All Forum Posts by: Pat Marco

Basic rules of LLC: open it where the property is located

Puerto Rico LLC: is only good for a resident of PR and of you are resident of any state in the US you will pay tax in PR and file form 1116 to take credit for that tax on your ORS filing as you must also file tax in the US

See IRS publication 570 

If you use a U.S. llc to buy in PR it is considered a foreign entity and when you sell Hacienda will force the buyer to not send you all the money and they must send the gross profit to Hacienda 

You will NEVER get that money that was sent to Hacienda except as credit sitting on your taxes for that entity each year. Conclusion if you use a US entity you MUST register it in Puerto Rico to have it domicile there. 

Good luck  

Yes many local residents are fighting Airbnb and it will affect many areas because local legislators are pressured to react and create new rules 

Puerto Rico continues to grow both in the commercial real estate market and the short term rental market. Those who invested 4 years ago when we started exchanging information here must have deal really well. Unlike the US Puerto Rico is seeing continued growth due to the tax incentives and the number of wealthy people relocating there to take advantage of these tax incentives. 
Also tourism there is booming, no passport needed, since it is part of the US and cruise business is expected to grow steadily for the next 7 years so i am focusing on Old San Juan since that is where cruises dock and properties there have the highest demand for Airbnb 

One more thing, the convention business is getting ready for a huge come back and will continue to grow for years to come. 

All this is going on there while the US markets are slowing down and banks are becoming more and more difficult to deal with 

Syndications in general are a form of speculation  hoping luck is on your side with a specific market, a specific project and a specific syndicator. Good luck!

You are literally loaning your hard earned money to someone else who will also get a loan on top of your money to acquire some property for a fantasy proforma based on too many moving parts where no one is safe. 

Read carefully any PPM for any of these syndications and identify how many times the SEC demands the following disclosures: 

1) you can lose all your money 

2) there are uncontrolled risks 

3) there are no guarantees 

4) the numbers are all hypothetical 

5) the syndicator will use leverage 

6) the market usually fluctuates 

7) the SEC does NOT have a copy of the PPM 

8) the SEC neither read nor approved the PPM 

9) the SEC does not vet the syndicator 

10) the offering is not registered with the SEC 

11) there are conflict of interests 

12) the SEC encourages you to seek professional advice 

Etc etc 

The game of real estate is based usually on investing in your own back yard and getting some reasonable leverage and if things go against you, then decide if they are issues related to the market cycles and you can hold on till the market shifts and recovers or you should just dump the project at a loss and pay off your loan. And if it is not related to the market cycles then you ate in a bad project and you should try to resolve the issues or again dump the deal and take sone losses. 

When you are in a syndication. You ate passive. You lose all power when giving your money to some hopeful person called a syndicator who often puts little to no money in the actual deal and whose only claim to fame is that he may have an over hyped deal. And some these syndicators are great presenters with lots of data and great promises. 

One last comment about the regulators: the SEC will do nothing to a syndicator with a failed project, so long as he/she shows that they did not do anything blatantly or willfully illegal and were merely incompetent failed syndicators. I am an attorney and have seen a lot of these underperforming or non-performing equity offerings. 

I invested in many syndications myself, since 2009 and all have delivered less than promised or could not deliver and went belly up except one that has remained a steady performer for over 14 years now. They were all equity syndications except the one that has continued through the years and guess what it is a debt fund (not an equity syndication). None paid through Covid as promised except that one and none have grown and continued to perform except the one that was a debt fund. To be clear, a fund has multiple type of assets in various locations with various strategies. Just like a mutual fund but better because the unit/share price stays the same and you get s steady reliable periodic pay out. And you can take out the pay outs or compound them. 

That debt fund has operates steadily through the years despite the 2009-10-11 market decline, the global pandemic and now the interest rate increases. Most of my money is in it since 2018 because of the cross collateralized security since it is a debt fund and i steadily cashed out of all other syndications that have continued to deliver less than promised or not deliver at all. Btw I can cash out from this ongoing debt fund at anytime and go back in or add money at anytime. They charge no fees at all. Yes zero fees. The fund manager is reachable and he personally has a high net-worth and continues to invest millions in his own fund. I mention this so you can compare that structure to other offerings. 

I have cashed out partial amounts previously with no issues and I periodically go see various projects the fund has at anytime. The fund manager stays at less than $200 Million in total assets and with less than 100 investors. 

Those whose experience in syndications or in real estate investing started in 2011 forward have no idea what a bad market does. The market has been on the upswing with low interest rates since 2012. Ironically I’ve noticed most people who started in the syndication business on Bigger Pockets whether as GP or LP (General Partners who set it up or Limited Partners who invest passively) have not experienced a true decline in the market so I predict a bloodbath in 2024 

I will write a booklet about what to look for if investing in a syndication (or better yet: in a fund) and will post it somewhere on BP because as a tax attorney for high net worth individuals I have seen it all and so many good people lost money as passive investors because the hopeful syndicators were amateurs! 

