Where to invest $500K over the course of 2020

Where to invest $500K over the course of 2020

Los Angeles, CA · Member since 2016 · 7 posts · 4 votes

Hello all,

I am new to the real estate investing world, but I have already benefited greatly from the Bigger Pockets community. I just started looking for deals 6 months ago, but Brandon Turner's The Book helped me immensely in establishing a framework through which to evaluate deals. I am currently reading David Greene's book Long Distance Real Estate Investing as well. Aside from that, I learn something every time I browse the forums here. I am very grateful for this incredible resource!

A little background about me: I operate a business in the steel manufacturing industry and I am an avid investor in stocks. Over the last decade or so, I have learned a fair amount about various industries and businesses, but I don't have much experience in real estate. I am fortunate that the business is doing well and so I have a source of capital to deploy into real estate.

Between the books and resources I mentioned above and conversations with agents in a few different areas, I developed enough confidence to start making offers a couple of months ago. Since I am running a business full-time, I decided to look for newer properties that would not require too much of my time. As a Southern California resident, my local market rarely offers cap rates over 5% for high-quality properties, so after doing some quick research online about burgeoning markets, I chose to look at deals in the Phoenix and Dallas areas. To get started, I set some ambitious targets of the returns I want to achieve (6-7% cash on cash return with 20-25% down, estimated appreciation of 2-3% per year). With the loan paydown, this results in an overall ROI in the teens. With that framework in place, I've looked at probably 50-100 deals over the last couple of months and made offers on a few in Phoenix. In order to meet my return targets with high-quality properties, my offers were generally 10-20% below list price. None of them panned out, but I did get a taste of the process, counters, etc.

As things stand today, I have about $500K that I would like to deploy into real estate investments in 2020, if I can find the right deals. But I have so many questions!

1. I look at my first deal as a way to get my feet wet, learn the ropes, and start creating a foundation from which to build a portfolio. Is it better to seek that first deal here in the Southern California vicinity, where cap rates are very low, but markets are perhaps less risky or is it prudent to go out-of-state if I can find the return characteristics I want? Are there some specific markets I should look into? One agent told me to look for properties with good return characteristics in cities that I would want to spend time in. Any thoughts on that line of thinking? Any reason to prioritize nearby states vs. those further away?

Here is what I have seen so far: In Phoenix, I can probably get a deal done on a renovated duplex or fourplex at a 6-7 cap, which would yield a cash-on-cash return of 3-5% depending on the financing details. Lower than my targets, but if it's secure, still a solid overall return with the loan paydown, etc. In the Southern California markets, the better deals I am seeing are 4-5 caps on older properties in established neighborhoods that might eke out a cash-on-cash return of 1-2% to start, with the potential to get that up to 3-4% in a couple of years by investing in some modest upgrades and bringing rents closer to market.

2. I have a very good relationship with a large national bank, however, it is one of the more conservative mortgage lenders and only offers up to 60% LTV with a rate today that would be in the mid to high 3% range. That said, given my relationship with the bank, it would be relatively painless to arrange the loan. Is it worth starting a relationship with another lender with more favorable terms now, or should I cut my teeth with the financing that I have?

3. With this amount of capital, does it make sense to look into industrial real estate as well? I have some experience there through the business and it seems like cap rates tend to be higher in warehouses, manufacturing, etc.

-Sameer

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Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

RIP your inbox.

You have gotten a lot of advice from people who have a product to sell you and the advice they have given highly correlates with product they have to sell. Funny how that works.

That's the danger in posting I have $X to invest in a public forum with your full name.

Why do you want to invest in residential RE and not commercial? You have experience in the light/medium industrial space that most other folks don't have.

The first place I'd look is buying the building that your business is in or one that is big enough to house your operation and that of a few others. That way, the other tenants pay the note and you have more control over your lease terms. Particularly in SoCal, that could be a long term competitive advantage.

