Bradenton, FL · Member since 2017 · 168 posts · 39 votes
Has anyone in here gone from a Corporate job they hated to real-estate income rather quickly?
I have some capital to invest... could pull 100K. What if I went big into a down payment on an apartment complex? Any stories out there.....
I need to meet my real estate peeps in Evansville, IN.... anyone out there?? This Corporate world is killing me at 46 years old... need to move my career.
100k in my neck of the woods probably wouldn't get you into MF, remembering that MF is only 5 units or more.
I would look for 80 LTV debt and don't put down too much as it will start effecting your return and it's harder to scale quickly (but not recklessly).
Rule-of-thumb, again in my area, are roughly $200-300 in free cash flow per unit and if you were able to get a 5 unit then you would likely receive in the area of $1000-1500 per month.
Hope this helps and I thought my corporate job would kill me as well so I understand where you are.
100k in my neck of the woods probably wouldn't get you into MF, remembering that MF is only 5 units or more.
I would look for 80 LTV debt and don't put down too much as it will start effecting your return and it's harder to scale quickly (but not recklessly).
Rule-of-thumb, again in my area, are roughly $200-300 in free cash flow per unit and if you were able to get a 5 unit then you would likely receive in the area of $1000-1500 per month.
Hope this helps and I thought my corporate job would kill me as well so I understand where you are.
Hey Marty, Always nice to see folks on here from southern Indiana. I'm working that path now and would be happy to connect. I invest in the area. Feel free to reach out.
I agree with Bruce, $100K (while a good amount of money) probably isn't enough for you to acquire an asset that will generate enough profit to make up for your lost salary.
Two options, bite the bullet and stay employed long enough for your to acquire enough in assets that you can give up your current job and have a decent amount of income already in place. Or, consider syndicating your first deal. With $100K, you could raise up to about $900,000 from outside investors (family, friends, associates, etc.) and your 10% stake in the deal would likely be enough "skin in the deal" to make the investors comfortable.
To add to Scott's comment, you could do that and negotiate a promote for your work rehabbing the building and then selling it. Promote are normally calculated off of IRR, so time would be factor in your holding period since IRR is a time return metric.
However, you could negotiate a promote off of the equity multiple too if you plan a long term hold. You can agree to a "transaction date" before hand, say 7 years out, and calculate off of that even if you continue to own the building. All depends on your agreement with possible investors if you go that route. Get that promote people!
Its great to know you are willing to try RE and have your money make you more money!
When we started, we invested 1 year in education, books, videos, seminars, REI meetups etc. You don't have to do exactly what we did but I though i ll let you know :) We started with a single family near Intel and rented it room by room. The location was great since Intel hires a lot of Interns and Full time in the area. So though it was a single family, it gave us the feeling of multifamily. From that in 2014, we have learnt so much and invested in multiple properties.
So education is a must :) it will tell you which deal is actually is a good one!
@Marty Summers--You're in the right place to learn about your options. I'll echo what most here are saying. While $100k is a lot of money, its probably not enough to replace your income. I agree the fastest way to replace your income would be getting into syndication and raising money for larger deals.
Another idea would be to look at flipping houses, where you could generate income as quickly as you could turn the houses, but would not be setting up longer-term, more passive income.
Yeah.... I guess my opening line was too aggressive. LOL. I do understand I will not just replace all my income right out of the gate.. but wanted to see everyone's thoughts regarding 100K capital for MF propertied. So thank you everyone!!!
I am learning already... love this community site.
I felt your pain. I left the corporate world and never looked back after going into MF real estate. You need a plan but it's definitely something to consider. But go into for the right reason. If you are passionate about it and want to jump in as a second career then I think you can put yourself in a good position to succeed w/a variety of approaches. If you want the income but are not passionate about this field, then if you are accredited you should IMO invest passively and let the experts grow your wealth and income.
However, if you want to be active, then assess yourself, are you more analytical then finding deals and underwriting them may be your "value add". If you are more like me, like people (I bartended in college but married finance and education to it), then you might like to raise capital and find money, then find a sponsor that has experience because most are looking for both deals and capital. Get in on the GP side and work close w/them in a variety of roles to learn the business. Basically, leveraging their experience and knowledge while you develop your credibility w/lenders and investors if and when you may want to go out on your own. I don't recommend leaving and then just trying to do syndication or buy an apartment w/no experience. It's a team sport but you can get there surprisingly fast.
Download my free Ebook from my website and listen to some of the podcasts there, especially the one I did w/Kevin Bupp which was the basis for my book on how I raised one million in capital in two weeks for a syndicator and got into the game in a big way! Wish you the best.
At active sponsor can probably generate in excess of 20% on their money along with a promote and some fees from a syndication if it is done well. It's tough to start out as a deal sponsor though. You'll need investor, lender, etc. experience and the ability to find deals worth of syndicating.
A promote is a profit sharing form of compensation that is generally paid to the deal's sponsor. This compensation is generally to compensate the sponsor for skill-based items like identifying the investment opportunity, ability to execute, etc. The sponsor can also structure their income in this manner instead of taking fees for things like loan guarantees, asset management services, construction/development oversight, or bearing the risk of cost overruns and/or other financial risk.
