What are your thoughts on my next move?

Question

I bought, sold and traded up several times since 2003. Ended up with a triplex that generates 11k per month.

It’s worth 2.4 million, the mortgage is 1.4.

Which of these options make the most sense or if you have other ideas please share.

• 1. Trade      up again (1031), use the million in equity towards a bigger multifamily      property.
• 2. Try      to pay off the note as fast as possible and pocket the 11k?
• 3. Go      down the syndication route and have an equity stake.
• 4. Buy      a couple small multifamily turnkeys.
• 5. Get      into a conservative NNN lease.
• 6. Wait      to see where the market goes.

My goal is 20k monthly passive income.

Amit M. · Answer

@Nick Newman nick, nick...ok you finally spill the beans in your last post! Let’s see, you buy for 1 mil, add 300k, and in 7 years presto it’s worth 2.4. Where does that happen? Answer: very few places! (Like NYC, SF, select coastal areas.) Moral of story: maybe it’s best to continue investing in high value markets, where I assume you live near, can gauge the appreciation trends, can manage a value add, etc.

So I suggest option #7: cash out refi, and keep doing what worked well for you before. There’s a cadre of us in the SF Bay Area and that’s how we succeeded.

my2c

So I suggest option #7:  cash out refi, and keep doing what worked well for you before. There’s a cadre of us in the SF Bay Area and that’s how we succeeded.

my2c

Dave DeMarinis · Answer

@Erik Whiting I fully agree the 3% ROE is reason to look to improve the investment. However, the rest of the story needs to be considered when comparing to a CD.

1. ~$24K/yr principal pay down and growing each year2. ~$27K/yr depreciation (In NY, that probably equates to $12K cash flow)3. Any appreciation/inflation that happens (who knows what that will be)4. Any additional cash flow from rent inflation over time

Now for the real magic. He started with $250K equity, pulled out $650K and still has $1M in equity left! The $250K turned into $1.65M AND leaves him with ~10% CoC ROI and about 25% if you include

And that is why we all love real estate and why BiggerPockets is amazing. Even with a horrible 3% CoC ROE.

Erik W. · Answer

@Nick Newman, $2,500 ($30k yearly) profit on $1 million equity is only 3% ROE.  You'd do as well or better with a high yield CD or tax free muni-bonds.  Seriously!  Too much hassle and risk for such a meager payday.

If you want substantial higher cash flow, staying put isn't going to achieve that.  I would sell and diversify into markets that have a better cash yield, since your goal is cash flow.  Maybe Class C+/B- units, mobile park or self-storage.

Michael Ealy · Answer

Nick, you are right in saying MF is the way to go.

If you like the triplex and it seems like it's in a nice area, then my suggestion is to refinance - pull some cash out and invest that into a MF.

Have you considered passive investing into a syndicated deal?

Another option is TIC/ Joint venture with an experienced apartment investor.

Nick Newman · Answer

Appreciate all the feedback from everyone!  A couple of other things I should mention...

I purchased this multifamily for 1 MM in 2012 put down 250k (loan was 750k). I added 300k in value and held the property in a NYC sub-market market for 7 years.

The reason my outstanding debt is 1.4 MM.

I recently pulled out 400k with a HELOC to gut renovate my primary residence (750K purchase) (new assessed value is 1.3MM).

I also recently refinanced and pulled out 250k of equity to make another move (multifamily, flip..).

My ultimate goal is to leave my corporate job and be an active investor.. I love the process of buying, renovating, renting or selling.

From all the things I have been reading and listening to trading up to the bigger multifamily property is the best way to build wealth and income.

Luke Miller · Answer

@Nick Newman you don't necessarily need a DST to 1031 into a syndication. I've done a TIC and since you would be bringing significant equity, you shouldn't have a problem finding someone with a deal. I would recommend that you continue to trade up.

Tj Hines · Answer

@Nick Newman, congrats! It's great to have options right? Very cool. I would either trade up or go the syndication route. NNN aren't bad as well. From what I'm hearing you prefer to be more passive than active. That's why NNNs aren't a bad option or a syndication. Turnkey's more than likely you will be paying near retail value with no value to add. Through a syndication you can do much better. Making sure you choose the right operator is key to be successful in syndications if you're passive. Good luck.

Taylor L. · Answer

So you have a million to work with pre-tax, and your goal is $240,000 per year. As others have said, the DST could be a way to get you in to passive syndication investing. One option might be Capital Square 1031. They're based here in my market of Richmond, they specialize in this type of thing. I haven't done business with them, so I don't know the ins and outs of their business.

I haven't done a DST structure, TIC, or any of that in my syndication business. Really in order to be worth it from my perspective you'd have to be a fairly significant investor in the deals, from a dollars perspective. Otherwise the additional expense and steps to do a more complex structure wouldn't make sense.

Brent Paul · Answer

I would think with a million in equity available you could invest in a few multifamily.  Or maybe a property with some value add that you can cash out via equity later on.  That's the route I would go for unless you find a super good deal that it makes sense to 1031 exchange into.

Nick Newman · Answer

Thanks @Jaysen Medhurst! Appreciate the feedback.

What are your thoughts on my next move?

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