Ask the Real Estate Investing Expert

REIT vs Private Real Estate Fund

In my life in Investor Relations, I get asked daily: “Is a Fund the same as a REIT?”. Let’s break it down.

What is a REIT, technically speaking?

A REIT is a specific tax structure created in 1960 and has very specific guidelines under the Internal Revenue Code (IRC). A REIT must invest at least 75% of total assets in real estate, cash or US Treasuries. A REIT must derive at least 75% of its gross income from rents, interest on mortgages of real property, or real estate sales. A REIT must pay a minimum of 90% of taxable income in the form of shareholder dividends.

And that brings us to our first big difference. But I will continue with the definitions first.

A REIT must be an entity that’s taxable as a corporation (number 2 difference). A REIT must be managed by a board of directors or trustees. A REIT must have at least 100 shareholders after its first year of existence. And a REIT must have no more than 50% of its shares held by five or fewer individuals.

So, now that we know the technical rules of a REIT, what types of REITs are there?

The most common REIT that people think of is the publicly traded REIT. These are the most visible and any retail investor with a Robinhood app can buy shares. But not all REITs are publicly traded. There are Non-traded REITs. These are companies that publicly report financials and are available to all investors, through licensed Broker Dealers, but do not trade their shares on any exchange. And lastly, there are Private REITs. These are commonly private equity funds with individual or institutional accredited investors, with exempt offerings through a Private Placement.

What is a Private Real Estate Fund?

A Private Real Estate Fund is a private offering, or placement, and issuance of securities. The proceeds of which will be used to invest directly in real estate. Frequently, these funds will buy multiple assets and commingle the funds. There is no specific structure of a Private Real Estate Fund, but they are most commonly structured as a Limited Partnership.

How is a REIT the same as a Private Real Estate Fund?

Most commonly, both will own a diverse portfolio of income producing property. Technically, either could own a single asset, i.e. the Empire State Building is a single asset REIT structure, but portfolios are more common.

How is a REIT different than a Private Real Estate Fund?

The biggest difference for many investors is the tax treatment. Your tax form from a REIT investment will be a 1099-DIV. Your tax form from a Private Real Estate Fund will commonly be a K-1, assuming it is structured as a Limited Partnership.

What is the benefit of a REIT?

While this isn’t a comparison to a Private Real Estate Fund, the single biggest benefit of REITs is the mitigation of the corporate double taxation. Any corporation has to pay corporate taxes first, distribute dividends from after-tax earnings and the shareholders have to pay taxes on the dividends, creating the double taxation. Under the IRC for REITs, if all requirements are met, there is no taxation at the corporate level, only on the shareholders, thereby creating a favorable tax treatment.

What is the benefit of a Private Real Estate Fund?

For many investors, it is the tax treatment through the K-1. Losses can be passed through directly to the Limited Partners on a K-1, which is not available in a REIT and 1099.

Please note: I intentionally kept this blog high level. There are significant differences between a publicly traded REIT and a Private Real Estate Fund in regards to liquidity, access for investors, transparency of reporting, etc. The intent is to outline that a REIT can take many operational forms, but will always have the same tax treatment, which varies significantly from the tax treatment of a Limited Partnership.

About the author:

Evan is the Investor Relations Consultant for Ashcroft Capital.  As such, he spends his days working with investors to better understand their investment goals and background.  With over 13 years in real estate, he has seen all sides of real estate from acquisitions, to capital raising on the equity and debt side, to operations, and actively invests himself.  Please feel free to connect with Evan here and message him through LinkedIn with any questions.

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Top Takeaways From Every BEC2021 Day 2 Speaker

The Top 10 Things to Ask Before Investing

Ryan Gibson, Spartan Investment Group

How to find great operators

  • Online:(506 investor group, forms D)
  • Networking
  • Funds: fund of funds
  • Syndication groups: meetups groups
  • Projects: something you see in your area because most are syndicated
  • Referrals: from other operators

Your interview with the operator

  • Ask open ended questions: When interviewing operators, see if they are interested in what you have to say
  • Write down notes
  • Keep a log of operator Q&A
  • Portfolio projects
  • Referrals
  • Property location

Are they an operator or syndicator? Determine what role the company plays. How are they compensated, how are they aligned with you? Are they aligned with the success of the project?

Tell me about a deal gone bad? This is Ryan’s favorite question. Having no deals that have gone bad indicates low experience or a lie while having deals that have gone bad helps you judge the grit of the syndicator. 

What is their mission, vision, and values? Does their mission, vision, values, align with yours? Ask them to give an example of how they’ve used their values recently.

Who is on the team? Are they a one-man band or do they have a deep bench? Are they vertically integrated? Are they using the fees they charge to hire a great team or to pay themselves?

What is their core business model? Selling education? Working elsewhere? Focused on deals? Gurus?

What is your investor communication plan? Ask for last three communications to get a better understanding of their communication style. Is the plan in writing? Can you verify property performance against projections?

What is the performance of their portfolio?

  • Historical performance (proforma vs actual): comparison is more important than absolute return since it gives you the right context
  • Was it project level IRR or investor IRR: total project may look better than investor level
  • Consistent metrics: Ryan likes to use equity multiple and how long it took gives true time tested return, IRR might be misleading or not the best metric

Obtain reference and conduct a background check

  • Don’t ask for a reference, find your own, because no one gives bad references
  • Find others that have invested in the company
  • BBB, Google reviews, 506 Group, etc. – search for the company name and name of the principles


  • Does SEC attorney provide E&O insurance to cover for lawsuits
  • What exclusions are included on their title insurance?
  • Is there property insurance at least from an A rated Carrier?

Decision to exit

  • What would make an operator exit early? What is their justification for selling?
  • Have they sold early in the past? How many time and, how did the actual returns compare to projections?
  • How do they brief investors?

Market-Driven Strategies for Investment and Operations

Greg Willett, Real Page Inc.

Where we are at right now

  • We suffered sizable job losses which have impacted real estate market. However, occupancy rates are at healthy level and we’ve experienced rent growth in some places. Overall, there is huge variability in results in one part of the country and product niche to another – the highest I have ever seen.
  • Best rent growth is about 8% – Inland Empire, Sacramento, Virginia Beach, Memphis, Midwest
  • Gateway metros are really struggling – Bay area and metro New York: rents cut 15% to 20%

Three Investing Strategies

  1. Throttle up your Sun Belt assets. Simply getting in front of renter demand can help fuel performance successReally solid demand results across state of Texas, Carolinas, Tennessee, Atlanta, Phoenix, and Denver. Be careful in Florida markets, because there are a lot of tourism centers. Places like Tampa, Jacksonville are doing well. Don’t rule out the Midwest. Demand is not as strong as it is in the Sunbelt but low supply will drive demand.
  2. Don’t bank on a flight-to-quality. Rent discounts at top-tier product are not delivering move-up renters to the extent experienced during previous economic stumbles: Renters have had the tendency to move down and downgrade to class B and C to save money.
  3. Explore a low capital value add strategy. Lower price points are boosting occupancy and supporting resident retention at lease expiration: Focus on maintenance issues and appearance but hold off on bells and whistles to keep property more affordable for bigger group of renters. Turn around on a vacant unit is faster for lower quality upgrade and leaves money on table for a future buyer.

Three Operational Strategies

  1. It’s the right time to adjust the recipe for your operational “secret sauce.” Measure what’s working now: You don’t want to be doing what worked well in the past, you want to be doing what works well now. Pay attention to what young adults are doing and how it impacts the types of units that are in demand. Then determine how this impacts your marketing needs, because certain strategies are better and worse. The bottom line is to measure everything to see what is different now compared to two years ago
  2. Focus on renewals. Resident retention at initial lease expiration has gotten harder to achieve in some locations and product segments, so make it a priority to hang onto today’s best residents: There is large variability in renewal rates across the country. But the goal is to hang on to the good residents who are making payments. Taking a hit on rents on a renewal lease might be a good thing. Pay attention to the type of units with lower and higher renewal rates and ask yourself, why aren’t they renewing? Pay attention to the non-pricing factors, like maintenance and customer service.
  3. Take back control of your brand. Know what you are selling and who the target for your product and message is in this marketplace: The overall message should focus on service, appearance, ease of living a the property, the location – don’t focus on price.

The Devastating Impact of Climate Change on Your Real Estate Investments in the Next 10 Years

Neal Bawa, Grocapitus

Impact of climate change in 2020 and questions to think about

  • 2020 had $95B in damage from climate disasters
  • What will happen to your investments when taxes increase to pay for massive sea walls?
  • Where will the money come from to fix Texas’s power grid?
  • In California, the six greatest wildfires happened in 2020, and will double in five years. How will this impact California cap rates?
  • Cities with sea level rise exposure are already priced at a 7% discount

Many climate risks may become uninsurable: Insurance companies are starting to buy climate data from Moody’s and creating city-by-city insurance plans.

Climate data is being used to downgrade entire cities: When a city is downgraded, their ability to borrow goes down, making it harder to fund re-construction projects. As a result, people move out, and it continues to spiral.

The end of the 30-year mortgage: Full cities may change to 20 year or 15 year mortgages options

The cities with no climate risk will be the next gold rush.

Overall, the people who set ratings, cap rates, insurance rates, mortgage terms, as well as cities are taking climate risk into account, and so should you.

The State of Fundraising in 2021: Key Risk Areas for Capital Raisers in Today’s Regulatory Environment

H. Gregory Baker, Lowenstein Sandler LLP

Capital raising regulations have been relaxed over the past presidential administrations, but that is changing.

Section 5 of Securities Act: One of the most important rules in the federals securities laws. In 2020, 1/3rd of all SEC enforcement cases concerned offering of securities. The SEC does not need to prove that you intended to violate the rule: they just need to show that you violated the rule,

A security must be registered or have an exemption. The common exemptions are:

  • section 4(a)(2) of securities act, private placement exemption
  • Rule 506(b) of Reg D, private placement safe harbor
  • Rule 506(c) of Reg D, general solicitation
  • Reg. Crowdfunding, 
  • Intrastate offerings

The consequences for violating Section 5 can be severe. The investors can get their money back from you. The SEC can fine you. And your reputation will be harmed.

How people or companies get tripped up on Section 5

  • Relying on 506(c) but failing to ensure that your investors are accredited
  • Relying on 506(b) but you advertise
  • Relying on intrastate exemption but selling to investors in multiple states

Expect to see more of these cases under new leadership. Gregory’s advice is to work with your attorney to ensure you follow rules, and document how you followed rules.

How to Scale Your Syndication Business

Michael Blank, Nighthawk Equity

Who should consider building a thought leadership platform? Anyone raising money for real estate. Anyone who has already raised some money 1 to 1. Anyone who is ready to scale capital raising ability. Anyone who wants to raise millions of dollars in a few days.

What will a thought leadership platform achieve? Automatically attracts the right investor, raise more money so you can do bigger deals, create more revenue, invest revenue back into market to do more deals, effortlessly scale and serve your investors

Three pillars of a thought leadership platform


Identify your ideal avatar: in order to attract the “right” audience who is interested in what you have to offer, you have to identify your ideal potential investor

Capture leads: when you attract the attention of your ideal avatar you need to know who they are. The best way to do that is to offer them a “Lead Magnet” in return for their email addresses


Serve and lead: Serve your audience and earn their trust with valuable free content that educates them about investing in syndications. Serving = content = trust

Lead them on their investing journey with continuous content

Scale: Make a compelling offer that generates revenue and reinvest a portion of your revenue to attract more leads

How to automatically attract more passive investors

Create a lead magnet: When someone downloads a lead magnet, they get tagged in system as “downloaded”, and put on email list to receive educational emails

Join the club: After downloading the lead magnet, they are invited to fill out a detailed questionnaire, and get tagged as “joined”.

Schedule a call: Included is the option to schedule a call after filling out the questionnaire. After the call, they get tagged as “deal ready” and are now prepared to receive upcoming opportunities

Follow up automation: Automatically send follow-up emails to people tagged with “downloaded” and “joined” until they move forward in the process and set up a phone call or unsubscribe.

Multiplying Your Real Estate Portfolio

Deborah Razo, Women’s Real Estate Network

The secret success system blueprint: find success habits, cultivate habits through repetition, achieve mastery. This is a system that deals with growing systems and expanding your mindset.

The success cycle: potential, action, results, belief. The more we believe in our potential, the more action we will take and the more results we will achieve. The more results we achieve, the more we believe in our potential.

How to cultivate resourcefulness: Write down a problem and come up with three effective, intelligent, and viable solutions. Because one choice is no choice. Two choices is a dilemma. But three options and you are in the space of choices

Accelerate Your Returns Through Construction Management

Ashley Wilson, Bar Down Investments

A team member with construction knowledge is critical to maximizing the investment’s returns

Get creative: There is more than one way to solve a problem, so your focus and end goal should drive your solutions

Balance between evaluation & equity: Your focus should be on increasing equity, not the evaluation.

Time is money: Figuring out ways to decrease the time construction takes will maximize your return on investment

Building a Social Media Content Engine

David Toupin, Obsidian Capital & Real Estate Lab

Social media = attention = influence = income

Where to start

  • Focus on 1-3 platforms at first to get traction
  • Create Facebook, Instagram, and YouTube account to start, or pick one or two that you like and want to go with
  • Block out one day every week to record a few hours of content to stock pile content and post throughout the week
  • Block out 2 hours every day to post and interact with followers: respond to every comment and direct message 

How to create a social media content engine

Create lots of content one or two times per month: Either by yourself of hire a videographer for one or two sessions each month, and upload all the content to a DropBox folder

Hire an editor to create a content database: Use month’s worth of content to create longer videos, shorter videos, and pictures with caption. The goal is to create at least 10 social media posts per one hour of video content

Hire a content manager: The content manager will use the content database to compile one month’s worth of social media posts.

Determine what the focus of your content is going to be: All posts should be directed towards achieving your end goal

You approve the posts: Once the content manager has compiled a month’s worth of posts, you review and approve

Schedule the posts: After you’ve approved the posts, the content manger schedules them throughout the next month.

Rinse and repeat

Top social media tips

  • The number one secret to social media is consistency
  • The number two secret is focusing your niche
  • Be yourself, people will recognize if you’re not being real
  • Interact with your audience
  • Tell your story
  • You will automatically attract people that like the same things you like. That’s how the algorithm works
  • You do not need a fancy camera or equipment. Any modern cell phone is sufficient
  • Don’t worry about your current audience. Create your desired audience over time – either create a new account or start on your personal account
  • Don’t worry about what people might think about you. Have fund with it and be yourself
  • Comment on posts of other big influencers

UTH Workforce Housing: Pairing Private Capital with New Construction Workforce Housing

Scott Choppin, Urban Pacific group of Companies

What is workforce housing?

  • Built-to-rent, non-standard MF in historical terms – SF and attached townhome rental product
  • Below market rate rents
  • Housing for working families at 80% to 120% of median income: service sector/blue collar, large multigenerational family groups with 4-7 people
  • Housing for professional “location agnostic” roommate groups working remotely: location agnostic and use extra bedroom for remote work
  • Locations: urbanized suburbs of most major cities, close to amenities but not central business district

Why chose workforce housing as an investment?

Recession resilient

  • Deeply undersupplied
  • Multi-earner households (families or roommates), 
  • Multi-generational households (reduces poverty rates)
  • Work-from-home is accelerating absorption and rental rates

Sticky, long-term tenant base

  • Strong social networks: kids in school, family nearby
  • Economic sharing lifestyle: share income and expenses across the group
  • Naturally affordable rents without government subsidies

What is urban townhouse (UBH)? Designed and built-to-rent but lives like a house

  • Five bed/four bath, 1750 sqft.
  • Three-story townhouse
  • Two-car direct access private garage
  • Multigenerational and WFH space ground floor bedroom/bath
  • Located in existing urbanized suburban neighborhoods where families and work from home roommates want to live
  • Rent on average $3500 to $4000 per month
    • Value ratio $2 to $2.28 psf. (average 50% below market)
    • Per bedroom rent $700 per (40% to 50% below market)

Extended Stay Model – A Hidden Secret in the Hospitality Industry

Jennifer Maldonado, The Art of Raising Capital Program

Profitability and resiliency are the foundations to long-term profits.

During the pandemic, the extended stay hotel model worked well for first responders and essential workers.

Economy Extend Stay Hotels performed the best during the pandemic.

  • Top tier: occupancy is down 29.7% and average daily rates (ADR) are down 17%
  • Middle tier: occupancy is down 14.8% and ADR is down 13%
  • Economy tier: occupancy is down 3.1% and ADR is down 3.1%

Don’t chase the herd! Chase the returns!

