Am I absolutely crazy here? (hint: probably.)

Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes

@Rick Petersen there's a lot to consider here. My first reaction is that this is a lot to bite off for someone brand new. You're right when you say the first deal doesn't have to be a home run, but this has huge risk for little upside potential. I would rather see you cut your teeth on a much smaller project and learn from your mistakes. You're first and foremost objective should be to mitigate risk. The problem with packaged deals like this is that you're often taking the junk with the good stuff. Do you know the performance of each property and how many of the 40 are actually performing? I would want to know that. You also need to know the asset class of these properties and the neighborhoods. $2700 is pretty much a rounding error for 40 properties. It isn't that hard to find deals that cash flow more if you are willing to build a portfolio more slowly. I like the fact that you are not looking at just immediate cash flow but are looking 10 years out. Real estate wealth is accumulated over time but I think you should expect a higher 1st year COC return. That could turn negative real fast. Also, make sure you understand who pays the utilities if it's multi family. That will impact your cash flow significantly. Good luck with whatever you decide.

2 Reply

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

4y

Quote from @Mike D'Arrigo:

$2700 is pretty much a rounding error for 40 properties.

That says it all.....

OP, just go find ONE house that will make you a profit of $500 a month and be happy.....

2 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

4y

For every direct investment that you have, always compare the Coc and realistic appreciation; with indirect investment that gives a you yield of 6.5% p.a.

At the end of the day, the investors makes money from the appreciation and not cash flows as the repair side can be very high. To achieve target appreciation you should be ready with the repair cost while holding the property. If you have 40 units then you will have 40 headaches guaranteed later on.

0 Reply

Fernando E.

Rental Property Investor · SF Bay Area · Member since 2016 · 234 posts · 103 votes

4y

Hey @Rick Petersen first I love that you know your why, for family and generational wealth. This why will give you the fire when the hype and excitement of real estate investing is gone and you’re facing headwinds. Awesome.

Regarding the deal, I’ve been reading up and attended both @Brandon Turner and @David Greene books and webinar and I think you haven’t factored in the condition of the property, it’s location - neighborhood, both are crucial in multi family investments as the amount of work needed to operationalize and achieve positive pure cash flow between a C/D vs A/B property is significant. Also I would probably start with small Multi get my feet wet, also lower risk, lower down payment so even if issues arise you’re not over exposed that you lose your peace. Health first of body & mind. Slow & steady. Learning as you go. Good luck, you’ll do great with that why. Apply risk management & get a good team.

0 Reply

Rick Petersen

OP

Member since 2022 · 16 posts · 15 votes

4y

Quote from @Bruce Woodruff:

Quote from @Mike D'Arrigo:

$2700 is pretty much a rounding error for 40 properties.

That says it all.....

OP, just go find ONE house that will make you a profit of $500 a month and be happy.....

That sounds great and I’ll keep looking for that sort of opportunity. Thank you!

0 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

4y

I suggest you look into other investment options. This evaluation will show that the return on your proposal is horrendous.

Some items about owning residential RE: 1) even with a PM, it is not passive. There are few investments other than starting your own business that is less passive. 2) emotions are involved. Residential implies people's homes

Other investment options: S&P 500 has lifetime return over 9%. Notes have research to vet but then fairly passive excluding foreclosure. NNN is about as passive RE holding as possible. Other lower effort RE categories such as self storage, industrial, etc. LP in an RE syndication typically projects ~20% annual return and mostly consists of vetting the syndicator (you still need to vet each syndication but having confidence in the syndicator reduces the extent of vetting the syndication).

I see return often being inversely related to passivity. On my small unit count residential properties, I expect a near term return far in excess of projected syndication return as owning residential property is significantly more work than being a LP in syndication. I like the 3 year to be in excess of 50%/year and ideally infinite (I mostly have achieved infinite return at 3 years).

What you propose seems like a lot of work for very little return and virtually zero margin (which equates to a lot of risk).

Good luck

0 Reply

Quincy Lockett

South Holland, IL · Member since 2017 · 376 posts · 432 votes

4y

@Rick Petersen

I’m currently getting $5K/month Cashflow off 9 units. $67/Door is WAY too tight for my tastes. This deal sounds like a big headache.

0 Reply

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

4y

@Rick Petersen you are literally swimming in a world of opportunity. I think focusing on Fort Wayne makes a lot of sense based on where you are at, but you will want to really get to know the brokers who handle commercial stuff in your area. You also may want to explore single family home investing... a lot of areas in Indiana have very low transaction volume which makes it hard to build a business out of buying and selling apartment buildings. I invested for a few years in South Bend, and there just weren't many deals that traded there (maybe 1 a year at most).

Become an expert in your own back yard. Go to meetups. Meet everyone in your area. You will succeed!

2 Reply

Marty Summers

Bradenton, FL · Member since 2017 · 168 posts · 39 votes

4y

@Rick Petersen How much cash are you putting down? Are you able to do 100k?

0 Reply

Rick Petersen

OP

Member since 2022 · 16 posts · 15 votes

4y

Quote from @Marty Summers:

@Rick Petersen How much cash are you putting down? Are you able to do 100k?

Not immediately but if I had a planned investment to focus on and save for I could have 100k in 6-9 months.

0 Reply

Rick Petersen

OP

Member since 2022 · 16 posts · 15 votes

4y

Quote from @John Warren:

@Rick Petersen you are literally swimming in a world of opportunity. I think focusing on Fort Wayne makes a lot of sense based on where you are at, but you will want to really get to know the brokers who handle commercial stuff in your area. You also may want to explore single family home investing... a lot of areas in Indiana have very low transaction volume which makes it hard to build a business out of buying and selling apartment buildings. I invested for a few years in South Bend, and there just weren't many deals that traded there (maybe 1 a year at most).

