The Dark side of Syndication investing

[cyanide12345678]

Since I've been one of the biggest proponents of syndications, in full disclosure fashion I want to share the situation of when things DONT do well. So that anyone considering syndications goes in with a full understanding.

I'm in 20 syndications. 16 are doing well. 2 are doing alright, they should survive and squeeze out some return. 2 are probably losses. How big of a loss? Time will tell.

First and foremost, lets talk about one of the biggest frauds in the history of crowdfunding unveiling and I'm getting a rather up close and personal look at the proceedings.

Nightingale properties was purchasing the AFC (Atlanta financial center) and was under contract to buy this massive monumental building in Atlanta. They were getting it at a major discount compared to the previous owner who was taking a multimillion dollar discount. It was an incredible deal, the sponsor was established since 2006 and had 10B of assets under management. Crowdstreet raised 54 million for this deal. The same sponsor was fund raising spontaneously for a miami office building and raised a few million for that as well.

Almost 1 year later, neither property was ever closed upon. And an independent audit was done which essentially showed that the money was gone. Evaporated. Fraud. Infact, the funds were immediately withdrawal by sponsor upon receiving them within days and funneled elsewhere.

Some investors had gotten lucky and had gotten out of this deal after a Wall street journal article that came out during the fund raising originally about 10-11 months ago that stated that Nightingale did not fully disclose their full track record where they had lost money on 2 deals and essentially didn't disclose those losses. This wallstreet journal report luckily resulted in the sponsor offering a refund 10-11 months ago, I was one of the lucky people who had decided to walk away and asked for a refund. I believe I had 28k invested and I got my money back. 60M was raised total between the two deals. 9 million was returned to lucky investors like me who walked away leaving some ~50M with nightingale. To date, 50M is essentially gone, and there's no property purchased.

The lawyer firm hired by crowdstreet and the independent party is basically the same law firm that went after Madoff - It's officially a big case. A wallstreet journal financial crimes journalist is piecing a story together as well which will probably come out soon - Ben Foldy being the journalist.

While I got lucky there, one of my properties that I'm considering an absolute loss is 200 W jackson in chicago, the 30-ish floor office building next to Sears tower. Purchased at a 9 cap, fixed 4.7% debt for 5 years. Great cash flow, in fact one of the best cash flow properties ever. The property last year paid 10% in rental income to me. The problem? Nightingale is the sponsor. The property was purchased. A lot of our funds are officially locked in the property asset which is good. So Now crowdstreet, the independent party, and the LP investors are trying to find a way to remove Nightingale. Nightingale has shut down - Dont respond to answers, and are refusing to give books and proof of funds. LPs were going to hire an attorney to sue the company into getting books, but crowdstreet beat us to it.

But yeah...fun times. Lawyers. Fraud. Investigation journalists. Front row seat y'all. Price of the ticket was 30k for me. We have an investor whatsapp group, several people with 200k+ in both deals.

But yes...even when a property looks good on paper, cash flows tremendously, and you pick an experienced sponsor with a 25 year track record of 50+ profitable deals, yet you could lose your entire capital.

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[GonnaBeADoc2222]

I'd rather save the time and energy and buy VTSAX and play candyland with my daughter

 

[JacobMcCandles]

When everything is going up, everything looks good…especially things marketed to high income, high net worth people.

There’s going to be a lot more sure things that miss, I think, in the next several years. Nonetheless, as one of the people typically on the other side of your syndication posts, I hope any losses are minimal and you end up doing well on these.

 

[emergentmd]

You have to know your sponsors. I also am heavy in syndications but would not touch commercial properties in this environment. I also do not trust online crowdfunding as it just do not appear very transparent.

My syndications are essentially apartments and unless the operators are poor, they should atleast weather economic storms to break even. Yes, there have been recent apt syndication failures in Houston but it was more of an operator issues.

My syndications are all private placements which allows me to vet the operators alittle more closely.

 

[BulgeDaTwine]

Since I've been one of the biggest proponents of syndications, in full disclosure fashion I want to share the situation of when things DONT do well. So that anyone considering syndications goes in with a full understanding.

I'm in 20 syndications. 16 are doing well. 2 are doing alright, they should survive and squeeze out some return. 2 are probably losses. How big of a loss? Time will tell.

First and foremost, lets talk about one of the biggest frauds in the history of crowdfunding unveiling and I'm getting a rather up close and personal look at the proceedings.

Nightingale properties was purchasing the AFC (Atlanta financial center) and was under contract to buy this massive monumental building in Atlanta. They were getting it at a major discount compared to the previous owner who was taking a multimillion dollar discount. It was an incredible deal, the sponsor was established since 2006 and had 10B of assets under management. Crowdstreet raised 54 million for this deal. The same sponsor was fund raising spontaneously for a miami office building and raised a few million for that as well.

Almost 1 year later, neither property was ever closed upon. And an independent audit was done which essentially showed that the money was gone. Evaporated. Fraud. Infact, the funds were immediately withdrawal by sponsor upon receiving them within days and funneled elsewhere.

Some investors had gotten lucky and had gotten out of this deal after a Wall street journal article that came out during the fund raising originally about 10-11 months ago that stated that Nightingale did not fully disclose their full track record where they had lost money on 2 deals and essentially didn't disclose those losses. This wallstreet journal report luckily resulted in the sponsor offering a refund 10-11 months ago, I was one of the lucky people who had decided to walk away and asked for a refund. I believe I had 28k invested and I got my money back. 60M was raised total between the two deals. 9 million was returned to lucky investors like me who walked away leaving some ~50M with nightingale. To date, 50M is essentially gone, and there's no property purchased.

The lawyer firm hired by crowdstreet and the independent party is basically the same law firm that went after Madoff - It's officially a big case. A wallstreet journal financial crimes journalist is piecing a story together as well which will probably come out soon - Ben Foldy being the journalist.

While I got lucky there, one of my properties that I'm considering an absolute loss is 200 W jackson in chicago, the 30-ish floor office building next to Sears tower. Purchased at a 9 cap, fixed 4.7% debt for 5 years. Great cash flow, in fact one of the best cash flow properties ever. The property last year paid 10% in rental income to me. The problem? Nightingale is the sponsor. The property was purchased. A lot of our funds are officially locked in the property asset which is good. So Now crowdstreet, the independent party, and the LP investors are trying to find a way to remove Nightingale. Nightingale has shut down - Dont respond to answers, and are refusing to give books and proof of funds. LPs were going to hire an attorney to sue the company into getting books, but crowdstreet beat us to it.

But yeah...fun times. Lawyers. Fraud. Investigation journalists. Front row seat y'all. Price of the ticket was 30k for me. We have an investor whatsapp group, several people with 200k+ in both deals.