Ash Patel, Rivershore Capital

By searching the MLS five times every day, Ash was able to know about properties before anyone else, even the brokers.

Don’t make excuses when things get hard.

As a commercial real estate landlord, your only job is to make sure that you tenant is successful: treat your tenant like a partner and they will take better care of your property

Success follows selfless acts for others.

Look for unconventional ways to by real estate.

Bringing Property Management In-House: Why, When, and How

Frank Roessler, Ashcroft Capital

Why bring property management in-house

To improve performance: The only real reason you to it. If you can’t do it better, don’t do it at all

Alignment of incentives: Move away from issues of fee-based management. No other clients of higher priority.

Improve communication: Faster awareness of property vitals. More involvement in property operations.

When to bring property management in-house

Pros and cons of bringing property management in-house day 1

  • Pros: 
    • zero disruption
    • small overhead: won’t have to build out an entire organization, which is expensive and time consuming 
    • reduced upfront costs: offices and employee benefits
  • Cons: 
    • no best practices: you will be learning on the job at the detriment of the first few properties
    • starting at a loss: one property will not cover cost of managing the property, won’t breakeven until you have a couple thousand units 
    • no industry top talent: don’t have a track record to attract best of the best

Pros and cons of bringing property management in-house when you have scale

  • Pros
    • Ability to attract top talent: people were eager to jump ship and provide a business plan
    • Starting with a profit margin: breakeven or make a little bit of money
    • Best practices: because you have the top talent
  • Cons
    • Major disruption: terminating contracts, providing notice, transition process, a million moving parts
    • Significant startup costs: hiring a full team before you even have revenue
    • Relationships can be hurt

How to bring property management in-house

  • Create a policies and procedures manual: a how-to guide for every single department and staff member in your portfolio
  • Hire a president to run the company: don’t reinvent the wheel, leverage that person’s knowledge, experience, leadership, and contacts.
  • Build out each department slowly and carefully before you take everything over: learning and development director, digital marketing director, revenue management, CFO, IT, HR, regional and area manager, regional maintenance director
  • Culture matters
  • Provide sufficient notice

Six Lessons in Becoming a Better Leader

Brandon Turner, BiggerPockets

The Four “Therefores”: Happiness and fulfillment is found through growth and achievement therefore, in order to grow, I need to focus on my superpower and less on other tasks therefore I need to hire a partner or outsource my non-superpower tasks, therefore I need to lead those people to where I desire therefore leadership is not an option for an incredible life

How to change your identity: mindset -> actions -> identity -> confidence -> actions …

You can be anything you want to be if you change your identity through your mindset actions and confidence

Brandon’s new mindset about leadership

  • My job is to be a general
  • Management is not leadership and leadership is not management
  • When you work with people you love and care for, it’s not work, it’s a beautiful life, a symbiotic relationship of mutual growth and respect
  • Leadership is the most manly of skills
  • Freedom is found through great leadership
  • Leadership is a skill

6 characteristics of a great leader

  • Quitter: find a way to quit your job as soon as possible by paying an expert to do it
  • Cutter: the one or two things you need to be doing
  • Caster: write down the vision for where you want your company to go
  • Coach: ask the right questions to improve performance of team
  • Scout: find and attract talent
  • Student: recognize you don’t know what you are doing and that you need to continually grow
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Top Takeaways From Every BEC2021 Day 1 Speaker

Four Steps to Build a Team That Lasts

Liz Faircloth, The Real Estate InvestHER

Step 1: Map out where you want to go: Determine your short-term (1 year) and long-term (3 and 5 year) goals. Define an overall vision.

Step 2: Take a personal inventory: Spend half a day figuring out everything you bring to the table from a credit (asset and liabilities), time, experience, skills, personality, and leadership perspective.

Step 3. Determine WHO you need to meet your goals and vision: Based on your business model, figure out the major roles you need to fill. Based on what you bring to the table, determine which roles you will fill and which roles you need a team member to fill

Step 4. Find people to gain alignment and diversity: The biggest mistake when building a team is lack of alignment (values, goals, expectations, entrepreneurial spirit) and lack of diversity (personality, risk, tolerance, skill set, experience). Leverage personality assessments to identify hires who complement your skills and gaps, and who are in complete alignment with your value.

Beyond the Pandemic: Adapting Investment Strategies to the New Normal

John Change, Marcus and Millichap

Vaccines are the key to the economic recovery: The amount of money in money market mutual funds and saving deposits are very high. There is the potential for $4.5 trillion to enter the economy once things are “back to normal” after the roll-out of the COVID vaccine.

Job growth and COVID: A record number of jobs were lost as 10 years worth of job growth were wiped out – 22M jobs. About half those jobs have come back. Hotels and restaurants were hit the worst and have yet to recover.

Retail and COVID: Retail was a mixed bag. It took a hit at the onset of the pandemic, hit a high after economic stimulus and has started dropping again. Restaurants, bars, electronic, and apparel sales were hit the hardest while home repairs and internet sales are at an all-time high.

Huge GDP growth forecasts: GDP is forecasted to grow between 5% and as high as 7.5% in 2021, which would be a 30+ year high.

Top myths of the pandemic

  • Huge wave of evictions are coming: rent collections are down YoY but are much better than expected due to economic stimulus
  • Widespread distress will spark significant discounting: distressed sales are 1% of total transactions, and delinquencies are well below distressed market levels
  • The retail apocalypses: rent collections on retail have surpassed expectations and are being dragged down by entertainment, restaurants, and health centers

2021 Trends

  • Class B and C multifamily: due to record levels of construction, Class A vacancy is increasing while Class B and C vacancy is at record lows
  • Self-storage: occupancy hit all time high Q3 of 2020


Seven Lessons Learned With $2.8 Billion of Real Estate During COVID

Jillian Helman, RealtyMogul

Lesson #1. Play defense before an economic crisis, not during a crisis: Three things to do during economic expansion to prepare for economic recessions: underwrite well and don’t do deals that don’t met your underwriting criteria; have a strong property management team in place; have open conversations with your lenders to ensure they will pick up your call during a recession.

Lesson #2. The proforma is always wrong: When creating your proforma for a new opportunity, have a minimum contingency budget of at least 10%, scale back the number of units you expect to renovate and lease, assume an exit cap rate that is 1% greater than cap rate at purchase, and increase vacancy and bad debt to stress test.

Lesson #3. Take a breath and be deliberate: Jillian’s top priorities are the health and safety of residents and team, keeping occupancy up, and shoring up cash reserves. This involved taking a deep breathe and deliberating to determine how to best focus on these priorities. She decided to halt renovations, rent increases, and all nonessential repairs.

Lesson #4. Don’t be afraid to innovate: For example, Jillian began using virtual, self-guided tours.

Lesson #5. Do experiments and test the market: In the example above where Jillian experimented with virtual tours, the conversion rate was higher than in-person tours with a leasing agent. Since the experiment works, she doubled down.

Lesson #6. Be a stellar communicator: Provide detailed monthly updates to investors, communicate what you are proactively doing, and be available and receptive to investors.

Lesson #7. Take a position: During COVID, this started by overcoming fear. Then, Jillian took an offensive position, assumed the world wasn’t ending, that the world would recover, and that data supported that investing still made sense.

What makes her afraid?

  • Silicon valley tenants/master leases with no credit quality a la We Work
  • Office with significant roll over (exception if the cash flow is strong enough to return full principal prior to roll over)
  • Retail unless it is main-and-main
  • Hospitality in all markets
  • Impact of insurance costs rising in markets like Florida and Texas
  • Modeling a refinance with Fannie Freddie debt less than a 4.5% to 5% all-in rate
  • Sitting in cash when inflation starts to rise

Where does she see opportunity?

  • Well-occupied apartments with reasonable bad debt financed with long-term fixed rate debt
  • New construction in growth markets with a late 2022/2033+ delivery
  • Growth markets – Austin, Dallas, Denver, Raleigh, Charlotte, Columbus, Phoenix, Jacksonville, Salt Lake City, Nashville
  • Office with long term credit tenants and a functional need to be in an office
  • NNN with great tenants
  • Retail at main-and-main trading at a discount
  • Not yet, but NYC, LA, Miami in 2022/2033


How to Bulletproof Your Mind for Extraordinary Real Estate Success in 2021

Trevor McGregor, Trevor McGregor International

Your mind is like a fertile garden. Whatever you plant, the soil will return, and your thoughts are the seeds. Plant positive powerful thoughts. To avoid too many weeks growing, you must stand guard at the door of your mind.

The two things that happen during the prime years of your life: The prime years of your life are between 25 to 65 years old. This is when you have the most opportunity as well as when the most regrets are formed.

TFEMAR: a thought turns into a feeling; feeling into an emotion; emotion into motivation; motivation to take an action; the action has a result. Therefore, your thoughts equals your results.

The 4S Success Formula: To be successful, you need to be in the right state, have the right story, the right strategy, and the right stands. Your state is your physiology, focus, and language. Your story is your identity – you are either a victim or a victor. Your strategy should be based on a character trait integration – what would so-and-so successful person do?

2021 Forecast for Apartment Investing

Brad Sumrok, Apartment Investor Mastery

2020 performance highlights

  • 2020 ended up a pretty darn good year for apartments
  • Lost 22M jobs and now down 10M – correlated with apartments
  • Occupancy dropped 60bps
  • Rents went down only 1%
  • Price per door went up and cap rates went down, so investors ‘net worth went up by owning deals

Jobs and population growth are the top two economic factors that make multifamily tick: Migration growth is important but the market must also be landlord and business friendly

Sumrok process for double digit returns

  • 1st investment is specialized education
  • Define why, SMART goals, investment criteria
  • Stabilized and value-add
  • Select the right market
  • Leverage OPE, OPT, OPM (including syndication)
  • >60 units for economic of scale
  • C and B class
  • Be dynamic (i.e., now A Class in recessed markets)
  • Exponential and expansive mindset

How to select the right target market

  • Landlord and business friendly
  • Above average cap rates
  • Above average job growth
  • Above average pop growth
  • Above average affordability gap: rent of median apartment unit < PITI of median SFR
  • Understanding local “markets” and cycles: boots on the ground
  • =highest returns and lower risk

2021 Forecast

  • 3,695,100 new jobs up 2.6% and 2.9% in 2022
  • Job growth strongest in white collar (Class A)
  • Occupancy down 40bps due to new supply
  • Rents up 1% in 2021 and 4.1% in 2022
  • Construction up 14.5%
  • Top 2021 markets: Atlanta, DFW, Austin, Houston, Tampa, Jacksonville, Phoenix, Columbus, Denver, CO Springs, NC, Nashville, Knoxville, Indianapolis

In one year from now, if you waited, you will regret it.

How to Write Off Almost Anything

Karlton Dennis, Karla Dennis and Associates

The two kinds of tax payers you don’t want to be

  • Ultra-aggressive: don’t know how to leverage tax codes but goal is pay least amount of taxes as possible
  • Ultra conservative: don’t want to take any of the deductions they qualify for and are afraid to reduce taxes because they’ve been living in fear (listening to info online, news, past CPAs, etc.)

Four simple steps to following the tax code

  • You must have a business: run your business like a business, have a time investment in a business, have a mentor or coach, have a business and strategy
  • Your business expenses must have a business purpose: there is not a list in IRS handbook that says what you can and cannot write off. If it is ordinary, necessary, reasonable in pursuit of income, it can be deducted
  • Proof of payments: keeping copy of receipts is important because it is documentation of exactly what you spend your money on – what is business and what is not business. Take pictures of your receipts
  • Expenses properly reported: If you are trying to do tax planning on your own, you will fail.

Most common tax nuances

  • Not keeping property receipts
  • Recording keeping is muddled
  • Miscategorized expenses
  • Late on bookkeeping

How the wealthy stay in the 0% to 15% tax bracket: organization and a strategic tax plan.

Passive Investor Tips for Investing in Multifamily Syndications

Travis Watts, Ashcroft Capital

What is financial freedom? When your passive income exceeds your lifestyle expenses.

What is the right investment criteria? There is no right or wrong investment criteria. What matters are your goals and your risk tolerance.

Difference between passive and active investing

  • Passive: Lacks time, enjoys reading financial news, likes to own a little bit of a lot, seeks to match not beat the stock market
  • Active: Enjoys the business of real estate, may not value diversification as top priority, seeks to control investments, has an advantage of competition, seeks to beat the market
  • Active is hands on, passive is hands off

2021’s Place in the Housing Cycle

John Burns, Burns Real Estate Consulting

High demand: 

  • Consumers made $1.03T more than usual last year due to government stimulus 
  • Consumers spend $535B less than usually last year, despite spending more on goods
  • Consumers saved an additional $1.6T in 2020 compared to 2020
  • Most homeowners and potential new home buyers are far better off financially today than a year ago
  • Google search has risen 56% for new homes, 9% for new homes
  • Millions of workers no longer need to commute

Low supply: 

  • Home listings are down over 40% YoY
  • New supply has fallen – 10% fewer communities to sell from YoY
  • Unsold new homes dropped 69% YoY

High demand + low supply = 2021 housing boom: John says we are clearly in an upcycle.

Unlocking the Fund of Funds Model

Hunter Thompson, Asym Capital

Traditional real estate partnership: Capital partner and operating partner form management LLC that purchases real estate

Co-GP model: multiple capital partners and operating partner form management LLC that purchases RE – SEC doesn’t like, especially with increasing number of capital partners

SPV/Fund of Funds:

  • SPV: special purpose vehicle
  • Considered a pass through entity
  • Doesn’t mean there are multiple assets
  • A bunch of investors invest in a SPV, there is a manager of the SPV (placement agent) who invests with another operator

Why would anyone invest through an SPV instead of investing directly with an operator?

  • Your clients desire your expertise
  • Gives them access to otherwise unavailable operators: high minimum investment
  • The dream clients you have attracted have picked you to rely on
  • Provides investors an opportunity to defer to your due diligence
  • Most investors are not like you 
  • The economies of scale are not necessarily less favorable

Preferential treatment of SPVs

  • Operators prefer to focus on implementing the business plan not investor relations/fund administration
  • You can leverage what you are bring to the table as a negotiation tool to receive preferential economic treatment
  • Many operators are willing to forego some of the economies in order to receive larger checks

Three Things it Takes to Make the Inc 5000

Defining your culture: Start with your why. why do you do what you do? Why do you go to work in the morning? Then, transcribe your why into a one or two sentence mission statement to inspire you and your team to show up.

Next is to know where you are going and what the end state looks like. This is your vision – what does success look like to you.

Third is to define your values. These are the behaviors you want to see in your organization.

Last is to avoid the say-do gap. Be care that you don’t say one thing and do another, because then your culture isn’t believable.

Developing your plan: Understand what you are going before you do it, but set a time limit. A good rule of thumb is to understand and education yourself for 90 days, develop a plan for 90 days, then go out and take action.

A good strategic plan includes three goals, three to five objectives, and multiple key results over a three year period.

Assemble your team: First, understand your strengths and weaknesses. This is best accomplished by asking your friends, and especially your spouse. Then, find people who fulfill your weaknesses.

When hiring people, focus on their character more than their competencies. You can teach competencies but you cannot teach character. Then, focus on experience but understand their track record to ensure they were successful because of skill and not luck.

Why Consider Industrial: The Case for Industrial Syndications

Monick Halm, Real Estate Investor Goddess

What is industrial real estate: all land and buildings which accommodate industrial activities

Why consider industrial real estate

    • Escape the feeding frenzy that exists in other asset classes
    • Diversify your portfolio
    • Long-term NNN leases with excellent tenants
    • Increasing demand by companies (especially e-commerce)
    • Strongest performing asset class throughout the pandemic

What is the current state of the market for industrial real estate:

  • Industrial spaces are being used by essential businesses –
  • Industrial has been the strong asset class during the COVID pandemic
  • Rents are going up and occupancy is going up

Institutional Capital Demystified

Lance Pederson, Verivest

Having a fund is a more efficient way to capitalize.

Being an operator is like owning a trucking company and having to own a refinery create your own fuel. 

Institutional capital is the equivalent of owning a job

There’s a reason why you’re seeing sponsors with 30+ year track records raising capital on crowdfunding websites because the cost of capital is much cheaper

Create Class A and Class B shares to attract HNWI, SPVs, institutional investors, etc.

Institutional readiness checklist

    • Conviction/differentiated strategy
    • Polished online presence
    • Pitch deck/executive summary
    • Due diligence questionnaire
    • Verified track record
    • Investor references
    • Secure data room
    • Quarterly reporting

If you focus on building your HNWI base, the rest well come.