See this reply in the discussion

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Kody Thompson
Rental Property Investor · Lehi, UT · Member since 2020 · 159 posts · 158 votes
6y
If you are an accredited investor then I would look at larger storage unit deals in metro areas.
1 Reply
Roni E.Pro Member
Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
6y
I would get Joe Fairless apartment syndication book and Michael Blank SDA course both will help you with the "lingo" and also underwriting deals. I would also be careful of jumping into deals right now we are on the horizon of a price reset. I would do your homework and triple check. Check out Crexi.com for deals.
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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
Good on you, @Sameer A.. You're in a strong position and taking the right steps to diversify. I think your expectations could be tweaked a bit. With CoC ROI of only 6-7%, I'd want to see better appreciation.
With your cash position, don't waste your time with small MFR. Look to 5+ unit properties where you can force appreciation. With larger properties you'll also be more likely to get good, professional management on-board, which is crucial since you don't have the time to be super involved.
Have you considered NNN? Legitimate to be worried about commercial/retail properties right now, but there appear to be some alignment.
Addressing your other points specifically:
1. I'd be nervous about Phoenix right now. That market is notoriously susceptible to broader market/economic fluctuations. Considering all that's going on in the economy, it seems only a matter of time before that market gets hit. Nothing wrong with going out of state, of course. Just choose your market wisely, based on fundamentals and your expectations. I think it's important to have "boots on the ground."--especially in the beginning. Either a history there or friends and family. You want to have networks you can leverage. It's also worth considering how easy it is to get there. The advice about investing "...in cities that I would want to spend time in" is questionable. If the numbers work, who cares if you like the place? You're not moving there. When you visit it will be for business. There are plenty of very profitable markets where I would be loath to spend anymore time than absolutely necessary. I'm looking at you, Florida.
2. I would consider other lenders. Specifically, banks and CUs local to the market you eventually decide on. They will know the market much better than your SoCal banker, will be able to provide strong guidance, likely have relationships with attorneys and other owners that you can leverage, and their terms are usually more attractive. You're clearly a well qualified borrower, most lenders will be thrilled to work with you.
3. Industrial RE? Maybe. That's really outside my wheelhouse, but since you know that market through your business, it's worth considering. I would have concerns about the viability of that market given long term trends towards off-shoring, automation, and the shift of U.S. economy to be more service-based. I'm sure there are opportunities out there, though.
1 Reply
Andrew HoganPro Member
Rental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
6y
Hi Sameer, I think you are headed in the right place. Seems like you're educating yourself well and have realistic expectations as to what returns you can achieve while not neglecting your main stream of income. Typically folks only get into small (2-4 unit) deals because of a lack of capital. In this industry, bigger is better in terms of diversification, economies of scale, and tax advantages. Partnering up with another operator whose investment thesis fits your criteria will allow you to go bigger while not adding another full-time job to your plate. All the best
0 Reply
Daniel McNulty
Financial Advisor · Indianapolis, IN · Member since 2018 · 294 posts · 165 votes
6y
@Sameer A.
In general you seem right on track. I am partial to the mid-west, as your capital goes farther. Honestly, you could probably raise your expectations if you are looking to directly own / operate. For the additional risk / effort involved I would demand a premium.
In my opinion, passively deploying that much capital into syndicates and partnerships would meet your targets with much less effort. Good luck.
Danny McNulty
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Steve S.
Lender · Los Angeles, CA · Member since 2015 · 800 posts · 229 votes
6y
@Sameer A.
BACKGROUND:

COVID-19 has created a state of chaos never seen before in the modern world and as we dream of getting back to "normal" there is an unsettling reality of what exactly "normal" will look like on the other side of this tragic pandemic. With the economy at a standstill there is a massive spike in missed payments, missed rent and unemployment. There is a brave new world out there with a lot of uncertainty especially with investing in real estate.
Last year you would have simply looked at the financials and reviewed the occupancy rate, rent rolls, operating statements, balance sheets and tax returns. It provides a verifiable financial picture of the previous 2-3 years where we then further extrapolate what the future financial picture is projected to look like. However, that is no longer the case. 2019 financials are pre COVID-19. They are pre-lock down orders. They are pre-recession numbers and don't be fooled… the recession is coming.
OFFICE BUIDLINGS: The entire world just figured out how to work without an office space and work from home. Everyone works from home now and even when the orders are lifted do you really think the top executives aren't going to start unloading their over-bloated leases in order to downsize and reduce the amount of workspace and bottom-line costs? You know they are. Office space will be a dinosaur of epic proportions. It already was and now it will be a massive loss for all commercial real estate. Watch. So avoid these like the plague we are in right now… this would be the worst financial investment ever.

