Given $1MM to invest in rentals in DFW, what would you do?

Question

I'm  trying to generate cash flow. My net worth is primarily in the stock market. I'd prefer to take upwards of 30% of it and invest in 1 or 2 rental properties.

Should I just randomly call a realtor and provide them this info and get to work?

Is there a better way to find someone to help?

I'm tired of reading and want to start doing but doing the right way so as to help better insure successful cash flow generation.

Joe Fairless · Answer

@Steve S. - I'd get a place that's at least 100 units because you then get economies of scale in management. That will likely be your 1MM you have for the investment

Steve S. · Answer

essentially, I'm evaluating having say $160,000 in a bank account yielding 1.25% vs in a rental property.

Steve S. · Answer

thanks Jay. That's exactly what I'mooking to do. I'd like to, in 5 years, be able to generate a minimum of $3,000 / month in profit from a portfolio of real estate assets. That can be done many ways of course and so I begin the DD journey.

I don't want to count on the stock market to provide all my cash flow for early retirement and look at this as a potential hedge against the profligate spending our government has taken on and it's potential impact to stocks.

Jay C. · Answer

Steve,

I am a bit like you. My money came from the stock market. I will say it is far and away a better investment than real estate can ever be and the returns can and never can be debated.. Its instantly liquid and if you know what your doing its profit is unmatched. That said I spun my market gains into rentals to be deversified which is a good thing..Sites like BP can easily educate you as what is and what is not. No different than doing good DD on your stocks. I personally look at realtors just as I looked at the brokers of old. They are a lot of help but ultimatly you are best served by doing the research yourself.  You need to know when to pull the trigger on a property and when not to. A realtor cannot do that for you, they can offer advice but nothing more if they are ethical. I bought rentals for the same reason as you for cash flow. It has worked out fantastic.

Good Luck

Joel Owens · Answer

Residential is tied more to comparable sales and fluctuations with speculation.

Commercial is tied more to the income approach and increasing cash flow.

In residential your cash flow will be tied to what kind of property you want to own. The really nice areas will have almost no cash flow but rent growth and appreciation in the future. The middle level areas tend to have a mix of cash flow and appreciation. The low end areas have the most cash flow but little appreciation and more issues to deal with.

You can't just say you want to hit this much cash flow a month. You have to quantify for that return in your area what you will have to take on to achieve that.

Steve S. · Answer

thanks for the responses. Sorry I wasn't clear. I want to keep about 70% of my investments in stocks / bonds.

The other 30%, give or take, I'd like to invest in a rental property or two. I'd like each property to net $500 per month.

Joel Owens · Answer

"Should I just randomly call a realtor and provide them this info and get to work?"

That would be a big fat NO in my opinion.

You are going to entrust 1 million dollars of your money without even knowing if they are qualified to help you??

You mention generating cash flow. That can mean so many different things. A starter would be what is your expectation for a going in pre-tax cash flow versus what you are getting now in the stock market??

I have many clients who have liquidated stocks over the last few years with some in the millions. They made a nice run up but now feel volatility is coming in the future and want to cash out gains and put into a more stable cash flow environment.

How busy does your business, job keep you?? Are you planning for retirement?? Does tax depreciation matter to you or is it more just about the cash flow?? How risk adverse are you and do you want hands off??

Steve I would start talking to people like Jon, myself and others to try and figure out what asset class you really want to go after etc. I get calls all the time from investors on triple net leasing and retail and then I also do larger apartment buildings. Sometimes after the talk they go ahead and other time they choose to go after something else (buying notes, making loans, residential, etc.).

Don't just go buy something to get the money out of the stock market and go (oh crap) I bought the wrong stuff.

Robert Leonard · Answer

I'm stumped @Steve S.?  Your post title mentions $1M and the body of the message asks about buying 1-2 rental properties.  Are you talking about multifamily properties?

In any case, there are many REIAs in Dallas and I think you would do best to do some networking and get to know several investors in the area who can help you before you start with a realtor.

Jon Klaus · Answer

$1mm in 1-2 properties, I'd likely go with class B apartments, or maybe class C in a B area.  I might also go with triple net commercial, if I wanted to be hands off.  I'd maximize leverage, not that you should necessarily.  I'd go with fast growing suburbs or areas closer to the city core that are redeveloping.

What kind of return are you targeting?  How much leverage?  How long do you want to hold?  How involved do you want to be?