EM & Medicine - Plans to take today

[JacobMcCandles]

Do you have recommendations for where to start with regards to syndications? I'm looking for something on the safer end of the spectrum. With stocks and bonds I'm a Vanguard person (either total stock and total bond market index funds). Any good primers for educating myself on syndications?

Thanks!

I don’t know what your definition of ‘safer end’ is but syndications usually won’t fall within that realm.

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[cyanide12345678]

I don’t know what your definition of ‘safer end’ is but syndications usually won’t fall within that realm.

Have you ever done syndications?

Literally there are things like class A shares through ashcroft capital where you are the first to get paid 10 percent. No one else gets any money before class A members and you literally start getting paid monthly immediately after. Plus it comes with multiple assets diversified across multiple states.

There are plenty of safe deals out there.

I don’t know why there is so much skepticism in holding real estate. By definition, a fixed rate interest, long hold period, fully occupied asset with a low loan to value and a reasonable going in cap rate Is usually going to make you money long term. Short term variability happens - but as long as there’s a fixed rate loan, it doesn’t matter.

It is extremely extremely unlikely for rents to go down. Even in 2008, rents only went down by a couple percentage points. Rental income is historically reliable income from real tangible assets.

 

[cyanide12345678]

I don’t know what your definition of ‘safer end’ is but syndications usually won’t fall within that realm.

What would you consider safe?

The Texas portfolio being acquired with fixed debt at 3.8% for another 7 years while averaging 167k price per door i would consider safe - especially since almost 300 of those doors are actually in Austin, 10 mins from UT Austin. That’s a good price.

Ashcroft and bam capital class A shares i would consider safe. Especially since they usually run around 60 percent ltv.

There’s a deal that came on crowdstreet yesterday, new industrial construction with a 10 year lease already signed by a sp500 company that is 100+ years old, that seemed reasonable - though single asset risk so I’m not investing in it but de-risked by having contracts in place for construction with a signed maximum price, and fixed financing for 11 years, and a 10 year lease by a 4.6 billion dollar company that is very profitable and has a very strong balance sheet - again reasonable.

If you do 20-25 deals, you’ll get a couple of Bad outcomes, however eventually you will come out ahead with significant tax advantages.

 

[JacobMcCandles]

What would you consider safe?

The Texas portfolio being acquired with fixed debt at 3.8% for another 7 years while averaging 167k price per door i would consider safe - especially since almost 300 of those doors are actually in Austin, 10 mins from UT Austin. That’s a good price.

Ashcroft and bam capital class A shares i would consider safe. Especially since they usually run around 60 percent ltv.

There’s a deal that came on crowdstreet yesterday, new industrial construction with a 10 year lease already signed by a sp500 company that is 100+ years old, that seemed reasonable - though single asset risk so I’m not investing in it but de-risked by having contracts in place for construction with a signed maximum price, and fixed financing for 11 years, and a 10 year lease by a 4.6 billion dollar company that is very profitable and has a very strong balance sheet - again reasonable.

If you do 20-25 deals, you’ll get a couple of Bad outcomes, however eventually you will come out ahead with significant tax advantages.

That’s why I asked the poster what safe means to them. If I remember right you’re fairly young. If you asked someone what safe is in 2009 and in 2023 their definition would be different. A lot of people underestimate risk right now. A syndication may fit that definition for them. But, my guess is that they need to do some thinking to really answer that question.

And to answer your question, I don’t do syndications. I don’t need to and have no desire to.

 

[cyanide12345678]

That’s why I asked the poster what safe means to them. If I remember right you’re fairly young. If you asked someone what safe is in 2009 and in 2023 their definition would be different. A lot of people underestimate risk right now. A syndication may fit that definition for them. But, my guess is that they need to do some thinking to really answer that question.

And to answer your question, I don’t do syndications. I don’t need to and have no desire to.

While a lot of people under estimate risk, there are a surprisingly large number of people who are so risk averse that they struggle to jump into perfectly reasonable investments that others think are risky.

This is exactly the time to go into assets that are potentially under valued.

