Formosa Equity

11/20/2025

# # Why the Wealthy Invest in Alternative Assets # #

Here’s a rough estimate of how much exposure the wealthy have in private alternative assets (commercial real estate private equity, oil & gas, VC fund, debt fund, sports team, etc.)

Billionaires: likely 40% - 50%
Family offices: 20% - 30%
Institutions: 10% - 20%

By comparison, the average individuals:

11/04/2025

Recently got my hands on an internal memo from a commercial real estate development and investment firm with almost 80 years of history. Company leaders were asked to list lessons learned during a severe southeast housing market downturn.

Although written 35+ years ago, it contained very relevant industry insights that still apply today. Sharing some good ones here, starting with my favorite:

“ego seems to sometimes stretch proformas”

“we did not know we were in a bad market until it was very bad. Remember, it doesn’t pay to say ‘it can’t get worse or last much longer’”

“don’t believe just because rents have gone up at 5% per year for five years, that they can’t or won’t drop 25% in one year”

“a good market is the best time to institute cost controls and achieve operating efficiencies on projects, divisions, and region”

“don’t assume that a project will exceed the market by 10%; project should work at market or down 10%”

“don’t build / buy just because there is (cheap) capital available to do so”

“stay lean even if you can afford to get fat” & “run lean operation - but do not cut muscle”

“investing too much cash and working capital in losing projects”

“do not follow market down - lead the market”

“do not lag a market decline in rental rates for signing leases. The longer you wait, the more expensive it gets”

“do fewer deals and do them better”

“say ‘no’ more often to deals, people or whatever”

“avoid the delusion that particular markets or ‘things will improve’ faster than they really will”

“terminate weak links and make the tough decisions quickly”

“success lulled us into a sense of complacency”

10/30/2025

Boo! You would think multifamily operators have learned enough lessons after the down cycle that began in 2022, marked by high interest rates, expense inflation, and the squeeze on the tenant’s financial stability.

I still see spooky deals with optimistic, sometimes unrealistic assumptions being marketed this year (even from veteran GPs too). Considering the economic uncertainties and weakening jobs data, there needs to be more defensive considerations even if a deal does have clear value-add upsides.

Opportunities still exist now, especially in markets that are slowly absorbing record level supply shocks. These markets are going through a big valuation reset.

Investors must understand how different assumptions can support (or sink) a deal and find balance between risks and returns.

We’re not in the same period from 2015-2021 where you can just ride the real estate rocket ship and get lucky with mistakes.

Comment “Red Flags” and I’ll send you my ebook on 63 red flags to watch for in a multifamily opportunity.

Happy Halloween 🎃

10/22/2025

Around this time of the year is when I create property budgets for next year. This involves looking through the YTD actual financials and make educated forecast for next year’s financial performance.

I review these actuals vs. budgets (the delta is called variance) on regular intervals to assess gaps and areas of improvement to ensure the property performance stays on track.

What budgeting IS:
✅ Solving for the underwritten NOI - Identify income / expense opportunities needed to meet next year’s NOI target
✅ Anticipate increases and seasonal expenses (taxes, insurance renewals, snow removal)
✅ Set operational goals for the PM to execute (maintain x% physical and y% economic vacancy)

What budgeting ISN’T:
❌ Taking the T12 values and slap an x% increase and call it done
❌ Simply normalizing expenses across 12 months
❌ Use the same P/L assumption from underwriting (budgeting for first year of operation at takeover is an exception)

My multifamily peers - what other intelligence / goals do you guys cover during budgeting?

09/19/2025

The Fed just announced their first rate cut in 2025, while citing labor market as a growing risk. Inflation isn’t gone yet and the FOMC remains cautious and data driven with emphasis on risk management.

We had been including a recession analysis in our underwriting since the beginning of this year - it’s our way to stress test the target acquisition to manage risks.

Here are some assumptions that go into our stress test that covers a three year span:

- 0% rent growth YoY
- 5% expense inflation YoY
- 20% economic vacancy (physical, bad debt, loss to lease)

We assess whether the property can still service debt and how much net cash flow can be expected in this extreme scenario. Both are simple indicators of how well the property can survive tough times and provide confidence in our offer price.