But yes...even when a property looks good on paper, cash flows tremendously, and you pick an experienced sponsor with a 25 year track record of 50+ profitable deals, yet you could lose your entire capital.

An 80++% success rate (“16 [out of doing 20] are doing well, 2 are doing alright) is a tremendous, smashing, success. Presumably your winner’s profits will far outstrip your portfolio losses even if they (the two in question) go to zero, unless you, obviously, had outsized capital apportioned to those two. Combined with the tax advantages that these should afford (both the successful ones with depreciation etc. and the offsetting losses of the loooooosers… assuming your K-1s are done properly), you will have returns for that portion of your total net worth allocated to syndications likely outstripping index funds.

I think your post is a great reminder and illustration to people: risk management and appropriate allocation. Having 2/20 even go to zero is the cost of doing business, and clearly you were also illustrating that there is inherent risk in any syndication so if you’re going to passively invest like this, it’s helpful to spread it across several different investments to mitigate the impact of any one failure.

Congrats to you!

 

[emergentmd]

Granted from 2020-2022, almost all RE did exceptionally well and this is why syndications was so popular. During the current downturn and high interest rate, the operators and syndication quality is what will matter. They need to weather the storm, and should be way ahead when macro improves.

My Private placement apartment syndications current are about 80% exceptional, 20% treading, 0% having any default/cash call issues.

But yes, 80% win rate is exceptional as my 80% doubled in 2 yrs.

 

[cyanide12345678]

An 80++% success rate (“16 [out of doing 20] are doing well, 2 are doing alright) is a tremendous, smashing, success. Presumably your winner’s profits will far outstrip your portfolio losses even if they (the two in question) go to zero, unless you, obviously, had outsized capital apportioned to those two. Combined with the tax advantages that these should afford (both the successful ones with depreciation etc. and the offsetting losses of the loooooosers… assuming your K-1s are done properly), you will have returns for that portion of your total net worth allocated to syndications likely outstripping index funds.

I think your post is a great reminder and illustration to people: risk management and appropriate allocation. Having 2/20 even go to zero is the cost of doing business, and clearly you were also illustrating that there is inherent risk in any syndication so if you’re going to passively invest like this, it’s helpful to spread it across several different investments to mitigate the impact of any one failure.

Congrats to you!

80 percent tentative success rate - there’s a long rough winter ahead, one more rate hike, and probably another 6-12 months before the fed starts to release pressure.

The two deals are essentially a combined 10 percent of my syndications asset allocation, and a little less than 3 percent of my net worth. I’ve mentally marked them off as full losses.

The Chicago deal was actually a great investment - class A office at almost a 10 cap with fixed rate debt at less than 5 percent. Unlikely, but if there’s no fraud there, chances are that asset will be completely fine. Especially if crowdstreet and investors succeed in getting rid of nightingale as a manager. The property literally is cash flow positive if only the anchor tenant which is a Nielson paid rent - a highly profitable fortune 500. But when fraud is involved, not much you can do.

The other grossly underperforming asset was an early investment, and frankly i looked back into the information, there were bad unrealistic assumptions that i just didn’t pick on - noobie error. I have learned.

Out of all my investments most were fixed rate debt, the few that weren’t are the only ones that felt pressured.

Yes, the remaining gains should more than cover for the losses, im not worried about that. And i do think eventually my total return should be in excess of sp500. But now that I’m in 20 syndications, i have significant diversity. But someone who has 1 or 2 syndications could honestly have a negative 100 percent return if they don’t diversify into multiple sponsors, deals, asset types.

But the point of the post is that everything could be absolutely perfect. On paper an incredible sponsor who has built a reputation of profitable deals for investors over 26 years, the deal could be perfect, and yet you could lose it all.

 

[cyanide12345678]

When everything is going up, everything looks good…especially things marketed to high income, high net worth people.

There’s going to be a lot more sure things that miss, I think, in the next several years. Nonetheless, as one of the people typically on the other side of your syndication posts, I hope any losses are minimal and you end up doing well on these.

So 30k on the line in the Chicago deal. The investors own the property. On paper, in a quarterly report the account has 10M of funds in an escrow account with the bank meant for property improvements. If those funds truly exist and the pdf quarterly report isn’t completely fictional and the investors remove nightingale, that property after 3.5 years will be absolutely fine, that’s how long we have on our fixed 4.7 percent debt. If the bank pulls the rug on us based on fraud by nightingale and recalls the loan, then the loss can be 100 percent in a fire sale since now isn’t the time to sell an office building. If nightingale stole all 10M that was supposed to be in escrow, then we are probably pretty screwed. So time will tell.

The other one is the julian apartments in downtown Orlando. 409 units. 25k on the line with this. Terrible management by sponsor. Investors were told its fixed term debt and ended up being variable rate which is crushing the deal. Low occupancy numbers. 2 times the apartment building has flooded. Insurance is covering for repair and lost rental income but when insurance premiums spike then we’re equally screwed. Property still doesn’t make enough money to cover interest only debt. Almost 2 years later they are still at 80 percent occupancy. Fully expecting a capital call this December when the rate cap expires and they don’t have any money to buy a new rate cap or may even happen earlier if they can’t make debt payments. 3 years left for interest only debt payments. Questionably could still be salvaged but with significant capital. I’m not going to put a dollar in on a capital call. I don’t chase bad money with good funds.

But yes, you’re usually the voice of caution in most of my finance related posts, for a change i decided to caution others and warn them.

 

[PianoMedic]

So 30k on the line in the Chicago deal. The investors own the property. On paper, in a quarterly report the account has 10M of funds in an escrow account with the bank meant for property improvements. If those funds truly exist and the pdf quarterly report isn’t completely fictional and the investors remove nightingale, that property after 3.5 years will be absolutely fine, that’s how long we have on our fixed 4.7 percent debt. If the bank pulls the rug on us based on fraud by nightingale and recalls the loan, then the loss can be 100 percent in a fire sale since now isn’t the time to sell an office building. If nightingale stole all 10M that was supposed to be in escrow, then we are probably pretty screwed. So time will tell.

The other one is the julian apartments in downtown Orlando. 409 units. 25k on the line with this. Terrible management by sponsor. Investors were told its fixed term debt and ended up being variable rate which is crushing the deal. Low occupancy numbers. 2 times the apartment building has flooded. Insurance is covering for repair and lost rental income but when insurance premiums spike then we’re equally screwed. Property still doesn’t make enough money to cover interest only debt. Almost 2 years later they are still at 80 percent occupancy. Fully expecting a capital call this December when the rate cap expires and they don’t have any money to buy a new rate cap or may even happen earlier if they can’t make debt payments. 3 years left for interest only debt payments. Questionably could still be salvaged but with significant capital. I’m not going to put a dollar in on a capital call. I don’t chase bad money with good funds.