Whenever I reply and post my email etc they remove it. Just message me and I will respond 

Neal Bawa is an intellectual cheat. He likes to present figures and will burry you with data and at the end his performance is way off. Talk to any investor other than me and hear the confusion and BS we are getting. It is a matter of time for Grocapitus to get fined or get shut down. or He may rebrand once more or try to hide behind someone else. he does not do the underwriting, just the power point. Have you ever even tried to ask questions on their live presentations? they never have an answer. Over promise and under pay then keep delaying. Investors get stuck and cannot cash out because of tax complications. He is never reachable. 

@Jeffrey Holst 

I agree with you. As a retired tax attorney for HNW and UHNW individuals I can tell you that REITs returns are all over the place and we had clients who would make money from the dividend but see their shares decrease in price so it was not reliable. 

@Dan Heimer 

You are right safety is number one. I don't think people realize the huge difference between a syndication with one single asset like a multifamily in it versus a real estate fund which is way more advanced and only offered by more experienced sophisticated and deep pocket Fund managers in real estate. 

I have seen people invest in a syndication with a multifamily syndicator who brags about how many units they have in several syndications. The reality is they are using the investors money for the downpayment, they are getting a huge 80% loan that is non-recourse and they have the private offering to protect them with full disclosure in case the market drops. on the way up investors make 30% easy and even the syndicator will brag about it and will tell the confused investors who cannot even calculate IRR on their own to stay with them as they roll their invested money plus returns forward through a 1031 exchange and now they got even more units to brag about. It is a house of card that has collapsed on 2008-09-10 and 11 and now it is starting to happen again. Cardone capital is way over leveraged, REITs are in big trouble, all hotel assets are suffering and these individual syndications are buying time. So ion the way down investors can easily lose all their money and the syndicator can walk away with no issues. After all the syndicator can prove that he did everything as fully disclosed in his/her offering. Even SEC attorneys have gotten sued in the past.

A real estate fund is like a mutual fund and the key thing is diversification and the various assets by location and what they are doing in the fund is the best way to be protected. The keys words are liquidity and cash reserves. Most syndications have neither. Real estate private fund have both along with safety and reliable cash flow 

@Mike Dymski

I agree with several of your points but it really does not take years to vet a fund manager. Simply invest in funds operated by people who are out there in the public, doing events, being interviewed. Doing videos of their projects and you can easily verify what is owned by their funds. I've invested with the same group for the past 7 years but when I joined they had been already in business as a real estate fund for 3.5 years and asked to meet withy the fund manager who took the time to tour me personally in California and hen a year later I went to see one of their bigger projects for assisted living facilities. 

@Jorge Torres

I usually tell my clients to ask the syndicator a few questions like: 

1) How much are you putting in the syndicated deal you are offering?

2) Are you getting the loan with your personal guarantee or is it non-recourse? 

3) Who is partnering on the actual deal? (you often find several syndicators trying to dig in the same proverbial pie with lots of egos and issues regarding their partnerships) 

4) Who is managing the day today and who is supervising them? 

Contrast that with Fund Managers who put a huge portion of their own money in their funds and operate several assets with low debt and have a real operation going for several years where investors can cash out and/or add money into the fund at anytime and you will see why safety and liquidity are way more important than trying to get 30% when the market goes up and lose it all when the market goes down plus you are stuck as per their offering memorandum for 5 years on average! I have always been able to get out with an 12 to 18 months notice if not less. 

@Robert Baker

Would love to get a copy of a spreadsheet analyzer for multifamily

Would appreciate anyone sending it to me

@Matt Ward

With $1mil you will give you 2 choices

Choice 1- Be independent:

You could buy a single tenant building around $3 to $4mil with a long term national retailer that pays NNN with a corporate guarantee for 10 to 15 years

This will give you easily 10% cash on your cash plus principal reduction and no tax due to depreciation etc so you could be making a clear $100k a year with no work

Problem is what happens 10 to 15 years later if Tenant does not renew?

Well, it may not be a problem if the property is in a decent location because you may be able to get another tenant relatively quickly but will pay a hefty real estate commission or you could sell the property vacant hopefully at same price or more due to inflation but again you would still pay a hefty commission

Option 2 - invest in a syndication

My mentor is a syndicator and I invest in his fund that has been in operation for many years

The reason I invest in his fund is because he charges no acquisition fee, no management fee and no disposition fee and anytime I want to cash out I can do so in full within a few months (no long term getting stuck or having to worry about paying fees or commissions etc)

His fund cross collateralizes investors money on several assets in different part of the country with different strategies based on different type of properties - that is how he lasted in the market for many years and has a huge following