All Forum Posts by: Paul Azad

I don't invest in multi-family properties myself but one of the Bigger Pockets frequent contributors on these threads is Brian Burke, who quite literally wrote the book on this, I am buying a copy myself, but please read, i think an ebook available too, I do passive investing only in multi-tenant triple net retail but have spent hundreds of hours doing my own due diligence. Of course, not as directly labor intensive as what you are embarking upon, good luck in your endeavor.

Amazon.com: The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications: 9781947200272: Burke, Brian: Books

Quote from @Ryan Arth:

A value add play that shows yields and IRR comparable with the long term S&P average...

 She is getting a 1.46 multiple over 4 years , so 1.46 X to the Y 0.25 equals 10% compounded annual return, which should be totally covered by depreciation so that's an effective yield of 16% if in top bracket. Which she then may have opportunity to 1031 to avoid the 20% cap gain and 25% depreciation recapture, So overall its a pretty good investment if it pans out?  The SP500 has returned "long term" 8.4% nominal and 6.9% real, per Dr Jeremy Seigels 1801-2023 data set and would be fully taxable at sale.  As she personally knows the syndicator she may be able to garner far more info in conversations with them about this and other investments, which can give her an informational asymmetrical advantage over 99% of retail investors as well. 

Quote from @Brian Burke:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

To be fair, BiggerPockets published an entire book on this very topic.  Not intending to self-promote, just pointing out something many people might not be aware of.  One of the things that led me to write it was I saw too many instances of what I believed were cattle being led to slaughter and I hoped that a little education would save some people from that experience.  Hopefully it did, but I think we’ll see over the next few years that I couldn’t save everyone.

 Mr Burke, thankyou so much for sharing your hard earned knowledge, both on these forums and in your book and in the many podcasts I have listened to you on. You have been a wealth of information and common sense analysis. Praxis is the old Greek word for an unstoppable force, hoping you remain one in the area of sharing and educating here on Bigger Pockets. :)

Quote from @Carlos Ptriawan:

the best way to do DD is to do intel gathering on their comps, if their peer is renting 2BR for $2K how could they expect to rent it for $3K on year 5. Is it even making sense ? What's the DSCR assumption with 92% occupancy, with no rent growth, with rent growth , and lot of other thing. Can they provide you their T-12 ? How could they raise their price if their competitor is increasing lol

many times, the syndicator exist because they get  paid for free by LP. THey get reap all the benefits while if investment doesn't return any value, they would not lose money, but LP is the one that's taking risk. 

 Hi Carlos, they had a webinar 2 days ago, the youtube below, they put in a table of other comparable Apartment complexes even with a map, showing the proximity as well. I suppose to show the Sundance Villas slightly lower avg rents but on the list of 10 complexes are 2 brand new massive complexes with 0% occupancy which are coming online soon. They didn't mention them nor the high likelihood of that competition driving down their rents and thus Noi and cap rates etc. which I think is an obvious detriment to their slightly Rosy projections. It's going to be tough for Multi-family investing just now in Hot Markets, may be prudent to limit investing until things shake out a bit over next 12 months....I think triple Net retail has better wind at its back from supply/demand basis at this time. Warren buffet used to say why jump over 1 foot hurdles when you can jump over 1 inch hurdles?

Don't Miss Out: Villas at Sundance New Investment Offering Webinar (youtube.com)

Don't know anything about them but per my calculations they are taking 27.2% of the capital appreciation on the New Braunfels deal at the end per their projections which seem optimistic in this oversupplied environment, (Austin MSA with largest new multi-family projects coming out this year in the country ,8% of total existing stock and already seeing rent rate declines of near 10%in the city so far) and they are taking a big chunk of the monthly cash on cash as the preferred payouts for their 3 different classes are well below the projected cash on cash total. (They concentrate/force the equity into their class B shares 13/18 million so they get 72% of the future capital appreciation at the higher 30% cut,
versus 5/18mil at the lower 20% rate) They also seem to be overpaying in this downward trending multi-family environment. Also, per their numbers they are buying for 37 mil, debt 24 mil, equity 20 mil, 44mil minus 37 price = 7 million in closing costs, which is 35% of the total equity, RE commissions of say 4% total 1.5 mil so they are taking 5.5 million in fees up front as well minus the inspections/loan fees etc. They appear to be really soaking their unsophisticated investors, my guess they focus on doctors, and it's a risky place and time to be buying too. good luck

