All Forum Posts by: Russell Brazil

How much inventory is in the zip code? Is it 1 month or 8 months of inventory. Use supply and demand to help determine how much a realistic offer is. 

Whether any conference is worth it is ultimately up to the individual.

Will you learn anything earth shattering there? No. Will you learn some secret formula? Nope. Anything you learn there, you can find free in these forums.

But what makes conferences so powerful, is the ability to meet other people. You can meet people doing the things you want to do. you can meet people who may become people you do business with. You might make an incredible friend.

But you need to be very intentional in how you use your time at a conference. Make the most out of it. Meet people.

Quote from @Jon K.:

Quote from @Russell Brazil:

Quote from @Ned Carey:

@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.

 I don't think it's a get out of jail card. But it does mean an investment is high risk. 

We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.

Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment. 

You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.

Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products. 

Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.

Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.

Or alternatively it should be a combination of finances and passing a test to prove competency.

 There is actually tests you can take to become accredited investors. If you pass the series 7, 65 or 82 licensing exams you become accredited. 

Yes

So? Let them be disappointed.

Quote from @Ned Carey:

@Russell Brazil yes I was afraid I might be wrong on that. However Syndicators do have a legal responsibility to potential investors and a greater responsibility once someone invests. Exactly where that line is drawn I don't know. But a PPM and only accredited investors is not a get out of jail free card against all responsibility.

 I don't think it's a get out of jail card. But it does mean an investment is high risk. 

We all know the fundamentals to real estate...a property is worth what a seller is willing to sell at and a buyer is willing to pay. So if everyone in the market was willing to pay $5 million for a mobile home park, but underwriting it with a planned interest rate jump to 10%, (with all the other factors) says it should be purchased for $3.5 million...then the seller doesn't sell to them. They sell it to the person willing to pay $5 million.

Property values go up, and they go down. If you're running a business that buys these properties you can only buy them for whatever everyone else is willing to pay. Does that make it a scam? No. It makes it a high risk investment. 

You and I didn't invest in syndication like this, because we are more conservative investors. We weren't willing to take on that kind of risk, even if we were personal friends with many in that space. Our experience in real estate dated back to before the last housing bubble, so we understood simple things like rising interest rates would lead to cap rate decompression, forcing values down on those assets.

Syndicators are in the business of selling these investments, hedge funds sell their investments, insurance companies sell theirs. I don't think anyone of them are scams, (well some people in those spaces are)...they're just businesses selling products...in these cases investment products. 

Ill sell 100 properties this year, give or take. Im sure some percent of those sales the buyers will lose money on. Because 100% of properties in 100% of locations dont pan out. That doesnt mean I scammed those clients. I give them the best information I can. If its a location or property I wouldn't buy, I tell them why. But people do have to ultimately be responsible for their investment decisions. They need to properly assess the risk and distribute their capital based on their personal risk tolerance.

Frankly I think the accredited investor levels shouls be raised by 50%-100%. Because I think the people who are accredited, are meeting that too easily these days, and they are in fact not actually sophisticated investors.

Quote from @Ned Carey:

@Russell Brazil do you want to answer this one?

 Sure.

This has nothing to do with the Supreme Court off the bat.

This is in regards to a class action settlement. Previously a seller or listing agent offered out a set buyers agent commission in the MLS. They can no longer use the MLS to do so. That is it, thats the change.

How people handle this varies however. Some sellers may offer out a set amount and advertise it off the MLS. However that offer means nothing. When a buyer makes an offer on the house, their offer will typically ask for the amount they contracted with their agent for.

This system generally disadvantages sellers though as we have seen average commissions rising with the new system. But this is what the courts, lawyers and DOJ wanted.

Quote from @Ned Carey:

@Russell Brazil Wow one of the few times I get to disagree with Russell

                "And every syndicator really any choice but to underwrite that way."

Seems like they made a choice to ignore their fiduciary duty? They could have chosen not to do the deals. If the only investments available are bad investments, just don't buy them. Especially if you are buying with other peoples money. 

The assumption that 3,4 or even 5% rates would continue is laughable. Part of me thinks syndicators should have disclosed the exceptionally low rates, part of me thinks that is why it is limited  to accredited investors. Accredited investors should know that those were unsustainable interest rates. 

I dont think anything about being a syndicator makes you a fiduciary. Quite the opposite. Syndicators have no training or legal requirements on understanding to be a fiduciary. That is part of why this type of investment is high risk. 

Is Open Door Capital a scam? Absolutely not.

Is Brandon Turner truthful? Absolutely yes.

The reality is investing comes with risk, and yes part of that risk is you can lose your entire investment. Syndications are particularly risky, and thats why they offer such high returns. That high return is consummate with the risk being high. Because that risk is so high, and these syndications are not filing financial reports with the SEC, the government will only allow accredited investors to invest in them. ie, individuals the government believes are either sophisticated enough to understand the risk, or have the fiancial capability of losing the entirety of their investment.

What's happening to ODC is happening to numerous syndicators in this space the last 2 years. The reality is they only stress tested their underwriting for interest rates to rise 200 basis points, say handling 3% rise to 5%, but many of their debt service rose 600-800 basis points up to 9-11%.  Throw in that most of them underwrote for rent growth to be 3-5%, but instead have had negative rent growth instead.  Combine falling rents, with higher vacancies, and higher rates and it was a recipe for disaster. 

And every syndicator really any choice but to underwrite that way. If they underwrote the deals more conservatively, then they would have had to pay substantially less for the properties. But others were willing to buy at the same prices they bought at, so acquiring them cheaper wasnt possible. Additionally they wouldnt have been able to raise investment capital...because who is throwing capital at an investment with promised 2% returns if the other guys are promising 18% returns?  So in both cases, the market determined what they could pay, the market determined how they underwrote, and the market determined what promised return they had to offer. Unfortunately it panned out very poorly.

It's important for investors to understand their risk tolerance. Most dont consider that.  An S&P 500 index fund, incredibly unlikely to ever go to zero. A US Treasury Bond, incredibly unlikely to go to zero.  Low risk investments with low/average returns. But a syndication, very high risk and thus a much much greater probability of the investment going to zero. 

Were you trying to wholesale it? Are you familiar with Virginia's new laws on wholesaling?