But yes, you’re usually the voice of caution in most of my finance related posts, for a change i decided to caution others and warn them.

I appreciate your honesty here immensely. Diversification is key. White coat investor podcast recently went into when you should consider doing private real estate, interesting listen. Essentially he says you should be able to lose your entire investment and it wouldn’t have a significantly negative impact on your long term goals. Anyone interested can listen to it for more there.

I too hope you don’t lose more to these shysters. I always get a sleazeball feeling when I’ve talked to any of these people so I’ve stayed away so far, plus I have my own biases and aversions in the space as it is.

 

[Tenk]

I would avoid any big investment purchases in terms of retail real estate right now. Multiple big firms that own big city properties are defaulting atm because everyone moved out of the office. There’s going to be a real estate crisis soon but it’s not homes, it’s businesses.

 

[emergentmd]

I think commercial real estates are looking at some hard times. Apartments will tread water and there will be good deals in the next yr. Residential RE will take a hit, and if you have cash on the sidelines, there could be some good deals.

If you have cash, there will be a good buying opportunity soon. Buy in cash at a 30+% discount, wait 2 yrs, refinance when rates drops.

Bottom line is diversify. I have 3 current income streams that my family could live on and I am working on a 4th.

 

[Alvarez13]

cyanide12345678, I'm in 200 W Jackson too. Did you get the invite to the WhatsApp group? Lots of talks about hiring counsel to remove Nightingale as the sponsor.

 

[cyanide12345678]

cyanide12345678, I'm in 200 W Jackson too. Did you get the invite to the WhatsApp group? Lots of talks about hiring counsel to remove Nightingale as the sponsor.

Yes, I’m in the whatsapp group and fully support the idea of suing nightingale just to get a court order for books.

I’m just curious what we will get for q2 report from the sponsor. Time will tell.

 

[RustedFox]

Blah blah blah blah, numbers, buildings.

Try finger but hole.

 

[dchristismi]

I don’t chase bad money with good funds.

Which makes you different from all the Private Equity in EM these days. Except I think they're using bad funds in the first place... 🤔

 

[cyanide12345678]

Which makes you different from all the Private Equity in EM these days. Except I think they're using bad funds in the first place... 🤔

Sunk cost is sunk cost. Shouldn’t determine the next investment.

Ignoring the original capital, would i invest in a property that does not cash flow, has poor management, has had low occupancy despite literally being the nicest apartment complex in the entire zip code. Has a trend of decreasing rents.

No.

 

[Groove]

Thanks for sharing the experience and for the transparency. It's a good lesson that there is no "safe" investing and most strategies that have potential for accelerated wealth generation inherently carry more risk. Sounds like a gigantic headache...I hope it works out.

 

[emergentmd]

Thanks for sharing the experience and for the transparency. It's a good lesson that there is no "safe" investing and most strategies that have potential for accelerated wealth generation inherently carry more risk. Sounds like a gigantic headache...I hope it works out.

This is the question most people especially high earners have to make. Even teachers saving 5k/yr for 40 yrs will retire a millionaire in 40 years. Doctors putting 50K/yr yearly ends up north of 6M in 30 yrs. Those choosing just throwing it in the S&P and closing their eyes will 99% be retired comfortably with 6M.

Some docs are more risk tolerant and 6M working for 30 yrs is just not what they want.

I will agree with you that higher returns is typically higher risks. But history has shown that apartment syndications have a higher return and lower risks but history doesn't always hold for future results. During the 2008 RE crisis , apartments (Down like 2-3%) were the best performing asset compared to most major investment vehicles.

 

[Groove]

This is the question most people especially high earners have to make. Even teachers saving 5k/yr for 40 yrs will retire a millionaire in 40 years. Doctors putting 50K/yr yearly ends up north of 6M in 30 yrs. Those choosing just throwing it in the S&P and closing their eyes will 99% be retired comfortably with 6M.

Some docs are more risk tolerant and 6M working for 30 yrs is just not what they want.

I will agree with you that higher returns is typically higher risks. But history has shown that apartment syndications have a higher return and lower risks but history doesn't always hold for future results. During the 2008 RE crisis , apartments (Down like 2-3%) were the best performing asset compared to most major investment vehicles.

Exactly. I had someone asking me for investing advice through PM and I freely admitted that most of my investing strategies are hyper aggressive and inherently higher risk but that was born out of the fact that medicine was a 2nd career for me and I got a very late start on investing and made the decision to capitalize on higher risk strategies in order to make up for time lost. If I had gotten started as a young, first career attending...chances are my investing style would be markedly different and much more conservative. Boringly so.

That being said, I'm not a real estate or syndication investor. It's just not my thing and I could never tolerate the illiquidity. The closest I get these days is through an REIT and I'm usually not even long on those... I'm usually swing trading or medium term investing an individual homebuilding company such as MHO or GRBK, etc.. To each their own though.

 

[sloh]

There are some excellent reddit discussions on this Nightingale debacle. I don't personally have any of my money invested in syndicated real estate but have come close to pulling the trigger on many occasions. And many physicians see syndicated real estate as a low risk investing option. Not so low risk. Learn what you're getting yourself into guys.

"CS vetting of sponsors is lousy. Follow the money. They get paid by money raised and ongoing fees by sponsors. Their words about investor alignment are total garbage and ring hollow. Most of their lousy deals with GP mismanagement, deceit and errors are covered by the “100 page” prospectus with legal mumbo jumbo sponsors send out initially, and if anything goes sideways, CS quickly washes their hands. Most of their bad deals haven’t yet closed, and since banks aren’t foreclosing much these days, they are in a Zombie status. Deferred executions/death row if you will. Finally most successful sponsors have no need to raise funds from retail investors and deal with 100s of emails. There are plenty of institutional investors and family offices willing and able to fund quality deals on merit and sponsor ability. Bear in mind we are in an era of easy money and with a very loose Fed with a $10T balance sheet. What comes to CS are the absolute leftover deals with the leftover sponsors. So just be mindful of this selection bias towards rejected and lousy deals. It took me a while to understand this, and they will never tell you this."

"For the largest capital raise ever on CS, for them to fall asleep is totally crazy. They should have been on top of Nightingale from the moment the initial closing was delayed. You should ask the tough questions of them and hold them responsible. I am not in this deal but really hate to see investors getting burned this way."

"CS due diligence has proven to be a joke. I’m in a deal where Sponsor literally lied about the acquisition cap rate and debt terms. Even a 10 year old can look at income and subtract expenses. Instead they’ve presented proforma as acquisition numbers and CS has allowed that to happen.

