All Forum Posts by: Vince DeCrow

If you are thinking about investing in real estate for the first time or if you are a season do-it-yourself real estate investor and are considering passive private real estate investments - ask me anything about this topic.

@Miles Presha Congrats on the meetings you have with prospects next week! My suggestion to continue generating interest from prospective investors would be to start building your brand in the BiggerPockets community/forums/blogs. After I established a strong presence, I would think about what would attract me to someone and give them my money to invest:

• Experience investing: Personally, I would only give my money to someone to invest if I thought they had the proper experience to do a good job.
• Co-investment: Is the sponsor putting up a good chunk of their own money in the deals to show that they have skin in the game and that their interests are aligned with mine as the investor?
• Track Record: Do I have a track record of good or outsized returns?
• Trust: I would think about how I could best and most efficiently create trust between yourself and an prospect. 

While these might seem very basic, portraying these characteristics to potential investors (on BiggerPockets or anywhere for that matter) can go a very long way with someone when they are considering to make an investment. Whether people like to admit it or not, emotion is a strong factor in everyone's investment making decision process.

Doing deals outside of your local market would definitely require some kind of strategic partnership with the real estate community in the city you want to invest. After all, who knows a market better than someone who actually lives there? I would do this by finding an equity partner that is local to the market and make it that person's job to scout and source local deals/tenants/property managers.

-Vince

@Nizar Basma

Hi Nizar,

Welcome! We share the same goal of starting to build wealth now to one day have the flexibility to live spontaneously. I do not live in California but have experience investing out of state. I would agree that there are some very good real estate investment opportunities for you that are outside of California and couldn't agree more with the markets that you mentioned. I have experience in all 4 of those markets in addition to Chicago, Dallas, Raleigh, and Denver.

I find these markets attractive for real estate investment due to their high population and wage growth, as well as their comparatively high-end demographics. Investing in markets that posses these characteristics helps to minimize potential impacts of market risk while also maximize potential for property value appreciation. With population growth comes demand for real estate, which then drives up real estate values, rental rates, and cash-flow. 

With this said, I think its very import to have a deep and detailed understanding of how a market functions and have strong real estate broker/manager relationships before investing in it. Feel free to reach out to me personally, I would be happy to discuss strategy and additional questions that you have. 

-Vince

@Jim Cummings

Hi Jim - The crowdfunding platforms can offer you pros such as the ability to diversify outside your local market and the the advantages of passive real estate investing versus DIY investing. A lot of the crowdfunding platforms solicit single deal investment opportunities for a host of different sponsors, some of which have good return history, some do not - so picking the best sponsor to trust is everything. Another alternative is to invest in a commercial real estate fund that is run by just one sponsor. Origin Investments is an example of one of these fund managers/sponsors. Origin generated a 28% net IRR on its first fund and is on track to provide comparable returns on their 2nd and 3rd funds. Below is a link to a blog that one of Origin's principals wrote on how Origin manages investment risk to achieve out-sized returns.

https://origininvestments.com/2017/08/03/5-ways-or...

@Todd Keith

Hey Todd - There's a few other items that I didn't see discussed in this thread (apologies if they were discussed and I missed them) that I would consider when determining whether or not the asking price of $1,000,000 is reasonable. 

• Do you know the Akron market and sub-market that the property is located in well? What are the rents of the comps and what have similar properties traded at recently? What is the supply like, growing or shrinking? In addition, do you think there are catalysts to be able to grow rents going forward or is it possible market rents will be on the decline?
• What kind of credit quality do the current tenants have, is this a factor that went into your 10% vacancy assumption?
• When was the last time units were renovated and do you think they will require capital improvements anytime soon? If so, is it reasonable to assume you could achieve at least 10% annual return on potential renovation costs?

These are just a few things that I would recommend considering in your underwriting to determine a good price to pay if you are not currently doing so. 

-Vince

Hey @Erin Wicomb,

Excellent post. Clear, concise, and get's to the point before the reader loses interest or forgets what they are reading about. What are your thoughts on the importance of the sponsor's level of co-investment, or skin in the game on each opportunity? In my opinion, the sponsor having their own dollars invested in their syndication's is very important for the passive investor so that they know the sponsor's interests in the deal are fully aligned with their own. 

