We passed on a deal yesterday. It wasn't an obvious pass at first but it's the kind of deal that can eat your lunch if you don't know better.

If you're new to real estate investing, hopefully the below insight is helpful. Might save your ass. Market:

The market was fine, B/C area, but nothing special. It didn't feel insulated from vacancy risk and meaningful appreciation wasn't obvious. So the cash yields needed to be strong during the hold.

Plenty of deals like this can be "great deals" so don't hear what I'm not saying. You can buy these deals, just have to be honest with yourself about what you're buying.

“Hey dad?”

“Yea, sport?”

“What’s a Collateralized Loan Obligation?”

“What?! Oh, jesus. Well, alright. I suppose you’re old enough for “the talk.” Son, when a syndicator and a debt fund love each other very much…” Ahhhhh…CLOs…

You ever flush the toilet and think, “gross…wonder where that all goes? Is there a scenario I could have to deal with that later? Fuck, that would be brutal, I sure hope not.” Now replace “bowel movement” with “syndicated multifamily bridge debt” and you’re starting to get your arms around today’s lesson.

We’re gonna jump into the world of bridge loans, debt funds, and Collateralized Loan Obligations (“CLO”). A lot on what they are, a little on what they aren’t (CDO – the GFC boogeyman), explained in such a way that a five-year-old could understand. Or a golden retriever.

If you work at a debt fund, or you’re a CLO manager, and you read this and think, “well, technically…” allow me to tell you three things.

1. I don’t care about you, not even in the slightest
2. You’ve picked a sad existence
3. Write your own shit. This is meant to be an overview.

The key to structuring CLOs, like autoerotic asphyxiation, is to take things jjuuuussssttt far enough. With that in mind, let’s roll, mutherfuckers!

Gonna tell you about a fun little trick scumbag syndicators use on value-add deals. It's not definitely a ponzi scheme, but it's not definitely NOT a ponzi scheme either.

First, you'll need to understand how cash flow works in value-add deals. I'll explain it like you're five. When you invest in a "value-add" property, the basic pitch is, "we're going to renovate this property to some degree, and our efforts will increase rent." There are degrees of value-add, of course, but generally, you're spending money on capital improvements (common areas and units) to, hopefully, rent those units at a higher rent.

With me so far?

Goddamn syndicators: Part Deux

I regularly take shots at the syndicator crowd, and LPs often say to me, "OK, well, how am I supposed to know these people are ripping me off?"

It's a fair question. Today, we're gonna examine a current offering from Rise48. Buckle the fuck up. Grab some coffee, gin, and your favorite huffing glue; this is gonna be a long one. My magnum opus. Bookmark and refer to often.

First, some ground rules. I don't know anyone at Rise48 or Cochran Capital (more on them later), and I don't care enough about these people to get into a legal battle.

I assume that what I write will make its way to one of them, and it will piss them off. To that end, we are going to stick to the facts as presented on the offering documents, and the questions I would as if I were a potential LP.

I don't have a high opinion of these types of operators. They prey on retail investors with the swan song of "passive income" and "double your money in five years while we do the work." Many of these investors can't afford to lose the 50k-100k they are investing. Our dollar buys less today than it did five years ago, and you can't blame people who feel stuck looking for a way out.

Not every syndicator is a scumbag, not every Rise48 deal sucks. I'm going to teach you what little I've learned over the years so perhaps you can make an informed decision about investing in a multifamily syndication.

GPs are selling a product (returns) to customers (LPs, you) so it's fair to ask questions about the product you're buying.

And last but not least, I've never raised a dime on Twitter and I don't have any use for retail capital. The size deals we buy don't syndicate well. Consider this probono work. All I ask that you share this knowledge with someone who may be considering an investment.

There's no grand plan, no purpose. At least, not in the way we're taught to think.

Tomorrow, each of us is one day closer to death. Sands through an hourglass. Most of the things you chase don't want to be caught, and you don't actually want them. It's a figment. Do X job to build Y house to live Z life. It's a pattern we put too much stock in.

We accumulate to accumulate. To show others what we've done, but it's silly. It's performative unless it truly brings you joy. Life is complex, brutally so at times.

And beautiful.

Gonna take a quick break from the usual bullshit to provide some value to aspiring multifamily investors.

If you believe real estate is a ceaseless battle against entropy (I do) and your success is a function of winning that battle (it is) then let's dig into financials. For this lesson, I'll assume you have little/no working knowledge of multifamily investing.

One of the first things you'll be sent is an income statement that typically covers the past 12 months. We call this a "T12" or trailing 12. Understanding this is make or break.

Ahhhh...distressed multifamily investing.

There's a few interesting dynamics at play right now, and because I've got some time on my hands, we're gonna talk about them.

Here's a story about funds, syndicators, and the law of "even distribution of idiots" Distress in multifamily is currently showing up in two pockets; dogshit deals and brand-new construction. Two ends of a barbell.

Others are having challenges to be fair, but these two sectors are...what's the term...fucked. Yeah, that's it. Fucked.

Wanna start a real estate investing business? Here’s A way. It’s not the “only way” just the only path I know.

The best thing you can be on Twitter is a person who is acutely aware of the edges of their expertise. I’ll do my best to honor that here. First, you need specific expertise and a real investment thesis. I’ve covered both on here before, but they are “must haves”

Assuming you have those, giddy up!