Don’t believe me… just read.

https://marker.medium.com/the-office-is-dead-16be89f25d01

https://www.newgeography.com/content/006597-the-future-office-space-real-estate-market

https://www.wsj.com/articles/investors-saw-office-buildings-as-safe-not-during-this-pandemic-11586260800

https://www.cnbc.com/2020/04/27/after-coronavirus-the-office-of-the-future-is-the-office-of-the-past.html

SOOOOO… yeah… you might wanna steer clear of this debacle because the office space apocalypse is just starting and it will never, and I mean NEVER, recover.
MULTIFMAILY: Who is paying rent? Who has a job? Jobless don't pay rent. And when the world goes back to work how many months is everyone behind? How many months will it take to pay off the debt incurred by everyone making no money during the pandemic? You really wanna be a landlord right now? I sure don't!
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Ryan Peep
Wholesaler · Phoenix, AZ · Member since 2020 · 11 posts · 6 votes
6y
Sameer

I agree with some of the other responses but thought that I would add my own 2-cents.
If you are looking to get your feet wet it is usually best to invest locally, living close to your investment which exposes you to more. Unless you plan to rely solely on a real estate team that you assemble, it is still important to learn as much as you can as quickly as you can. Investing out of state may only be advantageous if you are able to pick up multiple properties more quickly (price point, Arizona compared to California).
Addressing your second point, I think having a good relationship with a large national bank is great, however, you may be undercutting the number of potential deals that you could pick up if you were to go a hard-money route to a conventional refinance. Also, having multiple lenders in your pocket is always good but being relatively loyal to one or two is important; having one or two conventional and hard-money lenders is ideal.
I think focusing on one either industrial or multi-family is important - don't spread yourself too thin because they're going to require finding experts in separate verticals. Obviously, in time you will be able to venture into multiple real estate avenues but I think industrial or business commercial is dicey right now.
Good luck!
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Matthew Terry
Rental Property Investor · Mesa, AZ · Member since 2019 · 138 posts · 144 votes
6y
@Sameer A.
Why do you want to get into real estate if you are doing well with your business and with paper assets?
How did you decide on your investing criteria of at least 6% CoC with at most 25% down and at least 2% appreciation per year?
Why did you choose multi-family in Phoenix?
I think explaining these things will help everyone here give you better guidance because there are many strategies to achieve and beat your criteria in several markets and different property types. Narrowing it down depends on your WHY.
3 Reply
Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
6y
@Sameer A.
RIP your inbox.
You have gotten a lot of advice from people who have a product to sell you and the advice they have given highly correlates with product they have to sell. Funny how that works.
That's the danger in posting I have $X to invest in a public forum with your full name.
Why do you want to invest in residential RE and not commercial? You have experience in the light/medium industrial space that most other folks don't have.
The first place I'd look is buying the building that your business is in or one that is big enough to house your operation and that of a few others. That way, the other tenants pay the note and you have more control over your lease terms. Particularly in SoCal, that could be a long term competitive advantage.
6 Reply
John FortesPro Member
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
6y
Great question and I'm sure everyone has provided a great response based off their personal experience. I plan to be a bit more generic.
First, don't ever mention the total dollar amount unless you are prepared to be pounded with personal messages. Just be as plain Jane as you can.
Investing options based on time value:
Fix and flip: If you have the time, could be a good way to make some extra coin on your capital, fast. Downside is constant managing and on site to make sure the job is being done to your expectations.
Buy and hold single family or small multifamily: If you have to fix it up a bit, its almost similar to a fix and flip if its local to you but if its in another state you can achieve it buy a trusted property manager (PM). If its a turnkey, you can rely on the PM to help manage and update you accordingly. Manage the manager and set expectations.
Investing in a syndication (commercial offices, multifamily apartments, storage, mobile home parks): Vet your sponsors and once you understand the process, you can review the monthly updates and quarterly finances. Your risk is spread out through a bunch other investors and you don't have to manage the asset because you are leveraging experienced operators. Downside is you are not in control of the decisions but the trust sponsors who are operating it are. Pick wisely.
Hard money lender (lend it out to flippers): Be the bank and lend it out to a flipper. If they default you can take over the asset but now you are in charge of completing the renovations.
30,000 foot overview but captures the good and bad points of each. Hope this helps and happy investing!
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Bob Floss II
Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
6y
@Sameer A. If you are holding $500K liquid, I would do some research on buying foreclosures and auctions. Stick with areas you know for your first deal. You should not attempt to deploy anywhere close to your max number. Keep a healthy reserve for your learning curve.
0 Reply
Account Closed
Real Estate Agent · Oklahoma City · Member since 2020 · 46 posts · 35 votes
6y
Hey @Sameer A.
Welcome to BP!
It's great you're starting to look into real estate. It's all about understanding your goals and what you're wanting from investing. Are you hoping to go fast? Are you looking to have stability? Are you wanting to invest as a career?
To answer some of your questions:
1) I do believe finding your first deal in your area is beneficial, as you are able to understand the process and maybe practice the idea of managing the property yourself if you're interested. Out-of-state can have better returns, that's why a lot of people look towards the Midwest and areas such as Phoenix and Dallas. I'm biased for Oklahoma City, where we are known to be a linear market with steady growth, but low appreciation. You'll want to pick an area that aligns with your goals.
You're already ahead of the curve looking at hundreds of deals and even putting offers in Phoenix. It will be easier once you get that first deal out-of-state and have the right people and the right system in place.