Five Evolutionary Ideas for Your Business

Joe Fairless, Ashcroft Capital

Protect against biggest liability you’re currently not paying enough attention to: For 99% of syndicators, compliance. Most securities attorneys are really good at answering the questions you ask, but your are still at risk when you aren’t asking the right questions. The solution is to hire a an in-house compliance team member and acquire the proper insurance.

Bring the best out of your team: create a single KPI for each team member or a one sentence description of what their roles is so they know exactly what is expected of them and to motivate them to exceed their KPI for a bonus.

Enjoy better deal flow, deliver better returns, and create more sanity: create a fund instead of single asset purchases. It increases deal flow because you can be more flexible with the types of assets you target. It generates better returns because you can commingle capital within a fund, so there is less ideal capital.

Get better results on your thought leadership platform and in your commercial real estate business: Once your thought leadership platform matures, transition it to other people. They can focus on growing the brand and you can focus on growing the investing business.

The success paradox: The more successful you become in business, the less likely you will receive constructive criticism from your team members. The solution is to find three people in your circle who will provide you with honest feedback. Also, identify an event that didn’t go according to plan and think about how you were responsible for it taking place.

Intellectual Debate: Interest Rates Will Be Higher in 24 Months

Hunter Thompson, Asym Capital; Neal Bawa, Grocapitus Investments; John Chang, Marcus and Millichap; Ryan Smith, Elevation Capital Group

Winner – Interest rates will not be higher in 24 months

  • The question shouldn’t be, “will interest rates be higher,” the question is “how low will interest rates go and when will they go negative?” Hunter says many industrials countries already have zero and negative interest rates.
  • Japan is the new mode: in response to an 80% drop in their stock and real estate markets, they decided to print money to halt unemployment. This money printing will not end in the foreseeable future, and is being mimicked by other industrialized countries. Therefore, rising interest rates would blog up the global economy
  • The trend is your friend and don’t fight the Fed. The trend has been down and to the right for more than 40 years. Fed said they will keep the funds rate at 0% through 2024

Losers – Interest rates will be higher in 24 months

  • There isn’t evidence that the Fed will continue lowering interest rates. The prediction is based on the desire of real estate investors to see lower interest rates
  • Fed will rise interest rates to control inflation: $5 trillion in stimulus money was injected into the economy, increasing the money supply to an all-time high. GDP is forecasted to grow between 5% and 7%, which means inflation.
  • Fed always rises interest rates after recessions
  • Fed sees pandemic as a short-term risk, which means the Fed has changed its position

State of Multifamily Market: Apartments in the Age of COVID

Robert Calhoun, CoStar

The spring leasing season wasn’t lost: It was just pushed back later into the year. We lost 61k units in demand between March and June 2020 and gained 69k units in demand between July to November.

Demand in the suburbs are strong while multifamily continues to underperform in downtown areas

  • One bed rent: drop overall at onset but suburban bounced back while downtown dropped significantly 
  • NYC rents by commute time: 12% increase in rents in areas with 51 to 60 minute commute times, 9% reduction in rents for areas with commute times less than 10 minute
  • Densely populated metro areas had really bad net absorption
  • Change in asking rent from March to Dec: Downtown markets top list of markets with greatest decrease and suburban markets top list of markets with greatest decreases
  • 2021 YTD rent change: mix of downtown and suburban areas with increases in rents
  • Concessions: nearly triple for downtown and only slightly higher for the suburbs
  • Availability rate: spiked nationally, getting better which was driven by suburbs. Rates were massively elevated in downtown areas but improved quickly
  • Rent trends by unit type: two-bed are in more demand than one-bed, underperformance of studios
  • Starts and under construction: massive supply wave over last five years but constructions have rolled over in 2020 especially starts
  • Under construction by star rating: vast majority are high end expensive properties largely in downtown areas, lack of supply of affordable housing
  • Rents by star rating: 3 star rents returns to normal seasonal patterns while 4 and 5 star has underperformed
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My 5 Takeaways from BEC2021 Day 2

The Top 10 Things to Ask Before Investing

Ryan Gibson, Spartan Investment Group

Your interview with the operator

  • Ask open ended questions: When interviewing operators, see if they are interested in what you have to say
  • Write down notes
  • Keep a log of operator Q&A
  • Portfolio projects
  • Referrals
  • Property location

Are they an operator or syndicator? Determine what role the company plays. How are they compensated, how are they aligned with you? Are they aligned with the success of the project?

Tell me about a deal gone bad? This is Ryan’s favorite question. Having no deals that have gone bad indicates low experience or a lie while having deals that have gone bad helps you judge the grit of the syndicator. 

What is their mission, vision, and values? Does their mission, vision, values, align with yours? Ask them to give an example of how they’ve used their values recently.

Who is on the team? Are they a one-man band or do they have a deep bench? Are they vertically integrated? Are they using the fees they charge to hire a great team or to pay themselves?

What is their core business model? Selling education? Working elsewhere? Focused on deals? Gurus?

What is your investor communication plan? Ask for last three communications to get a better understanding of their communication style. Is the plan in writing? Can you verify property performance against projections?

What is the performance of their portfolio?

  • Historical performance (proforma vs actual): comparison is more important than absolute return since it gives you the right context
  • Was it project level IRR or investor IRR: total project may look better than investor level
  • Consistent metrics: Ryan likes to use equity multiple and how long it took gives true time tested return, IRR might be misleading or not the best metric

Obtain reference and conduct a background check

  • Don’t ask for a reference, find your own, because no one gives bad references
  • Find others that have invested in the company
  • BBB, Google reviews, 506 Group, etc. – search for the company name and name of the principles


  • Does SEC attorney provide E&O insurance to cover for lawsuits
  • What exclusions are included on their title insurance?
  • Is there property insurance at least from an A rated Carrier?

Decision to exit

  • What would make an operator exit early? What is their justification for selling?
  • Have they sold early in the past? How many time and, how did the actual returns compare to projections?
  • How do they brief investors?


The Devastating Impact of Climate Change on Your Real Estate Investments in the Next 10 Years

Neal Bawa, Grocapitus

Impact of climate change in 2020 and questions to think about

  • 2020 had $95B in damage from climate disasters
  • What will happen to your investments when taxes increase to pay for massive sea walls?
  • Where will the money come from to fix Texas’s power grid?
  • In California, the six greatest wildfires happened in 2020, and will double in five years. How will this impact California cap rates?
  • Cities with sea level rise exposure are already priced at a 7% discount

Many climate risks may become uninsurable: Insurance companies are starting to buy climate data from Moody’s and creating city-by-city insurance plans.

Climate data is being used to downgrade entire cities: When a city is downgraded, their ability to borrow goes down, making it harder to fund re-construction projects. As a result, people move out, and it continues to spiral.

The end of the 30-year mortgage: Full cities may change to 20 year or 15 year mortgages options

The cities with no climate risk will be the next gold rush.

Overall, the people who set ratings, cap rates, insurance rates, mortgage terms, as well as cities are taking climate risk into account, and so should you.

How to Automatically Get More Passive Investors

Michael Blank, Nighthawk Equity

Create a lead magnet: When someone downloads a lead magnet, they get tagged in system as “downloaded”, and put on email list to receive educational emails

Join the club: After downloading the lead magnet, they are invited to fill out a detailed questionnaire, and get tagged as “joined”.

Schedule a call: Included is the option to schedule a call after filling out the questionnaire. After the call, they get tagged as “deal ready” and are now prepared to receive upcoming opportunities

Follow up automation: Automatically send follow-up emails to people tagged with “downloaded” and “joined” until they move forward in the process and set up a phone call or unsubscribe.

How to Create a Social Media Content Engine

David Toupin, Obsidian Capital & Real Estate Lab

Create lots of content one or two times per month: Either by yourself of hire a videographer for one or two sessions each month, and upload all the content to a DropBox folder

Hire an editor to create a content database: use month’s worth of content to create longer videos, shorter videos, and pictures with caption. The goal is to create at least 10 social media posts per one hour of video content

Hire a content manager: the content manager will use the content database to compile one month’s worth of social media posts.

Determine what the focus of your content is going to be: All posts should be directed towards achieving your end goal

You will approve the posts: Once the content manager has compiled a month’s worth of posts, you review and approve

Schedule the posts: After you’ve approved the posts, the content manger schedules them throughout the next month.

Rinse and repeat

When to Bring Property Management In-House

Frank Roessler, Ashcroft Capital

Day 1: Pros and cons


  • zero disruption
  • small overhead: won’t have to build out an entire organization, which is expensive and time consuming 
  • reduced upfront costs: offices and employee benefits


  • no best practices: you will be learning on the job at the detriment of the first few properties
  • starting at a loss: one property will not cover cost of managing the property, won’t breakeven until you have a couple thousand units 
  • no industry top talent: don’t have a track record to attract best of the best

When you have scale: Pros and cons


  • Ability to attract top talent: people were eager to jump ship and provide a business plan
  • Starting with a profit margin: breakeven or make a little bit of money
  • Best practices: because you have the top talent


  • Major disruption: terminating contracts, providing notice, transition process, a million moving parts
  • Significant startup costs: hiring a full team before you even have revenue
  • Relationships can be hurt
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Webinar Recap: Looking to Note Investing in the Global Health Crisis

The performance of real estate notes was a bellwether for the economy in the last recession, so in this Best Ever Webinar we explored the performance of 1st position and 2nd position notes, how the market has been affected by COVID, and what the data indicates about the real estate market at large.

As a servicer of tens of thousands of first position notes, Jorge Newbery pointed to the $4MM loans currently in forbearance, which are on the precipice of foreclosure after government intervention comes to an end.

The counterargument speared by Kathleen Kramer was that the $4MM homes don’t represent the volume of homes in trouble, but in part those taking advantage of the situation. She also pointed to all-time highs in homeowners equity relative to average debt amounts and record low interest rates that could allow troubled homeowners to be bailed out by refinances.

Jim Maffucio added that we see the unemployment rate dropping and average HHI of homeowners being significantly higher than the last recession where subprime mortgages were provided to low wage earners.

Regardless, all agreed that the amount of unpredictability in the future has returned to normal along with pricing for notes, suggesting that for the time being the market has an optimistic outlook on the future of residential real estate.

What the future holds for commercial notes is a larger question with retail and hotels going to double digit CMBS special servicing rates. Will there be opportunity to buy distressed office notes? Whispers of the opportunity are just beginning and it could be too early to see what the future holds.

Watch the on-demand playback of this webinar and past webinars on our conference platform NOW! Our networking has started for this year’s Best Ever Conference, don’t miss out! Use code WINNERS30 for 30% off your ticket here.

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Beyond the Comfort Zone

Stephane Rochet shares how making a plan for success also means creating a plan to push your own boundaries

In the early 2000s, Stephane Rochet worked as a police officer in his community. During his shifts and interactions with his fellow officers, he noticed many of them were often discussing their real estate investments and what was happening in the world of “alternate investments.” After leaving the police force in 2007, he still recalls that environment as the place where he first learned about the potential of real estate investing.

“It was just a realization that the traditional stocks, bonds, put money into your 401(k) and hope for the best, wasn’t working for me,” remembers Stephane. “So, I started to look for other alternatives, and that’s where it started me [into real estate investing], and then the journey continues.”

Stephane moved with his wife and two children to San Diego, California, to pursue a career in the field of athletic performance, specifically around the strength and conditioning of athletes. He also started investing in single-family houses, kickstarting what would become a very active interest in multifamily syndication and the alternate investments he used to hear so much about.

To grow, Stephane began to seek networking opportunities to build relationships and connections with like-minded investors. After several lackluster experiences with local meetups, Stephane realized that the Best Ever Conference presented serious options for personal growth and learning opportunities.

“I made three simple goals. I’m a little bit of an introvert, so going to this, I said, ‘Hey, look, you have to get out of your comfort zone and meet people.’ There were a few people that I had met with or talk to, or emailed or Facebooked before going, and I said, “Well when I’m there, I’m going to actually meet them in person and talk to them.” remembers Stephane. “I had a list of about four names of people who I had contacted previously, had been in touch with, and I sought them out, met them, we had discussions, and they introduced me to other people.”

Meeting people beyond Stephane’s known network was the ultimate goal. He found it easy to achieve, given the conference’s tools, to connect with attendees and plan your experience before arriving on-site.

“I was just determined to meet five new people every day, and that was easy because you had presenters. You’d go sit in a room with presenters, and you just talked to the people beside you while you’re waiting,” said Stephane. “Because I’m new and learning, I wanted to make sure to take advantage of the presenters that were there, so I looked at the schedule beforehand and set out my schedule and made sure I got to see all the presenters that I was interested in.”

As with most conferences, the real test is what you’re able to do with the knowledge you gained once you arrived home. For Stephane, it was not only useful but remained to be empowering on his real estate journey.

“I don’t know if I really realized it until I was on the flight home, but I just felt really excited and a lot more confidence that A, we could do this thing, B, we were on the right track, and C, you didn’t need to be, especially gifted,” said Stephane. “I mean, obviously, you have to get the knowledge, and you have to have some skills, but there were so many regular people just like me out there that were plugging away and doing the same thing.”

In the landscape of COVID-19, Stephane believes that the environment of meaningful relationships and networking comes slightly more complicated. However, not all things have to get harder. In fact, it’s Stephane’s philosophy on real estate investing as a whole that truly relies on keeping things simple.

“It’s so easy to get into the weeds, but an investor doesn’t really care about that, especially on the first call or anything,” said Stephane. “Just remember to keep it a simple, broad picture, and explain things in a way that people can just grasp it and understand why it’s a good investment or why it’s a good path to follow.”

This year at the Best Ever Conference, taking place February 18-20th, there is a full day dedicated to networking. Start networking now and use code WINNERS30 for 30% off your ticket! Register here.

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Networking in 2021

As any real estate investing pro can attest, networking is an irreplaceable factor in the success of active and passive investors. In a world catapulted into the virtual space during 2020, many investors have struggled to find how to network impactfully.

With meet-up groups delayed and in-person meetings on hold, the virtual space is now the only space to network. While many are postponing conferences, some are taking advantage of the opportunity to join in on virtual networking from right where they are.

A previous conference attendee said, “This is the lowest barrier to entry because you don’t have to leave your living room. You don’t have to buy a plane ticket. So if you’re thinking about going, you really don’t have an excuse.”

The goal of our virtual Best Ever Conference is to provide maximum value to each attendee in both insights and networking opportunities. The conference is filled with speakers and content focused on our audience’s curated needs and interests. We have a whole day set aside for networking and we strongly encourage you to take advantage of our exceptional platform that makes virtual networking easy. Some of the ways you can connect:

• Set 1-on-1 Meetings with Other Attendees
• Join Q&A Rooms for the Latest Topics
• Enter the Networking Lounge with Custom Table Topics
• Speed Networking to Make as Many Connections as Possible
• Playback Any Keynote Speaker on Demand

Our platform is open to attendees NOW. Start your networking. Use code WINNERS30 for 30% off your ticket! Register here.

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To Create Something Meaningful

How artist-at-heart Marc Cortez evolved his technology and media business success into a passive investment career

Creativity and connection fueled the early stages of Marc Cortez’s career. He thrived in competitive, start-up environments where the stakes were high, but the growth opportunities were endless. After building thriving social presences for some of the world’s biggest brands, Marc evolved his business savvy into advising budding entrepreneurs to raise capital and develop their business plans. It didn’t take Marc long to start formulating business plans of his very own.

Almost ten years and several successful ventures later, Marc finds himself exclusively in the investor seat at his firm Cortez Holdings Group. The creation of this investment group was made possible by the successes achieved in his earlier career.

“I’m an artist at heart, but my passion for real estate was inspired by the freedom I can create in my life,” said Marc. “Professionally, I spent the last ten years in tech and media turning big wins into passive investments by way of syndications. I’m consistently pursuing ways to grow my portfolio and increase my cash flow.”

Growing his portfolio and increasing cash flow has been significantly impacted through attending conferences like the Best Ever Conference. A long-time attendee, Marc began attending as a volunteer to help a friend. What started as a simple act of friendship turned into a consistent presence each year, where Marc now ushers VIP guests throughout the event.

Beyond simply attending the event, Marc’s most memorable takeaway is essential for investors of all skill levels to keep in mind.

“Make one really good friend. It’s easy to run around dropping ‘cards’ off and playing the quantity over quality game. But one incredible connection can open up an entire world,” said Marc. “I’ve seen deals and business partnerships sprout and excel from these relationships. So build a healthy connection with at least one person and be amazed at the future potential.”

