All Forum Posts by: Neil Henderson

Fidelity as their self-directed IRA custodian?

This is our second monthly meetup of the Wilmington Commercial Real Estate Meetup. Catchier title to come later. No pitches, no sales, just a group of like-minded investors getting together to chat about commercial real estate. 

Come join us at The Flying Machine Brewing Company this coming Thursday from 5:30 pm to 8:30 pm. We are typically gathered towards the back.

On the Reidsville property, the parking lot conveyed but there are high-tension power lines that cut right through the middle of it. Limits what we can do with it. 

On the Virginia property, the large parking lot in front did NOT convey but a smaller parking lot on the side did and RV and Boat parking is definitely under discussion.

I know AJ Osbourne's group acquired a Super Kmart in Reno, NV where the parking lot did convey and they parcelled it off and sold it to a multi-family developer. 

 @Jay Hinrichs I did! Traded in the security clearance and dried out sinuses for humidity, bugs, and ocean breezes. We live across the street from the beach in Carolina Beach just outside Wilmington, NC. Come out and see us sometime!

@Matthew Wilson We have been pining for that Kmart for a looooong time. Unfortunately, sounds like UNCW bought it and has plan for it. Sounds like a better use of the land than storage anyway…I guess. ;o)

@Carlin Randolph  The issue is not how many investors you have but how are the investors participating with you.

Disclaimer: I am not a securities attorney and if you are going to be raising money from other people to buy real estate I highly encourage you to speak to an SEC attorney before doing so.

There is something called the Howey Test that attorneys use to define whether or not what you are doing qualifies as selling a security, and therefore requires filing with the SEC.

Cliff's Notes:

1. It is an investment of money

2. There is an expectation of profits from the investment

3. The investment of money is in a common enterprise

4. Any profit comes from the efforts of a promoter or third party

In short, if you take money from one investor, and that investor expects to earn a profit from your work, then you are selling a security and would need to file paperwork through an SEC attorney.

The primary umbrellas that most real estate syndications legally raise capital under are rule 506(b) and rule 506(c) on Regulation D of the Securities Act.

Under 506(c) a syndication may only accept Accredited Investors. Meaning an individual whose annual income exceeds $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. And/or has $1 million in net worth not including their primary residence. The nice thing about a 506(c) offering is that it allows you to advertise the deal publicly.

506(b) allows companies to raise an unlimited amount of money and sell securities to an unlimited number of accredited investors. It also allows the company to sell securities to up to 35 non-accredited investors. The caveat is that you may not advertise the offering publicly and you must have a substantial prior relationship with each of the non-accredited investors.

Cliff Notes
506(c) Advertise on Facebook but only Accredited Investors are allowed.
506(b) You can bring in up to 35 of your non-Accredited friends and family but you cannot advertise the deal publicly.

That's why forced appreciation (BRRRR) is so powerful. If you are just buying straight cash flow for 100 units, yeah, it's going to require quite a bit of capital and it's going to take a long time. The power of forced appreciation is you are creating value (equity) where there was none before. You're then able to tap that equity later to acquire more properties that you force appreciation.

Yes, acquiring 100 units without some sort of external capital injection is going to be a slow process.

I think it's also important to go in with a good idea of your goal beyond income. Is your goal just to own 100 units? Have the income that 100 units produce? Or is it something greater than the money? There are a lot of miserable landlords out there who wished on a genie lamp for 100 units and discovered it's more than a full-time job. 

What do you want your life to look like when your real estate dream is up and running? 

Don't just fixate on the number of units or the income. Design the life you want and then build the strategy that will allow you to afford the life you want in a way that makes you happy.

I feel your pain. Real estate is about your time, knowledge, or money and figuring out how to leverage what you do have and find a team to help you with what you don't have. If you have time and knowledge but no money, that's often where the Do It Yourselfer falls on that spectrum. The problem, especially when you're new, is it's easy to overestimate your knowledge and the time it's going to require. It may seem like you saved money, but did you really?

It's also important to take stock of what your primary money-making skill is. Are you better served to focus on your primary money-making venture, studying/practicing medicine, or do you think you're going to make up for that lost focus with the money you saved doing it yourself? 

We are all trying to generate other streams of income in the most passive way possible, but often we lose sight of the better use of our earning time because we are excited about real estate investing and we hear all these great stories about people doing themselves. Every investor is in a different position.

REINation (formerly Memphis Invest) is a turnkey operator I have respect for. They are a full service outfit, meaning they also handle the property management.

Not local, but @Steven Hamilton II is familiar with cost segregation on short-term rentals. They are very busy this time of year, so I don't know if they'll respond here or not.