I’m in 20 syndications. 8 through crowdstreet. My only two deals where there’s been fraud and dishonesty has been through crowdstreet.

They get paid by having more deals on the platform. They are incentivized to let crap reach the market place."

"Do not hold your breath. The type of investors that CS investors are will be at the back of the line. The senior debt lenders and other secured creditors will be ahead of CS investors. This will be a total loss to all the CS investors still in the deal.

These nightengale dudes are in a world of hurt. Fleeing the country, suicide, who knows -- but one thing is for sure: the $$ is history. Sadly.

Crowdfunding is fundamentally broken in its current form."

"Agreed. There is a misplaced sense of optimism from many CS investors. Having suffered through a few failed deals, there is much less opportunity for recourse than some people believe.

CS will is working to protect themselves. This has the potential to bring down the company. Individual investors will probably see very little after more senior lenders are paid out.

My fear is that these type of events attract even more fraudulent sponsors who see that crowdfunded deals give them access to quick cash with minimal due diligence, a pool of inexperienced investors, and the ability to misappropriate funds with little to no accountability."

"this is going to take years to recover very little. I'm in for 100k and the prospects appear far worse than I had expected. Not sure if CS will be able to exist with this overhang."

 

[sloh]

More. Learn what you're getting yourself into.



From CrowdStreet:

"We have hosted more than 770 deals on our Marketplace since inception with each sponsor going through the same objective review process—Nightingale was no different. This review includes Thomson Reuters CLEAR background reports, reference checks, track record review, and other measures. Nightingale provided references from notable institutions including KKR, Citibank, Wafra Capital Partners, ICER Properties, and DRA Advisors. Nothing uncovered during our vetting process gave us cause for concern with Nightingale or these deals, which went through their own due diligence process as well."

OH REALLLLYYYY????? Your review process SUCKS.

"I don’t understand why crowdstreet proceeded with offering the Miami/ Lincoln deal on their platform from the same sponsor who for 6 months up to that time had not executed closing the AFC deal?"

"And CrowdStreet acknowledged no wrongdoing on their part. How nice."

"There is far more complexity than this.

CS pitches the extensive due diligence they do on each sponsor to validate the 2.9% load and 0.9% annual platform fee they charge on these deals. Additionally, they have $6M in investor funds in AFC through the C-REIT and other CS controlled investor entities, which they pitch to investors as a favored investment vehicle into high yield deals.

Furthermore, for this particular AFC deal, NG had completely withheld 4 properties from their deal history that were total losses. CS was notified while the deal was on the marketplace by several investors (including me). They did not require investor disclosure until after the deal closed, and the Wsj intern wrote a piece about it.

I feel like CS saw the huge rips it was going to get from a $70 M deal and acted in its own short-term pecuniary interest rather than the investors' interest. So, I don't feel passing the buck is an entirely appropriate characterization as they are holding some of the responsibility here. Their willingness to "loan" a bankrupt entity with <150k assets over $1M for legal fees speaks to their complicity.

Full disclosure, I was in AFC but got redeemed when I saw this going south. Redemption was difficult."

"Two of the bad deals were part of the track record but in the return section stated ‘N/A’.

Crowdstreet let the lack of transparency happen when they allowed the sponsor to put N/A - im sure in their due diligence they would have asked what the N/A was and fully knew that they were absolute losses.

Yet, they allowed the lack of transparency and let it fly until the Wall Street journal exposed that transparency. They probably understood that raising such a large amount of capital would be difficult with multiple previous losses and swept it under the rug, so yes they are responsible for lack of transparency.

And boy am i thankful to the journal because i had 30k in AFC and i took it out immediately when they offered a refund after the first Wall Street journal fiasco. The deal at that stage had left a sour taste in my mouth. I’m glad i got out. Having said that, I’m in the nightingale Chicago deal, so probably losing money there since i can’t fathom a situation where the chicago deal is unaffected by all this."

"I feel that there is more color to even this synopsis.

"Even at this late date, the Nightingale previous losses are still not adequately disclosed (look at NG record now in your portal). Originally, they were completely omitted. When several investors complained, they listed them on the record but with the (very inaccurate) "N/A" for the returns (instead of losses). They continued to show the white-washed "total returns," which omitted the losses and showed only the gains."

This is the risk of investing in non-SEC regulated assets. We are giving money to someone we don’t know and hope they do what they say they will do based on their previous track record. We hope that CS vetting the sponsors mitigates this risk significantly but it doesn’t eliminate it. Glad I passed but it was only because I was weary of the office segment. Just got lucky. With 9 investment offering through CS, I think I’m sticking to index funds going forward…"

"I have also fallen victim to investing in multiple deals from a single sponsor (although not this sponsor).

The commingling of funds between different investments is to be expected (even though it is illegal).

I hoped that losses from one bad deal would be isolated to that deal. In reality any profits from a successful deal will be funneled into the failing deals.

Instead of limiting the damage to a specific deal, one hit ends up sinking the ship."

 

[sloh]

Ummm....escrows?

"Too little too late. Insanity that escrow wasnt used prior to this. And an implicit admission of negligence by CS."

"I am in for $50K in both deals. I am staying away from CS until I see some concrete action. I also use Realty Mogul platform and they have a legal team that works on behalf of investors. Not sure how good they are. I ran into a delayed closing situation with one of my investments there. I asked for a refund and they are promptly processing it. Very disappointed in CS. I have asking for a refund on Miami and AFC for months and I got nothing."

"Every deal I've been involved with sponsoring: investors wire funds to the title co's escrow account and funds are not released until closing on the asset (eg, the land, or the building if an existing asset) or until closing of our construction financing.

As a sponsor who doesn't like extra liability, we absolutely make sure we do NOT accept any funds from investors directly and never before closing. The exception to this is if we are specifically bringing in co-GP funds for pursuit costs/pre-dev expenses and these early investors get rewarded accordingly for the higher risk.

This is SOP for us. It's horrifying to me that $50M+ was sent directly to this sponsor's operating account prior to closing w/o escrow.

I mean, any sponsor who would accept that $ seems either irresponsible or malicious. It's just totally unnecessary to circumvent escrow.

Unless you plan on stealing the money, then you definitely don't want to use escrow! Lol escrow bad!!"

i have a few invesments with realty mogul. i ran into AFC/1601-like situation with one of my deals where the sponsor is not able fulfill all their commitments. My money sat there for a few months and I finally asked for refund. Realty mogul people called me promptly and explained what was going on with the investment. I still decided to move forward with the refund. Since the funds were sitting in this escrow account and hadn't been released to the sponsor, I am now being refunded full amount.