Personal connections have changed the way that Marc views his personal investments, finding that the personal element often helps propel deals far faster than they would otherwise go.

“Discussing a potential sponsor with people in the same sphere or community also helps with diligence. It’s easier to get a recommendation or review,” shared Marc.

Understanding another key component of relationships is critical in bringing value to investments: how people handle adversity.

“I have a longstanding relationship with the partners [at an investment group], and I trust that my best interest as an investor is a priority, but even more so that a great relationship is a priority,” said Marc. “I can recall countless examples of how they’ve supported me inside the investment and out.”

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Living Life Fully

Dave Allred discusses what it looks like to define a path for success while making the most of each moment along the way

Discussing finances was something that wasn’t done in Dave Allred’s family growing up. Having never had those critical conversations around money or money management, Dave realized in his early adult life that he wanted more for himself around financial understanding and financial freedom.

At age 21, he committed to becoming a lifelong student of finances and investing. While he actively continues pursuing knowledge and personal development today, he credits much of his success, both personally and professionally, to that commitment very early in his life.

“I think it’s really important in our personal development is that we’re always teachable and coachable,” shared Dave. “That’s just been a guiding principle of mine is to always be a lifelong student. Not only in finances but also in real estate, personal development with my own family.”

While networking may be a topic that can make some uncomfortable, Dave rethinks networking as truly prioritizing relationships. It’s authenticity and relevancy that distinguishes the development of relationships from mere networking, which Dave believes can often come across as “gimmicky” or forced in certain situations.

“I feel like relationships are the new currency in business. My best deals, the business that I’m most proud of, has actually been with my friends, with my network,” shared Dave. “They’re people that I trust and that we have similar interests; we’re on the same mission in life.”

Relationship building has never been more critical than in our current environment, where how those relationships are built has had to be rethought due to the ongoing COVID-19 pandemic. While conferences like Best Ever Conference are transitioning to a virtual platform to foster a sense of community and connection, Dave believes that meaningful relationships can continue to form beyond these virtual events.

“The power of social media and staying connected through Facebook groups, my Instagram page allows me to put a lot of content out there just to keep adding value for others. I follow on Instagram a lot of the people that I really respect,” said Dave. “While that’s not as personal as meeting in-person or on a call, I feel like we can still stay very connected, know what we’re working on, what we’re up to. I’m inspired by a lot of others in the space through social media. It’s a very powerful tool to be able to still communicate, add value for each other, and really collaborate.

Beyond a continuous drive to learn also lives a desire to document and measure success. Dave spent a significant amount of time creating his “lifestyle design”, or what he calls a blueprint for his own life. By documenting his core values, mission statement, non-negotiables, and more, he could use those as a foundation to build financial success on top.

“People overestimate what they can accomplish in one year, but they underestimate what they can accomplish in three to five years. I found that to be true over and over,” said Dave. “If we can get clear on what we really want in the long-term and have the right habits and behavior then we can actually accomplish amazing, significant things, but it takes time.”

Start your networking today at the Best Ever Conference, taking place February 18-20th. Use code WINNERS30 for 30% off your ticket! Register here.

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The Art of Doing

Rob Withers explains how the world around him inspires his philosophy behind real estate

Born and raised in Arizona, Rob Withers moved to Colorado for college and found his home. He spent a large bulk of his life fully engrossed in all the outdoor activities that Colorado has to offer. From mountain biking to hiking to skiing, Rob took advantage of being outdoors whenever he could. The only time that seemed not to be possible was when he worked as a technology consultant for more than 25 years but discovered real estate investing on the side.

Only a few years out of college in the 1990s, Rob invested in several single-family rental homes in Arizona and Colorado. The time commitment of his family and a full-time job at a multinational consulting firm kept him from fully investing his time to learn what was necessary to attain true success and the desired returns on his investments. Leaving the investing world feeling discouraged, another opportunity presented itself that changed how Rob invested both then and for his foreseeable future.

“Around 2010, a good friend of mine who was a realtor said to me, “Lakewood Housing Authority is selling off all this inventory, duplexes, single-family homes. The income’s great. You should really look at this. I know you dabbled in real estate a while ago.” And he had the contract to sell off 40 or 50 doors,” remembered Rob. “And so at the time I bought three duplexes, and the math was totally different than it was in the ’90s. Since then, I expanded buying more rentals and developed a partnership with a builder to build single-family homes and duplexes in Denver.”

The transition from single-family properties to duplexes opened Rob’s eyes to the multifamily syndication model. Rob bought and sold a 64 unit multi-family property in 2019. Over the last few years, he’s been transitioning more of his time, energy, and financial resources to diversify his investment portfolio and develop relationships in the real estate investing community.

Attending conferences like the Best Ever Conference in 2019 was an easy decision for Rob to make, given his close geographical proximity to Keystone. He was also inspired to lean into his desire to learn and do more within real estate.

“I was impressed with the quality of the people at the conference. Many have had successful careers and are learning the business” said Rob. “But then there are others that are a little bit more mature and have been around the block a bit longer but are still very approachable and still willing to discuss deals. I feel like I learned a lot and met great people.”

When thinking about the impact of what COVID-19 has on the reality of networking in 2021, Rob believes there are definite impacts for new relationship building, especially if real estate investing is not your primary occupation.

“For me personally, I still feel like there’s so much more I could do on the real estate side, simply around networking if I didn’t have the challenge of 40 to 50 hour a week job. So that does impact me,” reflects Rob. “But there are certainly tools that can help; I think a key for a conference where there’s a larger group setting is to create a form of engagement where there can be joint participation.”

This year at the Best Ever Conference, taking place February 18-20th, there is a full day dedicated to networking. Start networking now and use code WINNERS30 for 30% off your ticket! Register here.

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Eyes on the Skies

Lifelong pilot Tait Duryea shares how his passion for real estate soared after the Best Ever Conference experience.

An active lifestyle was always in the cards for Tait Duryea. Alongside his avid love of flying, Tait had always been intrigued by real estate investing. Not long after he started his career as a pilot, he purchased his first rental property in Las Vegas, Nevada at the age of 24.

“It was just a single-family house in Las Vegas. I put a property manager between me and the tenants, so they wouldn’t know how young I was,” remembered Tait. From that single-family home onward, he fell in and out of real estate investments without a particular strategy. Being newer to real estate, he discovered the Best Ever Conference taking place in Denver in 2019 and decided to take part.

“The catalyst for getting me more active with [real estate] was Best Ever Conference. It was the first conference that I had ever attended and it just catapulted my career from being someone who was new to the ropes from reading books and listening to podcasts, to being someone who did real estate and had a real estate network, because it’s all about relationships,” said Tait. “It launched my true real estate investing career, got me out of single-family [investments] and into commercial and syndication.”

Passive investments, like multi-family syndication, weren’t something that Tait was even aware existed prior to the Best Ever Conference. During the event in 2019, a mock debate whether active or passive investing was better took place, prompting some new thinking.

To many, the concept of networking can seem artificial, forced, or even trite. However, relationship building proved to be an essential element that Tait took from the Best Ever Conference, retaining relationships forged over that weekend into his real estate transactions today. The absolute, exponential power of relationships in the real estate investing business is something that Tait believes is worth experiencing and contributing to.

“Just having a network of like-minded real estate investors who you know personally and that your friends with is rocket fuel,” said Tait. “And unless you’ve been to a conference and you start talking with other people who are doing things like you are and have ideas and contacts and people that can help in what you’re trying to do, it’ll change your investing career.”

Attending the Best Ever Conference ultimately changed how Tait invested, shifting 50% of his investment portfolio into finding, vetting, and investing in limited partnership syndication deals instead of all active investments in single and multi-family homes.

Tait believes there’s never been a better year to try it out.

“This is the lowest barrier to entry because you don’t have to leave your living room,” said Tait. “You don’t have to buy a plane ticket. So if you’re thinking about going, you really don’t have an excuse.”

Start your networking today at the Best Ever Conference, taking place February 18-20th. Use code WINNERS30 for 30% off your ticket! Register here.

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WEBINAR: Looking to Note Investing in the Global Health Crisis

TOPIC: Looking to Note Investing in the Global Health Crisis

When a recession hits the commercial real estate market, an under the radar asset class flourishes while the rest flounders. Distressed notes are derivatives of real estate ownership that express a low-risk alternative to real estate, often highly discounted. Join us to hear how experts in the space have been deploying multiple strategies to produce stellar ROI even during the toughest of times.

TIME: Feb 11, 2021 [02:00] PM in Eastern Time (US and Canada)



Featured Panel:

Jorge Newbery

Founder & CEO preREO & AHP Servicing

With over 30 years of experience in distressed asset management, community development, and borrower advocacy, Jorge founded preREO with the goal of bringing stability to neighborhoods challenged by the blight of vacant homes. He is driven to empower local small business partners to revitalize and improve their communities while creating investment opportunities for themselves. Throughout his career, Jorge has utilized optimism and resiliency to find opportunity in adversity and he has a proven record of developing innovative solutions that can be mutually beneficial for lenders, borrowers, and communities alike. He founded American Homeowner Preservation, the country’s first crowdfunded distressed mortgage investment platform; AHP Servicing, a nationwide mortgage servicer; and Activist Legal, a law firm facilitating default legal services nationwide. He also authored Burn Zones, sharing lessons learned through his challenges and successes as an entrepreneur.


James Maffuccio

Co Founder and Chief Investment Officer Aspen Funds

Mr. Maffuccio is a 30-year real estate veteran and an expert in mortgage notes. He is deeply networked in the secondary mortgage industry and is responsible for acquisitions and underwriting as well as relationships with primary sources and key vendors. During his real estate career, Mr. Maffuccio developed, and/or rehabbed multiple residential projects in Southern California, including infill subdivisions, affordable homes, luxury homes and homesites, multifamily, and planned developments, such as the Gold Nugget Award-winning “Traditions” community in Fillmore. Mr. Maffuccio has personally executed and/or managed every aspect of the development process, including site selection

and acquisition, project conceptualization and design, procurement of entitlements and permits, regulatory compliance, entity structuring and capitalization, construction management, marketing, sales, and investor relations.


Kathleen Kramer

Real Estate Broker 1 Oak Advisory, LLC

In her 25+ years as a licensed Real Estate Broker and Mortgage Originator, Kathleen Kramer has closed over 2500 transactions for more than a $1 billion in volume. She ran a successful Real Estate club in Huntington Beach from 2002 to 2006. She and her husband, Michael, have personally invested in a variety of real estate backed investments including single family, multi-family, office, land development, reg D syndications and non-performing notes in several states. Investing in real estate gave Kathleen the financial liberty to take a sabbatical from her Real Estate and Mortgage Brokerage business for the last two years. She spent the time rehabbing her house in Huntington Beach, travelling, homeschooling her daughter, caring for the older generation and planning what is ‘next’.


Ben Lapidus

Chief Financial Officer for Spartan Investment Group LLC

Ben Lapidus has has applied his finance and business development skills to construct from scratch a portfolio of over $100M assets under management, build the corporate finance backbone for the organization, and organize over $20M of debt capital from the firm. In addition to completing over 50 real estate transactions at and prior to Spartan, Ben is also the founder and host of the national Best Ever Real Estate Investing Conference and managing partner of Indigo Ownerships LLC.


All previous webinars will be featured on demand during Best Ever Conference on February 18-20th. Use WINNERS30 to get 30% off your ticket here.

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JF2326: Highlights From 401(k)aos by Andy Tanner | Actively Passive Investing Show With Theo Hicks & Travis Watts

Investing in 401(k)aos: Highlights from Andy Tanner’s Book

The 401(k) retirement plan has taken its place alongside Mom and apple pie as a pillar of American wholesomeness. Most private-sector employees invest in a 401(k) where offered, and the public sector has its equivalent accounts. As workers, we learn that contributing to an employer-sponsored retirement account is the best way to fund retirement. Andy Tanner, in his book “401(k)aos”, questions this one-size-fits-all assumption. On this Actively Passive Investing Show podcast, we discuss Andy’s five main points and add our observations on the 401(k)’s potentially chaotic role in lives and markets.

1. 401(k) to the Rescue

To understand why the 401(k) is an agent of chaos, we need to look at its history. Invented in 1978 to help workers fund retirement, the 401(k) plan was meant to supplement other options such as IRAs, pensions, brokerage accounts, and personal savings. Ideally, the average American worker would draw from a diverse financial portfolio in later years. A financial strategy could include commercial investing and active investing in providing retirement income streams.

Fast forward to today, and many people rely on their 401(k) as their primary retirement strategy. They expect this account, along with social security and homeownership, to support them throughout retirement. In reality, most people won’t have nearly enough saved to cover their expenses. According to Andy, relying on the 401(k) has created a tragic and chaotic situation. He echoes the original architect Ted Benna in asserting that it was never intended as a primary retirement account.

Another aspect to consider is whether your financial goals are congruent with the 401(k)’s purpose. These plans build net worth, not provide cash flow. If you are involved in passive investing or commercial properties, you care about cash flow. Placing significant assets in a 401(k) may not be your best option, as withdrawing cash before retirement age could incur steep taxes.

2. The Peril of Mutual Funds

If you are an active investor, consider the lack of agency you have with a 401(k). These plans rely on mutual funds as investment vehicles. Further, they offer limited choices and stratify them according to risk. The conventional advice is that younger workers can tolerate more risk and should invest in riskier but potentially higher-yield funds. Older workers should invest more conservatively. Plans usually guide employees through a friendly online algorithm designed to help them allocate their contributions according to risk tolerance.

The issue here is with applying the same general investing strategy to all people. This approach also assumes that age primarily determines risk tolerance, irrespective of individual goals and circumstances. If you are an active investor, you know this view is shortsighted.

Andy flags historical mutual fund performance as a risk. Mutual funds generally track the stock market. If the S&P and Dow Jones indexes are down, your account probably is too. Reallocating a 401(k) is cumbersome and tied to specific time windows. You cannot react agilely to a volatile market, and you can’t plan to hedge losses.

The fundamental issue is that mutual funds are part of the Wall Street system and tied to its fortunes. Real estate and other assets can hedge against Wall Street, especially if they focus on people’s basic needs for goods, services, and housing. Retail shopping centers often survive market downturns. Other commercial properties, such as well-managed apartment complexes, usually thrive.

When you manage your own brokerage account, you can set a stop loss against sudden stock price drops. You can create other alerts that help you succeed with active investing. If your 401(k) nosedives, you wait for better days.

Retirement Fund Waiting Game

You may wonder if you need that flexibility in a long-term savings plan. After all, isn’t the 401(k) meant to be the ultimate vehicle for long-term passive investing? Don’t you want to let compounding and historical market trends work their magic? After all, many Americans lack the resources or knowledge to pursue commercial investing.

Let’s think back to the Great Recession. In many cases, the value of conventional retirement plans dropped by 50% or more. People lost half their retirement savings overnight. While the losses were unrealized, they quickly became real to the many people who needed to draw on the money within ten years. Employees approaching retirement did not have time to make up for the losses. Younger workers waited five years or more for their accounts to regain pre-recession value. If you were planning on borrowing against your 401(k) for an imminent home purchase, medical bills, or your children’s college expenses, you were out of luck.

If we look at the math behind the drops, the portfolio performance needed to recover is greater than the loss. If your account plummets by 50%, for example, you have to gain 100% to return to the initial value. In other words, you have to double your money to break even. This is an odd calculus for an investor, particularly when applied to mutual funds.

3. Feeding Wall Street

According to Andy, you should realize that the 401(k) was invented to enrich Wall Street. Though it may offer some advantages to individuals, its purpose is to promote mass participation in the stock market. Wall Street reaps fees and other profits from this vast investor base.

This doesn’t mean a 401(k) has no place in your financial strategy. Just keep in mind that the vehicle was not designed to benefit the individual. The tax situation illustrates this fact. If you want to withdraw from your account before retirement age, you face a stiff tax rate and penalties. To avoid this, you need to take a hands-off approach to that money or leverage the few exceptions, which still tax you at ordinary income rates.

Let’s take a mutual fund purchase as an example. If you buy a fund on your own through a broker, you can hold it for over a year and then sell at a long-term capital gains tax rate. This rate is 15% for most people. If you buy the same fund through your 401(k), hold for more than one year, and then cash out at retirement age, you may pay up to 37% in taxes on ordinary earned income.