2) It depends. You have a long history with them, but if the numbers are hurting your business, then it might be time to negotiate with them or move on to another. I would recommend staying with them on your first deal to see how it goes.
3) Not too familiar with industrial real estate, but I do think you should consider commercial real estate. Apartments can be manageable with the right people, as well as storage units. I'm not a huge fan of office buildings, as I think we're slowly moving towards the option for remote work.
Good luck!

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Derrick StClair
Investor · Los Angeles, CA · Member since 2020 · 14 posts · 13 votes
6y
@Sameer A. Tough question as you'll get a bunch of different responses based on investor preferences. What you'll learn is of course there are quite a few options for you to achieve what you're looking to achieve.
In Summary:
-The Easiest Route (minimal effort required on your end) is to go with a syndicate fund. Leverage an existing investor you TRUST and put your money with them.. You can find some veterans that will give you an 8% Preferred return (paying out monthly) with an upside in the low teens after annual profits are calculated.
-The Cash Flow Route (higher risk degree) is out of state investing. If you're looking to increase your monthly cash flow for your current lifestyle then investing outside of California would be a good idea (although you can cash flow in Los Angeles if done correctly).
-The Maximum IRR Route (lower risk degree) is local California investing. If you want to maximize the internal rate of return on your investment there's a reason you keep reading location, location, location when dealing with real estate. There are 4 main drivers that determine your true return on investment (Appreciation, Cash Flow, Tax Benefits, Amortization).
Then there's the question of what you're looking to accomplish, are you trying to have your money work for you with minimal effort (passively) or are you looking to build some serious wealth (which will always require more direct effort). It's hard to give solid advise without knowing more but hope this helps.
2 Reply
J. Arevalo
Notre Dame/South Bend, IN · Member since 2020 · 3 posts · 0 votes
6y
@Sameer A.
Its all about: the numbers, options, and trust.
$500,000 doesn't go far in L.A., nor in many large cities. Its about CAP and R.O.I. (annualized cash-on-cash) and the type of investment-- what's the location and type of real estate.
I find smaller markets have greater security and returns, because they don't have the prevailing overhead of large markets. And $500,000 goes farther with less risk.
A large market sucks up $500,000 easy; take a look at average prices. In a large market, $500K is 1 or 2 properties. Then see where you can spread around 500K? -- more properties, less risk. A smaller market $500K one could invest in 5 to 10 properties; with great returns. Financing then becomes an issue because, mostly large lenders don't want to lend much in areas undef $100K; but smaller, local lendeds will. Or just just go in all cash with a team you can trust.
What are your preactical investment examples?
Make today a great day!
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Sameer A.

Hi Sameer,

I’m a fan of starting local especially since you are in SoCal.

Cheaper Assets or those with high cap rates generally mean higher risk. Cap rate is lower in SoCal because the assets are less risky.