Even though this deal didnt pan out for me my confidence in realty mogul platform jumped. At least they appear to have the necessary safeguards in place. I know all RE investements are risky but I strongly feel like CS should have done better job vetting Nightangle and managed the investor funds more securely. I know the escrow system is in place now but it is too late for some us investors."

 

[cyanide12345678]

Ummm....escrows?

They have escrow now. Started it after this debacle took place.

 

[sloh]

They have escrow now. Started it after this debacle took place.

How do you feel about realty mogul vs. CS? Seems from what I read they are more reliable

 

[cyanide12345678]

How do you feel about realty mogul vs. CS? Seems from what I read they are more reliable

Realty mogul is the one platform i haven’t used much. Though i hear their due diligence is better. CrowdStreet has always had the best deal flow.

I have used equity multiple occasionally. I think i have 4 investments through them, i personally think their due diligence is better. They actually give financials and the numbers with all the assumptions from the sponsor for the numbers. They are terrible at sending K1s though.

My next possible syndication is odc fund 9 - if they let me go in with 50k instead of 100k which is their minimum

 

[cyanide12345678]

Ummm....escrows?

Here’s the internal document of the actual transcript of the webinar with anna phillips who was the auditor to figure out if there was fraud. This is the transcript of the webinar through which the investors found out what happened for the first time.

It’s a very interesting document.

 

[emergentmd]

So can someone explain the advantage of an online platform like crowdstreet vs syndications I do that is Private offerings? I get email offerings all the time to fund flips but how am I to vet who the operator is?

From my research, my private offerings have better terms. I am able to vet who the operator is, I can call up the general partner and get answers the same day, I have access to their website and not a 3rd party platform.

Every new syndication, I can look at their past track record. The ones I eventually picked have NEVER done a cash call or sold at a loss. Not to say it won't happen in the future but past results are a great indicator of future performance.

So why would anyone do crowdstreet?

 

[cyanide12345678]

So can someone explain the advantage of an online platform like crowdstreet vs syndications I do that is Private offerings? I get email offerings all the time to fund flips but how am I to vet who the operator is?

From my research, my private offerings have better terms. I am able to vet who the operator is, I can call up the general partner and get answers the same day, I have access to their website and not a 3rd party platform.

Every new syndication, I can look at their past track record. The ones I eventually picked have NEVER done a cash call or sold at a loss. Not to say it won't happen in the future but past results are a great indicator of future performance.

So why would anyone do crowdstreet?

Private offerings usually have much higher minimums. Usually 50-100k. Crowdstreet is around 25k. Some deals on equity multiple are even at 15 or 10k.

Deal flow can be pretty incredible if you follow 2-3 portals like crowdstreet - there’s always 1 or so deal that is reasonable.

Theoretically crowdstreet and other platforms have their own vetting process for deals where 95 percent plus of ‘bad deals’ don’t make it to the platform. So there’s a layer of protection especially if you are new to investing.

It is very very easy to diversify quickly across multiple sponsors, regions, and asset classes.

The track record is presented through crowdstreet as well. You can view the website of a sponsor even if you use crowdstreet. In fact, you are more than welcome to call and talk to someone when vetting a deal, a lot of people do. Those things you can still do but these platforms give you access to greater deal flow at lower capital requirements allowing for greater diversify.

I’m in 20 syndications because of lower minimums. Otherwise if i had 100k minimums, id just be in 4-5 right now.

 

[Alvarez13]

Private offerings usually have much higher minimums. Usually 50-100k. Crowdstreet is around 25k. Some deals on equity multiple are even at 15 or 10k.

Deal flow can be pretty incredible if you follow 2-3 portals like crowdstreet - there’s always 1 or so deal that is reasonable.

Theoretically crowdstreet and other platforms have their own vetting process for deals where 95 percent plus of ‘bad deals’ don’t make it to the platform. So there’s a layer of protection especially if you are new to investing.

It is very very easy to diversify quickly across multiple sponsors, regions, and asset classes.

The track record is presented through crowdstreet as well. You can view the website of a sponsor even if you use crowdstreet. In fact, you are more than welcome to call and talk to someone when vetting a deal, a lot of people do. Those things you can still do but these platforms give you access to greater deal flow at lower capital requirements allowing for greater diversify.

I’m in 20 syndications because of lower minimums. Otherwise if i had 100k minimums, id just be in 4-5 right now.

I've been very happy with Origin and DLP for the last few yrs. Big funds with lots of properties and can pass down depreciation. Also did three deals with equity multiple that turned out well, but like you said slow on the k1s. Also in Wellings which is more storage, distributions are a little less.

You like Open Door Capital? I like Brandon Turner but don't know much about his fund. I'm looking for more funds that can utilize depreciation and want to diversify more instead of adding to what I already have.

 

[cyanide12345678]

I've been very happy with Origin and DLP for the last few yrs. Big funds with lots of properties and can pass down depreciation. Also did three deals with equity multiple that turned out well, but like you said slow on the k1s. Also in Wellings which is more storage, distributions are a little less.

You like Open Door Capital? I like Brandon Turner but don't know much about his fund. I'm looking for more funds that can utilize depreciation and want to diversify more instead of adding to what I already have.

I like Brandon Turner. Half my education in real estate has been through him and his podcast and books.

I really really liked the last deal through open door - Texas 3 pack with the fixed debt at 3.5 ish percent for 7 years. It was a good deal. I put 50k in it.

I don’t think the ‘lifetime fund’ Is designed to optimize for maximum return. But i think it’s more of a safer bet, especially when receiving 100 percent of the returns until all money is back and the sponsor not getting a single penny of return. I do think the manufactured home properties are incredible for cash flow and have increasing demand due to affordability being at all time lows while pretty much minimal increase in supply. All new construction and investment dollars end up going into class A properties.

But I’m never putting 100k in the fund. 50k…. Sure. Why not?

 

[sloh]

WSJ published their piece on Crowdstreet and Nightingale last night. Awesome coverage. Will post article when I get to a computer later.

WSJ News Exclusive | Missing Millions and a Rabbinical Arbitrator: Real-Estate Deal Gone Bad Hits Popular Crowd Funder

CrowdStreet raised $4 billion by promising big returns to small investors, but many deals were disappointing.

www.wsj.com

 

[sloh]

"After this story was published Monday, CrowdStreet said it was replacing its chief executive officer.

CrowdStreet is one of the largest of several platforms that enable small investors to band together to buy office buildings, hotels and other types of commercial real estate. Developers made pitches to investors in webcasts, while a CrowdStreet representative stepped in to announce when the “Invest Now button” had been activated.

Developers pay fees to advertise their deals, and investors can buy slivers of equity for as little as $25,000.