The sky isn’t always falling. Look at the banking industry, going to crap, still 50 percent lower than its previous high, especially regional banks. Could it go lower? Absolutely yes!!! But will there be a bottom somewhere? Yes! I don’t understand why people remain afraid after a lot of carnage has already happened. If i was a traditional buy and hold investor (which I’m not in my taxable account), i would be buying kbe/kre hand over first with every drop. As long as you buy good assets, that produce income, then the asset value should recover over time, even if it’s years. Risk, high volatility, recession - that’s when a lot of people actually make their money.

Full disclosure: i made 23k in 2-3 weeks on kbe/kre recently by selling puts when volatility spiked because the world was too damn afraid. I am locked and loaded in mostly cash again for round 2 when inevitably volatility spikes because Congress is full of children who will come dangerously close to the debt ceiling timeline resulting in some large negative days until the issue is resolved. 23 percent YTD return in 5 months so far because i make money when others are fearful.

But yes, as a 34 year old, i probably take more risk than 90 percent of the population.

 

[JacobMcCandles]

While a lot of people under estimate risk, there are a surprisingly large number of people who are so risk averse that they struggle to jump into perfectly reasonable investments that others think are risky.

This is exactly the time to go into assets that are potentially under valued.

The sky isn’t always falling. Look at the banking industry, going to crap, still 50 percent lower than its previous high, especially regional banks. Could it go lower? Absolutely yes!!! But will there be a bottom somewhere? Yes! I don’t understand why people remain afraid after a lot of carnage has already happened. If i was a traditional buy and hold investor (which I’m not in my taxable account), i would be buying kbe/kre hand over first with every drop. As long as you buy good assets, that produce income, then the asset value should recover over time, even if it’s years. Risk, high volatility, recession - that’s when a lot of people actually make their money.

Full disclosure: i made 23k in 2-3 weeks on kbe/kre recently by selling puts when volatility spiked because the world was too damn afraid. I am locked and loaded in mostly cash again for round 2 when inevitably volatility spikes because Congress is full of children who will come dangerously close to the debt ceiling timeline resulting in some large negative days until the issue is resolved. 23 percent YTD return in 5 months so far because i make money when others are fearful.

But yes, as a 34 year old, i probably take more risk than 90 percent of the population.

My answer had nothing to do with your risk tolerance. It has to do with the person who asked the question. You asked no questions regarding what their risk tolerance was and those are probably the questions we should be asking when someone wants advice/recommendations.

And risk isn’t what we know, it’s the things we don’t know or haven’t even thought of.

 

[HemeOncHopeful19]

But yes, as a 34 year old, i probably take more risk than 90 percent of the population and I’ve never actually experience a market downturn.

Fixed that for you

 

[cyanide12345678]

Fixed that for you

What are we living through right now? Most downturns aren’t like 2008, 2008 was the exception.

 

[cyanide12345678]

My answer had nothing to do with your risk tolerance. It has to do with the person who asked the question. You asked no questions regarding what their risk tolerance was and those are probably the questions we should be asking when someone wants advice/recommendations.

And risk isn’t what we know, it’s the things we don’t know or haven’t even thought of.

Here’s my question for you:

Why do you think owning multiple well diversified physical real estate assets diversified across asset classes, operations and locations is significantly more risk than owning sp500?

Volatility which determines price variability correlates with risk. Alpha is a risk adjusted return. Sp500 has higher volatility than physical real estate assets with historically similar returns. Even in 2008, the peak to trough for real estate was around 25 percent drop average nationally while spy was down 50 percent. Rents were only down a few percent points, multi family did exceptionally well even during that time.

There is actually less volatility and less human behavior in holding a hard asset that is not priced every second Monday to Friday 9:30 am to 4 pm.

Edit: also why do you think all the endowment funds own between 15-35 percent of their portfolio as real estate. Why do billionaires own massive amounts of real estate and not just sp500? Do you think Yale and Harvard endowment managers know a little more than us? Have you ever looked at correlation between the stock market and physical real estate? It is truly one of the few uncorrelated asset classes. The reality is adding uncorrelated asset classes to your portfolio decreases volatility. Volatility determines risk.