Since you invest in stocks...

Gordon Growth model k = dividend + growth

That K is your total return.

In real estate k = cap rate + appreciation

Generally speaking, most US real estate has a K that equals 9% (as investors we try to beat this 9% but that’s the risk and liquidity premium for US real estate.)

When you go into markets with 7-8% cap rates then your appreciation is roughly 1-2%. If you go into markets where cap rates are above 9% your real estate is generally losing value based on the equation above.

Stick to your local area for your first deal for residential. Even for industrial or commerical which I don’t know too much about, you are better off deploying that locally.

More doors does not mean less risk in real estate. More doors is not always better. Aim for lower and more quality doors.

Best of luck!

Compass5122 Reviews
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
Originally posted by @Bill F.:
@Sameer A.
@Sameer A.RIP your inbox.The first place I'd look is buying the building that your business is in or one that is big enough to house your operation...

This. Invest in what you know. Not many of us know industrial. The sellers are gonna sell what they sell. People recommend what works for THEM.

I've liked the idea of industrial since seeing my wife's old workplace in Denver a few years ago. They are still,going strong, improving and expanding their space and paying rent. Boom.

Please do industrial and inform us more about it!

2 Reply
Kam Olsen
Real Estate Agent · Los Angeles, CA · Member since 2020 · 34 posts · 18 votes
6y
@Sameer A.
First congratulations on your current success. I admire your willingness to get into unfamiliar to you territory and take risks.
My advise would be to start with MF in your area or as someone else suggested look into buying the building where your business is located or similar near buy to rent out.
As far as MF in Los Angeles look for those having at least one vacant unit (ex 1 of 4 if a 4plex) to be able to get market rents from the start. Look in B, B- areas - Long Beach, Hawthorne, LA west of 110fwy areas may be a good start. If you’re willing to take higher risk/return look into the areas east of the 110fwy...its a C area with some great deals.
0 Reply
Matt M.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
6y
Look into getting into some syndications. You don't have time to deal with fix and flips and small SFR rentals. Get some referrals, and there should be a few meetups in your area.
0 Reply
Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
6y
Originally posted by @Sameer A.:
Hello all,

I am new to the real estate investing world, but I have already benefited greatly from the Bigger Pockets community. I just started looking for deals 6 months ago, but Brandon Turner's The Book helped me immensely in establishing a framework through which to evaluate deals. I am currently reading David Greene's book Long Distance Real Estate Investing as well. Aside from that, I learn something every time I browse the forums here. I am very grateful for this incredible resource!

A little background about me: I operate a business in the steel manufacturing industry and I am an avid investor in stocks. Over the last decade or so, I have learned a fair amount about various industries and businesses, but I don't have much experience in real estate. I am fortunate that the business is doing well and so I have a source of capital to deploy into real estate.

Between the books and resources I mentioned above and conversations with agents in a few different areas, I developed enough confidence to start making offers a couple of months ago. Since I am running a business full-time, I decided to look for newer properties that would not require too much of my time. As a Southern California resident, my local market rarely offers cap rates over 5% for high-quality properties, so after doing some quick research online about burgeoning markets, I chose to look at deals in the Phoenix and Dallas areas. To get started, I set some ambitious targets of the returns I want to achieve (6-7% cash on cash return with 20-25% down, estimated appreciation of 2-3% per year). With the loan paydown, this results in an overall ROI in the teens. With that framework in place, I've looked at probably 50-100 deals over the last couple of months and made offers on a few in Phoenix. In order to meet my return targets with high-quality properties, my offers were generally 10-20% below list price. None of them panned out, but I did get a taste of the process, counters, etc.

As things stand today, I have about $500K that I would like to deploy into real estate investments in 2020, if I can find the right deals. But I have so many questions!

1. I look at my first deal as a way to get my feet wet, learn the ropes, and start creating a foundation from which to build a portfolio. Is it better to seek that first deal here in the Southern California vicinity, where cap rates are very low, but markets are perhaps less risky or is it prudent to go out-of-state if I can find the return characteristics I want? Are there some specific markets I should look into? One agent told me to look for properties with good return characteristics in cities that I would want to spend time in. Any thoughts on that line of thinking? Any reason to prioritize nearby states vs. those further away?

