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  • #16
    Last month I also started using syndicated real estate platforms to develop a Commercial Real Estate Portfolio to complement my other existing investments which include stocks, private debt lending, private equity, and Venture Capital Funds. I appreciate the opportunity to be a passive investor in many of these investments freeing me of any management concerns. I have found websites such as CrowdStreet and RealCrowd to be very useful in finding diversified investments across multiple real estate segments. I also like that these investments are vetted and they include the track record of the sponsoring firms.

    I am also going to look into Napali Capital for additional investment opportunities.

    Last month I read "The Hands Off Investor" by Brian Burke of Praxis Capital and found that it answered most of my questions regarding syndicated investments. I would highly recommend it as the first book to read if you are thinking of delving into the area of syndication

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    • #17
      Klemens Do you 1031 exchange your syndications or do you just pay capital gains because of your profit? Thanks.

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      • #18
        The most important part is getting to know and trust the sponsors you're investing with. There are several key items to look at:
        1. Experience
        2. Overall business plan - is the strategy well thought out and achievable in the market
        3. Underwriting - this one is difficult, because everyone is "conservative," but only a few actually are. I have seen sponsors play the tricks of showing below market cap rates on both entry and exit, above market rent comps, aggressive expenses, etc.
        4. The team - property management, lenders, contractors, etc. These must be strong
        5. Profit for the sponsor - You want the sponsor to make money. If you look at the deal and they are taking very little money, that is a red flag that they are pushing a thin deal. At the same time, you don't want them making a ton of money up front. I recently saw a $1.5mm acquisition fee on a deal. Why? I'd be ok with them making that money on solid execution, but not up front before the real work begins
        6. Alignment - You should enjoy conversations with the sponsor and have a vision that aligns.
        7. Communication - Make sure they are prompt and clear with communication

        Don't focus on the deal specifically. Ask yourself if you thing they are a sponsor that you want to invest in many deals with and would tell all of your friends about.

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        • #19
          I've not done deals with them directly but happy to look over any deal to give you my thoughts. I look at these things all day and would happy to share as much as I can!

          Best,
          Ryan
          RE investor/advisor
          Real Estate Investment Advisor
          FixedIncomeMd.com

          Comment


          • #20
            Originally posted by Todd Dexheimer View Post
            The most important part is getting to know and trust the sponsors you're investing with. There are several key items to look at:
            1. Experience
            2. Overall business plan - is the strategy well thought out and achievable in the market
            3. Underwriting - this one is difficult, because everyone is "conservative," but only a few actually are. I have seen sponsors play the tricks of showing below market cap rates on both entry and exit, above market rent comps, aggressive expenses, etc.
            4. The team - property management, lenders, contractors, etc. These must be strong
            5. Profit for the sponsor - You want the sponsor to make money. If you look at the deal and they are taking very little money, that is a red flag that they are pushing a thin deal. At the same time, you don't want them making a ton of money up front. I recently saw a $1.5mm acquisition fee on a deal. Why? I'd be ok with them making that money on solid execution, but not up front before the real work begins
            6. Alignment - You should enjoy conversations with the sponsor and have a vision that aligns.
            7. Communication - Make sure they are prompt and clear with communication

            Don't focus on the deal specifically. Ask yourself if you thing they are a sponsor that you want to invest in many deals with and would tell all of your friends about.
            Cant stress #3 enough. Don't let syndicators say 'we conservatively underwrite'. Ask how they were underwriting pre covid and how their underwriting has specifically changed since. If they're forecasting year 1 rent growth, etc - they're not conservative
            Real Estate Investment Advisor
            FixedIncomeMd.com

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            • #21
              Also, when you're trying to find a reliable sponsor, I wouldn't recommend spending much time vetting some candidates who have been through multiple full cycles without investment losses, or reading many books. I would just wire some money to someone who is randomly dredging up multiple old threads on a physician finance forum on a Monday afternoon.
              “Work” is a four letter word for good reason.

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              • #22
                I'm curious as to why people here bother investing in syndicated real estate, or really anything beyond boring old index funds in the first place. Genuine question.

                Is there actually data to support the idea that these sorts of real estate deals have better risk adjusted returns than one could expect with a 3 fund portfolio? Or that the portfolio diversification provided will meaningfully improve your long term risk adjusted returns? I'm skeptical, but again genuinely interested if people have data on this.

                I get the sense that financial hobbyists do real estate investing & the like primarily because they get bored and can't help but to tinker and complicate things.

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                • #23
                  Originally posted by spine doctor View Post
                  Klemens Do you 1031 exchange your syndications or do you just pay capital gains because of your profit? Thanks.
                  You can 1031 or pay cap gains or invest in an opportunity zone to defer and offset cap gains
                  Real Estate Investment Advisor
                  FixedIncomeMd.com

                  Comment


                  • #24
                    Originally posted by OncDoc123 View Post
                    I'm curious as to why people here bother investing in syndicated real estate, or really anything beyond boring old index funds in the first place. Genuine question.