A Wall Street Journal review of 104 completed deals and other deals that were aborted or still in process found that many failed to meet returns suggested in sales pitches. When developers fell short of funds, they asked investors to pony up more cash or risk losing their investments. CrowdStreet also helped raise cash for a firm that lied about its track record to investors, according to the Securities and Exchange Commission and the Justice Department, and whose chief executive was later sentenced to prison for fraud for the fundraising.

The Journal analysis found that more than half of those investments promoted on CrowdStreet’s platform failed to meet their target returns. Hundreds of CrowdStreet users lost some $34 million on 19 deals that underperformed as of this July, according to the Journal’s analysis. A dozen of those deals lost nearly 100% of investor funds.

CrowdStreet also hosted successful deals. More than 20 deals outperformed projected return rates by at least 10 percentage points. Hundreds of others are still outstanding. It often takes at least three years before investors can realize a return on their investments.

Several developers ran into unexpected costs or underestimated their cash needs because of supply shortages, rising prices or higher interest rates.

Between 2020 and 2021, Fountain Residential Partners raised $45 million on CrowdStreet for three off-campus student-housing projects at Clemson University, the University of Arkansas and Louisiana State University, including one that needed major overhauls and another that was essentially uninhabitable for months after a flood.

Cost overruns led Fountain to ask CrowdStreet investors for an additional $12.4 million and in September were told to expect a call to raise millions more.

“It looks like we’re going to need another $20 million to finish the project,” said Fountain CEO Brent Little in a September webinar for the Arkansas project. Little blamed the overruns on materials including lumber prices that shot up during the pandemic. The company didn’t disclose the need for more funds to complete repairs for months because “we felt it would send panic which wasn’t necessary,” he said.

Little declined to comment.


CrowdStreet marketing materials provided rosy assumptions of real-estate returns. In a pitch for a private real-estate investment trust run by the company, it said higher interest rates have historically increased property values. Property values typically fall when rates rise and have declined 15% since the Federal Reserve began raising interest rates last year, according to the Green Street Commercial Property Price Index.

In 2018, MG Capital Management, which said it was “the largest owner-manager of debt-free individual luxury properties in Manhattan,” pitched a new fund to CrowdStreet investors. CrowdStreet’s chief investment officer said of MG at the time, “We exclusively work with leading sponsors on commercial real estate offerings that meet our strict marketplace requirements.”MG Capital’s offering materials said the firm had overseen two funds that returned four times the S&P 500’s performance over 10 years. It said investors in the new fund were “100 percent protected from loss.” MG Capital raised $1.8 million from CrowdStreet investors of the $35 million in total it raised for the fund. The 23 investors in the deal recovered about one-third of their money, according to CrowdStreet.In 2021, the SEC and Justice Department charged MG Capital and its manager with securities fraud. MG Capital’s funds had falsified reports to conceal huge losses, and its prior funds never existed, the government said. MG Capital’s chief executive, who pleaded guilty to securities fraud for the fundraising and was sentenced to 60 months in prison, and MG Capital settled with the SEC.

The Nightingale deal for the Atlanta Financial Center was one of CrowdStreet’s largest ever. Potential investors received an email from CrowdStreet’s chief investment officer with the subject line: “$10B Enterprise Sponsor Brings Trophy Asset with Huge Potential in Hot Market.” Nightingale raised around $54 million from 654 CrowdStreet investors for the shimmering glass-covered office building in Atlanta’s Buckhead neighborhood. The developer also raised around $8 million for a Miami building.

CrowdStreet assessed Nightingale in its highest tier as an “enterprise” sponsor, indicating it had a national footprint and a portfolio worth more than $5 billion. The listing projected an internal rate of return of 28.1%, among the highest for a project on the platform.

“All that kind of worked together to create a feeding frenzy around this investment,” said Peter Campbell, a Louisiana neuroscientist who put $100,000 into the deal last summer.

Last summer, the Journal reported that some investors soured on the investment after discovering Nightingale had omitted losing a building to a lender the year prior and a $25 million default from investor materials. At the time, a spokesman for CrowdStreet said that the omissions were benign and inessential and investors were offered their money back if they wanted it.

CrowdStreet’s Steen told the Journal in an interview last week that the company had analyzed the undisclosed deals as part of its process but didn’t think that defaults or foreclosures should prevent developers from listing on the platform.


CrowdStreet allowed investors to fund the deal through February, but several say they began asking for their money back from both CrowdStreet and Nightingale. Campbell said it took 11 emails and a conference call with Nightingale executives before his funds were returned in June.Denys Glushkov began asking for his funds in March. CrowdStreet told him Nightingale was honoring refund requests, but the next day Nightingale told him in an email that it was “not considering any redemptions at the moment,” as it tried to close the deal for the building.

Glushkov was told in May he was added to a list of coming redemptions but never got his money. The vehicle with investor cash filed for chapter 11 bankruptcy in Delaware on July 14.

Glushkov said CrowdStreet was an easy target for fraud, and he was shocked it didn’t do more to protect investor cash.

“If you decide to steal $70 million, I’m sure if it was from Goldman Sachs they would think twice,” he said. “When you have a small and dispersed investment base, it’s much easier to think, ‘I’m going to misappropriate these funds and good luck to them.’”

 

[sloh]

Comments section:

"This is an economic textbook-definition example of Adverse Selection: Where one party of a transaction has more information than the other, which they can use to their advantage. Private investment offerings for real estate deals are usually marketed and tailored towards institutional investors with high levels of sophistication, resources, and professionalism. What benefit does a real estate developer gain by fundraising through Crowdstreet as opposed to a pension fund, endowment, or high-net worth individual? They typically are hoping that Crowdstreet's decentralized investor base has no legal recourse for lost funds, or that they can obscure prior performance with limited resources for due diligence. I have reviewed a few deals on Crowdstreet and have always found one or two issues with each that prevents me from investing. Let this be a lesson to future investors. To future investors, ask yourself, "why am I being given access to this investment?"

'Democratization' of finance usually means unsophisticated suckers get taken to the cleaners.

If the deals were that great, the big money would have bought them long before the little investors had a chance to see them.

100%. A "trophy" office deal with a realistic projected 28.1% IRR?It wouldn't have gone to some mom and pop crowdfunding platform like CrowdStreet. That would have been gobbled up by some well-heeled institutional money long before that.

i have no sympathy for the losers here. There are private institutions with gravitas, real estate investment trusts, and other mainstream investment choices in real estate. Barnum once said a sucker is born every minute and these gullible "investors" were suckered.