Sponsors frequently co-invest their personal capital alongside that of their limited partners to create alignment and have "skin in the game." This capital frequently is pari passu with other limited partners and can work in excess of 20% for riskier project types like value add projects or ground-up developments. Mid teens are really more commonplace though.
Sponsors often charge fees in addition to their promote as well. As an investor and sponsor I generally like to see the dominant portion of the compensation structure for sponsors to come in the form of a promote and have the deal-maker get paid large portions of their upside after LPs have been compensated for use of their capital. There are also tax reasons for structuring compensation like this so that it can be paid out as LTCG instead of OI like fee income.
A syndication is really just a group investment on a single asset where many of the investors are passive and thus securities exemptions start to be needed to avoid registering them.
@Bryan Hancock So basically, a sponsor, finds a deal, promotes and markets to say 10-20 people. Lets say 5 decide to go in. Each paying 20% on the deal. Sponsor does all the ground work, putting the deal together. The 5 people pay 20%, this will be a cash buy property no financing. Each person gets a 20% gain from the property, if it rents out or sells. The promotor has a set fee or charge in order to pay for his hard work and is clearly set in the beginning or the promotor will be in on the deal which will be his payment of setting it up, (skin in the game, his money involved). tax reasons about capital gain? are investors using capital gain from a previous deal to invest in this scenario and then they wont have to pay as high of tax if any on CG, since they reinvested? and thus they keep investing the profit?
@Susan Knight - There are almost endless ways to setup syndications, but a common structure I see includes an annual guaranteed return to investors (often 8-12% depending on the geographical area, asset type and risk) that is paid out of any profit first. That guaranteed return is paid based on the LP's capital investment. Note that if the sponsor invests, they are also entitled to that guaranteed return. After the guaranteed return is paid, any additional profits are then split between the sponsor (their "promote") and rest of the investors. You might see a 20% split to the sponsor and 80% split to the rest of the investors...it can be 25/75, 30/70, 40/60...there can also be "waterfalls" wherein the promote split might at 20/80 up to a certain IRR, then goes to 30/70 at a higher IRR and then goes to 40/60 at an even higher IRR. The promote structure also depends on the geographical area, asset type and risk involved in the deal, but the goal is to align the sponsor's interests with the investors so that the sponsor and investors are both rewarded as the asset's performance improves.
I don't have a ton of time this morning, but the basic idea is that the sponsor can get a "disproportionate" share of the distributions from an investment for serving the roles cited above or any of the deal-making activities. Instead of recognizing fee income for these services the sponsor allows the fees that would have been generated to "ride along in the deal" and get compensated after additional risks are accounted for. This includes covering preferred returns to LPs, hitting budgets, etc.
Doing things in this manner also allows this compensation to be transformed from income that is taxed at OI rates to long-term capital gains in most cases.
So there is a risk-based incentive argument in play here and a tax incentive.
There is no such thing as a guaranteed return. Guarantee should NEVER be used with investments. The word "preferred" gives LPs a claim on earnings in preference to other stakeholders, but this should definitely not be conflated with the word guarantee. These two concepts are very different.
I hate to be a stickler on this point, but as an attorney I am sure you can appreciate that language matters.
@Bryan Hancock Language does matter very much. In this context, I use "guaranteed" to reflect the priority of the payment, i.e. the return is paid before any promote is paid. But that certainly should not be confused with a personal guarantee or other form of guarantee to investors. I agree that "preferred" return is better nomenclature.
I looked up the word "guarantee" and it may be technically correct, but in the real world I find it carries a lot of problems. I tell our team to avoid the words "guarantee" and "promise" altogether.
Maybe someone mentioned this already and I missed it but 100k is a large down payment. You could invest in a multi family property up to 500k.... depending on your area that could buy a large multi and cash flow from that would be sizable..... consider partnering for a larger deal or talk to a commercial agent to help find a deal
If you find something that has 20 units ($25k per unit) and you expect to get a minimum of $100 cash flow per door that's $2000/month......
@David D'Errico...Thank you for your post! Can you and I connect? I would like to talk with you if you have time. I travel to Louisville each week for business and would like to talk with you for a different perspective.
Hi Guys, I'm in a similar boat here and am in year 4.5 of my 7 year plan to leave the rat race. While I think it would have been possible for myself to do it quicker, family and kids took priority so the conservative (long term) route was taken. I'm proud to say so far I've been involved with 7 multifamily properties ranging in size from 19units to over 240units. In addition my roles have varied on them from pure equity investor to cosponsor (a small group of us pooling money to buy and manage) to full syndicated deal sponsor.
In addition to these 7, I've been directly involved with a couple of other deals and management decisions but due to time allocations of that J O B was not a true sponsor of the deals.
I have to say every deal I've been involved with has been different and a fantastic learning experience. I'm also proud to say we have completed one project full circle and recently sold it (almost 50 unit property) and significantly surpassed our proforma expectations and investor returns!
To get to the original post, while all these deals are making money and creating wealth, I do see a need for a longer than a 1 year timeframe to quit that J O B. Of course that is also determined by what you need. If you are living rent free and have no expenses 1 year is no problem but if you live in an expensive area with crazy taxes and are supporting a wife and a couple kids, 1 year might be aggressive.
Anyway best of luck @Marty Summers and thank you BP!