4/18/24 update, i don't mean to dump on them, Viking Capital LLC. I just think now may not be the best time to buy multi-family in formerly Hot markets, like Austin MSA, that are clearly going down in price. Austin Rent rates also down 6% per Yardi-Matrix data, from 1 yr ago. Their slide deck, 85 pages is on their website, They believe that they will increase the properties NOI by 45% over 5 yr hold, mostly through rent increases after doing 5K interior upgrades in all 252 units, thus adding 19 million to value of property. They are buying at a 5 % cap rate with a fixed 5.7% loan amortized at 30yrs and first 2 yrs interest only, and they believe that they will sell at a 5% cap rate as well 5 long years from now. I don't know about this cap rate projection, at least in CRe-Retail we project out a 10 basis point rise in cap rate for each year the property ages, so the Cap rate may be 5.5% assuming interest rates don't budge, (probably heading higher as US Govt has to deleverage its last 40yr debt run-up, like we did between '45 and '82, and we did again btwn 1899-1920, same 30-40 pattern going back to mid-1800s)
I watched all their videos/podcasts/available webinars. They are very well organized and very professional, and their reported past results are exceedingly good at 24% avg annual return, but that was then (lowest interest rates in 90 years, CAP rates compressed from 8 to 3) and now is now. 
But no one Knows Nothing, so they could knock it out of the park, or slow bleed money for years.
Good luck Aman

i suspect your position will be diluted by about 20% if you don't contribute to the capital call, You don't lose your investment though, unless the property gets sold below debt basis or gets foreclosed on and then sold by lender at below debt basis, but if only a few investors contribute then that may happen

The question for the limited partners remains, is this a good investment today?, not yesterday which is a Sunk Cost

Given macro-environment, rising unemployment, rising 10yr interest rate which equals Cap rates, prolonged 23month inverted yield curve (longest since 1978), increasing supply of Multi-family in Atlanta area over next 2 years, falling post pandemic stimulus in people's bank accounts, now below 1 trillion from 5 Trillion 3 yrs ago, etc.

Would that extra 19.7% capital be better invested somewhere else?

Sorry for the difficult situation, but many Multi-family syndicates dangerously used bridge-loans with very short term Maturity walls which are forcing the capital infusions to re-finance, as opposed to variable 10yr Agency debt or even safer but less lucrative, 10 yr Fixed agency or CMBS

only the limited partners know the details and the performance of the property and the managers to make this decision - good luck

VNQ + VNQI would get you part way with 812 individual REITs going forward, in a low expense fee Vanguard format, but I don't know of any market maker yet with a total REIT index as an ETF or mutual fund yet?

for some reason REITs have never been a sexy asset class, older investors look at REITs as a weird-bond and wonder why own something with 4-5% dividend when they can own Investment Grade corporates at 5-6% or even recently US treasuries at 5%, and young investors don't even know what they are.

yet they acquire class A real estate, the kind you and I can't due to price, the kind that has the best capital appreciation in great areas long term, and they have access to credit at lower rates than us, or they can just print shares and get new capital for free that way, to buy more great properties, They can pay for the best management, they don't ever pay brokerage fees either in or out (have everything in -house), and they generally have much lower risk as most of their portfolios are leveraged at only about 30-40% LTV, and we have zero personal liability when owning them as opposed to the litigation headaches we get with direct RE, and right now they collectively are on sale about 25-50% below their NAVs at lowest valuation since 2008, as opposed to SP500 at all time highs. But hey WTF do I know :) good luck Amir

Quote from @Amir Batouli:

Quote from @Paul Azad:

REITS have beaten the SP500 last 50 yrs, by a lot, 13% to 11% just in last 20 yrs too

This is simply/verifiably not true. This is a graph of aggregate (dividend reinvested) for Vanguard REIT Index vs SPY for as long as there's data (since Dec 2004).

