Unlimited Money to Invest. Now What?

Question

Ok guys, this may be kind of a strange post. So I am an active (full time agent) real estate broker in Alabama. I have flipped countless houses. I own a pretty big portfolio of single family and small apartment complexes. I also own a property management company that has been open about four years and manages 150 or so properties for other owners. I also own a couple of small businesses where I am half owner and have a managing partner on those who handles the day to day operations. I say that because I have been presented an opportunity.

I have some investors that I partner with from time to time and we will do deal, make money and part ways until the next project. Things have always gone great and been profitable for everyone and still are going good.

Now, one of my investors is coming to me and wanting to create a business. He is open to pretty much anything. House flipping, commercial, apartments, businesses. He just wants it to be a formal business and not a one time project. (Essentially, open a quick books, leave the money invested with quarterly draws, long term type deal) I have no idea what to offer him or how to structure it. Things have always worked good on the one time projects so I'm not sure if he gave me lets say, 2 million dollars that I could even FIND enough good projects to keep that money making more. Or that I could have enough contractors to do the work.

I thought maybe I should find us an apartment complex but I feel it's in a bit of a bubble. Then I thought about doing a strip center development but the closes I've come to anything like that is negotiating commercial leases. Flips are slow growth, at a typical flip being 3-6 months in length and not having a whole lot of deals out there in my area. I typically ALREADY do 4-6 flips at a time on my own or with various partners.

Any suggestions on a business structure or area of real estate or business to look into?

David Thompson · Answer

Rameh,

I like 3 areas right now.  I continue to like large value add class B apartments in only the strongest markets.  Don't be fooled, this has long legs.  The data that scares folks is oversupply of Class A and that is what is confusing folks.  Additionally, trends favor affordable housing and self - storage.  These are 3 areas I'd look into.  Here's a few blogs that may get you started.  Prefer syndication approach.  Get yourself educated and partner up w/an expert who has experience and a deal pipeline if looking to syndicate yourself.  Self-storage conversion is an interesting area that I just talked w/Scott Meyer about at our recent Best Ever REI conference in Denver.  For mobile home parks, check out Kevin Bupp.  Review apts and self-storage blogs attached for some insights on these trends.

https://www.biggerpockets.com/blogs/9145/54155-sel...

https://www.biggerpockets.com/blogs/9145/53820-why...

Scott Meyers · Answer

Thanks David, and Welcome Rameh!

Obviously, we're bullish on Self-Storage, and I won't bore you with the details, but if you look around at the available deals in apartments, and other asset classes, they simply don't match the returns in self-Storage.

We have 5 Development deals in Self-Storage that we are syndicating and bringing on investors, with some pretty stellar returns.     If you want to learn more, you can send me a private message and I can share more.

Cheers,

Mike Dymski · Answer

Remeh, this is a good opportunity...which resulted from your hard work and success on your flips, buy and hold properties and your management company.  The opportunity to scale is either (1) obvious (i.e. you see opportunity that you are not able to capitalize on) or (2) its a multi-month process, at a minimum, to educate yourself on where to best deploy your (or someone else's) capital and time.  It's sounds like your existing businesses are not jumping off the page with opportunity (or you need to spend some serious time thinking through how you would scale each of them (and where you can get the best return).  I would suggest that apartments, mobile home parks or self storage (based on your existing experience and resources) could be right in your wheelhouse with some education (podcasts, books, mentoring, networking with brokers and, most importantly, lots of deal analysis).  Buy one (or more) of these and you are buying a "business"....you don't have to start one.

Don't let this opportunity pass you by or someone else will take it.  You could purchase one or two of these and be financially free and not have to grind it out in flipping, property management or single unit transactions at a time.  And don't let the market scare you...there are deals out there for hard working and smart investors and you have already proven that you are one with your current success.  Go to work.  Good luck and congratulations.

Chris Martin · Answer

Personally, I don't entertain a "blank check" company structure because, as you state, it makes you chase after 'deals' that may or may not exist and if they do exist they may be outside your 'wheel house'. You can translate that last phrase as 'you may be hard pressed to execute' in your new endeavor. I've been in that position and it can be uncomfortable. While it may be quite appealing to 'go big' (or bigger), that partner is most likely expecting some return, and the pressure will be on you to perform.

Sometimes opportunities are not worth pursuing. This may be one of them.

As an actionable item, if I were you I'd challenge the partner to narrow the investment space and set well defined expectations. E.g., if it's apartments as the vehicle, you can provide the insight that you think the prices are high and that may set his/her expectations where they should be.

My 2 cents.

Brent Coombs · Answer

@Rameh Khazen, ask him: "what's your money earning currently?". If the answer is "not much" (or a specific low percentage), you might like to Offer him a (slightly) higher return if he was to put an amount that you're comfortable borrowing into your charge.

[Think very carefully before trying to borrow too little!]

Surely you can ALWAYS find deals that will earn you/he more than super-low returns?

Otherwise, are YOU in the right business? You MUST try to get something happening with this!...

Josh Cuthbertson · Answer

Lots of opportunity out here to do multi-family / condos / apartments in an dilapidated downtown that has been left alone for 20 years and is now getting large scale state grants to build. Lots of property value will be created over the next 5-10 years here!

Rameh Khazen · Answer

Thank you! He has offered this to me before and I have turned him down. He acts (slightly) offended when I partner with other people and do a deal. I just like when a deal has hammered out terms and a beginning and end date. I guess being a solo agent and flipper for so long has made me a little leery of long term propositions.

Unlimited Money to Invest. Now What?

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