Become an expert in your own back yard. Go to meetups. Meet everyone in your area. You will succeed!

Thank you for this reply! This is super encouraging and I love hearing from people who see opportunity here near me and not just in the market they are currently working.

I am going to start attending a local REIA and collecting contacts with brokers while I save up. Super pumped!

Thanks again, everyone!

0 Reply

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

4y

Quote from @Rick Petersen:

Okay, first of all, went through the free recorded session provided when you sign up, and it said you needed a plan to start with. Before I share what I'm looking at property-wise, I thought I would share my plan... I'm so new, I'm still working on figuring out if properties and strategies fit my plan.

I want to not have to work high-income roles just to meet my family's spending expectations (working on fixing the expenses side of the equation too...)

Because...

I want more time with my family

I want to be able to do leisure activities

I want to not be so stressed all the time

I want to be wealthy

Because...

I want to be able to set up <special needs child> to be cared for well in the long term

I want to travel

I want to live where I want when I want

I want to set my kids up, teach them and teach them to teach their kids

I hope to do this by setting up cash-flowing properties in the MidWest (Ohio, Michigan, Indiana, Kentucky, Missouri and Tennessee primarily). I am interested in either the BRRRR or just standard SF/MF rental strategies, understanding MF will cash flow better.

With that back-drop, I find an opportunity but it is a _big_ purchase and would be my very first. It includes many MF properties in a bundle. It looks to me, using the tax, insurance and current rent amounts provided, with 5% each cap expense savings, repair and vacancy planned in and 10% to a management company, that it would cashflow immediately. Small amount per unit, but at 40+ units, the cash flow would be around $2.7k/month. CoC looks to be low, 4.84% (predicted to hit 10.85% by year 10) and cap rate at 5.90%.

Now, I know the cash flow is super-low per unit, but if it's rare to find something that cash flows immediately, if it's diversified across a good number of properties and if we could be in for inflation and potential rent rate increases, does this sound like a good deal? Would this be something that would be a good deal for someone with a lot of experience/big portfolio, or do the numbers on this just scream that it's an over-all bad deal?

Finally, if it sounds like an good deal (BP says the first one doesn't have to be a home run, you just gotta get on base), and know that I am local to all the properties so there's that at least, then... I'd love help working through what all would be needed in order to secure financing (not sure if that cash flow is enough to make it so that an investor would be 100% willing to dive in). What would next steps be?

Next steps- Due diligence, due diligence, due diligence. Without due diligence to confirm the numbers you won't be able to secure financing. It's the 1st thing a bank and/or investors will be looking at. Verification of the numbers.

312-681-7487

0 Reply

Bob E.

Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes

4y

@Rick Petersen It is NOT rare to cashflow from the beginning.

I think you are taking waaaay to much risk for a first deal. We find that most of our properties don't cashflow well for 1-2 years and we are cash buyers. Often Roofs are older, water heaters need replacement, AC breaks first thing in the summer, and inherited tenants were not well managed and need to be replaced, resulting in turnover costs.

This doesn't all happen to every house but enough things go wrong to soak up most of the cash flow from a cash purchase. On a 40+ unit portfolio with a large mortgage on the eave of a recession this could be an absolute disaster.

1 Reply

Michael K.

Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes

4y

Quote from @Rick Petersen:

Okay, first of all, went through the free recorded session provided when you sign up, and it said you needed a plan to start with. Before I share what I'm looking at property-wise, I thought I would share my plan... I'm so new, I'm still working on figuring out if properties and strategies fit my plan...

Hey Rick, I think most of us are on this journey for the exact same reasons as you mention here. You've got the right mindset and are asking the right questions. As for the deal you mentioned, I would have to know a lot more details to tell you whether or not its a good one. But, I might ask the question - do you have to start so big? Not sure what your background is in, but unless you have enormous financial reserves and have experience in construction/rehabs I think starting with a small property (2-4 units) and learning the ropes while keeping your day job is the best first move.

1 Reply

Rick Petersen

OP

Member since 2022 · 16 posts · 15 votes

4y

Quote from @Michael K.:

Quote from @Rick Petersen:

Okay, first of all, went through the free recorded session provided when you sign up, and it said you needed a plan to start with. Before I share what I'm looking at property-wise, I thought I would share my plan... I'm so new, I'm still working on figuring out if properties and strategies fit my plan...

Hey Rick, I think most of us are on this journey for the exact same reasons as you mention here. You've got the right mindset and are asking the right questions. As for the deal you mentioned, I would have to know a lot more details to tell you whether or not its a good one. But, I might ask the question - do you have to start so big? Not sure what your background is in, but unless you have enormous financial reserves and have experience in construction/rehabs I think starting with a small property (2-4 units) and learning the ropes while keeping your day job is the best first move.

Absolutely no reason I needed to start that large; I have received such great coaching and information from the community here just by putting a relatively bad idea out there in front of everyone ;)

I am working now to connect with an investor-friendly agent in my area and will be looking to buy either small MFR or SFR that are within my means (ones where I have cash to cover down payment, close and any repairs while having enough set aside to cover the cost until rent). I am optimistic and I think I could close 2 properties a year without doing anything 'clever' like pulling equity out of prior homes or forced appreciation. I may still do some of that but I'm going to try to be very conservative on my first few, just do it and prove that I can before going after anything larger.

Thank you for the advice!

1 Reply

Am I absolutely crazy here? (hint: probably.)

Am I absolutely crazy here? (hint: probably.)

Most Popular Reply

40 Replies