Andy asks the question we should all ask ourselves: Do you plan on making more or less money in retirement than you do now? People’s answers vary depending on their goals. If you plan on making more, however, you are likely an investor. Does it make sense to take a 401(k) tax advantage now and pay much more tax later on that money in a higher income bracket? You may want to calculate scenarios in light of your investment strategy.

4. Abdicating Investing Responsibility

Andy points out an insidious side effect of mass reliance on the 401(k). If you trust your sponsored retirement vehicles to secure your future, you may forfeit owning your financial destiny. It becomes too easy to remain ignorant of basic investment and economic principles. Many people don’t learn financial literacy at home or in school. Without an incentive to learn fundamentals, they may pay excessive taxes because they don’t understand the system. Over decades of hard work, they may overlook opportunities and even risk life savings because they abdicated responsibility.

Structurally, the 401(k) reinforces dependence by offering limited investment choices. You typically have a small portfolio of mutual funds at various risk ratings, sometimes only one fund at each risk level. Your company may also offer a stock fund, but consider that you already invest in the firm by working there.

If you invest privately, you can choose from thousands of individual stocks, mutual funds, and other vehicles. You can complement real estate investments such as retail shopping centers or other commercial properties. Crucially, you can enter and exit investments as you need to.

5. Artificial Market Demand

Not only does the 401(k) affect individual financial habits, Andy describes its impact on the market. The millions of Americans regularly contributing to these plans create artificial demand for mutual funds, stocks, and the behemoth infrastructure that supports them. It is hard to cast the situation as a traditional bubble because retirement vehicles are funded so predictably and on a mass scale. We don’t yet know the consequences of this systemized influx.

The Takeaway

When viewed as an asset among several in your portfolio, the 401(k) offers some advantages. Often you can take out a loan against your vested balance. If your employer matches your contribution up to a certain percentage, you’re receiving free money. Before contributing above the match amount, consider weighing your particular situation’s pros and cons.

Andy’s key takeaway is that investing is a life skill we all need to own. You don’t need a degree in finance or a Wall Street job, but you want to understand tax code and market fundamentals. Know some history for context and be able to soundly evaluate your investment vehicle options. The better you can do this, the better you can invest in your financial future, not just Wall Street.

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Assumable Commercial Real Estate Loan – Potential Pros and Cons

When considering your debt options for a commercial real estate deal, you have two main options:

  1. Secure new debt
  2. Assume the existing debt

If the owner pre-negotiated an assumption right into their loan documents, once they go to sell the property, potential buyers have the option to assume the existing the loan. That is, the existing loan is transferred from the current borrower to the new borrower at the same terms.

When you are analyzing an on-market deal, there is typically a section in the offering memorandum that states whether the loan is assumable. When you are analyzing an off-market deal, you will need to ask the owner if the current debt is assumable.

There aren’t absolute pros and cons of an assumable loan because the benefits and drawbacks vary based on the buyer’s financials and experience, the terms of the existing loan, the type of existing loan, and the market conditions. So, instead. Let’s focus on the potential pros and cons of assuming a loan.

Potential Pros of an Assumable Commercial Real Estate Loan

Time Savings: Loan assumptions can be approved in as little as 30 days (maybe even sooner) whereas a new loan may take a few months to complete due to the extra documentation required.

Money Savings: Because the loan assumption process may be shorter and requires less documentation, the costs incurred via lender fees are typically lower than the costs incurred from securing a new loan.

Better Terms: The buyer has the opportunity to receive better loan terms – a lower interest rate, fixed interest rate, longer term, etc. – than they would of if they secured a new loan.

Lower Down Payment: When a buyer assumes a loan, the down payment is equal to the difference between the amount owed by the debt and the sales price (i.e., the equity). If the owner doesn’t have a lot of equity in the deal, the down payment may be lower than the down payment on a new loan.

More Attractive Deal: Because of the aforementioned pros of the assumable loan, a seller may attract more buyers as well as sell the property faster.

Potential Cons of an Assumable Commercial Real Estate Loan

Longer Approval Process: if the current loan is overly complicated, the loan approval process can take longer than the process of securing a new loan.

One Lender: The buyer who is assuming the loan is forced to work with the lender that holds the existing debt.

Higher Down Payment: If the owner has a lot of equity in the deal, the down payment may be higher than the down payment of a new loan.

Worse Terms: if the terms of the existing loan aren’t as favorable as the current market terms, the debt terms could be worse than the terms of a new loan.

Won’t Qualify for the Assumption: Lenders have broad discretion when qualifying a buyer for an assumable loan. For example, they will want the buyer’s financials and experience to be similar to those of the current owner. So, the buyer may not qualify for the assumption.

Because of these potential cons, it is important to have financing contingencies in place in your contract and have a few lenders on back-up in case you don’t qualify for the assumption.





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Tips for setting goals as passive investors

Passive investing is a strategy that’s designed for the clear purpose of maximizing the returns that you obtain by effectively minimizing any buying and selling. In many situations, passive investments are considered to be long-term investments that you hold for a lengthy period of time before selling. For instance, it’s possible for a passive investor to make investments in art pieces.

No matter the strategy you use for making passive investments, it’s important to set goals that will guide your decision-making in the months and years to come. However, setting goals with this form of investing can be tricky when the returns are difficult to calculate. This guide offers some tips on how you can properly set goals when utilizing passive investments.

What Is Passive Investing?

This is a portfolio strategy that centers around buying and holding investments until they have appreciated in value. Because of its flexibility, there are many types of investments that can be made with this strategy. It’s common for investments to be held onto for a very long time. Keep in mind that this type of strategy hardly uses any market trading.

Likely the most common type of this investment is index investing, which centers around replicating and holding a market index or indices. The primary benefits of using this investment strategy is that it’s considerably less expensive and less complicated when compared to an active investment strategy. Additional benefits associated with passive investments include:

  • Very low fees because of much less oversight
  • Your capital gains tax should be low each year
  • It’s far easier to create an effective strategy with these investments when compared to active investments
  • Can help you diversify your portfolio

How to Properly Set Goals As a Passive Investor

When you want to make passive investments, it’s important that you understand how to properly set goals for your portfolio. If your expectations are unrealistic, you could be disappointed in the returns on your investments. While the returns that come with passive investments aren’t exceedingly high, they can help you bring in passive income and increase your wealth. Before you start implementing a passive investment strategy, take a look at the following tips that can help you along the way.

Make Sure That You Set Modest Investment Return Goals

When you engage in passive investing, your main goal should be to obtain modest investment returns. In fact, you should rarely expect to get high returns that beat the market. While this form of investment comes with much less risk than the majority of active investments, it’s important to understand that the returns are generally random. Even though the returns for passive property investments are somewhat predictable, not all passive opportunities can be calculated beforehand. If you set modest investment return goals, you’re portfolio should be able to withstand a slightly worse return than you expected.

Use the Right Strategy

There are many different types of passive income investments that you can make, the primary of which include real estate, dividend stocks, index funds, and peer-to-peer lending. The strategy that you choose depends largely on your preference and your knowledge of the investment in question. Real estate investments are very popular because of the ongoing rise in property values that has occurred in most locations over the past 10 years. If you want to obtain long-term returns that you can count on, this shouldn’t be a bad investment.

If you invest your money into real estate for the purpose of bringing in passive income, you can gain ongoing income source from rental properties. You could also invest in REITs, which are designed to pay out around 90 percent of taxable income to investors as dividends. Crowdfunding is another great option that gives you the full tax benefits of being a property owner.

If you’re not interested in making investments in properties, you could look into dividend stocks, which are an easy way to generate income. When public companies earn profits, these profits are sent to investors as dividends. You could then choose to purchase additional shares with dividends or cash out. Keep in mind that the yields that can be obtained with dividend stocks vary with each company. Consider searching for companies that are classified as dividend aristocrats, which indicates that significant dividends have been paid out for at least 25 years.

As touched upon previously, among the more popular types of passive investments are index funds, which are mutual funds that are linked to a market index. Index funds are passively managed and won’t change significantly unless the underlying structure of the index changes. Management costs are very low with index funds. The fourth type of passive investment strategy that you should consider is peer-to-peer lending, which is also known as crowdfunding. Currently, crowdfunding is highly popular and is used for everything from buying properties to funding different types of loans.

Crowdfunding involves numerous investors lending money to a business entity or person via an online platform that connects the borrowers and lenders. These platforms include Lending Club and Prosper. Aside from funding the actual loan, you aren’t required to do much in regards to managing the fund. You can expect a return that ranges from 6-12 percent when making crowdfunding investments, which can help you with your wealth building efforts.

Each of the four aforementioned strategies has its own positives and negatives that you will need to take into account. With the right approach, all four options can provide you with sizable returns that you can use to increase your wealth or to open up additional investment opportunities. The goals that you make can be dictated by the strategy you choose.

Identify How Much Money You Should Save

Whether you want to make passive investments to bolster your wealth building efforts or to increase the amount of money that you have for retirement, it’s important that you set a goal for the total amount of money that you want to earn and save from your investments. When saving for retirement, it’s recommended that you set aside enough money to cover 70-85 percent of the income that you bring in before retirement.

If you want to travel the world upon retirement or invest in a new hobby, your savings may need to be even higher. Other investment firms recommend that you save around 10 times the amount of income you generate in a single year by the time that you turn 67. If you earn $100,000 per year, this means that you should have around $1 million in savings by the time that you’re 67. Once you know how much you want to save, you will have a better idea of what your goals should be.

Know How to Overcome Investment Hurdles

There will always be hurdles and challenges that you will be required to overcome when making passive investments. If you want to reach the goals that you set for your investments, it’s important that you know how to overcome any challenges that you face. Even though passive investments are less risky than active ones, it’s still possible to lose money on your investments. Keep in mind that this type of investment is meant to be a long-term strategy, which means that you will want to sell your investments when they have reached an acceptable value that will allow you to generate a sizable return.

Along the way, you may notice that the investment dips in value at one time or another. Some investors will panic in these situations and choose to sell, which is typically a bad idea. Passive investments aren’t meant to fluctuate substantially in value, which is why you should be patient while awaiting favorable returns. The key to a successful investment is to react to volatility in the markets with a calm and measured approach.

Set a Clear Timeline With Each Investment

It’s highly recommended that you set a clear timeline with the goals that you have for each investment. If you want to net a return of 10 percent after 10 years of holding an investment, you should stick close to the timeline that you’ve set. By creating a clear timeline, it should be easier for you to avoid selling too early or to hold on too long while you await higher returns. Keep in mind that the right passive investments can be held until well after retirement age. If you set these timelines as early in your life as possible, it’s more likely that you will earn enough income to reach your goals.

If you want to be a successful investor, making passive investments is a great way to diversify your portfolio. Most of these investments are simple and easy to manage, which helps to reduce overall risk. Though goals aren’t always easy to define with passive investments, setting some basic ones should help you avoid making costly mistakes when you invest your money. With patience, the income that you generate could be higher than anticipated.

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Raising Real Estate Capital with Crowdfunding

When raising capital, real estate investors often graduate from personal contacts to complex partnerships or institutions. Another option to consider is crowdfunding. On this Best Ever Show podcast, real estate investor and CEO Chris Rawley explains the power of crowdfunding as a capital source and how to tell if it’s the right option for you.

About Chris Rawley

Chris Rawley has been a professional real estate investor for over 20 years. His portfolio includes single-family, multifamily, and commercial properties. He currently focuses on income-producing agriculture as an opportunity for passive investing. His platform, Harvest Returns, matches quality agriculture deals with investors to raise much-needed capital for U.S. farmers.

Why Crowdfunding?

If you’re doing real estate investing, the conventional funding path usually goes like this. You first use your own money and then approach friends, family, and business contacts for passive investing. When those sources run dry, you may turn to institutional funding or spend considerable time developing partnerships from scratch. Institutions have a high lending threshold and are suited for larger commercial properties such as retail shopping centers. They also come with significant oversight and conditions.

Many individuals engaged in commercial investing have quality deals that don’t meet institutional criteria. Crowdfunding provides a robust, flexible funding alternative. As the deal sponsor, you have access to suitable investors. You also gain legal and regulatory resources that would cost you considerable time and money to build on your own.

Advantages of Crowdfunding

Assembling a syndication deal involves adhering to complex financial regulations and drafting the requisite documents. If you do it yourself, you spend significant time and money on accounting, tax, and legal services. You need to understand the role of the various oversight agencies such as the SEC and hire the right experts. The beauty of crowdfunding is that the platforms handle much of this groundwork for you.

Each platform differs in the type and amount of guidance it provides. For example, Harvest Returns offers its sponsors the benefit of the legwork Chris initially did for his real estate ventures. His business spent considerable money to have securities attorneys put all legal and regulatory requirements in place. As a result, his platform’s listing sponsors benefit directly from this expertise and documentation. They still need to learn the legal environment, but they do not start from scratch and slow the deal.

Another major advantage of crowdfunding is the built-in pool of investors. You don’t have to find and vet your backers. You also have access to a more extensive and diverse group that you would likely discover independently. When the platform accepts your listing, you are guaranteed eyes on your project. You are not guaranteed quick results, but your deal will have the attention of the right audience. This alone is gold for commercial investing.

Crowdfunding may be right for you if:

  • You have exhausted non-institutional resources.
  • You have a successful track record.
  • You have a niche asset class, such as income-producing agriculture.
  • You have a partially funded deal that could benefit from additional investors.

Choose the Right Platform

Crowdfunding investment platforms took off around 2015 and today offer diverse opportunities for various real estate asset classes. You can find platforms tailored to single-family flips, wholesaling, and commercial projects such as retail shopping centers. You can also find options for specialized assets such as specific financial instruments or agriculture.

Chris advises beginning by defining the type of investor you are. Do you fix and flip houses? Do you wholesale apartment buildings? Are you targeting niche real estate markets such as sustainable development? You want to identify the crowdfunding platforms catering to your project niche and research each one to find the best fit.

Most platforms expect sponsors to list exclusively with them rather than attempt to raise funding on several sites. This requirement eases regulatory compliance, and you will likely sign an agreement with the platform you finally choose. A way to feel more comfortable about exclusivity is to speak with other sponsors who have succeeded on that platform. Most sites are happy to provide references. Chris suggests you be wary of any platform that won’t do so.

Your next step is to determine if you qualify for the platforms you’re interested in. They have listing criteria that syndication sponsors must meet. They also differ in the resources they offer, such as regulatory forms. Your best bet is to reach out to them and learn their guidelines and support for sponsors. Most have sales and marketing teams to provide information and perhaps speak with you about your particular situation. Established platforms have more stringent listing criteria, while smaller or newer players often have more flexible requirements.

For their part, investors are looking to mitigate risk. They examine each deal in light of questions such as:

  • Is this project viable?
  • What return can I expect?
  • Can this sponsor deliver results?
  • Can I safeguard capital gains or income?
  • What are the tax implications?

Chris stresses that many investors want to make personal connections and to believe that their capital helps the greater good. If you can demonstrate how your project will benefit the local community or causes such as sustainable farming, your support will grow.

As with any deal, investors look for strong fundamentals. Platforms differ in their due diligence procedures, but you always want to prepare a solid business case and be ready to speak to it.

Build Your Team and Track Record

Investors want to see that a sponsor has a successful track record. As Chris puts it, they don’t want to invest in a newbie’s mistakes. You are best off trying crowdfunding after you have done at least a few successful deals.

For investors, a sponsor’s experience is often the differentiator between two similar offerings. Even a short track record builds credibility. Before attempting crowdfunding, do one or two syndications on your own, either with personal contacts or an established partner.

A credible sponsor has a strong team as well as a track record as an active investor. Investors want to see that you have accounting and legal experts as well as any other business advisers appropriate for your asset class. This shows that you have some experience, are serious, and run your active investing as a business.

Present a Winning Deal

Many platforms conduct a thorough background check on potential sponsors before moving forward with them. They examine the deal’s structure and numbers to determine if it is a viable investment.

Each platform has requirements for putting your listing in front of investors. Your listing needs to differentiate itself from other concurrent offerings. At a minimum, it should include essential details about your project, such as location and asset type. Also, your platform may ask you to provide supplementary information for investors such as a business plan or pitch deck.

Once the raise is underway for your project, potential investors want a thorough understanding of the deal and expected return. Some platforms handle all of the interfacing for you and cater more to passive investing. Others treat the process more as active investing. You might host a webinar or answer questions in a formal round table for the active investor who wants a voice in your project.

Chris has found that people respond well to webinars, as they can interact with the sponsor and ask live questions. They can also meet the members of the sponsor’s team, such as the attorney or CPA. In Chris’s words, the process lends tangibility to the deal and builds trust.

