Why do most real estate folks sell their properties?

Because most aren’t real estate investors at all. They run a service business and they get paid in fees when they buy and in promotes when they sell.

True investors get paid by owning great assets for a long time.
Okay okay it’s still real estate investing.

But if you need to buy and sell every 2-4 years to make money and you stop working the money stops coming.

Finding a structure and getting enough capital into the stack that allows you to make enough money while you own it is the key!
If you can find a way to hold real estate for 10+ years that’s when the magic happens.

And it’s when you make money doing nothing but waiting!
What happens to the syndicators when the debt gets expensive and the market corrects?

It’s a long, cold, unprofitable period.
There’s not one way to do this.

But I do think more syndicators should explore structures that allow them to hold and share the cashflow.

Like a straight split with no pref and share profits from day one 70/30 for example.
Or stop returning capital to LPs as quickly as possible so you go 3 years without a promote hit and overlever the thing during refi.

Some LPs want the pref to stay in place and want to hold it forever!
If you’re lost, this is the structure that’s most common.

And it encourages a sale because without realizing 100% of the value it’s tough for the GPs to make real money!
But when you sell a ton of value goes out the window. Brokers. Attorneys. Third parties. DD for buyers is priced in. It’s work for you to sell as well. Human capital is used in a major way.

And you miss out on 10 year tailwinds and long term appreciation!
A buyer may end up paying $1.1MM for a $1MM property with third parties, finance fees, closing costs, due diligence.

A seller may only receive $900k after brokers, transfer taxes and closing costs. Even less after tax if no 1031.

A ton of value out the window!!
Something else that would really help this:

“Market” prefs and promotes adjusting downward with the risk free rate of return lately.

8-10 prefs were market when bonds and treasuries were yielding 3-4%!

Now they’re yielding near zero!

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More from @sweatystartup

8 Jan
Amidst the chaos this year folks forget the following industries all had record sales / performance in 2020:

Exercise / fitness
Car sales
Video games
Domestic appliances
Ghost kitchens
Online meeting platforms
PPE suppliers
Dating apps
Online teaching
Online fitness
Children's Toys
Entertainment streaming
Food delivery
Divorce attorneys
Outdoor experience venues
ATVs UTVs Dirt Bikes
Photography equipment
Hiking supplies
Running shoes
Yoga supplies / online platforms
Cooking supplies
Painting supplies
Tools of all kinds
Guns and ammo
Guitars and instruments
Pools and spas
Videography equipemnt
Craft beer
All alcohol
Interior design
Read 9 tweets
8 Jan
If you're new to real estate twitter this is a must-read.

A thread on how most real estate folks structure deals with outside investors.

Most GPs utilize the "preferred equity" structure when they raise money from outside investors. They "syndicate" deals.

Here's the basics:
The person (or team of people) putting the deal together is the "sponsor". Also called general parter. Referred to on twitter as the GP.

They find the property, do all the work, hire the management company and take fees. They often co-sign debt and always secure the financing.
The investor is generally passive, doing no work and putting in cash. This is the "limited partner". Referred to on twitter as the LP.

They don't co-sign debt. They simply read reports and ask the sponsors questions and cash checks every month (if the deal is going well).
Read 30 tweets
7 Jan
I’ve tried 10x or more to give equity and profit sharing plans to employees.

It’s almost always better to just pay them well and focus on giving them the tools to succeed.

If they wanted a variable pay structure they’d go start their own biz.
Ever tried to fire somebody who isn’t working out when they have equity?

Profit sharing and alignment of goals reads great in the textbooks but it’s absolutely terrible in action for MOST biz owners.

Need more big decision makers with executive talent? Sure. Do it.
99 times out of 100 you don’t need another chief.

You need someone competent at following a system you build.
Read 5 tweets
7 Jan
Devoted about 3 seconds of brainpower to current events today.

I can’t control it so therefore I have elected not to let it stress me out.

I’ll read about it tomorrow and decide if I should adjust my current plan of action. The likely answer, as it almost always is, will be no.
17 minutes and I've lost 50+ followers. Very surprised by the reaction below as well.

I'll do some thinking on this stance and potentially re-consider here.
To be clear I'm not worried about how many followers I have. But when this many people feel differently than I do its a learning opportunity IMO.
Read 4 tweets
5 Jan
Twitter is officially a big deal for me. I accomplished my wildest stretch goals on here.

But I don’t like the way it makes me feel.

The phone addiction. Dopamine hit after hit.

Craving approval and status even more than before.

Not present with my family.

I don’t like it.
And the thing is I had a record year. If you would have told me I’d be here 10 years ago I wouldn’t believe you.

The money to do what I want to do when I want to do it.

No boss.

Working on big exciting deals.

A lot of folks who care what I have to say.

And here I am.
Feeling sorry for myself and feeling like I’m not a good dad or a good husband.

I need to get my priorities straight folks!
Read 5 tweets
5 Jan
Don’t have much cash but want to invest in real estate?

Want to get SBA loans and special loan programs so you can buy real estate investments with only 5-10% down?

One word for you:


Here’s why

Leverage can be a beautiful thing.

Appreciation takes over and all that value you bought with debt grows and you amplify your returns.

But there is another, darker side of debt.
Values drop 5 or 10% and you’re underwater. You have zero equity or negative equity.

Ask the folks who were over-levered in 2007 what happened on 2011?
Read 11 tweets

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