Random helpful real estate content.

You could pay some cuck $5,000 for his MasterClass, or simply put up with my bullshit long enough for a few stray nuggets of wisdom.

Said nuggets below. Whenever we look at a potential investment, we ask a few very important questions. I don't know if they are "the most" important, but they're critical to us and I would encourage you to think about them.

So, you wanna start a real estate investment business.

I’m not talking about flipping a few homes or buying a storage facility in fuckall nowhere. I’m talking about a real company that will enrich you, your team, and your LPs while putting you on the cover of trade magazines. Hard work and intelligence are table stakes; you’ll need to get incredibly lucky along the way.

To those of you softly murmuring, “fuck yea,” let’s dig in.

Here's one of my first assignments (in red) when I began my career in real estate. It's perhaps the most useless piece of real estate in Boston, and I was tasked with selling it.

I did not, no one has

The seller wanted 14M at the time, a number seemingly pulled out of thin air. I cold-called a bunch of real estate brokers with the same pitch. "I wanna learn affordable housing. I'll work for free a few days a week, but I need to bartend at night. Just teach me."

The first guy who said yes was (still is) a piece of shit luxury condo sales broker.

Here’s a depressingly accurate way to think about affordable housing.

The need will always outstrip supply. People ask me “how do we solve the affordable housing problem” and my simple answer is “we don’t.” At least not in the way they’re thinking. All the inputs (land, construction, payroll, etc) are at market rate, whatever that means, and the rents need to be “below market”

Which typically means subsidy in a variety of forms.

Trouble is, subsidy is limited and will never (imo) catch demand.

I've been talking a lot of shit about idiot lenders lately, but it's well deserved.

In what may become a bit of a theme around here, I'd like to submit the first installment of the "Idiot Lender Chronicles."

Let's roll. We're evaluating purchasing a tranche of loans from a large lender. Thousands of units in markets across the country, with a variety of sponsors.

It's a large, well-known lender with a multi-billion dollar portfolio. I had a call with the CEO last week, and it was insane.

The music is slowing. Here's what I'm seeing out there.

Owners who need to sell, for a variety of reasons, are in trouble. The market has changed, and they're trying to recoup their equity, which ain't happening.

Active price discovery. Brokers who haven't been in the buisness long are panicking because their business has virtually stopped. They're reaching out to these troubled owners and overpromising on pricing to try and get listings.

We call this "buying the listing."

Been quiet lately. Been busy.

We are in the process of purchasing the portfolio of a well-known syndicator, and shit is fucked up.

I'm not looking to spread doom, just sharing what's happening to multiple groups right now. It's a large portfolio, well north of 10k units across the US. Right off the bat, 50% of the deals are worth less than the loan balance.

Hundreds of millions of LP dollars are gone in a matter of 12-24 months.

If you're thinking about starting your own business, I would encourage you to read this.

@sweatystartup posted something that got my wheels turning. It's not really advice; I'm a stranger, and advice from strangers can be self-serving, but it will be honest.

Here goes.. Early in my career, I was a really good employee, for the first 3-6 months anyway. I would get super engaged, try to understand all parts of the company and work my ass off.

I would also get bored if my job was too siloed. Or resent my boss if I didn't have enough autonomy.

Who's ready to have some fun with affordable housing corruption?

Haven't done one of these in a while, but let's go ahead and expose some eye-watering grift. If I've done this correctly, you'll be very angry at the end.

Saddle up. There is a deal for sale in a major metro for 350k per unit. It was built in 1970. If you're thinking "that sounds like a shitload of money for a deal built in the 1970s," you're correct.

Here's how it all works.

If you're just getting started in real estate, perhaps you'll find this helpful.

Imagine you have an hourglass full of sand. The amount of sand in the top represents the amount of time you have to be "in real estate" before doing any deals. Sand amount and flow rate vary by person. Family money, connections, savings, education, etc. But the sand is gonna start flowing.

Lots of people like to fuck around and moonlight as real estate people, but then the sand runs out, and they are in the wind.

Which is fine.

Some advice for those getting started in multifamily investing on how to not lose all your money because you didn't know any better.

Get a zoning report (~$1,000) and pay close attention to what it says about parking.

If it says "legal," we're done here. But... If it says "Legal - nonconforming," you've got some wood to chop.

Typically, that means the amount of parking you have was up to code when your property was built, but the code has changed since then.

"Well, I'm grandfathered"

Uhh, sure thing, dummy. Good luck.

I pissed off a lot of you yesterday, and I've decided to double down.

Here's a GP deck I saw today that was sent to me in response to my poll about grift/idiocy. It's a rough C multifamily deal in Florida.

Let's start with the fees. Acq. fee: 3% (of PP)
AM fee: 2%
Pursuit costs: 250k
Financing fee: 2% (bridge) plus 1% on refi
Loan guaranty: 3% of l.a.
Dispo: 1%
Equity placement: 3% of equity
CM fee: 4%

Pref: 7%
Promote: 30%

Alright, f*ck it.

Let’s talk about the most painful reality of the affordable housing business. You having a good night so far? Yea? Terrific, because I’m gonna ruin it.

Let’s chop it up. First, for our purposes, affordable housing should be thought of as any type of housing where a government subsidy of some kind is being used to offer rent at a below market price.

There are many programs (LIHTC, Section 8, etc) but that’s not important here.