Exactly -- I ran -didn't walk - away from any crowd funding for CRE. I've been an investor in CRE for decades (my own partnerships and those of others) and the MOST important part of the due diligence is personal affiliation with the sponsors and direct knowlege of a long and strong track record of both PEFORMANCE and INTEGRITY. Everything else is smoke and mirrors, and "projections" are completely meaniningless as they can be manipulated to project any outcome whatsoever. Those who invested blindly in these crowd sourced deals deserve to lose their investments as they were idiotic to think that they would not be wrought with fraud (worst case) or fee heavy (mid case), or overly optimistic (best case). The fact that congress and the SEC allowed this industry to come into being a decade or so ago was the stupidest thing ever and I predicted this outcome at the time and warned off all of my unsophisticated investor friends from participating in any fashion. So glad I did.

"It said investors in the new fund were “100 percent protected from loss.”
I'd say if you believe that statement stay out of the market.

I have no question about the solomonic wisdom of rabbinical courts, but any investor should have wondered about their suitability for arbitrating complex financial arrangements.
Whether penny stocks, crypto coins, or lets pool our small investments, people are willing to throw away their hard earned money for a dream of unrealistic high returns from questionable characters. At least with a lottery ticket the state lets you know that your chance of striking it rich are ridiculously improbable.

This is fine reportage from Mr. Shifflett and Mr. Foldy, which we're probably not going to read anywhere else. I look forward to their continuing coverage of the forthcoming lawsuits and criminal charges.

But, c'mon...Putting your money into commercial real estate because you got an email saying you'll get big money when you know nothing about the financials of the space?

The great H. L. Mencken said it best:

"No one in this world, so far as I know—and I have searched the records for years, and employed agents to help me—has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby."

Or, to paraphrase P.T Barnum, "There's a sucker -- and a fraudster -- born every minute."

The more layers of separation between you and your small investment, the less accountability.

Beware when you don't know who has your money and where it is.

I've done some Crowdstreet deals and had a good experience. I knew the developer's history in one deal and also used an independent investment advisor who did due diligence on the deals I did. I would be wary without one or both of those levels of preparation. I think the concept is valuable and it is not surprising to me there would be fraud in the early years. We've seen that in crypto, we've seen it in Chinese stocks, and every other asset class.

The reason why developers didn’t go to a traditional lender is because they wouldn’t have lent money to the developer. They probably wouldn’t have passed mustard on their financials, let alone the project they were looking to finance. I wonder what Crowdstreet management were paying themselves?

I agree. A lot of the listings on crowd funding platforms would most likely fail the underwriting criteria of a larger broker/dealer or a bank.

This seems to be the "timeshare industry" version of investing in real estate. Little regulation and control along with unsophisticated investors goes bad? Who woulda thunk it?

Due diligence is critical.

Ignore the gloss. Look carefully at the operating agreement, incentive structure, GP co-investment (are ALL managers in the GP investing to a significant degree, or just one or a few?), fee structure, reporting requirements including financials (audited/unaudited? the more frequent the better, and a requirement to report bad news in writing), management structure, management's outside business interests or OBIs (and if those OBIs should influence your investment, what is their requirement to report a change in those investments), Board structure, liquidity (prob. non-existent), auditors (Uncle Bob, or an arm's length serious independent operation?), relationships with contractors (too cosy?), use FINRA to due dill the manager, etc etc

Long term risk reward on a 60/40 liquid portfolio is a significantly better option unless you can seriously analyze a deal.

 

[Mbekweni]

What Happened? An Analysis of the Multifamily Meltdown

We all hate market meltdowns, and this one was bound to happen. We just didn’t know when, exactly how, or how bad things would get. But we now know

www.biggerpockets.com

Another interesting piece on the asset class.

I have over 1M invested in syndicated real estate and have some great paper gains so far, but also a few individual deals facing additional capital needs to cover an upcoming rate cap purchase. It’s going to be a bumpy ride and it’s easy to forget that with the higher potential upside comes the risk of total loss.

If you buy a total stock market index fund you might not be able to expect 25% IRR but even if it drops by 50% you are all but guaranteed that if you hang on for long enough you’ll get your money back and then some.

I love the idea of pass income and cash flow and it is seductive but I would be very careful to pick very experienced sponsors only and even then not to overly rely on this asset class. I’m at 35% of net worth for now due to huge gains from 2020-2021 and it makes me nervous. My overall goal is more like 15-20% max.

 

[emergentmd]

I passed all of my FINRA license exams to syndicate projects and I will tell you that Crowdfunding had some unique carve out rules that seems to not protect the average investors. Most SEC/FINRA rules create registration exemptions to promote investing/funding to accredited investors/institutions who tend to be educated but Crowdfunding had rules placed that allowed unsophisticated investors to participate with little regulation.

I have always been wary of crowdfunding because
1. If your project is good and you are a good operator, the project will be syndicated by accredited investors.
2. Why go to the hassle of small amount investors when there are plenty of accredited high net worth investors clamoring for good projects
3. Why go through the increased work of crowdfunding, dealing with thousands of small time investors? The back end clerical work is expensive/time consuming dealing with thousands of small investors vs a hundred sophisticated investors.

Any group that is a good operator with strong history would have no need for crowdfunding. When you are continually needing to put together projects on a crowdfunding site to maintain interests, you will invariably sponsors marginal projects.

You have to pick operators that know how to navigate market downturns like what we are experiencing now. The good ones will avoid cash calls while the poor ones will cash call/dilute investors.

 

[sloh]

And per the article more than half underperform lol. Considering the returns you get from boring old index funds, are real estate syndications even worth the risk?

Head down, grind in your daily doc job, shove it into index funds. Our degree grants us an enormous shovel (dollars/hr).

 

[Mbekweni]

And per the article more than half underperform lol. Considering the returns you get from boring old index funds, are real estate syndications even worth the risk?

Head down, grind in your daily doc job, shove it into index funds. Our degree grants us an enormous shovel (dollars/hr).

I’m thinking this more and more. I love to research and talk investing but I am all but sure that if I shut up and just put 100% into a boring diversified index fund I would be ahead of where I am now with so much time left to focus on my fulfilling ventures. Chasing performance (growth tech, real estate and crypto in 2021, value and commodities in 2022, back to valuey growth tech again in 2023) means you are late to the party and getting whipsawed.

 

[emergentmd]

Big shovel + index funds + closing your eyes = exceptional retirement at 60yrs old when kids are all out of college. Start @30, put in 50k each year into S&P reinvesting dividends, historically return 9% will let you retire with $7.5M at 60yrs old. A nice retirement BUT you have to account for inflation/purchasing power. That 7.5M with a historical 4% inflation rate is worth 2.3M at today's purchasing power. If you want the same 7.5M purchasing power today, you will need $24M.

