If you had 900k in capital, what would you do?

Question

I want to jump into mid-sized apartment complex investing. What can I do to set myself up for success? I have been studying RE for the past 2 years and I want to buy and hold commercial real estate in Texas. Should I start an LLC and buy properties with that or what? Thanks for your time and hope to hear back from you!

Brian Adams · Answer

@Joshua Sayre, I am a big fan of the TX market and own a 200+ unit in Dallas and making a run at a 300+ unit deal to buy in the next 90 days.

If you are just starting out I would strongly suggest you get very clear on what your investment strategy will be in buying properties in Texas. Are you looking for Class A deals, value add deals, repositioning opportunities?

Also what type of cash flow are you looking to generate from your deals? Cash flow from a momentum play deal is different from a value play or repositioning deal.

So by understanding how much cash flow you need will determine the types of deals you target to purchase.

As a CPA I always suggest forming and buying property in an LLC as it gives you flexibility from a tax perspective and also has legal protection. When I put these large deals I form single purpose LLC's  - the SPE holds title to the asset and my investors get their ownership in the deal by purchasing units of the LLC. Usually we form a couple LLC's, but don't want to confuse you right now.

My point though of sharing is you don't need to setup all of these LLC's right away as there is a cost to do so. If you are in the process of just starting your business you could form an LLC as your holding company where you will make offers, do marketing, allow investors to learn more about your company. In your LOI and PSA simply include language you will assign the contract to your SPE before closing.

Good luck!!

Brian Burke · Answer

The answer to this question depends on your situation.  If you have experience in income property ownership and you have the $900K that you mention in the thread title, all you need to do is start networking with brokers, lenders and property managers in the area.  You'll need your team in place, and you'll need to be known by the brokers if you want your offer to be picked.  In this arena, you don't get a property simply by submitting the highest offer. The broker's and seller's certainty that you can and will close play just as important of a role and you will be up against other bidders that have that experience and perhaps have even bought from the broker (and maybe even the seller) before.

If your situation is one where you don't have experience with ownership of income property and you don't have the $900K but need to raise that money from investors, then your plan should include buying smaller properties first. Over time, increase the size of the properties you are buying as you gain experience. Once you have enough of a track record, follow the plan in the first paragraph.

Be careful not to make the common mistake of thinking that just because you find a good deal that investors will invest in it, lenders will make you a loan, and the seller will choose your offer. Investors want to see what you have done in the past and so do lenders before they will entrust you with their money. No one wants to give someone money to practice on a new strategy.  Build a track record, document it, and get the word out. Then the deals, and the investors, will come to you.

Jennifer Lee · Answer

hi

I agree with all things said above ;)

I kinda jumped into commercial, but being in BP helped me through the fear.

you would need an LLC or what ever ownership vechile bc of the liability.

I became a Realtor 3 yrs ago, but it only helped me understand the process, didn't make me a "better" investor. I have been investing for 12 yrs bef I got my license. it definitely exponentially increased my exposure to all things real estate. I have helped a lot of out of state clients, I also owned property in other states:

I think the most important is;

1. market knowledge (pick a market)

2. have trusted on the ground person/ Realtor/or yourself

3. knowledgable and resourceful lawyer/accountant/insurance/contractor/property manager etc

4. handyman (I m still looking for one)

hope that helps

Joe Villeneuve · Answer

I would be retired on my passive income in 12-18 months.

Brian Adams · Answer

@Marcia Maynard, thanks for making the link "blue" and I really appreciate the mention.

Marcia Maynard · Answer

This is a great thread that @Brain Adams started! I'm making the link work by typing a space after it (see it turn blue) so it will be easier for folks to use. The forum thread is called "I quit my CPA  job to buy Large Apartment Buildings". Thanks for sharing Brian!

Brian Adams · Answer

@Joshua Sayre, yes - if you decide to invest in A or B product there is a chance there will be fewer headaches, but be prepared to pay on aggressive cap rates as many other investors are looking for the same thing.

In another thread I talk about the getting started, so let me refer you to the link as you might find a nugget of info that could be helpful to you.

http://www.biggerpockets.com/forums/432/topics/188266-i-quit-my-cpa-job-to-buy-large-apartment-buildings

Joshua Sayre · Answer

@Brian Adams

Thanks Brian and great reply! From what I can tell, Austin, San Antonio, and Dallas all have very strong markets. With the economy in Texas doing well and populations increasing, there is obviously a increased need for housing.I want to invest in probably a class A or B range complex. In my opinion, it seems like you have fewer headaches and fewer things to worry about since the property newer and higher quality than others (fewer things break usually right?).I read in one of the articles here on Bigger Pockets that it's sometimes smart for investors to partner up and also try to "go big" to make your expenses smaller percentage wise (economies of scale). Would you recommend to start going to my local real estate meetings as well as increase my dialog on this site to maybe meet future partners?

If you had 900k in capital, what would you do?

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