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.
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!
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!
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.
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.
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!
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!
And it encourages a sale because without realizing 100% of the value it’s tough for the GPs to make real money!
https://twitter.com/sweatystartup/status/1318935429723422720
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!
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!!
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!
“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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