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Not All Sponsors Are Created Equal

What’s on My Mind this Week

This week I spent three days on the road, visiting some self-storage and mobile home parks with a sponsor. I asked a lot of detailed questions about the asset class, the location, the business strategy, and the structure of specific deals. It’s a good learning opportunity and also FUN! I don’t know about you, but my inbox is full of multifamily deals, from known or unknown sponsors. Every deal has a spectacular PROJECTED return and is always over-subscribed within days, if not in hours. As a risk manager, this is concerning. It seems that everybody is eager to invest in real estate to hedge inflation risk, however, fear of missing out may lead to a different type of risk. Here comes the dilemma: you want to invest, but not all sponsors are created equal. How can you tell whom you should invest with? Here is my approach: after I identify the asset classes and the states I want to invest in the current market environment, I will find all the active sponsors in that space. Then I look at their past performance. Here are some rules of thumb: • Everything being equal, longer history is better than shorter history Longer history means the sponsor survived different market conditions and they have more experience if the market goes south. • Everything being equal, the more disclosure, the better It’s very common that sponsors cherry-pick a few “home-run” deals, very few sponsors provide full transparency of all the deals they did, good or bad. If you happen to find them, you know you can trust them. • Distinguish skills and luck Multifamily hit a home run for the past few years. A lot of sponsors made spectacular returns. But how much is due to their skills (to improve NOI by increasing rent, reducing vacancy and expenses), how much can be attributed to luck (cap rate compression)? This is very important distinction, as luck is NOT repeatable, while skills are. At Sharpe Investor Group, we do a lot of research to distinguish the two and we only want to invest with the sponsors with the skills. If you want to know how we do it, scroll down to the bottom and schedule a call with us.

- Yan

Sharpe Investor Group Portfolio Update

ATM Fund Update

  • December tranche is open to investors now!

  • To recap, you will get

    • 20%-22% cash-on-cash return without any leverage

    • ~$20,000 tax in year 1 (assuming 40% tax bracket and you have passive income to write off)

    • 10-12% unlevered IRR every year

    • ZERO leverage and significant risk reduction

Book a Passive Investing Strategy Call

If you have any questions about your passive investment strategy, or you're just getting started, feel free to schedule a time with me (click on the link in my signature) or simply respond to this email.

Our Education and Contents

Some of you might be aware of our YouTube channel (search “Sharpe Investors” on YouTube). We recently re-organized the content and grouped them into the following playlists:

You can also visit our Facebook page:

Have a great weekend!

Invest with Confidence.

Yan Yan Sharpe Investor Group

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