Dominique Mandato (the president of InvestPlus Properties) is very credible and runs a good business from a property selection and management point-of-view .. but his fund has very high fees ..
a) the usual sales commissions on funds raised
b) 3% acquisition fee of GROSS ASSET VALUE .. which is another 8-12% of the money raised (more or less) assuming 25% - 30% cash down (Example: $3M is raised to buy several buildings worth $10M: $300,000 would be the acquisition fee)
c) plus the usually undisclosed marketing, legal, audit, office admin expenses which usually run 4-10% depending on funds raised or at management discretion as per the OM
d) 10% monthly management fee of rent collected
Adding these fees shows that you are in the hole 22% to 30% after the first building acquisition. Thus, property value has to rise substantially to make this up. Add reserve to cover ongoing management fees and upgrades perhaps 65 to 70 cents on the investor dollar is actual invested in the building.. thus a 40-50% gain has to happen on this net investment to just get back to 100% of the money invested. This will happen in time .. hence my 5th point
e) UNPROVEN "TRACK RECORD" .. as there is no proof that he actually has delivered any positive results to investors in any larger syndications / LPs with these very high upfront and ongoing fees. InvestPlus proven track record to a large degree is on earlier assets with no or very low fees. The rest (of LP based investments) is just building specific without any consideration for those fees
It is critical that UPFRONT and ongoing FEES ARE LOW for investors to make any money.
f) the InvestPlus IV fund was evolved from Evolve, a firm that raised about $1M in 2009/early 2010 but did not buy any building after spending a significant amount of the money raised on fees and expenses. Thus, this fund especially has EVEN HIGHER EXPENSES .. therefore check the financial statements carefully and look for that disclosure. The "preferred return" of 9% will be very difficult to achieve in my humble opinion. Even return of capital .. let alone return on capital .. should be seriously questioned in this fund before you invest !
It is also critical to understand that a property that is appraised as condos with a certain value is NOT sellable at those values unless substantial costs are deducted, such as: realtor fees, marketing fees, reserve funds, upgrades .. so therefore a claim: "We bought property for 85/door and it is now appraised at 115/door" is misleading as it omits not only those aforementioned fees but also those asset specific ones.
g) Somewhat misleading marketing / brochure (in addition to the "proven" track record): the brochure states "General Partner compensation is based on performance" .. but given those very high initial and ongoing fees that statement is not true ! perhaps it should state: "Additional performance based fees in addition to initial high acquisition and sales distribution fees"
Disclosure: We compete with InvestPlus properties [and other firms I am happy to give you an opinion on] .. and all of our initial and ongoing fees are lower or substantially lower and we have a PROVEN track record as disclosed on our website.
One thing that's great about Thomas' funds, is that the commission information is easy to find right on his website, as compared to some of his competitors who have it in a footnote at the bottom of page 47 of the offering memorandum.
Thanks Thomas for giving me the opportunity to validate my credibility.
Damara, please understand the following are just the facts of our fund and you should consult anyone who actually has experienced investing with InvestPlus and read our offering memorandum to substantiate these facts, as I believe everyone should do before investing in any opportunity. We would also be happy to share references with you.
In general I do not share my opinion on other funds as I believe it is not my place to do so. Naturally, being a business owner myself, as Thomas would agree, I am biased toward my own fund.
Ok, so here are the facts.
[*]Our commission fees are actually up to 7% of funds raised. (not sure where Thomas gets 10%)
[*]Acquisitions fees are 3% of Purchase price of building
[*]Management fees are 10% of gross monthly income which includes third party management (5%) and therefore works out to about 0.5% Asset Management (not 1%)
[*]Our current offering offers a 70/30 split to the investor
There is a performance rate (hurdle rate) of return of 9%. That means you as the investor get all of your money back first, plus 9%, before we split the profits 70/30. Others don't have a performance rate of return. They split the profits as soon as your money is returned in full.
So I'm puzzled where Thomas get's his information.
While we're comparing notes:
We don't have a refinance fee of 0.7%
We don't have an administration fee of 1% of gross funds raised.
As for the fund, yes we stepped in to replace Evolve at the request of the Limited Partners and I'm not sure where Thomas gets $1M raised and 50% of funds were spent. Actual numbers would suggest about 25% of funds raised or $218,000 of $940,000 were used mainly for promotion, up front legal setup costs and commissions from the previous General Partner. I would agree, this is high by our standards as typical costs runs us between $150,000 to $175,000, however it was as a result of these cost overruns that InvestPlus was voted in as the new General Partner to take over and drive this investment to a success which I will come to in a second.