 

[JacobMcCandles]

Here’s my question for you:

Why do you think owning multiple well diversified physical real estate assets diversified across asset classes, operations and locations is significantly more risk than owning sp500?

Being diversified within one asset class isn’t really what I would call diversified. Again, investing is personal so I’m not sure why you’re continually trying to defend how you invest when nobody is attacking that. This is about gathering more information from the person asking the question to determine if this is right for them. Instead of going on and on about what you do, we should be asking the goals, etc. of the person asking the question.

 

[cyanide12345678]

Being diversified within one asset class isn’t really what I would call diversified. Again, investing is personal so I’m not sure why you’re continually trying to defend how you invest when nobody is attacking that. This is about gathering more information from the person asking the question to determine if this is right for them. Instead of going on and on about what you do, we should be asking the goals, etc. of the person asking the question.

Fair enough. Agreed. You are right.

As a side note, it’s not one asset class. Multi family, self storage, office, medical office, industrial, hotels, farmland, retail, data centers, cell phone towers all behave differently in different markets. A well diversified real estate portfolio is diversified across the different asset classes of real estate.

 

[sloh]

I don’t know what your definition of ‘safer end’ is but syndications usually won’t fall within that realm.

Yup. Just released on WSJ today.

A Housing Bust Comes for Thousands of Small-Time Investors

They were offered the benefits of owning apartment-building rentals without any of the work, in real-estate investments that have already left some people empty-handed.

www.wsj.com

“Syndicator investors have few legal protections, said Joan MacLeod Heminway, a securities-law professor at the University of Tennessee in Knoxville. Unlike public companies, syndicators in many cases aren’t required to give regular updates on their buildings’ financial performance, she said. As limited partners, investors have no say over spending. Some who lost their investment never knew the properties were in trouble until they were near foreclosure.

Munzer Haque, a former IT professional in Plano, Texas, said he was Applesway’s largest individual investor in the company’s four foreclosed properties and in two others he described as in trouble. Haque said he and his wife, both in their 60s, lost millions of dollars, the majority of their life savings. Their two adult children also invested in Applesway and lost money, he said.

“When you trust the wrong person, that’s the highest risk,” Haque said, “because you give them everything.”

Syndicators generally invest little of their own money. They collect acquisition fees from investors that typically go from about 2% to as high as 5% of an apartment building’s purchase price. They also take management fees of 2% to 3% from the building’s gross income. Syndicators often profit even if the investment is a failure, which real-estate analysts say encourages excessive risk-taking at the expense of inexperienced investors.

During the pandemic, syndicators found it easier than ever to raise money. Sean Tate, a Dallas-based real-estate attorney who has worked with syndicators, said he was inundated with calls from people seeking help to syndicate rental-apartment deals.

Many of the callers learned about the chance to become a landlord from social-media ads, Tate said, and had little idea of what they were getting into. “You couldn’t get on Facebook without the algorithm saying ‘Deal! Deal! Buy multifamily!’” he said.

For most of 2022, Applesway sent brief updates to investors about the company’s various properties, as well as monthly cash disbursements based on the amount of their investment.

Sinha said the first big sign of trouble came this year in a late February email. Gajavelli asked investors for additional funds to shore up property finances at Reserve at Westwood, the Houston apartment complex he had invested in. “I want to let you know that things are not going well,” Gajavelli wrote.

Applesway was losing money because of higher mortgage costs, the result of much higher interest rates, the email said. Property taxes and insurance costs were up. And, as the company moved to raise rents, more tenants fell behind on their payments.

In March, Gajavelli told investors no money was needed after all. In early April, he sent investors letters telling them the buildings had gone into foreclosure. “Few things are more painful than having to notify investors of a failed business,” he wrote in one letter.

Gajavelli offered a silver lining. “We suggest that you contact your tax advisor to discuss how your investment loss can be recognized on your tax filings,” he wrote.”