Where to invest $100,000 passively

Question

My wife and I own 8 vacation rental properties, and have done well with those and have continued to add one every year or so . We just closed on our most recent purchase in September and are gearing up for a renovation in January, which will consume all of my available time and bandwidth for the next 6 months or so (I own a business that is my "day job" and am only willing to commit so much of my extra time as I do have two kids that deserve my attention) . One of my lenders/investors reached out to me and has $100,000 they would like to have me invest. In the past, I have invested their money into my projects, with a fixed guaranteed interest return and it has been smooth and they have been very pleased with the process. This is the first time the money came and found me, it is usually the other way around.

I am not looking to buy another vacation rental, i'm content with what I have going on in that space. I am interested in going the more conventional rental property route, either SFR or multi family. My market isn't providing much in the way of value right now, property is expensive and rents are stabilized and it doesn't offer enough net positive cash flow to get excited about.

I have researched other markets like Cleveland, Memphis, Orlando and others that do look more promising. I want to stretch the cash out into as many assets as I can. I have structured loans from this investor as interest only for 3 years or so, with principle all due at the end of the term, and that has worked well. I'm thinking of doing 20-30% down for several SFR's, with a target cash flow of +$300 or more each, with a 3 year interest only loan at 6% and a balloon at the end of the term, with the plan being to cash out refi near the end of the term to free up the principle to pay him back. I would appreciate any insights that could be offered on this approach as it's new to me and isn't in my area of expertise . Thank you in advance.

Yonah Weiss · Answer

@Aaron May It doesn't sound like your current business model, but you may want to look into investing that passively into a syndication, especially multifamily workforce housing. These assets are usually cash-flowing, very stable, and the risks are lower than interest only loans on SFRs.

Alina Trigub · Answer

@Aaron May

A similar question has been raised plenty of times on BP. You can look into syndications and you should as @Yonah Weiss suggested. In addition to that, you should look at other strategies as well.

Always look at several things when determining which one is best for you:

time commitment, money commitment, knowledge, tax implications, and risks.

Here're a few articles to help you further:

https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estatehttps://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

Chris Levarek · Answer

@Aaron May As already mentioned, if you don't want to be involved as much in the management of a deal but have an investor network, you can always bring your investors into a partner's deal. Perhaps join with another team or partner for a bigger property where you bring capital in the form of other limited partners, investors. In doing so you are given a percentage of the general partner, syndicators/operators split. This is whats called syndication and could be an option.

I would say it starts with first finding out what's important to your investor network and then finding the right investment. If you investors aren't comfortable with a 5 year hold for example, you wouldn't find a deal with a 5 year hold. Additionally, sounds like you've been doing deals using debt financing with your investors, whereas most syndication will be equity financing, not always the case though. So important to understand what they are comfortable with.Debt financing involves borrowing a fixed sum from a lender, which is then paid back with interest. Equity financing is the sale of a percentage of the business to an investor, in exchange for capital.You can also do these partnerships at a smaller scale, just create a JV/LLC agreement with 3-4 people where you bring in 2 people as investors and another person does all the mgmt. You could then get a cut for simply bringing everyone together. There is some legal here such that, everyone involved should be meeting "monthly/quarterly" so as to ensure the JV/LLC is not a construed as a security. In either case, good to be involved with an attorney whether syndication or JV/LLC.

Taylor L. · Answer

Well put Yonah. Syndications are a great route for those who are short on time in the day but need to place capital. Once the money is placed my passive investments take virtually none of my time.

Aaron May · Answer

Thank you so much for the advice, greatly appreciated. I'll do some research on syndication.

Shawn G. · Answer

@Aaron May You have received some great advice here. Syndications may be your answer.  You can see returns for 8% or better and maybe even equity in the deal.  3 years may be a little short though, might want to push for 5-8 years if you can.

Taylor L. · Answer

Depends who you talk to. Most syndicators right now are targeting mid to high teens IRRs. However, that's a blended return over the lifetime of the deal. Many syndications don't start kicking out cash flows to investors until the property is stabilized.

Roni E. · Answer

I would do your homework and start to get on some General Partners email list. I would check out Joe Fairless book, I would check our crowdstreet.com (to see some deals), and again do you homework. No deal is better than a bad deal or if you do not click with that group.

Aaron May · Answer

@Taylor L. Thank you for the response . I’m intrigued but don’t know much about this method . What are the typical returns for syndication? The money will cost me about 5-6% annually , so I would have to outperform that with enough meat left on the bone ..

Where to invest $100,000 passively

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