All Forum Posts by: Amit M.

The big question going forward is, how will Bay Area and costal California real estate fare at large over the next 5-10 years? I for one am not optimistic that appreciation will be anything like the last 20-30 years. There are several key state and national level political, social, and economic reasons for this: some adverse blue state politics, hybrid work options, other states and regions becoming more desirable, etc.

Personally I think that if you already own appreciated and good quality properties (i.e. not war zones) in costal CA, they are safe and solid holds for the long term. But I don’t see how it’s worth buying in now for buy and holds, etc. Even with forced appreciation I think the return to effort ratio is not very attractive. Of course there are always good one off/unique deals, but in general I’m not seeing the growth and attractive price points needed to create a stabilized cash flow portfolio. In my market (San Francisco) I’ve felt that after 2015 it was slim pickings, and still is. I’m just glad that I was able to perform over the last 20 years and kill it with what I purchased in the past. But I’m afraid I don’t have encouraging news for those getting started and wanting to invest in costal CA now, except for maybe house hacking and buying your personal residence. It was great over the last 20-30 years but now, not so much :(  Perhaps others out there are more optimistic than me?

@Jay Hinrichs yup, your rate of return on the Palo Alto house was much higher than 8.5% as you used leverage (mortgage).  That’s how people made the big bucks in CA :)

@Carlos Ptriawan so are you essentially saying that those friends of yours made their wealth by the real estate they brought in CA more so than their stocks options or start up exits?

@Account Closed are you sure it's not a DST/1031 exchangeable fund? Look at that ad! If you're correct, this is what I'm talking about in my initial post- false advertising!

@John McKee you’re right about syndications, but DSTs usually don’t make capital improvements. Actually I believe they are not allowed to do so due to their structure. So if they can’t force appreciation, they can only benefit from natural market appreciation on their exit, which is why their returns are lower than syndications (but of course you get the benefit of the 1031 exchange.)

Here is another ad from Kay properties claiming high DST returns of 9.75%. Given that most DSTs offer 4-5% cash distributions, are they including potential appreciation to get to 9.75%? Seems pretty speculative.

@Robert C. hey shout out to Robert…long time no see!

@Jay Hinrichs shout out to you too Jay!

As to the quandary posed by the OP: The root of the issue is that it basically sucks to be an RE investor these days. It’s like everybody was gangsta 2012-2019, and then 2021-early 2022 was weirdly good too (due to market distortions caused by COVID.) Mid 2022 and onwards? Not so much ;)

So now investors are feeling the weight of dog properties…be it higher interest rates, non paying tenants, property values falling, government intervention (especially in CA), etc. Lots of advice given here, and each has of course it’s pros and cons. While syndications were the rage the last few years, I’m quietly hearing more about failures. Funny how it’s easy to find stories about 20-30% profits….but you really have to dig to hear about the losers. Remember syndicators run a business, and they invest in almost all market conditions. The question is if those investments make sense or not in *this* market. 

As for being a hard money lender. Could work, but remember people that need hard money usually need it for a reason. And those borrowers that are higher risk are risky for you too. Knowing this space well is important imo.  

With DSTs you need to make sure that the various fees don't negate your profits. Plus you have no control when they do an exit, and you're paying fees all over again to re enter into a new DST. Frankly I'm not sure how profitable they are long term. I haven't seen any longer term studies done, only promotional info when the RE market was generally rising.

Bottom line is that you need to understand which risks you’re capable of handling with these various options. No free lunch in this market!

FYI in my case I was lucky, as I profitably sold some properties late 2021 and early 2022. Not only was my market timing great, but I sold my less promising buildings and used the proceeds to pay down debt on my long term keeper properties, which have higher end tenants and are thus more stable and much easier to manage. So for me the decision was pretty straightforward, but it still required a lot of thought.

It’s not easy out there these days folks, best of luck!

I agree with the OP! A year ago when selling over $5mil of nicely appreciated properties I looked at both DSTs and regular 1031 exchanges, and decided both were not worth it. I passed on DSTs per what the OP wrote. I also passed on regular 1031 exchanges because you’re either transacting in an up market, where you often settle for lesser properties so you can complete your exchange, or you’re selling in a down market where your initial sale is compromised. You need a white elephant scenario where you can sell at a premium, and also buy in an opportunistic market. Hard to do!

So instead I paid cap gains (btw pretty low these days, may go up in the future.) You can mitigate by splitting sales over two years (which is what I did, end of 2021 and beginning of 2022, both great times to sell btw ;) Then I paid off all my debt on my keeper properties, thus maximizing rental income with fewer and better quality properties remaining in my portfolio. Another plus is that I now manage a lot less units, so PM is minimized. Then I brought with left over cash a long desired 2nd home overseas, which we will use 4 months and mid term rent the other months. Not a bad way to f-off from the RE rat race!

And moral of the story is to know when enough is enough. RE is highly cyclical and down markets can be painful for years…especially with leveraged properties.

Good luck out there :)

Schmucks…they sure made it seem like it’s a dst from their promo. They should be up front and clear about this.

I recently received a mailer from Kay properties of 2 DST offerings: an 8% and 10% preferred return (net lease income fund 28, LLC and opportunistic income fund 75, LLC). I was surprised as most DSTs I've seen are in the 5-6% return range.

So is there something new here? Is it that due to easily available higher interest rates (for safer investments), DSTs have had to up their game to attract investors? Or have higher return DSTs like this have always been available? I don't follow the DST market closely, so hoping those with in depth DST experience can comment.

It just seems to me that offering higher returns when we’re in a downward market = higher risks (although the above 2 funds claim to have no debt in their structure.) Something isn’t quite adding up here ;) 

DST companies tend to have their own pimps?

I agree completely with @Darius Ogloza on the tenant hassle factor. Maybe when you’re starting out you’re more willing to deal with tenant management hassles. But once you’ve been at this for awhile, that quickly becomes the least attractive factor of RE investing imo.

And this even goes for expensive locations like core Bay Area. During market upswings you invest in up and coming areas hoping they will become more prime. Like Hayward, Redwood City, or the southeast neighborhoods of San Francisco. And once the market starts turning, your tenant base may go backwards in quality. So it’s always a tricky calculus. In my case I did very well in some areas of SF, which are very solid and I keep those long term. In another case I took strong profits and exited in 2021, which was great timing. At this stage I’d rather keep great core properties with no debt/minimal tenant management, then have more properties (some in lesser locations) with debt, and ALOT more tenant management issues. Life is short. If you reach your number, secure the gain and…take the money and run!

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my2c