The Opposite Problem - Have cash to invest but can't decide where

[Samantha A.]

Hi BP community,  

Before I write about my specific situation - I really appreciate any replies, thoughts, or comments in advance. It's a pleasure learning from everyone here. Please feel free to be as critical/constructive as possible, I down to learn. 

I'm currently seeking an investment method that suits my goals, but am really having a hard time making a decision on how to start my investment portfolio. My goal is like most others posting here, to be financially free and generating a high income (min 250k/year) within the next five years or so. I will do this via buy and hold properties, and will work my way up to large multi-family investments. Eventually, I will flip some properties but I'd like to start with buy and holds. 

I currently have around 125k to comfortably invest without draining my savings and will be keeping up with a decent savings rate each year (50k+). Here's the deal - I want to be as efficient as possible without skipping any steps that are crucial to my education in real estate. I've been studying and analyzing deals for about two years and am finally able to get pre-approval; I'm self-employed so it's taken a decent amount of tax prep to have my records looking good. 

I'm having a difficult time determining what my first investment should be. Locally, I've been running numbers and MLS deals aren't fitting my criteria. I've spoken with other investors and it seems that off-market deals are best. I can't help but think about turn-key investments (specifically Rent to Retirement), but also know that I have enough saved to contribute to a syndication deal or have a more hands-on experience. I'm ready to dive in, but I'm nervous that I'll pass up a better opportunity - such a vicious cycle.

At this point, I could buy a property in cash, do a little bit of rehab (nothing too major for my first investment), and refinance it for a lower rate than I would have gotten with a traditional loan right away. Eventually, I'd like to work my way up to the BRRRR method at the @David Greene level. I want to start off strong, and while I know it's impossible to avoid mistakes, I want to do as much as possible to mitigate any poor decisions (anything within my personal control). 

I would LOVE to start big and be a part of a syndication deal, but I want to be a partner, not the person running the show. For members who have participated in syndications, what was your experience and how did you become a part of the syndication? While being an accredited investor is one of my goals, I'm not there yet so it limits some of the investments that I'd like to be a part of.

Knowing what you know now, what would you have done if you started off in my shoes? My mind feels like it's hitting a wall. Logically, I know I should relax a little bit with this, but efficiency is incredibly important to me. 

[Account Closed]

@Samantha A.

Knowing that you'd love to start BIG - If I were starting off in your shoes...

I'd go with a 506(b) syndication in the B & C Class Multifamily space - here are few reasons why.

I like making my money sweat for me at a rate that far outpaces inflation!

I realize it's smarter to have my money working for me, even while I'm asleep, than it is to trade my time for money.

If I am going to trade my time for money, and I DO that too, the main objective, aside from helping others and filling needs, is to bring in more money so that I can put it to work too!

Passively co-owning an apartment building or… buildings allows you to plug into an existing operation and expect a consistent quality return that requires little to no involvement!

Side Note: Now that's the way to properly diversify too!  Take your 125K and go all in on an opportunity you LOVE or split it in half and get into 2 opportunities you like.  Regarding passing on a better opportunity I'll quote Zig Zigglar who once said  "If you wait until all the lights are green before you leave home, you'll never get started on your trip to the top."    

Back to our program... I say “little to no involvement” because well… it’s true nothing is truly 100% passive but this is pretty darn close… once you believe in the asset class as THE choice investment, it’s going to take time to find a team of operators that you trust and get to know. That’s natural - it’s human nature. Once you find your team… you have to look at what they’re serving up so that when they find a deal they’re working on and it gets you juiced - you’re ready to take action and partner with them!

Don’t worry they’re going to do all the work from here on out…

Plugging into an experienced team of operators that have analyzed a market, found a true opportunity, and manage a best in class professional 3rd party property management company - frees you up.

Furthermore, their asset management efforts will assure your asset/business is running optimally and meeting expectations of the business plan.

IMHO, Property Management is the backbone of a multifamily investment.

It's been said that Property Management can make or break the investment.

Always make sure your team of Operators have done their due diligence, selected a stellar Property Management company, and manage the managers!

Once you have identified a team that you know, or get to know - and trust - your involvement will truly be passive.

Leverage a quality, and proven, teams’ experience.

Let your co-owner partners run the business so that you can spend your time elsewhere, doing what you love whether that’s volunteering, making more money, traveling, having experiences, being with loved ones - you name it… all while your money multiplies and your team works for you.

Now on to the Tax benefits:

A great way to shelter income as an owner, partner, or limited partner of a cash flowing multifamily (apartment community syndication) asset is to utilize cost segregation in the 1st year of ownership. 

This allows you to, legally, accelerate the depreciation of the asset over 5, 7, & 15 years vs. straight 27.5 years.

Furthermore, if you claim 100% bonus depreciation, in the 1st year of ownership, the income sheltering effect is dramatically increased by the tax savings. You can 100% bonus depreciate any component with a useful life of < 20 years. (This means you can immediately depreciate it by 100% vs. spreading it out over 27.5 years.

Generally speaking, when you combine bonus depreciation and a cost segregation study, on a multifamily asset, you can immediately expense 25-30% of the entire asset in the 1st year!

This means your K-1 will show a loss even though you are cash flow positive! 

I hope you found this information helpful.

Don't hesitate to reach out-

Dino