@James Allen 

Hi James,

One way to potentially satisfy POF may be to get letters of intent to invest (with $ amounts) from your investors. A letter of intent does not have to be legally binding, therefore it does not lock your investor into partnering with you in a case where they have a change of plans or change in financial situation while you are out vetting deals.

Another consideration if you have a good track record and significant trust from you investors would be to setup a fund structure (ie big pot) of committed money. If you use this structure you can get signed commitments from your investors without requiring them to wire any money until you have a property identified and under contract. The signed commitments may also be a way to provide POF. You could set a capital call period for your investors of say, 12-24 months, over which you will find deals to invest their full commitments to the fund. You could also have a preferred return of something like 9% annually on investor capital that is drawn down from their commitments. The signed commitments, capital call period, and preferred return, combined together could be a solution for you to provide POF (without having to ask investors for money before a deal is identified), while also assuring your investors their money will not be sitting un-invested for an indefinite period of time. I am not an attorney so please don't consider this legal advice, but rather a couple of examples of how to solve your problem.

Let me know if you have any questions!

-Vince

@Mark Dresdner

Hi Mark,

I think you would be taking on an out-sized level of risk if you invest in a market you don't know well without a boots to the ground equity partner like @Robbie Reutzel mentioned. To piggy back on this thought, your equity partner should ideally have deep real estate focused relationships in the market which could help you to identify your property and give you access to off-market deals before they are made available to everyone and their uncle. In regards to property manager's, they can effectively be handled remotely, however choosing a property manager you can trust could be better done by someone with relationships in that market than by reading reviews on managers and more or less picking one blindly.

In addition to having an equity partner that's knowledgeable on the market you want to invest in, you would naturally have to first identify the market. My advice on doing this would be to focus on cities/sub-markets of those cities with the highest level of job and population growth, growing rents, comparatively low levels of rent/income from the tenant base, a lot restaurants/bars/hotels/other amenities, and easy access to major highways. Choosing a market that possesses these characteristics will minimize your overall market, leasing, and tenant risks.

I hope this is helpful.

Regards,

Vince

@David Thompson, you make some great points. Thanks for sharing your Syndication vs. Crowdfunding post.

@Eric Shadowens, I have heard both good and bad investment stories related to these platforms. Fundrise offers proprietary "eREITs" or private REITs. RealCrowd offers direct deal syndication and private funds through third party sponsors (real estate operators), and Crowdstreet offers private REITs, direct deal syndication, and private funds through third party sponsors. As I'm sure you are aware of the three offering types, each have their pros and cons. 

While private REITs can offer you good diversification across many properties, I would use caution with private REIT's as they are known to have higher fees than direct deals and private funds. They are also known to utilize some questionable distribution practices. When private non-traded REITs are first getting off the ground they may not have the cash flow to support the high distribution yield that they promise investors, do to this, some of these REITs have paid distributions entirely from new investor capital. Private non-traded REITs raised about $4.5 billion in 2016, a sharp decrease from almost $20 billion raised in 2013.

With direct deals I would advise putting a very large emphasis of your due diligence efforts on the sponsors because at the end of the day you are essentially investing in the sponsors expertise and ability to execute on the investment strategies that they are selling. As @Leslie Pappas mentioned above, if you are not comfortable with your own ability to conduct quality due diligence, it may be a good idea to bring in a professional third party to assist with this. Some of the stories I have heard about investors incurring massive losses happened mainly due to poor sponsors and lack of their ability to execute the business plans.

Similar to private REITs, private funds also offer diversification across many deals. However, because private funds are not required to pay out regular distributions like private REITs, there are no signs of the questionable payout practices using new investor capital with this investment vehicle. Private funds will also not include hefty up-front sales commissions like many private REITs do. With private funds it is also very important to make sure you are investing in a qualified sponsor, just like direct deals. There are private fund managers and sponsors out there today that have strong performance history and industry expertise, but have broken away from the crowdfunding platforms you asked about and gone towards sourcing new accredited investors from their own websites/platforms. 

-Vince