Go Big with Gib Podcast
Go Big with Gib is a podcast for professionals, business owners and entrepreneurs to talk about their big wins.
Go Big with Gib Podcast
Ep 55. Unlocking Lucrative Returns: Gib Irons' First Real Estate Syndication Adventure
My journey into passive investing began with a significant $500,000 investment in the Ventura Apartments, where I've navigated challenges and opportunities. The episode reflects on capital structure, projected returns, and lessons learned along the way.
• Exploring my first passive investment in real estate
• Analyzing the capital stack and financing structure
• Discussing the significance of projected returns
• Detailing the renovation business plan for the property
• Sharing current status and occupancy challenges
• Key takeaways for new passive investors
• Recommendations for future investment strategies
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Welcome to the Go Big With Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins. Hey guys, and welcome to this episode of Go Big With Gibb. Gibb Irons here with you today. Host of the podcast. Thank you for joining us.
Speaker 1:So today I want to talk about my very first passive investment. I've been thinking over the last couple of months. I field so many investor calls every day and I talk to folks about the benefits of passive investing, but I thought it might be cool to kind of take a little bit of a dive into my very first investment, talk about what the projections were and what has actually happened in reality and kind of give you a little background on that story. I made my first passive investment as a limited partner in a real estate syndication. I funded the deal on October 31st of 2022. I personally invested $500,000. We closed on the property on December 21st of 2022 and thereafter began my very first passive investment. So the deal was called Aria Ventura at the time and the lead sponsor has since rebranded the deal and is now calling the property Ventura. But Ventura Apartment Homes was a two property 660 unit class b portfolio in Arlington, texas.
Speaker 1:Let's talk a little bit about the capital stack. So the purchase price was $93 million and that consisted of $24 million from retail investors like myself, $21 million in preferred equity from a company called Fortress, and that preferred equity came at a price of 16.25%. And then the debt on the property we took a 60, it was a $65 million loan for a total capital stack of $111 million. Let's talk a little bit about the debt structure. So we obtained a bridge loan back in 2022. Everybody was doing bridge loans, which is essentially floating interest rate debt, and they were buying rate caps. Earlier in 2022, at the very beginning of 2022, a lot of people were doing bridge loans, but they were not purchasing rate caps. Between 2022 and 2024, we saw those unprecedented interest rate hikes from the Federal Reserve. As those hikes started to occur in 2022, people started always buying a rate cap with a bridge loan, which we fortunately did. Our bridge loan terms were it was 3.1% over SOFR, with a two-year interest rate cap. We used low leverage. It was a 58% loan to cost.
Speaker 1:Now I want to talk to you a little bit about the projected returns and what interested me in this specific deal. The projected returns included a very interesting play on bonus depreciation. Play on bonus depreciation. Back in 2022, we had 100% bonus depreciation and this opportunity offered 1.5x bonus depreciation. So for every dollar that you invested as a limited partner, the projected depreciation was $1.50. The projected internal rate of return was 21% and the projected equity multiple was 2.5% on a five-year hold, based on the return profile and the depreciation. This was a pretty sexy opportunity to get such a good return and get all this bonus depreciation, which I actually needed really badly in 2022. Which I actually needed really badly in 2022. That was a year where I really needed to have some paper losses that I could use to offset my attorney income.
Speaker 1:Okay, so let's talk a little bit about the business plan. So the business plan was to renovate the units and refinance the property within 24 to 36 months of ownership using agency debt, so that we could satisfy the preferred equity requirements. What the sponsor sought to do was to do a really heavy CapEx renovation on the property, focusing on interior unit renovations, and I believe there was like only 15% of the units had been renovated. So 85% of the units needed to be renovated. They were classic units that were underperforming, they were below market rents and we knew that if we did a significant interior renovation, we could raise rents and bring the property up to market.
Speaker 1:This episode of Go Big with Gibb is brought to you by Irons Equity. At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family. If you want to secure your financial future, go to investwithgibbcom to schedule a 30-minute introductory meeting with me, gibb Irons Again, that's investwithgibbcom. So now let's talk a little bit about where we are now. So again, this investment we closed on this property on December 21st of 2022. I'm recording this episode now, in January of 2025. And I just want to talk to you a little bit about where we ended up. So obviously, the deal has not gone full cycle yet and I don't have you know. In hindsight we're going to really be able to tell you how things played out and, to some extent, the jury is still out on this opportunity. But let's talk about where we are at the current moment.
Speaker 1:As I mentioned before, the sponsor had projected 1.5x bonus depreciation. Because we had a lot of interest from retail investors like myself, the sponsor was able to raise more money from retail investors like myself. The sponsor was able to raise more money from retail investors and the sponsor took less money from the preferred equity vendor than we had originally anticipated and for that reason, we got a little bit less depreciation. We ended up with 1.1x bonus depreciation. As I mentioned earlier, I personally invested $500,000, and I had a K-1 loss of $550,000. In terms of renovations, again, this is a 660-unit property. We've now owned the property for 24 months and in that time period we have renovated 265 units. So we've renovated almost 50% of the units. We're currently renovating five units per month and hope to complete the renovations in 2025.
Speaker 1:So far, there have not been any cash flow distributions and this is one of the few real estate syndications that I've invested in that has not been paying out regular, consistent cash flow distributions. And, that being said, the sponsor was pretty upfront with us when we first acquired the property that there weren't going to be cash flow distributions during the initial couple of years. First, the goal is to pay all fortress, push them out of the deal, give them their preferred return and then the limited partners stand to enjoy all of the upside. So the lack of cash flow distributions was expected and that's okay. In fact, our two-year rate cap has now expired and we've got to purchase a new rate cap, and so any extra cash flow is going to be used for that purpose. Occupancy on the property is currently at 90%. The sponsor had projected on the pro forma that they could have rent somewhere between 93 and 95% by this time, so occupancy is down a little bit. We contribute that to there being there was just a huge amount of supply that came available in 2024. And fortunately, there is no new supply coming to the market in 2025, so we ought to be able to increase our occupancy while at the same time increasing our rental rates. That's kind of where we're at with the Ventura apartment home deal.
Speaker 1:Again, I was not a general partner on this deal. I'm a limited partner. This is my very first LP investment and, in terms of key takeaways, I want to share a couple of things with you that I would do differently. With this being my very first investment as a limited partner, I think, in hindsight, $500,000 was probably way too much. You know most of these deals, you can invest $50,000 or $100,000 as the minimum investment. I think, in hindsight, I wish maybe I had invested a smaller amount, even if it was $250,000,.
Speaker 1:I think it's best for a new passive investor to spread out their money a little bit more rather than making such a substantial contribution. Another thing I would say is that I did personally know the sponsor here. This deal came from Mitch Voss over at Windmass Capital and I know him and he gave a live presentation that I attended. I did have a lot of comfort with the sponsor and I did a good job, I think, of doing my due diligence on the front end. Related to that, if you're a new passive investor, I'd encourage you to dip your foot in the water slow. If you want to invest $50,000 or $100,000 on your first deal, that may be the best way to go. I hope that talking about my experience with my first investment has been helpful to you. I look forward to seeing you next time, take care. Thank you for listening to this episode of Go Big with Gibb. If you haven't already, go follow us on social media at Gibb Irons. We'll see you next time.