This is just one of many ways to mitigate risks on top of buying right and financing right. Take care of the downsides, and the upsides will take care of themselves.

https://formosaequity.com

09/07/2025

Some say being property asset manager is like being a detective. The ability to deep dive through numbers, connect the dots, and stay at the high level to stay on course are all equally important skillsets.

As the asset manager working on our out of state multifamily property, here’s what I do regularly and the questions I ask constantly:

💰 Rent Roll Review:
- Check delinquencies: how chronic is late payment / non-collection, and do we have the right tenants?
- Lease expirations: are there months we are overly exposed and how to get ahead
- Look for under captured other income like utility, pest control, etc.
- Are we hitting the projected rents?

⚒️ Expense and Work Order Audit:
- Look for any unusual / recurring expenses that could indicate systemic issues
- Are there any outstanding work orders that are very stale? Fast response to tenant requests builds trust and community - a win-win for both the tenant and the investors
- Are there any weird utility spikes that could indicate a leak somewhere? Cut down utility cost = NOI boost = property value boost

📚 Market and Leasing Research:
- Check the local competitions: are we still competitively priced considering the property condition, amenities, and other fees?
- Set renewal targets: account for the seasonality and incentivize tenants to renew rather than force unit turnovers
- How is the conversion rate vs. past? Should we consider dropping rent or offer concessions? What kind of feedback are we getting from showings?
- Do we have the best photos and does our listing encourage prospects to inquire showing?

🏦 Cash and CAPEX Management:
- Check the actual spend vs. the underwritten budget, decide whether to continue spending, cutback, or reallocate budget
- Is the CAPEX providing enough ROI? Should we reduce the scope if the market is soft?
- Research the type of exterior work still needed to improve the curb appeal l, use AI to create exterior improvement visuals
- Are there seasonal promotions that we can buy bulk materials for cheap?
- Check the cash balance: can we continue distribution and for how much?

🕵🏻‍♂️ Instead of catching the suspect, I try to capture the risks and the untapped value in the proper

08/20/2025

Loan maturity is discussed in both Newmark’s 2Q25 Multifamily Capital Markets report and James Eng’s monthly webinar: https://youtu.be/eIyuxt_SGHU?si=APQXQzjxGTEj6KiM

$769 billion will mature between 2025 and 2027. A large portion of these loans are short-term loans originated during the early covid bubble ear and now face a vastly different market environment. This situation is leading to a wave of foreclosures and the foreclosure pace is increasing across property class (A/B/C).

Many sunbelt markets are the epicenter for this activity because they saw a massive amount of new construction, which has suppressed rent growth, and high expense inflation. These properties are now “underwater,” with the loan balance exceeding the property’s current market value. Sellers become motivated when they run out of time for:
- rate cuts
- lower treasuries
- reduced taxes and insurance

The “pretend and extend” is nearing the end and the increased transactional activities (especially in DFW) are resetting the bridge loan property cost basis.

The Silver Lining for the Industry

1. Record-Breaking Absorption:
Demand for multifamily units has surged to its highest level on record. In Q2 2025, demand rose to 227,010 units, a 50.2% increase YoY. Annual demand reached an all-time high of 794,160 units. This represents 4.0% of existing inventory, a level that surpasses the post-COVID mobility surge and is significantly above the long-term average of 1.2%. High homeownership costs, with the average 30-year fixed-rate mortgage at high 6%, continue to make renting a more cost-effective option, further fueling rental demand.

2. Easing Supply Growth:
While demand is soaring, the supply of new units is decreasing. Quarterly supply fell to 108,715 units, down 31.9% from its peak in Q3 2024. This trend is expected to continue, with a projected additional decline of 24.9% over the next 12 months. The number of markets experiencing high inventory growth (4.0% or more) is expected to drop from 10 to just two by Q2 2026. This deceleration is expected to support stronger rent growth in the future.