                    Is there actually data to support the idea that these sorts of real estate deals have better risk adjusted returns than one could expect with a 3 fund portfolio? Or that the portfolio diversification provided will meaningfully improve your long term risk adjusted returns? I'm skeptical, but again genuinely interested if people have data on this.

                    I get the sense that financial hobbyists do real estate investing & the like primarily because they get bored and can't help but to tinker and complicate things.
                    You can reasonably expect to get double digit tax advantaged returns annually. It's also non market correlated and helps diversify further.

                    I agree that Index funds have their place in ones portfolio, though.
                    Real Estate Investment Advisor
                    FixedIncomeMd.com

                    Comment


                    • #25
                      Originally posted by ThatOD View Post

                      You can reasonably expect to get double digit tax advantaged returns annually.
                      Is there any data to support this, or just anecdotal experience?

                      Comment


                      • #26
                        Originally posted by OncDoc123 View Post

                        Is there any data to support this, or just anecdotal experience?
                        You'd have to check track records. The investments I've taken part of have generated those types of returns. I believe in strong day one cash flow, rather than counting on an appreciation event at the end of the hold.

                        Ryan Beatty
                        Fixed Income MD
                        Real estate investing
                        fixedincomemd.com

                        (hopefully my signature is compliant)
                        Real Estate Investment Advisor
                        FixedIncomeMd.com

                        Comment


                        • #27
                          Originally posted by OncDoc123 View Post
                          I'm curious as to why people here bother investing in syndicated real estate, or really anything beyond boring old index funds in the first place. Genuine question.

                          Is there actually data to support the idea that these sorts of real estate deals have better risk adjusted returns than one could expect with a 3 fund portfolio? Or that the portfolio diversification provided will meaningfully improve your long term risk adjusted returns? I'm skeptical, but again genuinely interested if people have data on this.

                          I get the sense that financial hobbyists do real estate investing & the like primarily because they get bored and can't help but to tinker and complicate things.
                          S&P 500 index has averaged 10% annualized returns over time. Real Estate Syndications can conservatively provide 15-18% annualized returns (plus tax benefits), and many times more than that (with higher risk of course, like new developments). There's no way to measure the entire industry of real estate syndications of course, but you can look at individual sponsors' track records to see what they have historically returned.

                          I think an index fund is a great piece of your portfolio (I have about 25% of mine in one), but there are much higher returns available. The drawback is that there is due diligence and homework to do up front in vetting a sponsor and reviewing an individual investment, but once you've invested, it's completely passive.

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                          • #28
                            Originally posted by Drewski View Post

                            S&P 500 index has averaged 10% annualized returns over time. Real Estate Syndications can conservatively provide 15-18% annualized returns (plus tax benefits), and many times more than that (with higher risk of course, like new developments). There's no way to measure the entire industry of real estate syndications of course, but you can look at individual sponsors' track records to see what they have historically returned.

                            I think an index fund is a great piece of your portfolio (I have about 25% of mine in one), but there are much higher returns available. The drawback is that there is due diligence and homework to do up front in vetting a sponsor and reviewing an individual investment, but once you've invested, it's completely passive.
                            Key to your description being the word “can” (bold edit added) as opposed to “historically” or “will”. A major problem is that we (you) likely don’t have a long-term history of average returns to compare to the S&P 500 - the only predictable long-term truly passive investment (with added tax bene’s thanks to the gov’t) available. Another is that the “due diligence” is definitely non-passive and true government-regulated comparative due diligence has little relevance regarding these syndications. It’s a WOM system.

                            Provide us with 100 yrs worth of avg rolling returns across the total RE syndication market and let’s continue this convo.
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • #29
                              Originally posted by jfoxcpacfp View Post

                              Key to your description being the word “can” (bold edit added) as opposed to “historically” or “will”. A major problem is that we (you) likely don’t have a long-term history of average returns to compare to the S&P 500 - the only predictable long-term truly passive investment (with added tax bene’s thanks to the gov’t) available. Another is that the “due diligence” is definitely non-passive and true government-regulated comparative due diligence has little relevance regarding these syndications. It’s a WOM system.

                              Provide us with 100 yrs worth of avg rolling returns across the total RE syndication market and let’s continue this convo.
                              That's a fair criticism. Private syndications have experienced significant growth since the JOBS act in 2012, so there isn't the long history of average returns here, and they wouldn't be publicly available anyway. However, a much more fair comparison would be REIT's vs. S&P 500. According to this article, REIT's (FTSE NAREIT All Equity REITs) have outperformed the S&P 500 since 1972 up to 2019 (12.1% vs 13.3% annualized returns). That's not 100 years, but it's a pretty good data set. So if we're comparing a generic "Real Estate vs Index Funds", Real estate wins in this particular long term comparison.

                              If we dice it up into specific index funds or specific REITs, the comparison becomes more muddy, as you pointed out.

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                              • #30
                                Has anyone had personal experience with Praxis Capital? i am looking at them, currently reading his book-actually just started. I am also considering DLP for the Lending Fund. Mostly considering this given stock market highs and way to diversify.

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