First LP deal went full cycle at 3.5 years, 1.6x on $50k

Six months into research with nothing done, so the question I actually have: how did you find this sponsor at a point where you had zero deals of your own and no way to judge one? The reference call idea is good, I just don't know how anyone gets to the point of having a sponsor to ask references from.

$8,500 a unit for a 1998 build interior is a real budget, not a lipstick number, so I'll believe the $185 premium. What I want to know is whether the last 12 they deferred came out of the exit price. A buyer touring 84 renovated and 12 classic units prices the 12 as work to do and usually charges you more than your own cost to do it.

Also 71% on insurance and payroll over. Which line was actually bigger in dollars? Payroll overruns on a 96-unit are usually a management problem and they tend not to fix themselves.

Working out what my first deal costs, so I'm interested in the cash timing rather than the multiple. $8,900 over 42 months on $50k is about 5% a year while it was invested, and the rest arrived in one lump at the end. Did the final $72,100 land as one wire, and how long between the closing and the money hitting your account?

Also, and forgive me if this is obvious, did the tax bill in the sale year eat into that number in a way the 1.6x doesn't show?

Taking these together.

@pike I got there sideways. I spent about a year going to two local meetups and reading everything a handful of sponsors published, then asked four of them for their full track record with projected against realized for every deal, including the dead ones. Two sent it. One sent a marketing deck and stopped answering when I asked again, which was useful information for free. The reference calls came out of the one who sent the real numbers.

@harrow payroll was the bigger dollar overrun, about $70k a year against budget, and it was a staffing turnover problem at the site that took them two attempts to fix. Insurance was around $58k of increase. On the deferred 12 units, yes, the buyer's broker used it in the negotiation. I don't know what it cost us because I only ever saw the final number.

@quarry I mostly agree and it's the reason my post says I read the projections before the loan terms. I got the benefit of a decision I didn't understand at the time. If that debt hadn't been assumable I think this is a five to seven year hold that ends near where it started.

@tally one wire, 31 days after closing, and the tax side of a sale year is genuinely a CPA conversation rather than something I can generalize about. My 1.6x is pre-tax and I should have said so.

The reference call to the worst deal is the single most transferable thing in this thread and it costs nothing. Stealing it.

How many deals did you look at and pass on before this one? I'm three months into a spreadsheet with 40 rows and no wire, and I can't tell if I'm being careful or just avoiding the decision.

What did the reporting actually look like month to month? I'm curious about the service side of this, meaning who produces the investor updates and whether a sponsor with good reporting is telling you something real about their operations or just employing a better writer.

Your 2023 story suggests the phone call mattered more than the document.

@quarry I'd split the difference with you. Assumable low fixed debt bought you the buyer pool. Trailing NOI of $605k against a going-in around $510k is still a 19% lift in three years on a 1998 build, which means somebody actually pushed rents and held expenses well enough that the number survived a 71% insurance renewal. Both things happened.

@sable the thing I do on every position now is track quarterly distributions against the original pro forma in one column, and the gap tells me whether the story I'm being told matches the money. Yours would have shown a red 2023 and a recovery. Did the sponsor ever explain in writing how they intended to make up the suspended pref, or did it just get settled at the waterfall?

The exit cap is where I'd push. You bought at 5.2 and sold at 5.0, so caps compressed 20 basis points on a 1998 build in a mid-size market between 2021 and 2024. That's not a normal outcome for that period, and it's the assumable debt showing up in the cap rate rather than in the price line.

Strip that out. If you sell at a 5.6 cap on $605k, that's $10.8m, minus 2% costs and a loan balance around $6.15m leaves about $4.4m of equity on $4.2m raised. After promote and with your distributions, you're at roughly return of capital. Your entire profit lives in 60 basis points of cap that a buyer paid for the loan.

Underwriting question for the room: how do you price assumable debt at entry without assuming rates stay high enough for it to be worth something at exit?

Asking the thing I'd be embarrassed to ask out loud: what does full cycle mean exactly? I've now read it four times in this room. Does it just mean bought, held, sold, everyone paid out and the entity closed?

And @sable when the distributions dropped to 3%, was there any point where you could have gotten out, or was the only choice to sit there and watch?

$8,500 a unit for interiors on a 1998 build is tight but doable if the plumbing and panels are sound. On a 96-unit of that vintage I'd have expected at least one surprise in the mechanicals. Did anything hit outside the interior budget, or did the 1998 age hold up?

Was the accredited check just a form you signed, or did they want documentation? Trying to work out what actually gets asked for at the subscription stage.

Starting from nothing here and the number that stops me is $50,000 as a minimum. @sable did you get to that from one place, or was it years of saving toward the one check? I'm asking because most of what I read about passive real estate just assumes you already have the fifty grand, skips right over the part where you have to come up with the fifty grand, and I'd rather hear how someone actually got there than read another explanation of a waterfall.