 sorry if I offended you but there is quite a lot more data than since 2004, and as I said in my post REITs have outperformed for 20/25/ and even 50 yrs of data, but you are correct not in the most recent 5/10/15 yrs only MAG 7 run-up. US stock market, aka MAG-7, have outperformed 12% to 9.5% with REITs in last 10 yrs and even more strongly in last 5 years at 15.7% to 10.3%, perhaps this will continue but the sp500 currently with a 34.4 Shiller PE, which is much higher than in October of 1929, and that wasn't the best time to start investing, please read the following 1 article and then the graphs/tables, There are also multiple academic studies at the European real estate research site EPRA

REITs vs. Stocks: What Does the Data Say? | The Motley Fool

This is study from NAREIT all equity index not the more limited VNQ vanguard which tracks the MSCI 25/50 index which only hold 160 positions at a time, not the 270 US and nearly 400 global

This chart is from EPRA and a European academic study with data from 1977-2010

Not saying REITs are better than Matan buying single family rentals or multi-family etc, just given that he has 2 more years of Fellowship (often work 100-132 hrs a week), trying to provide him with another option that he can wet his Beak so to speak in Real Estate, in different sectors as well, start learning about the industry, then when he graduates, he will have to only work 80-90 hrs a week and will have the time to devote to more active ReaL Estate. I have hundreds of friends and family (as all Indians do :) who are busy doctors and when I have sat down and discussed their forays into private real estate, they have usually not done as well as they intended to, and they have almost always miscalculated their returns significantly as well. It's human nature not to factor in their time, nor large episodic real estate expenses etc.

almost forgot this table chart from Mary Callahan Erdoes , she is the head of JP morgan asset management which has hundreds of thousands of high net worth investors, They are quite stringent when comparing their own investor's returns to other Asset classes

Quote from @Raj Vora:

This is a really great point and explanation @Paul Azad thanks for commenting! You're right, lots of depressed rental rates right now and I see cranes everywhere so that supply will likely hit in the next 12-18 months. I think getting my ducks (management/ financing) in a row and seeking out a discounted MF deal makes a lot of sense. Do you have any thoughts on the office market? I read your other posts on BP and your analysis always seems very well thought out and informed so just curious. 

Haha didn't know that about Henry of Occam!

don't know much about office other than from a Macro-perspective, i've never invested in office CRE, but seems like the panic from "work from home" may be a touch overblown. Office in CBD, central business districts, are getting hammered, while office in sub-urbs not so much. Yet all office seems under price pressure, especially with rising 10yr and cap rates. I think REITs that specialize in non-CBD office are being tarnished w same brush so good deals to be had at good values. I like ARE, alexandria real estate equities, they focus on sub-urban office for life sciences labs/medical, which is something that has to be staffed in person, not from home in your underwear :), they are down 50% in 2 yrs like all the other office REITs, and by valuation have not been this cheap since 2008, but once the panic about "work from home" subsides, their value should rise back up to its historic rate. An even better option is WPC - WP Carey, which is a diversified REIt, they have been aggressively divesting all their office properties and will soon be a principally Retail REIT, but they are still priced low with other Office ones.

I usually focus on syndicated ownership of multi-tenant triple net retail, 'Cause people be Shoppin!, and screw Amazon. There has been under construction in this space since GFC in 2008-09, so now big lack of supply, and we have multiple offers on spaces and able to increase rental rates 10-11% on new leases, plus we write in CPI step-ups to hedge inflation. 

Find a narrow area, then focus on improving your expertise/knowledge and you will have an informational edge that will pay huge dividends long term because unlike most people you will know what the true value of an asset is and can calmly pull the trigger when others are scared and can calmly not pull the trigger when others blinded by greed. Good luck

aren't apartment rents down 8% yr over yr in Austin? and with record new class A multi-family coming online now and 2025 in Austin/Dallas/Houston, perhaps focusing on multi-family would be most lucrative for you, which you already have personal experience in, over next few years then you can acquire really good value deals as prices will likely come down quite a bit, ie more supply/higher 10 yr etc. 

    I know folks who bought strip malls and multi-tenant retail in 90s for 5-10 cents on the dollar at auction from Resolution Trust Corp after Savings and Loan crises in Texas, We are now going through similar deleveraging event after super frothy period in Multi-Family due to 0% fed funds x 20 yrs and many properties bought at 3-3.5 cap rates, especially in austin/dallas/H-town. 

PS Henry of Occam died a penniless monk in the 1300s, he should have bought the Nunnery next to the Monastery and converted it to condos :)