Here is what I have seen so far: In Phoenix, I can probably get a deal done on a renovated duplex or fourplex at a 6-7 cap, which would yield a cash-on-cash return of 3-5% depending on the financing details. Lower than my targets, but if it's secure, still a solid overall return with the loan paydown, etc. In the Southern California markets, the better deals I am seeing are 4-5 caps on older properties in established neighborhoods that might eke out a cash-on-cash return of 1-2% to start, with the potential to get that up to 3-4% in a couple of years by investing in some modest upgrades and bringing rents closer to market.

2. I have a very good relationship with a large national bank, however, it is one of the more conservative mortgage lenders and only offers up to 60% LTV with a rate today that would be in the mid to high 3% range. That said, given my relationship with the bank, it would be relatively painless to arrange the loan. Is it worth starting a relationship with another lender with more favorable terms now, or should I cut my teeth with the financing that I have?

3. With this amount of capital, does it make sense to look into industrial real estate as well? I have some experience there through the business and it seems like cap rates tend to be higher in warehouses, manufacturing, etc.

-Sameer

Congratulations on making the decision to enter the Real Estate market! Let me tell you right off the bat that it has changed my life. It has also fundamentally changed the way I look at money and its purpose and utility in life. It has also allowed me to abandon the scarcity principal of money which plagues so many other people that haven't adopted the kind of mindset that Real Estate investing promotes.

When I first started in Real Estate, I was in a similar situation as you. I had a lot of cash and started to get interested in Real Estate. I was also very anxious to get everything deployed as soon as possible....and that was my biggest mistake. My main piece of advice for someone like you?? Spend a LOT of time looking into the various ways you can invest in real estate and find what works for you. I have found what works for me, but it took me well over a year to realize it.

When I first started on BP, I was overly influenced by the notion of having a lot of "doors" and avoiding the dreaded "dead equity" in your properties. I made a few investments which, although not terrible, in hindsight I probably should not have done and would never do again. Now that I have found what works for me and is best suited to my situation, I couldn't be happier and my mind is at ease and I have confidence in what I am doing.

My bread and butter is to invest locally in multi-unit properties that are suited to Section 8 tenants. I also like to invest with syndicators in multi-unit residential properties that are proven with long track records.....especially ones that didn't lose any money during the '08 crash. My absolute favorite syndicator allows you to make an investment and participate in a 1031 exchange into their next deal.

Best of luck to you!
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Sameer A.
OP
Los Angeles, CA · Member since 2016 · 7 posts · 4 votes
6y
Wow, this community truly is incredible! I am grateful for so many different responses and perspectives.

@Kody Thompson I hadn't thought about storage units at all. I will look into that type of asset.

@Roni E. Thank you for the advice. I started using Crexi and it is great! I like it better than Zillow/Redfin. The quick access to key data and OM's is very convenient.

@Jaysen Medhurst Here in So Cal, my cash doesn't get too many units in the more stable markets! I am scouring surrounding areas, however, where I can go bigger for a similar amount of capital. Aside from MFR, I am looking into the NNN distribution center category. Thank you for the advice re: Phoenix and lenders. I have made a few offers in Phoenix, all 15-20% below list, but I have rarely gotten any counters at all. I definitely won't stretch to get a deal done. I am also researching other lenders to work with.

@Andrew Hogan I have not looked seriously at syndications to this point, but I recently picked up a couple of books on the subject. Might be wise to diversify by buying a property and also put some percentage into syndication deals. Thank you for the tip.
0 Reply
Sameer A.
OP
Los Angeles, CA · Member since 2016 · 7 posts · 4 votes
6y
@Daniel McNulty The syndicate structure and value proposition is something I am reading up on now. I had not considered them seriously before, I appreciate the tip.

@Steve S. Thank you for sharing these articles. There are a lot of risks out there now and I am trying to keep some pretty conservative assumptions in my numerical models (which are based on case studies from Brandon Turner's book). Where are you seeing opportunities these days? Or are you keeping your powder dry for the time being?

@Ryan Peep Thank you for the advice. I am leaning toward doing my first deal here locally, but I am still keeping my eyes open in Phoenix and other areas in case I can find a deal good enough to go long distance. I am looking into other lenders as well, mainly because with a 75% or 80% LTV my money will go much further.