Crowdfunding for Agriculture Investing

The food supply and related issues are hot topics today, and many investors are curious about agriculture opportunities. Crowdfunding is a good option because the platforms present you with curated projects appropriate for your goals. Chris’s platform structures agriculture deals similarly to the real estate deals he’s done for years. They have debt offerings from 7% to 12% and equity deals in the teens. They also offer opportunities in AgTech, which is the application of computer technology to farming. These offerings are higher risk but offer potentially greater returns as much as 40%.

Unlike most real estate, agricultural properties are unique. Each farm is distinctive and should be evaluated on its own merits. Indoor projects have gained momentum and include vertical and hydroponic farms. These options allow more locally grown produce and some refuge from climate and transportation infrastructure impacts. Successful investments enjoy a high rate of return.

Chris keeps the minimum investment in his projects as low as $5,000. This threshold allows more investors to participate and to diversify their portfolios. As for farmers interested in funding sources other than banks, Chris urges them to reach out to his team.

Crowdfunding for syndication is a relatively new and evolving space with numerous platforms catering to all asset classes. If you’re ready to move beyond personal capital, take a look at what it has to offer. Not only might you fund your next deal, but you might also find lucrative investment opportunities you never knew existed.

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5 Ways to Win the Apartment Bidding War

Whether you are new to apartment syndication investing or an active investor expanding your portfolio, you will compete for deals. Other bidders may have more experience or higher offers. How do you win the seller and the contract? Let’s look at five ways to make your offer stand out.

Keep in mind that even in competitive markets, sellers don’t always take the highest bid. Sellers differ in their motivations, and the five tips below will help you craft the best possible offer for the deal you are pursuing.

1. Offer Hard Earnest Money

Hard earnest money is a non-refundable deposit. It is a good-faith move that shows the seller you are serious enough to leave money on the table should something go wrong. It also signals that you can afford to buy the property.

In a typical deal, the earnest money is refundable. You provide a deposit as soon as possible after signing the contract, preferably within three days. The amount is often about 1% of the total price. If you purchase commercial properties for $500,000, you pay the seller $5,000. If you or the seller cancel the contract, you receive your money back.

A bolder move is to make the earnest money non-refundable. Even if the contract is canceled or falls through, the seller keeps the deposit. Sellers are rightfully concerned about buyers tying up the property in contract and then backing out or losing funding. The buyer may find a better opportunity or walk for financial reasons. Meanwhile, the seller has effectively taken the property off the market. Backup buyers may lose interest, and the market could shift by the time the seller relists.

You can view a non-refundable deposit as compensation for the risk the seller assumes by entering a contract with you. First, you want to decide when the money goes hard. The most straightforward option is to make the deposit non-refundable from day one. Sellers find this attractive as they can keep the money no matter what.

However, it may be in your best interest to tie non-refundable earnest money to a contingency clause or other stipulation. You could require that the funds harden at the end of the due diligence period. Alternatively, you could make a portion of the deposit immediately non-refundable and include the remainder after meeting a condition.

Include Contingencies

Even if you harden your earnest money from day one, you still want to include contingencies for events beyond your control. This approach protects you against deal-breaker concerns such as severely failed property inspections or title issues. It still covers the seller in case you back out due to funding or other reasons within your control. If a seller demands a no-contingency hard deposit, consider this a red flag.

2. Shorten the Due Diligence Window

Another way to woo the seller is to shorten the time to closing. If an active investor, you can often shrink the time needed to close from a boilerplate period to a realistic estimate. Advantages to the seller include faster closing and the assurance that you are serious about owning the property. Sellers often have stakeholders in passive investing and are motivated to provide a smooth transaction. Buyers keeping their options open do not press for fast closing. In turn, assuming you have your financing in place, you obtain your investment faster.

The most effective way to shorten closing is to compress the due diligence window, which is when buyers discover most issues. Be aware that the due diligence period protects your right to cancel the contract and reclaim your deposit should you find problems. The average window is 30 days. If you invest in retail shopping centers or other commercial properties, you may need that time or more.

After the due diligence window closes, you can’t cancel the contract or get your earnest money back. This applies even if you find a related problem. To protect yourself, be realistic about the scope of work. Determine the time you will need to conduct all activities, such as inspections and title verification. Build in some cushion for repeat inspections, inclement weather, or other factors that could slow progress. Then see if you can save a week or more without jeopardizing your interests.

3. Sign an Access Agreement

Typically, your property access for due diligence begins after you and the seller sign the purchase sale agreement. An access agreement gives you limited rights to begin property inspections early. Sellers like this option because it shows you are serious and potentially willing to shorten the closing time.

In an early access scenario, you sign an access agreement once the seller accepts your letter of intent and agrees to move forward with your offer. A contract negotiating period follows, which can be brief or extended depending on the deal. An access agreement lets you begin due diligence early by allowing limited property access for inspections.

If all goes well, you can complete at least some of your due diligence before signing the purchase sales agreement. You can even tie the formal due diligence period to the access agreement by starting the clock then. For example, your due diligence window could expire ten days after contract signing. However, you want to be confident of the property and the deal before you shorten your protection under contract.

4. Use the Seller’s Purchase Agreement

Once the seller has accepted your letter of intent, you begin contract negotiations. When active investing, you often provide your version of the purchase sales agreement prepared by your attorney. The seller compares yours with their contract version, and your teams hash out the details until reaching an agreement. The agreement becomes the final contract that all parties sign.

This negotiation process may be fast and smooth on a smaller residential property or with a seller you have previously worked with. If your focus is larger commercial investing, such as in retail shopping centers, finalizing a contract will likely be more complex and lengthy. Backers who are passive investing may not realize that contracts sometimes collapse due to non-financial discrepancies. During negotiations, you risk the deal falling through due to disagreements over legal language or similar matters.

You can mitigate risk by using the seller’s purchase sales agreement instead of drafting your own. Take their documents and have your attorney mark them up with proposed changes. Submit the revised contract to the seller for review. This way, the seller quickly sees which changes you present instead of comparing your version with theirs. The process makes it easier to negotiate specific terms under contention and validate those that are not. You and the seller can reach a final contract more quickly and with less chance of a legal stalemate.

5. Guarantee a Closing Date

A strategy often used in residential purchases is to guarantee closing by a specific date. Sellers frequently have personal contingencies that make a hard close date very alluring. Commercial investing is more impersonal, but timing the close still offers advantages in certain situations.

One scenario is to help the seller secure a tax advantage. If the deal is near year-end, the seller may prefer to close either in the current year or in January. Active investing requires considering the capital needs of any other investors as well as complex financial requirements for short and long horizons. Further, some sellers may have a fiscal cycle that differs from the calendar year. As a motivated buyer seeking a win-win, try to learn the seller’s timing preferences.

Sometimes non-financial events trigger a desire to close before or after a specific date. Major elections, local laws taking effect, and other situations may spur a seller to choose the buyer who can guarantee a closing window. Most often, the seller seeks an early close, but sometimes not. Be clear on which timing scenarios you are willing to accommodate before engaging with the seller on this point. If they ask for a 90-day close when you were expecting 60 days, will it work for you?

Target the Deal

In addition to a favorable price, which strategy should you include in your offer? The answer depends on the deal. Though the market for apartment investing is competitive, your job is to focus on this particular deal. It’s the one you want.

To help you plan your offer, try to learn:

  • About other offers on the table. If they all include non-refundable earnest money, you want to offer more.
  • The seller’s motivations. This will help you understand whether a committed buyer, quick close, highest price, or other terms matter most.
  • Other factors important to the seller. Are there tax considerations driving a desired close date? Did a previous buyer walk, leaving a skittish seller who would appreciate a non-refundable deposit and access agreement?

Keep in mind that you can combine strategies to craft a top offer. An access agreement facilitates a shortened due diligence period, for example. If other buyers are going with hard earnest money, perhaps you can meet an earlier date or raise the amount. With perseverance and flexibility, you can be the dream buyer sellers want.

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Find the True Value of Real Estate Markets

“Is the real estate market currently overvalued?” Many active investors and entrepreneurs are asking this question, and you probably are as well. The housing sector is strong despite the fact that the U.S. is officially in a recession. Home prices and rental rates are jumping in many metro markets. During unpredictable times, wise investors take cues from historical patterns. Market analytics expert Stefan Tsvetkov talks with Joe Fairless on The Best Ever Show about the power of quantitative analysis to help you find undervalued opportunities. As with other markets, your best bet is often to focus on value rather than attempting to time cycles.

About Stefan Tsvetkov

Stefan owns the data analytics firm Envvy Analytics, which specializes in business and market analysis. Its mission is to help real estate investors find exceptional opportunities and leverage market inefficiencies. Stefan brings ten years of experience in financial engineering, a field that develops and applies quantitative techniques to tackle financial problems. Stefan is passionate about using data analytics to help investors make better decisions.

Stefan has three years of personal experience as an active investor. He has privately purchased multifamily properties and knows firsthand the impact of current market trends on individual owners and businesspeople. His portfolio includes a New Jersey triplex and fourplex and a New York duplex.

Stefan found early inspiration for an analytical approach to real estate in the work of hedge fund manager John Hussman. Hussman developed a predictive metric for stock market drops by determining whether the stock market was overvalued. Stefan contrasts this valuation measure with the typical Wall Street emphasis on price-to-earnings ratio. He determined that Hussman’s metric outperformed the price-to-earnings ratio, which further motivated him to deep dive into market valuation analysis.

Look Beyond Demographics

When considering a potential real estate market, you probably look at job and population trends. You’re in good company, as commercial investing advisers stress demographics when evaluating opportunities. However, Stefan advises people to focus on market valuation. Why? For one thing, he notes, real estate markets are inefficient. It’s challenging to get a qualitative read on values for a given market.

Another compelling reason is that historical market cycles are best analyzed quantitatively. Data analytics finds patterns that qualitative analysis might overlook, allowing financial engineers such as Stefan to develop predictive models. Critically, data analysis can validate models for robustness. When you use a metric such as the one Stefan recommends below, you know its performance history. You are not guessing.

A Gold Standard Metric

Stefan’s research has yielded one metric he considers the gold standard for valuing markets. The ballpark measurement to start with is the historical ratio of housing prices to income in a given market. You then determine the current ratio and calculate its deviation from the historical norm. Typically, the metrics refer to household income and the price of single-family homes rather than commercial properties.

As an example, let’s assume that the historical housing price-to-income ratio in Texas has averaged 5. If today it is 8, you should consider whether that market is overvalued. If it is 4, perhaps the market is now undervalued. You would then consider other potential factors such as housing shortages, employer flight, or other socioeconomic influences.

Does Stefan’s metric hold true for larger investors? Whether your interest in commercial properties is via active investing or passive investing, the good news is his measure still applies. Stefan explains that the price-income formula is about 95% accurate for multifamily units. Over time, differences in appraising and returns even out. Household income still drives valuation, however, and so the metric best suits commercial investing in one-to-four-unit properties.

Lessons from the Great Recession

Stefan’s interest in quantitative real estate valuation was partly inspired by a seeming prophet of the big crash, Ingo Winzer. As early as 2005, Winzer declared on CNN that specific markets were significantly overvalued. A year later, he reiterated his belief that certain metro areas were dangerously overpriced.

By 2007, the most overvalued U.S. real estate markets were Arizona, California, Florida, and Nevada. These states ranged from being 49% to 68% overvalued. Stefan estimates that the subsequent market falls correlated 83% with these markets’ deviations from their historical price-to-income ratios. Their prices plummeted 45% to 56% after being overvalued and held steady when their values aligned with historical norms.

According to Stefan, the median market deviation from historical ratios preceding the crash was 26%. A 22% price plunge followed this peak in value. In contrast, real estate markets with variations under 10% could be considered fairly valued. Price drops in these areas averaged only 11%. A clear correlation seems drawn between the percent deviation of a given market from its historical price-to-income ratio and its percent drop in a recession.

Overlooked and Undervalued

The Great Recession has lessons for investors seeking quality undervalued markets. Stefan emphasizes that it’s easy to forget that some state markets were undervalued during this time. About 12 states, including Texas, experienced price drops in line with their undervaluation. Texas was undervalued by 5% in 2007 and dropped only 4%, in contrast to the historic losses experienced in many other regions.

In parallel, national income declined 4%. This loss of household spending power hit over-leveraged homeowners particularly hard. However, the story isn’t as bleak for undervalued states. When considered with single-family home prices, income and homeownership costs kept pace in many regions.

Stefan believes these historical patterns still apply, and today’s markets offer opportunity. Regardless of whether the overall market peaks next year or in five, undervalued markets should resist the steep losses of a correction.

Scaling Market Peaks

How do you identify a market peak, especially in today’s volatile landscape? Stefan insists that you can’t. He explains that a market peak is when prices top out and then drop significantly. Prices can plunge quickly or bottom out over two to five years. We identify market peaks in hindsight. We can’t predict them, and even an active investor shouldn’t hinge a strategy on timing.

Quantitative market valuation offers tools to navigate cycles in the absence of timing peaks. In consideration of complex housing markets in certain metro regions, Stefan is refining the price-to-income metric. He cites San Francisco as an example of a complex housing market. San Francisco housing is expensive due to supply and demand and thus should not be assumed to be overvalued. Prices there are driven by a housing shortage.

People often discuss historical market peaks as singular events. In reality, market cycles vary regionally. During the Great Recession, some areas peaked in 2005 while others topped out in late 2007.

Does this uncertainty mean that you should stay out of hot markets? Not necessarily. Large, strong markets in areas such as Texas tend to hold their value across cycles. Stefan believes that large states with robust economic activity offer the best opportunities. What you need to watch for is significant overvaluation that could signal a powerful forthcoming correction.

How to Find Undervalued Opportunities

According to historical performance numbers, undervalued markets are less likely to drop substantially in a downturn following a peak. If you want to invest cautiously, focus on identifying undervalued markets. You can work with a financial expert like Stefan or do your research based on Stefan’s guidelines.

Your investor profile matters when deciding on potential markets. If active investing, you have more control over responding agilely to changes in markets or investing goals. If passive investing, you generally have little say in the timing of market exits. You want an undervalued but strong market that lets you sleep soundly at night.

Your investing scope matters as well. Buying a triplex in a residential neighborhood differs from investing in retail shopping centers.

Along those lines, Stefan notes that we should distinguish between metro and state scope. Though an undervalued state such as Texas may hold reasonably steady, specific communities may fluctuate more widely. Factors such as employment and migration affect individual cities and counties.

The key is to find strong markets that are undervalued and weigh their strengths against weaknesses. Many U.S. states are undervalued by Stefan’s criteria, but not all of them offer equal opportunity. Currently, Stefan names the most undervalued states as being Arkansas, Connecticut, and Illinois. However, Connecticut has issues that make it unattractive to investors.

In contrast, Indiana is 6% undervalued and up 27% from its 2007 peak. If you are an investor starting small, you would most likely consider Indiana over Connecticut. Larger investors looking at retail shopping centers or other commercial investing should consider big markets.

The Bottom Line

When overarching factors such as the current pandemic muddle qualitative analysis, a quantitative view brings objectivity and historical context. Rather than try to guess the market’s peak, focus on identifying undervalued yet strong markets. If you’re a larger investor, choose big metro regions. Accurate market valuation supports portfolio growth while buffering against plunges. It outlasts rollercoaster cycles, and so can you.

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How to Compensate a Commercial Real Estate Broker

When you decide to list your apartment deal with a commercial real estate broker, the are paid a commission. Unlike residential transactions where the realtor’s fee is essentially fixes, the commission on commercial real estate transactions is negotiable. However, depending on the size of the deal and if it will be listed on-market or kept off-market, there are general guidelines for the commission structure and amount.

The information used to create this blog post is based on an interview I did with commercial real estate broker T Furlow. You can listen to his full podcast episode here.

Here are the three main structures for compensating a commercial real estate broker:

Compensation Structure #1 – Percentage of Sales Price

The percentage-based commission is the most common structure for on-market deals. The percentage generally decreases as the purchase price increases.

Sometimes, the commission is split between the buyer’s agent and your listing agent. This is referred to as co-brokerage split. But it isn’t uncommon for your agent to also find a buyer and receive 100% of the commission.

It is uncommon to see a commission of 6% (the standard fee on most residential transactions – 3% to each realtor), unless it is a very small deal under $1 million. Generally, the commission is 3% to 4% of the sales price. And the commission is capped at a certain amount. It is possible but rare for a broker to receive a commission of $300,000+. For larger deals, the commission can be less than 1% of the sales prices.

