4 without seeing a disposition (but having initial investment returned), perhaps the COC could be a little higher than the IRR because the IRR would be signaling that five years is a long time to get a return of capital...

Let's just say, my wife swore me off of ever getting involved in a flip again!

There is a good reason why "tenants, toilets, and trash" is something a lot of mom and pop rental property investors/landlords/flippers are eager to move on from when they can! I know Rod Khleif talks a lot about this in his podcasts. Multifamily doesn't need any more pressure/demand since cap rates can really get low when too many people pile in, but I have to say that commercial real estate (including large MF) and other types of passive investing (mobile home parks, storage, etc.) can really make like much easier. I would trade the 7.5% I am chasing with my "barbell strategy" (of 40-45% commercial real estate syndications) for a 17.5% return gained in active investing. Life's just too short for dealing with stuff without having all those professionals and that economy of scale between you and the tenants. When a syndicator noted recently that due to 8 degree temps in ATL, THREE of their assets were wracked by frozen pipes bursting, it caused me a little alarm, a little worry---and then I went back to watching TV. That's the beauty of passive investing. It's not fool-proof, but I think odds of earning 7.5% using a barbell strategy in the average year on your money is 97% likely with very very little effort. 

Now, if you don't have any capital, then ya you're going to have to work harder for your money. If you're not accredited, then I would say the rare syndication that accepts non-accredited investors, or something like FundRise or Crowdstreet or other crowdfunding platform, would be how you get that "riskier" side of the barbell to weigh more.

And thanks for your feedback on FundRise, Crowdstreet, Farmtogether, and Groundfloor. For ideological reasons I'm not personally into Cadre, but I will look into those crowdfunding platforms if my list of syndicators ever starts to seem thin.

OK well I should bow out, I don't have any knowledge about that space from a GP or active investor perspective..... save for the fact that On the Market is a podcast I like, and they get into some big, macro issues that impinge upon markets (including the commercial space). The latest episode that really stood out to me was when economist Mark Zandi of Moody's Analytics was interviewed.

Best,

I personally am aiming for 7.5% ROI and consider diversification to be key. I will say that I'm interested in "hitting singles and doubles" and I think your active approach to investing is more like swinging for the fences. That is, with the kind of equity you have, I would say you could continue to increase and diversify your passive investments, and aim for a "barbell strategy" that combines the double-digit returns commonly earned in the MF/commercial value-add and stabilized sphere with the single digit gains you can get from anything from CDs (paying 5% per year now) to debt funds which pay 6-10% per year to stocks with dividends (2%-X% per year overall, over time).

In short, there is a huge potential to gain some major windfalls in active investing, but there is SO much work involved, and a fair amount of risk. I would say it only beats passive investing if a) you're loving the hell out of it and b) making 15%+ per year more years than not. 

Otherwise, I would advise taking the easier path and letting GPs in numerous MF and commercial/industrial funds do the heavy lifting for you. You're a millionaire, that's what a millionaire can do. It's true capitalism. When that works, it's called "mailbox money," and it's absolutely feasible if you have $5m to put at risk. Using $5m in equity, an LP using a diversified barbell strategy will probably see $350k+ per year in cash flow and equity gains on average..... I left "toilets, tenants and trash", lenders, real estate agents, handymen, property managers, etc. behind a few years ago, and it's one of the best decisions my wife and I ever made. No doubt about it. 

Obviously you can IM me, but I would also refer you to Brian Burke's great book The Hands-Off Investor, published by BP. It's a roadmap to making solid investments as an LP, and Praxis is a pretty good model for how a value-add MF sponsor makes money for it's investors.