@Matthew Terry My criteria are based on modestly achieving a better long-term return than stocks and perhaps with less volatility. It is not important to me whether those returns appear as cash flow or as appreciation. I did, however, use fairly conservative total return targets. I would like to get to know this asset class for diversification and perhaps outsized returns.

@Bill F. Yes you are right! I tried to make an edit, but it looks like it didn't go through for some reason. I am looking into the commercial/industrial space as well. Thank you for the tip.
0 Reply
Sameer A.
OP
Los Angeles, CA · Member since 2016 · 7 posts · 4 votes
6y
@John Fortes I don't have the time now to do a fix and flip, but I am looking into buy-and-hold and syndications. Thank you for the overview of the pros and cons.

@Bob Floss II Thank you. What is a good resource for looking up foreclosures and auctions in a specific area?

@Account Closed I am looking to get my feet wet and start learning the game. I'd like to start small and 10 years from now have acquired a significant portfolio that may include MFR, syndication investments, and perhaps some commercial/industrial. I wouldn't rule out turning it into a career in the long term, or a significant part-time pursuit. Thank you for your thoughtful response.

@Derrick StClair I am looking to get my feet wet and start learning the game. Long-term, I would like to build some serious wealth, and I look at the first deal or two as a way to start developing the skills to do so. While I do give most of my time to running a business, I still have 5-10 hours per week or more to dedicate to real estate. Total return is most important to me, but it is not important to me whether those returns are cash flow or appreciation. I had not considered syndicates seriously until reading everyone's responses, so I will certainly be digging more into those. Thank you for your advice and questions.

I see you are based in LA. Do you invest only locally or out-of-state as well?

@J. Arevalo Yes that is what I am finding. My money goes a lot further out-of-state, but it does seem like LA/Orange County/etc are fairly low volatility markets compared to many others. I don't understand your question clearly. So far, I have modeled the numbers of lots of deals, but I don't have any practical examples outside of the books I've read. Thank you for your response.

@Twana Rasoul The return profile comparison to stocks is an interesting way to look at it. Which form of returns, cash flow or appreciation, is more tax-efficient?

@Steve Vaughan Thank you for the advice. Looking at some industrial deals out-of-state, as most industrial in my area is out of my price range (and doesn't offer very appealing returns).

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Andrew HoganPro Member
Rental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
6y
@Sameer A., you said it best. Diversification.
With syndications, you can spread the same capital across hundreds to thousands of units.
Govt financing, conservative underwriting, and management execution properly combined; make multifamily (in my opinion exclusively workforce housing vs luxury, student, low income, etc) the BEST risk-adjusted return of all real estate asset classes.

0 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
Originally posted by @Bill F.:
@Sameer A.
RIP your inbox.
You have gotten a lot of advice from people who have a product to sell you and the advice they have given highly correlates with product they have to sell. Funny how that works.
That's the danger in posting I have $X to invest in a public forum with your full name.
Why do you want to invest in residential RE and not commercial? You have experience in the light/medium industrial space that most other folks don't have.
The first place I'd look is buying the building that your business is in or one that is big enough to house your operation and that of a few others. That way, the other tenants pay the note and you have more control over your lease terms. Particularly in SoCal, that could be a long term competitive advantage.

My opinion, this is the best advice in this thread hands down. Certainly a place I would start with in your shoes and I have nothing to gain by saying it. Syndications (with the right and proven syndicator) is another great avenue for you.
The real question is, what type of investor do you want to be in RE, passive, active, or somewhere in the middle? This makes a huge difference in which avenue you go after. managing single family or even small multi's from afar is NOT passive no matter what someone tells you. Being active can generate higher returns but you give up the time, sweat and energy to get that done. I would highly recommend asking your self just exactly what you would like to see and be involved with considering your existing and future schedule as a business owner and if it makes sense or not to add another business to that portfolio or do something more passive.
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1 Reply
Bob Floss II
Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
6y
@Sameer A. I personally like auction.com to do online bidding. Look to see how live foreclosures are handled in your county and attend one to watch the process. They require a lot of research and due diligence but the payoff can be great.
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