Generally, the percentage-based commission is set by the market and the sales price.

The advantage of the percentage-based commission is that your broker or a buyer’s broker is incentivized to maximize the sales price. The higher the sales price, the higher their commission.

The advantage of the co-brokerage split is that it increases the number of potential buyers. Rather than one broker – your broker – finding buyers, any broker in the market can find buyers for your deal. Plus, your broker is incentivized to put forth a greater effort to find a buyer so that they receive 100% of the commission.

Compensation Structure #2 – Flat Fee

The flat fee commission is the most common structure for larger apartment deals.  T considers sales prices of $8 million or more as large deals. Once the sales price exceeds $8 million, a flat fee commission between $150,000 and $250,000 is standard, but may be lower or higher depending on the market.

Flat fee commissions are also common if you want to sell your deal off-market with a broker. Expect to pay a higher flat fee for a large on-market deal than a large off-market deal since on-market deals require more effort on the part of the broker.

Generally, the flat fee is negotiated between you and the broker.

The major drawback of the flat fee compensation structure is that it doesn’t incentive your broker to maximize the sales price. No matter what the sales price is, they are paid the same amount.

Compensation Structure #3 – A Hybrid Structure

A hybrid compensation structure can be negotiated for any sized on-market or off-market deal.

Once you determine a strike price (i.e., the expected sales price), you offer a commission that is slightly below the market commission rate. Then, offer a significantly higher commission on any amount above the strike price.

This compensation structure is better than the percentage-based structure because your broker is incentivized even more to sell the deal above the strike price.


Let’s say you are selling a deal on-market and you determine that the strike price is $42 million.

Compensation Structure #1 – Let’s say that the market commission rate is 0.75%. If the deal sells for $42 million, the broker makes $315,000. If they can sell the deal for $44 million, they make $330,000.

Compensation Structure #2 – Let’s say you negotiate a flat fee of $275,000. If the deal sells for $42 million, $44 million, or even $50 million, the broker makes the same $275,000 commission.

Compensation Structure #3 – Let’s say you negotiate a 0.65% commission up to the $42 million strike price and 5% thereafter. If the deal sells for $42 million, the broker makes $273,000, which is less than Compensation Structure #1 and #2. If the deal sells for $44 million, the broker makes $373,000, which is higher than both Compensation Structure #1 and #2.

This example illustrates why I prefer Compensation Structure #3. If the deal sells at the strike price, you pay the lowest commission. However, if the deal sells above the strike price, you and the broker make more money! So it is a win-win.

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Beth Azor on Thriving Today with Retail Centers

These unprecedented times have hit retailers hard, but the news rarely highlights the fallout for smaller landlords. Retail shopping center investor Beth Azor shares the inside story on a Joe Fairless Best Ever Show podcast. Investing in commercial properties catering to retail is ideal for the active investor who enjoys hands-on management.

About Beth Azor

Beth owns Azor Advisory Services, a retail real estate development, management, and education company. She has over 30 years in commercial investing and currently manages a portfolio of retail shopping centers worth $80 million. Based in Fort Lauderdale, Florida, Beth owns six local shopping centers. She has adapted to competition from online selling and the current pandemic and has tips on thriving in this market.

Why Retail Shopping Centers?

Beth enjoys active investing and the variety of working with different types of businesses in this challenging sector. She also appreciates that managing commercial properties means dealing with companies instead of individuals as tenants. Beth prefers not to be responsible for an individual or family losing their home because they could not afford rent. Though evicting anyone is always uncomfortable, she finds it a little easier when it’s a business and not, as she puts it, a person losing a bed.

When asked about the perk of receiving discounts from her retail tenants, Beth stresses she forbids the practice. Accepting a concession or freebie means the retailer might leverage a quid pro quo situation and not pay full rent on time. Though tenants often try to offer breaks to Beth’s employees and family, the potential fallout is not worth it.

Manage the Rent Rollercoaster

Like many other landlords during COVID-19, Beth spends considerable energy on obtaining rents from distressed tenants. She learned the hard way that the time and emotion involved could overtake her week. She also discovered that small business owners behaved differently than national retailers and needed a different approach.

As a result of these insights, Beth started blocking off set times each week to work with both types of tenant. She reserved Tuesdays and Thursdays for small businesses and Mondays and Wednesdays for national companies.

Mom and Pop Struggle to Survive

The pandemic has shut down many smaller stores reliant on in-person traffic for sales. Beth has her share of these tenants and tries to work with them to persevere for mutual benefit. She finds that these businesses are often unable to pay full rent due to being effectively closed. The owners are understandably upset but eager to discuss options.

When evaluating the best recourse for a distressed tenant, including payment programs, Beth considers several variables. One factor is how easily she expects to lease the space if vacated or when the lease is up for renewal. Other considerations are whether the tenant has significant infrastructure installed or exclusive rights to sell a specific service, such as nail care. Sometimes a business will retain the rights to services but not offer them. If the tenant leaves, the landlord can recruit another retailer in that same popular niche.

Beth notes that she and many retail landlords prefer to grant rent deferrals rather than outright waivers. For example, a struggling tenant might pay half rent for two months and allow the landlord to take the difference out of the security deposit. The tenant agrees to pay any remainder the following year when in-person shopping presumably recovers. Beth avoids moving the balance to the end of the lease as she wants to encourage the tenant to renew at the market rate.

As part of giving back to her local community, Beth interviews small businesses for her YouTube channel and website. The increased exposure raises their profiles and helps bring in more customers. Beth does this marketing work gratis and finds it very rewarding.

National Tenants Play Hardball

Working with national retailers presents different challenges. These tenants quickly adapted to pandemic conditions by offering online, pickup, or delivery services and associated customer incentives. Though their revenues have fallen, deep corporate pockets will keep most of these businesses solvent and able to pay rent.

However, Beth finds many of her national tenants demand forbearance and aren’t always polite about it. Their message is, “I can pay this month’s rent, but I’m not going to.” The nationals often have representatives tasked with delivering the harsh news to landlords and other business partners.

Beth has dealt with real estate managers, lawyers, and CFOs in her quest for resolution. Perhaps because they feel ambivalent pushing for potentially unfair concessions, some representatives communicate unprofessionally. Negotiating with them is time-consuming and often unpleasant, and so Beth siloes time each week to do so.

To illustrate, Beth notes the national coffee retailer that sent well-publicized letters to landlords demanding rent deferrals for a year. What observers may not realize is that many commercial landlords are small investors such as Beth. These owners have far less financial backing than the nationals, and a drastic cut in rents could prove catastrophic.

Hold ‘Em: A Retail Portfolio Strategy

Beth favors a hold strategy for her portfolio. She bought her oldest holding in 2008 and has averaged an acquisition every two years. She then focuses on developing the new center, sometimes from scratch. As one example, Beth bought and demolished a vacant former strip club and built a shopping center in its place. The new center has five tenants, including Starbucks, Verizon, and Blaze Pizza.

In another transformative move, Beth bought a dated office building from the 1970s, razed it, and built a shopping center featuring a Starbucks on one side of the land. She is holding the other half to develop when the opportunity is right.

Beth’s holdings are a mix of anchored and unanchored developments. Anchored shopping centers are those with a well-known tenant to drive traffic, such as a supermarket. The anchor tenant typically pays less rent while the smaller tenants pay more to benefit from proximity to the anchor.

Unanchored shopping centers feature tenants of similar size where no one business draws significantly more customers than the others. For example, one of Beth’s developments boasts Verizon, Starbucks, Blaze Pizza, Select Comfort, and an ice cream store.

Prospect on Social Media

When prospecting for tenants, Beth has found that smaller businesses respond well to social media outreach. Unlike national retailers with marketing departments, small business owners usually monitor online channels to keep tabs on customer satisfaction. Beth has had particular success with high response rates on Facebook and Instagram.

For example, Beth might direct message business owners on Facebook and receive a 40 percent response rate within a day. Out of that pool, about 10 percent will express interest in her properties. This return is excellent compared to the old world of knocking daily on numerous company doors.

Prospecting national retailers requires a different approach that relies on networking. These large companies work through exclusive tenant representatives, local market experts who broker deals between landlords and tenants. The landlord pays the broker for a successful match.

If Beth has a vacancy and a tenant in mind, she reaches out to that company’s rep about doing a deal. She likely would not even meet the corporate real estate manager until a property walk-through.

Fund Managable Deals

Beth chooses to focus on smaller deals that she can personally fund. Her sources include income from other properties, personal assets, or funds from friends and family open to passive investing.

As is common in commercial investing, Beth used to work with institutions. She stopped this practice after a major deal funded by BlackRock went south.

Beth cautions not to let one stellar success blind you into overconfidence. Giddy investors can quickly become wedded to one perspective at their financial peril. In her case, she and a partner were doing a BlackRock-funded deal and leased one space to Staples for a pricey $20 per square foot. Emboldened, she and her partner decided to hold out for $15 for the remaining space, even though Walmart expressed strong interest at a lower rate. They ended up losing the property and $5 million.

How to Get Started in Retail Investing

You may be wondering how to break into the business of retail shopping centers, especially if your background is in passive investing. First, keep in mind that this niche is best suited for the active investor who enjoys operations and social interaction. Your best bet, says Beth, is to shadow a property owner to learn the ropes.

Beth started as a leasing agent with a real estate license, a path she recommends for those interested in active investing. Owners are looking to fill vacant suites, so be the person who can deliver the tenants. If done well, this role is gold.

Beth cautions against starting at a brokerage as you must obtain your own listings, which is extremely difficult. If you shadow an owner, you may land an internship and possibly a paid position. The upside of this apprentice approach is that you can trial the work while maintaining your current activities. Even if you are a seasoned real estate investor, a firsthand look at the dynamic retail world is well worth your time.

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The Benefits of Real Estate Investing When It Comes to Tax Planning

In our recent interview with Slocomb and Phil, we looked at the importance of real estate investing and tax planning. If you use tax mitigation techniques like cost segregation, your real estate investments could reduce your tax bill to zero today. In many cases, you can create a net operating loss in the present. Then, this loss can be carried into future tax years as well.

Tax Deductions Help You Boost Your Cash Flow

Whether you are actively investing or prefer passive investing, your cash flow is king. Sometimes, people buy a property because they expect the value to appreciate significantly. These investors do not care about cash flow because they just want to sell the property in a few years for a tidy sum.

In other regions, investors buy a property because it brings in a consistent revenue each month. Over time, they get to enjoy a passive income source that can fuel their retirement account or build intergenerational wealth. Whether investors are seeking cash flow or appreciation, they often forget one important thing.

With tax planning, you can immediately boost your cash flow. Even if you primarily care about your property’s appreciation rate, you can still benefit financially by reducing your tax liability and enjoying a higher tax flow. Unlike many other investment types, real estate investing is ideal for improving your cash flow and lowering your tax bill.

This is because the tax code was designed to spur economic activity and fund the government. While we can argue about whether the tax code achieves these goals, the result of these goals has been a range of tax deductions and credits for investors. If you run a business or have a rental property, there are portions of the tax code that were made to incentivize your company’s growth.

If you look at the different entities that make up the economy, they look like a quadrant. You have employees, self-employed individuals, business owners and investors. When you consider the tax rate of each quadrant, employees typically pay the highest rates. This is because employees do not have the same access to tax deductions that the other three groups get to use.

Out of the four groups, investors generally pay the least amount in taxes. Investors pay a capital gains tax when they sell their investments. Depending on factors like how long they held the investment, the capital gains rate can be 0, 12 or 15 percent of their investment.

Because they do passive investing, investors do not have to pay a self-employment tax bill. Normally, self-employed workers have to pay things like the Social Security tax and FICA tax. When employees work for a company, the business is responsible for paying half of these tax costs.

Ultimately, the tax code is designed to make people pay less if they contribute more to the economy. Business owners, self-employed individuals and investors are generally charged a lower tax rate because they fuel the economy. By spending money on an investment property or starting a new product line, these groups help to provide new jobs and sources of economic growth.

While these groups may pay a lower tax rate, they still have to pay a Social Security tax and Medicare tax if they hire employees. They also have to pay a sales tax on the majority of items they buy for their company. Anyone who buys rental properties has to pay a property tax each year.

This essentially means that investors help fund the government by creating opportunities for new tax payments. They hire employees and pay a property tax on their investments. Because of this, tax incentives target investors, self-employed individuals and business owners. By giving these groups tax breaks, the government hopes to encourage other activities that will generate tax revenue.

How Can Investors Save Money on Their Tax Bills?

There are a number of tax benefits you can enjoy as a property owner. Deductions, the 1031 exchange and depreciation can help you lower how much you pay to the federal government. Because the tax code is fairly complex, it is important to get professional advice about your unique situation before you claim a new deduction or credit.


Because you own an investment property, you can now take advantage of new deductions. Whenever you file your tax bill each year, you can deduct costs like your mortgage interest and repairs. You may also be able to deduct your business expenses as well.

Deducting mortgage interest is generally the largest deduction that taxpayers get, but it also applies to investors as well. If you own an investment property for passive income, you can take advantage of this deduction. In addition, this deduction works for home equity loans, refinanced mortgages and lines of credit.

To claim the mortgage interest deduction, you will need your Form 1098 from your mortgage lender. This form will show how much you paid in tax costs for the year as well as how much money you can deduct. The deduction also works for any payments or insurance premiums that went through an escrow account.

Property Improvements

While improvements help you boost your property’s value, repairs are designed to keep your property in working order. According to the tax code, you can write off your repairs right away. Because improvements add value over time, the value has to be depreciated over multiple years. The type of improvement determines how long it takes to depreciate the cost.

Business Expenses

If you are actively investing and managing your property, you should be able to deduct almost all of the expenses associated with running your business. For example, you can deduct the cost of your internet bill and phone bill. You may also be able to deduct your travel costs each time you go to view the property.

1031 Exchange

When you use a 1031 exchange, you can basically delay your tax bill until you sell your property. Normally, you have to pay taxes on your capital gains whenever you sell a property. Through a 1031 exchange, you can delay this tax payment. Instead of paying a tax bill, you can invest those funds in another property. A 1031 exchange basically lets you exchange your first property for another property without paying a capital gains tax on it.

To get this tax benefit, the new property must meet certain eligibility criteria. It must be a like-kind exchange. This means that the new property must have the same class or character. If you originally sold a residential property, you should also be buying a residential property. In addition, the new property must have a value that is the same or greater than your previous property.

To qualify as a 1031 exchange, you must also purchase a new property right away. You have 45 days to identify a new property after you sell your original property. Then, you must close the deal on the new property within 180 days of the sale of your first property.

Finally, a 1031 exchange requires a qualified intermediary. You are not allowed to handle the transaction or money by yourself. The intermediary must not be someone you have worked with in any capacity over the previous two years.

By using this technique, you can postpone your tax bill. In addition, you get to reinvest your profits into a new property. Because of this, you basically get to earn profits from your postponed taxes until you eventually sell the new property. As long as you never divest completely, you can keep using a 1031 exchange to postpone your capital gains tax.


As buildings age, they start to break down. The Internal Revenue Service (IRS) calls this process depreciation. To accommodate for wear and tear, the IRS lets investors depreciate the value of their assets over time. This allows you to reduce your overall tax liability.

You can depreciate the value of a residential property over 27.5 years. For commercial properties, you can extend depreciation over 39 years. For example, we will assume that you have a residential property worth $400,000. You can depreciate 85 percent of the property’s value. Because land is 15 percent of the property’s overall value, you cannot depreciate the last 15 percent. Land does not break down in the same way that buildings do, so the value theoretically remains the same.

For the next 27.5 years, you will be able to depreciate 85 percent of your original investment. This works out to $340,000 in total. Each year, you can depreciate $12,363.60. Even if you exclude other tax breaks, this works out to a hefty tax reduction. If your property normally brings in $1,000 a month in rental income, the depreciation creates a net operating loss. On paper, you are effectively losing money each year. In reality, you are bringing in $1,000 a month and will eventually profit through the sale of the building as well.

Passive Income and Real Estate Investing Can Lower Your Tax Bill

When you invest in real estate, you get to use a range of different tax deductions and credits. By using these tax benefits, you can end up saving a significant amount of money each year. In order to realize these savings, you just have to do some tax planning in advance. Our video interview between Slocomb and Phil is a perfect example of putting these tax strategies into action. With the right planning, you can use your tax savings to fund your passive investing in the future.

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28 Red Flags on a New Apartment Syndication Deal That Should Make You Worry

One of the main advantages of passively investing in apartment syndications rather than being an active apartment syndicator is that you do not need to be a real estate genius.