Having an unproven track record is completely false. How then would you explain the several investors who have invested with us and have all of their money back, plus 30% return and still own their equity position in the property? How would you explain our recent sale of an 18 unit apartment building we bought for $50k/door and sold for $87.5k/door resulting in an annual ROI of 29% to our investors? And yes this after selling and closing costs. With over 220 doors transacted and another 122 under contract to purchase before June 2011, none of our clients have ever lost any money
The vehicle in which we used to create the syndication has no bearing on our performance. Our clients choose to invest with us based on our ability to find great properties, negotiate great terms and provide a transparent and lucrative investment. Please click here for more details on our track record. http://www.investplusproperties.com/invest/track_record.html
The InvestPlus Opportunity Fund IV LP
Since we've taken over the fund in summer of 2010, we have purchased a 33-suite condominium building. We have since renovated the building, taken the Rent Roll from $16k/month to $25k/month and have taken the building vacancy from 39% to 0 as of Dec 1 2010. The building is still full. This was all done under budget and ahead of schedule.
We also have a pending deal on 14 Condos in Mission, Calgary priced at $105k/door. Current retail price for these condos are $175k/door. I admit, I don't have an appraisal but I do have comparables. If you want to calculate selling and closing costs, add another $10k/door and say $15k/ door for a nice upgrade. That's still $45k/door spread per unit. This will be part of our Opportunity Fund IV LP.
We also have an unconditional offer on a 20 suiter in Edmonton for $85.5k/door. The value of this building after spending $6k/door will be $101,250/door. In this case we have a certified appraisal for the as is value (appraised at $92k/door) and post upgrade value.
Damara, I understand you recently attended one of our webinars and were speaking to one of our representatives, for your own edification; our representatives are licensed Exempt Market Representative with the Alberta Securities Commission and are qualified to provide
suitability in regards to all investment products legally offered within the Exempt Market Place.
You can also get a YouTube update of our 33 suiter:
This debate is quite helpful. I apologize for some of my statements as I have been mis-informed. I have corrected my above post in this regard.
My main point though, not necessarily for Dominic's fund, but in general with many exempt market products: the initial performance independent fees should be AS LOW AS POSSIBLE. Ideally 0. No uplifting. No or certainly no heavy performance independent fees UPFRONT. However, it is hard to find sales people that sell products with 0 today and a share of equity tomorrow, on success only.
Hence, Dominic's statement on his brochure "General Partner compensation is based on performance" is somewhat misleading (to be polite). As the GP is paid very well (e.g. 8-12% acquisition fee on cash raised plus sales commission .. closing on 20% upfront independent of any performance) even if the venture is a complete or partial failure or only a low return fund, s.th. that is often know only years later .. after all costs to operate the venture are truly known. The motivation with such an early and high fee is: raise as much money and buy as many buildings with high leverage !
Thus, the "classic REIN JV model": of 50/50 is actually the best. Operators does all the work .. but get nothing if he/she screws up. But gets filthy rich if investor get filthy rich. Win/win !
However this model is hard to scale and works only if one has another source of income .. as real estate projects are a LOT OF WORK .. often upfront.
Therefore fees could be upfront .. to compensate for work .. but the investor might lose .. as many folks did when investing with LibertyGate, Concrete Equities, Platinum Equities, Shire, BridgeCreek .. to name a few of the now bankrupt or foreclosed or seriously in trouble LPs.
I strongly advocate (and thus, design my LPs that way): lower fees
upfront .. as low as realistically possible .. then more equity at the
end when all the expenses and true asset values are known ! Like any
operator I want to get rich too .. but only if the investor gets rich !
Thats' our guiding philosophy when designing a fee/equity structure for
a real estate syndication .. and it seems to have served us and 500+
investors well so far !!
[quote user=DomenicSMandato]Since we've taken over the fund in summer of 2010, we have purchased a 33-suite condominium building. We have since renovated the building, taken the Rent Roll from $16k/month to $25k/month and have taken the building vacancy from 39% to 0 as of Dec 1 2010. The building is still full. This was all done under budget and ahead of schedule.
Congratulations. One quick question though, why did you lower the average rent on the building after renovating it?
39% of a 33 suite building is 13 suites vacant on purchase, leaving 20 rented. A 16,000 rent roll divided by 20 suites is an average rent of $800 per month. If the building is now full (0% vacancy) that would imply 25,000 per month divided over 33 suites, or an average rent of $757 per month.
If the suites which were occupied at purchase kept their original tenants (which is an assumption that I have no way of validating) you'd have added 9000 of gross rental income divided by 13 suites, or an average rent of $692 per month.
Were the vacant suites different sizes than the suites that were occupied (ie 1 bed instead of 2 bed) or did you feel the need to discount initially to fill the building, and expect to be able to raise rents in a year? Also, your video mentioned you'd likely put in double sinks when you did your reno, did you add dishwashers as well? Anyway, it looks like your building is in great repair considering the age/neighbourhood.
[quote user=bizaro86]One thing that's great about Thomas' funds, is that the commission information is easy to find right on his website, as compared to some of his competitors who have it in a footnote at the bottom of page 47 of the offering memorandum.
That's an obvious sign of someone who feels that they are offering good value for money.
I should have mentioned that this wasn't targetted at the folks from InvestPlus, but rather a certain land syndication someone pitched me once. The 2 hours it took me to read that memorandum is an evening I'll never get back, and I'll certainly never invest with someone who puts a big huge uplift on the land before I get in on it, and tries to hide the info in a footnote.