Value Add Investing in high COL area

[Sol Bier]

Hi All,

I’ve been interested in real estate for awhile while saving over the past few years, and looking to become more actively involved in RE investing and potentially doing this part time for the near term to see how I enjoy it. Right now I work in engineering, and have a stable high six figure income, and am young so have plenty of time to see capital appreciation. I’ve saved ~$500k so far in liquid assets to invest specifically for RE.

I’m looking for some general advice on investing strategies that fit my goals and strengths. Consider that I am am strong with financial modeling, excel and concepts of leverage & financing, and am less experienced with constructions and repairs and working with contractors. I'm based in the bay area.

My goals are the following

• Wealth generation. I’m less focused on passive income for now
• Ideally tax advantaged (if possible), since I am in high tax CA
• Something that can be semi-part time, that I can grow into a larger full time role. That means I am ok taking slightly lower ROI, whether that means hiring GC's for residential flip projects, focusing on larger multi family units where economics allow for full time property managers, etc. For the short term this means ~10-15 hours a week, but this can grow over time, but something that requires me onsite every day would not be a good fit.
• Learning ! I want to move up the value chain in RE. This means projects or properties that scale well (scaling SFRs BRRR for example may not fit this profile), and learning skills that can scale to more lucrative strategies (maybe developments).
• I am comfortable using leverage while investing
• A minimum profit per project should be high enough to warrant my time investment

Here are the investing strategies I’ve laid out, and I’d appreciate some advice on these on which you feel most lines up with my goals, if any of my assumptions in the bullet points are wrong, and if there are any strategies I missed. 

Residential:

• Single Family flips in CA/Bay area.
  • Upsides:
  • Absolute profit/COC can be high despite smaller profit margins as % of ARV.
  • Deal structures are fairly straightforwards
  • Could scale by hiring GC’s
  • Downsides
    • High tax rates
    • Seems harder to scale, and may require full time commitment ?
    • From a personal psychological perspective, the moat in flipping seems smaller since it is so popular which means more competition, though this may not be true at the ~$1M price point in CA.

MultiFamily/Apartments

• Upsides:
  • BRRRS can make more sense here, since I could use a property manager to manage the property
  • Can purchase larger units outside of CA and the deal sizes can be large enough to be worth my time (as opposed to being limited to single family flips in bay area)
  • More options for financing given underlying cash flow ?
  • Potentially easier repairs ?
• Downsides
  • In another sense harder to scale ? More unique situations in vacancy rate, can take time to bring properties back to performing

Commercial

• Upsides
  • Less competition ? Since higher price points and more unique
• Downsides
  • Tenant vacancies can last longer
  • Requires more sales and involvement during value add phase which may not align with my initial part time goals ?

New Developments

• Upsides
  • Even less competition and higher ROI since higher knowledge moat
• Downsides
  • Requires even more understanding of construction and zoning laws
  • More expensive
  • Completely full time ?

Alternatives (self storage)

• Self storage ?
• Unclear of upsides/downsides, would be interested in hearing these.