However, a potential downside is that you are not a real estate genius…

How is this possible? How can this be both beneficial and a drawback at the same time?

Well, it is advantageous because you do not need to invest years into learning the ins and outs of apartments before experiencing the benefits of investing in large multifamily. At the same time, since you do not now the ins and outs of apartments, you must entrust your capital to someone else, an active syndicator, who should know what they are doing.

To reduce the impact of this potential downside, you must know how to screen the team, the market, and the deal.

This third point – the deal – will be the focus of this blog post.

When reviewing a deal, simply locating the projected returns and basing your investment decision on those numbers alone isn’t the smartest of ideas.

Sure, some investors do this. For some, it worked out. But others have been burned.

Once you have qualified the team and have invested in multiple deals, it is less risky to invest solely based on the returns offered. But I still recommend performing at least a high-level analysis of the opportunity.

How do you review an opportunity? Locate the information used, data acquired, and assumptions set when the apartment syndicator underwrote their deal.

To accomplish this, the first thing to do is get your hands on their investment summary (may be called something else, like a market summary, investment package, investment analysis, etc.). You will likely never receive the full underwriting model from the apartment syndicator. Therefore, you will use the investment summary to determine the data, information, and assumptions underlying their underwriting. Anything that cannot be found on the investment summary can be uncovered either during the new offering conference call/webinar or in the private placement memorandum (PPM) before you are required to submit funds.

In this blog post, I want to outline the 28 top red flags to look for when reviewing an investment summary. When these red flags are present, they indicate a “hole” in the apartment syndicator’s underwriting or business plan in general. Regardless of whether these “holes” were created on accident or intentionally, they likely mean that the return projections to passive investors are inaccurate and that you should not invest. For simplicity, each red flag is in one of the following categories:

  • Market: the geographic location in which the subject property (i.e., the property to be purchased) is located
  • Business plan: the apartment syndicator’s plan-of-action after acquiring the subject property
  • Projected returns: how much money the apartment syndicators are expecting to distribute to passive investors
  • Debt: money borrowed from a lender to cover most of the project costs
  • Purchase and sales assumptions: the “educated guesses” made by the apartment syndicators regarding the acquisition and disposition terms
  • Pro forma: break down of the income and expense line items for each year of the projected hold period
  • Rental and sales comparable properties: the other properties used to determine rental rates and purchase price (in part)
  • Other: miscellaneous red flags that didn’t naturally fit into one of the other categories above

“Market” red flags

1. Stagnant or shrinking population: “people” make up a portion of the supply side of the “supply and demand” equation. The more people moving to a market, the more renters competing for apartment units, and the greater the demand for real estate. If the net migration is negative, meaning more people are leaving than moving in, this is a major red flag.

2. Stagnant or shrinking rental rates: another metric that indicates demand for apartments is the rental rate trend and projections. Ideally, the rents increased more than 2% to 3% annually in the years prior and are projected to increase by more than 2% to 3% annually in the future. Stagnant or, even worse, decreasing median apartment rents is a major red flag.

3. Low Absorption rate: the absorption rate takes the supply and demand of new apartment units into account. For apartments, the adsorption rate is usually a measure of the share of newly completed apartment units that are rented over a three-month period (measured by US Census Bureau each quarter). The higher the absorption rate, the greater the demand for apartments in the market. The absolute absorption rate is important and should ideally be greater than the national average. However, the trend is just as important. A low and/or decreasing adsorption rate may indicate hyper-supply in a market, which in turn reduces the demand for apartments, and is a massive red flag

4. No neighborhood or submarket level data: the investment summary should include a detailed analysis of the market. However, the analysis should be more focused than the metropolitan statistical area (MSA) and city. Depending on how large the market is, they should provide data on not only the MSA/city, but the submarket and maybe even the specific neighborhood. For example, if a deal is in Dallas, TX, demographic, rental, unemployment, adsorption rate, etc, data for all DFW is not as relevant as the same data for the specific neighborhood the subject property is located in. DFW level data is an average of countless submarkets and neighborhoods. Some perform far better and others far worse than the average. The only way to know which category the submarket or neighborhood in which the subject apartment is located is to review submarket and neighborhood-level data. Therefore, if the apartment syndicators only provide data on the overall MSA or city and not the submarket or neighborhood, this is a red flag.

5. Population demographic doesn’t match the property: Generation Z, Millennials, Generation X, and Baby Boomers want different things in rental housing. Therefore, you will want to know who the apartment syndicator’s target demographic will be, what portion of the total population that demographic is, and the trend of that population demographic (is it growing or shrinking?). Then, you want to compare your findings with the type of property the apartment syndicators are purchasing and their renovation plans, if any, to determine if there is a match. The property must match the target demographic. A mismatch, like creating a super high-tech apartment experience with smaller units in a market dominated by baby boomers, is a red flag.

“Business plan” red flags

6. Property doesn’t match business plan: similar to the “population demographic doesn’t match the property” red flag mentioned previously, the property also needs to meet the business plan. Here is a blog post we wrote about the different property classes – A, B, C, and D. If the apartment syndicators claim to be purchasing a Class A property, then it needs to be in excellent condition, fully rented, in a highly desirable market, built (or renovated) within at least the past 5 to 10 years, and have the latest and greatest amenities. If they claim to be buying a Class A property but there is a lot of deferred maintenance, no amenities, outdate interiors, etc., this is a major red flag.

7. Truly a value-add, turnkey, or distressed/opportunistic: the vast majority of apartment syndicators either implement the value-add, turnkey, or distressed/opportunistic business plan. Here is a blog post that covers these three in more detail. For example, if they plan on implementing a value-add strategy, then the apartment should be stabilized and have upside potential. A fully renovated and updated apartment that is fully rented at market rates probably doesn’t have many, if any, value-add opportunities. Therefore, if the apartment syndicators claim they will double your investment in 5 years by adding value to such a property, this is a red flag.

“Projected returns” red flags

8. Guarantee a return: if the word “guarantee” appears anywhere in the investment summary, RUN. This is not only an SEC violation but is also a lie. There is no such thing as a guaranteed return in real estate investing.

9. No sensitivity analysis: a sensitivity analysis is when the apartment syndicators adjust certain metrics to reflect a “best case scenario” and “worst case scenario” and recalculate the returns based on these adjusted figures. For example, worst case scenario interest rate on the loan, vacant, rent premiums after upgrading units, exit cap rates, other income, etc. Oftentimes, the summary of the sensitivity analysis is included in the investment summary package. From the sensitivity analysis, you can get an idea of how much money you will make if the deal exceeds expectations or performs below expectations, which will allow you to make a more educated investment decision. If not included in the investment summary, you can request one from the apartment syndicator. If they will not provide you with at least the results of their sensitivity analysis, this is a red flag.

10. No distribution split details: in addition to any preferred return offered, the GP may also offer you a split of the total profits. While the preferred return is important, since that is the cash you receive each month/quarter during the business plan, you make the largest return based on the profit split (assuming you participate in the upside). Therefore, you will want to know how much of the total profit you receive and how much the GP receives. The most common profit split is between 50/50 and 70/30 (to LP and GP). However, oftentimes, the profit split will change once a certain return hurdle is achieve. For example, the GP may offer a 70/30 profit split up to a certain internal rate of return, at which point the profit split changes to 50/50. You want to make sure that the passive investors are receiving most of the profits, since you are the ones bringing the vast majority of the capital. If the splits are more favorable to the GP or information on the splits are missing, this is a red flag.

“Debt” red flags

11. Total loan term is less than 2x stabilization timeline: a rule-of-thumb for all real estate is to secure debt with a term that is at least two times the projected stabilization timeline. That is, two times the time it takes to complete any renovation projects and stabilize the deal. Once a loan term ends, the borrower must either sell or refinance. By securing debt with a term that is two times the stabilization timeline, the borrower has a cushion if renovations take longer than expected and so that they are not forced to sell or refinance. If the debt secured is less than two times the projected stabilization timeline (for example, a two-year bridge loan is secured and the plan is to renovate 100% of the units in 24 months), this is a major red flag.

12. No cap on adjustable interest rate loan: when a borrower secures a loan with a non-fixed, adjustable interest rate (which is usually adjusted each month), they have an option to purchase an interest rate cap. When an interest rate cap is purchased, no matter how high interest rates rise, the borrower knows that it cannot exceed the cap they purchased. No one knows for certain whether interest rates will remain at the same rate, decrease, or increase in the next five to ten years. Therefore, buying a cap is always a smart move to mitigate that unknown risk. If they did not purchase an interest rate cap, this is a red flag.

13. Refinance or supplemental loan proceeds included in return projections: Many times, especially for value-add and distressed/opportunistic strategies, the apartment syndicators expect to refinance into a new loan or secure a supplemental loan at some point during the hold period. When a refinance or a supplemental loan occurs, assuming you participate in the upside, there is a possibility that you receive a lumpsum profit. However, since refinance and supplemental loans are not guaranteed because no one can predict where the market will be in a year to from know (think people investing in late 2019, early 2020 pre-COVID), these proceeds should not be included in the return projections. If they are, the returns are extremely aggressive and this is a major red flag.

“Purchase and sales assumptions” red flags

14. Exit cap rate is equal to or less than in-place cap rate: one of the most important assumptions apartment syndicators make when calculating projected returns to passive investors is the exit cap rate. This is their prediction on what the market cap rate will be at sale at the end of the hold period. Since no one can predict whether the real estate market will be better or worse in the coming years, the conservative assumption is to always assume the latter – that the market will be worse at sale than at purchase. A “worse” market has a higher cap rate. Therefore, the exit cap rate assumption should be greater than the in-place cap rate (i.e., cap rate at acquisition). A common rule-of-thumb is an increase of at least 0.1% every year. If the exit cap rate is equal to or less than the in-place cap rate, this is a major red flag.

15. Aggressive revenue growth: revenue growth occurs either naturally (via inflation or increase in demand in the market) or forcibly (via adding value), or both. Usually, apartment syndicators assume natural revenue growth of 2% to 3% each year. However, in markets where rents are projected to grow by more than 3%, apartment syndicators may be tempted to set that figure as their revenue growth assumption. 2% to 3% is the more conservative approach, whereas anything higher than that, even when rents are projected to grow at a greater rate, is a red flag. The “forced” revenue increase depends on the business plan. We will revisit this in the section below on rental comparable properties.

16. Same vacancy rate during and after renovations: when an apartment is acquired, depending on the level of upgrades to be performed, a number of the existing residents may decide to leave at the prospect of future rent increases. Additionally, apartment syndicators will usually upgrade units as they turn over (become vacant). They may even “force” vacancies in order to quicken the pace of renovations. Therefore, the vacancy rate usually spikes immediately upon acquisition and doesn’t stabilize until the demographic is turned over, renovations are completed, etc. As a result, apartment syndicators should assume a higher vacancy rate during year 1, and maybe even year 2, before achieving the stabilized rate. If the vacancy rate is the same every year, meaning they didn’t account for the dip in occupancy in the beginning stages of the business plan, this is a red flag.

17. Contingency capital expenditures budget: almost every single apartment syndication deal will have some sort of capital expenditures This budget includes capital to cover the costs of unit interior upgrades, amenities upgrades, adding new amenities, and deferred maintenance. These cost assumptions are based on a variety of inspections performed prior to closing. However, the apartment syndicator will not be able to receive hard quotes until after closing. On heavier value-add and distress/opportunistic deals, additional deferred maintenance may be uncovered once repairs begin. Therefore, apartment syndicators will create a contingency budget to cover any unexpected cost increases. If you review their capex budget and do not see capital allocated to a contingency budget, this is a red flag.

“Pro forma” red flags

18. No explanation for large variances between pro forma and T-12/T-3: the pro forma section of the investment summary should include the most up-to-date income and expense figures over the previous 12 months of operations (sometimes, a T-3, or three months of income and expenses annualized, is included) and a yearly breakdown of the apartment syndicators income and expense projections. Then, they should include notes on what their income and expense assumptions are based on. Some of their assumptions are based on the previous 12 months or 3 months of operations. There should be an explanation for large variance between any income or expense assumption (besides the gross potential rent, which I will address in the next section on rental comparable properties) and T-12 or T-3. If the explanation is unclear or absent, this is a red flag.

19. Real estate tax assumptions same as T-12 taxes: one expense assumption that should almost always differ from the T-12 is the real estate tax line item. Usually, after a sale, the new annual real estate tax is based on the sales price, which is almost always higher than the current tax assessed value. As a result, real estate taxes go up. If the apartment syndicator’s real estate tax assumption is the same, or less than, the T-12 taxes and there isn’t an explanation given as to why, this is a red flag.

20. No upfront or reserves budget: most lenders require a borrower to place a certain number of months’ worth of principal and interest into a reserves account at purchase. Additionally, they require a portion of annual income to be placed into the reserves account. If the apartment syndicator is securing debt, they should already be doing this. But it doesn’t hurt to double check. If they haven’t accounted for this on their pro forma, this is a massive red flag.

“Rental and sales comparable properties” red flags

21. Not a “comparable property”: comparable properties are used to set offer prices (in part) and stabilized rental amounts. Apartment syndicators should include a section in the investment summary about the sales and rental comparable properties used. You should confirm that these are actually comparable properties. Regarding sales comparable properties: the comparable properties should be similar to the subject property in its current condition, not in its stabilized upgraded condition. They should offer similar (doesn’t need to be the exact same) types of amenities. They should have been sold within the past year or two. Regarding rental comparable properties: the comparable properties should offer similar (doesn’t need to be the exact same) type and quality of amenities the subject property will offer once stabilized and upgraded. The unit interiors should be similar in type and quality as the stabilized and upgraded units at the subject property. The units should have been renovated and rented within the past few years. The same fees should be included or excluded from rent (i.e., same parties are responsible for paying utilities). When the comparable properties aren’t actually comparable, this is a major red flag.

22. Market leader in rents or sales price per unit: assuming the apartment syndicator is actually using comparable properties, they will determine an average rent per square foot and sales price per unit for the market. Then, based on that average, they will determine their rental rate assumption and a fair market offer price. The apartment syndicators should not assume that they will achieve rental rates at or above the market leader. Nor should they have the deal under contract at a price that is greater than all other recent sales. Instead, the rental rate assumption and price per unit should be closer to the average – ideally below the average. If they expect to be the market leader or are over paying, this is a major red flag.

23. Comparable properties not nearby the subject property: another important criterion for rent and sales comparable properties are their distance from the subject property. The bigger the market, the closer the property needs to be. In rural markets, a property that is many miles from the subject property is okay. But in a big market the comparable properties should be in the same submarket, neighborhood, or even on the street. Comparable properties many miles away from a subject property in a major metro is a red flag.

Other Read Flags

24. Short investment summary: investment summaries should be long because they are supposed to proactively answer any potential questions an interested investor may have. A short investment summary (less than 10 to 20 pages) indicates an inexperienced apartment syndicator and is a red flag.

25. No risks or disclosures section: since an apartment syndicator is raising money to buy apartments, they work closely with a securities attorney to make sure they are “going by the book”. As a result, apartment syndicators are required to include a “risks” section in their PPM. They aren’t, however, required to include anything about risks in their investment summary. But, when they do, it indicates a higher level of transparency and a trustworthy, professional syndication team. The absence of risk and disclosures isn’t necessarily a major red flag, but by suggest a lack of transparency, trust, and professionalism

26. No GP fee disclosure: in addition to receiving a portion of the total profits, the GPs charge a variety of other fees for managing the asset. These can include upfront fees like acquisition fees upfront, ongoing fees like an asset management fee, and fees at sale like disposition fees. If the GPs are hiding how much or how they are paid, that is a red flag.

27. Typos: another thing that indicates inexperience and a lack of professionalism are multiple typos in an investment summary.

28. No case studies: unless this is the apartment syndicators first deal, they should include a section of “case studies”, highlighting the current deals in their portfolio and past deals already sold. You can review the case studies to determine how the projected returns offered on past deals compared to the actual returns received. This will indicate how aggressive or conservative the return projections are for the current deal. The absence of case studies suggests an inexperienced apartment syndicator or that their previous deals did not meet or exceed their return projections, both of which are red flags.

These are the 28 major red flags to look out for when analyzing an apartment syndication deal.

An important thing to note before concluding the blog post is that all of these red flags are not necessarily a deal breaker. They are a deal breaker when the apartment syndicator cannot offer a satisfactory explanation for why the red flag is present or, even worse, denies that it is a problem.

Learning how to quickly identify these red flags will save you time and save you money when passively investing in apartment syndications.

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