Investor Opportunities

The primary but time limited opportunity is to purchase assets from owners who are facing foreclosure or are forced to sell. These sellers are highly motivated because they cannot afford their new debt payments and cannot refinance. This creates a buyer’s market for those with available capital.

Acquiring these financially distressed (but not operationally) class A/B properties at a significantly lower cost basis creates a compelling long term capital preservation and appreciation strategy as the multifamily industry recovers from the bottom.

08/14/2025

I’ve heard the following a few times this year:

“I am interested in multifamily investing but don’t have a lot of cash on hand.”

A Self-Directed IRA (SDIRA) is like a traditional or Roth IRA but allows you to invest in alternative assets like real estate syndications. There are several IRA custodians (Quest Trust, Equity Trust) that allow alternative investments but there are some rules:

- All income and gains, as well as expenses must be handled within the SDIRA (simple to meet)
- You cannot personally live or use or manage the property (easy to meet for a passive investment)
- There are more paperwork involved and must be done in a very timely manner (prep ahead and stay on top of communication and you will be fine)

Sounds appealing? But there is a catch, as always:

- Expect setup, transaction, and annual fees from the IRA custodian, each is generally a few hundred bucks
- UBIT tax (Unrelated Business Income Tax) may apply. If the property is purchased with a mortgage, the portion of profits attributable to the loan amount can be taxable to the IRA. The tax rate can be up to 37%

The Takeaway:

- SDIRA is a great way to diversify from limited investment options offered in brokerages like Fidelity and Vanguard
- Understand how the deal is leveraged and estimate your tax liability accordingly (the leverage itself is worthy of another post)
- Vet the syndicator and consult your CPA if you chose to invest using SDIRA

07/11/2025

I may not get my $25k back.

Back in the end of 2022 I invested as a limited partner in a multifamily syndication that was supposed to sell for a profit in three to five years.

The operator has a strong track record with many past exits, the property was built in 2016, it checked many boxes.

I thought I had done enough homework and it was the right investment.

Fast forward three years, the property is nowhere ready to be sold at a profit.

It is not at the risk of foreclosure (yet), but I am prepared to not make any profits and would be happy to just get my invested $25k back.

The mistake? Not knowing enough industry / market specific intel and ways to lose money in commercial real estate.

Lessons learned: Although multifamily is historically stable, online based self education can only offer a glimpse of this asset class. Network with multifamily operators is a must before making an investing decision.

Learn from their mistakes. You win by not losing.

I have a strong conviction in this asset class and don’t want my network to make the same mistake I made.

So I launched Formosa Equity in 2023 to help my network understand multifamily investing and offer exclusive opportunities.

Get this ebook that summarizes the red flags I have seen and potential pitfalls that can put your hard earned capital at risk:
https://formosaequity.cashflowportal.com/leads/63-red-flags

Or, sign up to our newsletter, where I share relevant industry insights: https://formosaequity.cashflowportal.com/leads/fe-newsletter

06/19/2025

🥱Tired of gurus selling courses and flashy marketing?

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Every opportunity we share with our investors is one we personally invest in.

You deserve aligned incentives.

Join our newsletter, where we share relevant multifamily industry trends:

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06/14/2025

There is plenty of information on the $ upsides and tax benefits in real estate investing.

But the investing downside risks don’t get mentioned enough.

And sometimes investors don’t know what to look for.

Warren Buffet’s first rule on investing: “Never lose money.”

His second rule is, “Don’t forget rule number one.”

In our free e-book I share 63 red flags to look for in multifamily syndication deals.

Protect your assets and sleep well at night.

📩 Get the e-book here: https://formosaequity.cashflowportal.com/leads/63-red-flags

What we do: https://formosaequity.com/

06/12/2025

“REITs? SFH Rentals? Airbnb? Syndications? It’s like financial speed dating.”

You don’t need more options. You need clarity.

We help busy professionals cut through the noise and learn the forces that move real estate investing.

Our newsletter breaks it all down. Free, simple, focused.

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