Busy Bay Area business owner seeking to diversify through REI

[Ethan M.]

My wife and I are interested in diversifying some of the profits from our business through real estate investing.  I've been educating myself for several months, and am ready to make a move, but none of the deals I analyze seem worth the trouble.  I would be very grateful for any advice that experienced investors can offer.

A little more info:

• We're considering investing out of state, as it seems challenging to cash flow here, but also due to the general regulatory (and litigious) climate of CA and especially the Bay Area.
• I understand that there are likely great opportunities within driving distance of the Bay Area and that something local makes sense especially when starting out.  That said, finding these areas has proven challenging.
• We're primarily interested in multi-family properties but have also researched turn key single family properties, vacation rentals, and even mobile home parks.  
• My schedule ranges from fairly flexible to extremely busy.  Most of the time I won't be the person hustling the hardest looking for a great deal as our company (and our family) will stay my primary focus.  This obviously will eliminate certain strategies from consideration.
• If we eventually build a portfolio of several medium to large multi-family properties my wife will assist with the management.
• The multi-family market seems inflated at the moment so we're willing to be patient if needed.  The increased velocity of multi-family appeals to us.  Our medium to long-term goal is to net approximately $12-15k per month.  Making a couple hundred dollars a month on individual single family homes seems like a slower way to go than acquiring 150 "doors" through a few medium size multi-family properties.

Thanks in advance to anyone that takes the time to read this and share any wisdom you have!

[Clayton Mobley]

@Ethan M. Welcome to BP! You've already gotten some really good advice in a pretty short time. As usual, @Wes Blackwell has some stellar info to offer. Though I personally can't speak on the CA market (other than that A LOT of your fellow Californians are in the same spot as you), Wes always has great input, so I trust his analysis.

I also think you should heed the advice of @Yousif Abudra, especially regarding determining your goals (cashflow vs appreciation) and narrowing your field of focus. Sounds like you like the idea of MFR, but also have little time or inclination to do a lot of the deal-finding legwork yourself. Depending on the route you go, these two factors may be in conflict with one another, so you need to be really honest with yourself about what you can (and want) to devote to your investment on a daily basis. The answer will tell you a lot about the best direction for you right now - but things change so don't feel like whatever option you go for today has to be the only REI you ever pursue.

As @Ryan Landis rightly pointed out, there are some, let's say, less-than-scrupulous turnkey providers out there, but truthfully it is the simplest REI for people with limited time and experience that want or need to invest outside of a market they know well. If you do go this route, make sure you look for providers that do things in-house, so you don't have several third-party contracts to consider during your vetting process. Also look out for companies that are just advertising props owned by other companies - these people are mostly just middle-men trying to get a cut of someone else's product - they have no incentive to keep you happy long-term. I post a lot on this, so if you're considering TK, here's a link to a post on questions you should be asking to weed out the the charlatans, written for another CA newbie ;)

 https://www.biggerpockets.com/forums/55/topics/361999-new-investor-from-glendale-ca

@Mike D'Arrigo is also spot on that a lot of people wait and wait and wait for the perfect investment and miss out on building a portfolio of decently cash flowing properties. Narrow your focus and learn what numbers you need to see to feel comfortable, but don't make things harder than they need to be.

In terms of portfolio building strategies (regardless of which route you go - MFR, turnkey, self-managed SFR) @Kenneth Reimer's suggestion of learning about 1031 exchanges is great advice. Though they can be complicated, 1031s are a fantastic way to build your portfolio tax-deferred, and there's no limit on how many you can execute in your lifetime. Technically, you can keep exchanging investment props until you die, then leave your last prop(s) to your heirs, who will receive a stepped-up basis equal to the market value at the time of your death. It requires careful planning and strict adherence to a number of rules and regulations, but if you do it right, you get lifelong rental income for you, free equity for your kids, and no taxes. Of course, the estate tax could still be a concern, BUT irrevocable trusts are a great tool for mitigating that risk... but I digress.

If/when you get to that stage of your research (which might not be for a while), I'd suggest reaching out to a Qualified Intermediary here on BP (like @Dave Foster, for example) to make sure you get accurate info as it pertains to your specific situation.

Whew, ok, that's enough from me. If you have any questions about turnkey in general, the Birmingham market, or anything I've said here, feel free to reach out any time.

Best of luck!

Clayton