I for one would not want to go through med school, work 30 yrs and have a $2.3M purchasing power at 60 yrs old. When you retire at 70 purchasing power is 1.5M and at 80 its 1M. Talk about cutting it close especially if you have to pay for expensive care centers/assisted living/nursing homes.

History is the only fact you can work with when you look to the future. Data that I saw pre covid compared RE sectors to S&P500

From 1993 to 2017 returns
Apartments/multifamily(along with most RE sectors) 13% (do not reinvest dividends)
S&P500 7.5% (assuming you didn't reinvest dividends).

Doesn't sound like a big difference but 100K in 1994 would leave you at 2M. S&P would put you at $600K.

Now look at the RE recession of 2007-2009. Residential RE to me is a good hedge on a recession b/c people have to live somewhere. Rent may go down and vacancies may tick up, but you still have people needing to live somewhere. Plus if they lose their homes like in 2008, they go to apartments.
Apartment/multifamily was -6.7%
S&P -22%

Best advice is diversify. I have $ in business cashflow, SFH I rent for Cashflow, and syndications for cashflow. I plan to shifting more into syndications because I have access to good operators that I trust and I want more passive income vs SFH RE that requires alittle work.

 

[JacobMcCandles]

Only saving $50k/year for a physician isn’t going to cut it.

 

[sloh]

Lol yeah wtf 50k/yr? I’m PM&R and invest way more than that. 1 million net worth in ~4 yrs after residency. Just hustled at my 1099 job and invested the money bogleheads style. No extra time and effort spent on any type of side gig, real estate, crypto, vetting syndicated real estate etc.

I primarily focused on making a lot of money in my day job and work no more than 35-40 hrs/week.

 

[sloh]

Best advice is diversify. I have $ in business cashflow, SFH I rent for Cashflow, and syndications for cashflow. I plan to shifting more into syndications because I have access to good operators that I trust and I want more passive income vs SFH RE that requires alittle work.

These all require extra time you could dedicate to your primary job and then pour the extra money into index funds. They also come with risk. We are constantly trading both money and time at best exchange rates possible for more money and time.

 

[emergentmd]

Lol yeah wtf 50k/yr? I’m PM&R and invest way more than that. 1 million net worth in ~4 yrs after residency. Just hustled at my 1099 job and invested the money bogleheads style. No extra time and effort spent on any type of side gig, real estate, crypto, vetting syndicated real estate etc.

I primarily focused on making a lot of money in my day job and work no more than 35-40 hrs/week. View attachment 375125

Great job but you would be surprised at how many docs do not put in 50k/yr. Many live paycheck to paycheck.

 

[Siggy]

From 1993 to 2017 returns
Apartments/multifamily(along with most RE sectors) 13% (do not reinvest dividends)
S&P500 7.5% (assuming you didn't reinvest dividends).

If this was a clinical trial, we'd ignore it for bias. Reinvesting dividends is the secret sauce. It's 9.23% annual return for 1/1/93-1/1/17 for literally no work. No dealing with tenants. No vacancy issues. No vetting syndicate deals.

If you want to get cute, you could always theta gang SPY for more money.

 

[Torsion]

Big shovel + index funds + closing your eyes = exceptional retirement at 60yrs old when kids are all out of college. Start @30, put in 50k each year into S&P reinvesting dividends, historically return 9% will let you retire with $7.5M at 60yrs old. A nice retirement BUT you have to account for inflation/purchasing power. That 7.5M with a historical 4% inflation rate is worth 2.3M at today's purchasing power. If you want the same 7.5M purchasing power today, you will need $24M.

I don't think the historic inflation rate is quite 4% - closer to 2.5-3.

From what I could find online, over the last 150 years the S&P 500 has returned an inflation adjusted 6.85%. Over the past 50 years, encompassing two eras of historically bad inflation the adjusted return as of June 2023 is about 6.5%. This all assumes reinvestment of dividends.

Source: Historical Average Stock Market Returns for S&P 500 (5-year to 150-year averages) - Trade That Swing.

Given this, even if a physician were to only put away 50k a year for 3 decades starting at 0, they would be worth an inflation adjusted 4.318 million based on a 6.5% return. This also assumes completely stagnant earnings over a period of 30 years which I would hope is unlikely.

 

[emergentmd]

If this was a clinical trial, we'd ignore it for bias. Reinvesting dividends is the secret sauce. It's 9.23% annual return for 1/1/93-1/1/17 for literally no work. No dealing with tenants. No vacancy issues. No vetting syndicate deals.

Your missing the fact that I didn't include reinvesting the apt syndication dividends/distributions which typically is more than S&P dividends. I know that reinvested S&P dividends jump it over 9%. Its just hard to get a handle on Apt REIT/syndication distributions but typically RE REIT distributions are way higher than S&P which runs about 1.5%

I bet if REIT/syndication distribution was reinvested, you would be well over 20%

 

[emergentmd]

from 1960 to 2022, the average inflation rate was 3.8% per year but 3% may be more reasonable.

 

[Torsion]

from 1960 to 2022, the average inflation rate was 3.8% per year but 3% may be more reasonable.

It looks like roughly over that time the market earned near 11% annualized, so the adjusted even at 4% was around 7%.

 

[cyanide12345678]

And per the article more than half underperform lol. Considering the returns you get from boring old index funds, are real estate syndications even worth the risk?

Head down, grind in your daily doc job, shove it into index funds. Our degree grants us an enormous shovel (dollars/hr).

9 out of my 20 deals are through crowdstreet. Every poor performer is essentially through there. Crowdstreet due diligence failed on confirming basic information like loan details on one of them. And the other is 200 w Jackson where nightingale is sponsor so who knows what’s going to happen. You live and you learn. Im not investing much more through crowdstreet right now.

6/6 of my deals though equity multiple are out performers right now.

The remaining are private funds which are all doing okay.

I should still beat SPY by a margin in returns

Even if you have 50 percent under performance, you have to understand that most deals have a proforma irr of 17-19 percent if value adds and usually 20+ percent if a development deal. So a deal could return 14 percent and be underperforming, but still beating sp500. And then throw in significant tax benefits of depreciation leading to tax deferral then you really start benefiting from real estate investments. Historically if you put 25k in every single crowdstreet deal, you would have averaged 17 percent IRR - despite 50 percent underperformance.

That sort of under performance i will take.

 

[emergentmd]

I agree that just putting 50k/yr for 30 yrs is an almost full proof plan to have a good retirement.

I just don't want to work full time in the ER for 30 yrs.

 

[cyanide12345678]

If you want to get cute, you could always theta gang SPY for more money.

This is an excellent way to do this, almost guarantees an increased income from SPY unless there’s a blockbuster year for spy then you can miss out on gains.