Investor Options: Hard money, multi-family, syndicate...

[Aaron Hunt]

I’ve reached a point in my career where my earned income is flowing a bit easier and more than my family really needs to live comfortably. First world problem fortunately.

I’ve hit a crossroads and need to decide what route to take as an investor. Looking for some advice.

- Continue accumulating SFR rentals. I have a great, but relatively small, PM team in a city I know well (2,000+ miles away from where I live!) They already manage a couple of properties which are leased out and I'm very happy with this. They would be willing to take on another property if I go this route. My rentals are Class A, but I'd likely start looking into Class B.

- Use additional income to pay down these properties much, and cash flow much faster/heavier.

- Hardmoney lend to a flipper. This is with someone I know and have worked with in a professional manner. Problem is the amount of capital required is fairly significant, with little garauntee of return if something went wrong.

- Multifamily 4 to 10+ unit apt complexes. As an investor, I've always wanted to enter this space, kind of a "life goal" in a way. Headaches expected, and welcome that come with the learning curve. I have vetted a PM team in the same city as my other SFR rentals, who can handle the added work associated with multi-family complexes. They can also help me identify the correct properties to go after. Problem is it is a lot tougher to sell a multi-family then it is a SFR if/when things get bad. And this is also heavily reliant on the PM team as not every PM company can adequately staff a multi-family.

- Online passive syndicate crowd funding. Zero control over it, and seems like it’s not doing much to really secure my family’s future. The returns seem questionable. I’m still willing to consider it as an otherwise passive investor if I get feedback from reputable BP members saying they’ve had success here.

My current rentals pay for themselves but have appreciated well. I bought them for the long haul, to protect my future self from current myself. I’m already thankful to my former self for this! I would likely not have gotten these returns in any other form of investment.

Goal is to continue using OPM to secure retirement plus pension, whatever paltry SS we get, and our 401ks. All advice appreciated!

[Brian Burke]

There's really no right or wrong answer, @Aaron Hunt. SFRs have an advantage in that they are fairly liquid (in markets that are at least decent). Small multifamily has an advantage that they can provide some efficiencies. But in my experience, having owned both for decades, is that tenants of small multifamily properties are oftentimes more transient (meaning higher turnover than in SFR) which tends to negate some of the efficiencies that you gain. So for me, SFR vs. small multi is somewhat of a coin toss, so I own both. Nothing says you can or should do only one or the other.

As to scalability, it is true that SFR is less scalable than multifamily, but this is only a problem if you are seeking to achieve scale. If you are just looking to add a couple of properties to your portfolio and stop there, scalability won't matter to you. At least not yet.

If I were you I don't think I'd use my money to pay down loans, not much to gain there, really.  You'd be better off using those funds to acquire additional properties, in my opinion.  What I did instead was refinance all of my personal rentals onto 15 year fully amortizing loans so that I would own my whole portfolio free and clear by the time I turn 60.  I don't need the cash flow now, and whether I'll need it then isn't the point...the goal is to have this safety net that I know that no matter what happens to me that income will be there.

The "lend hard money" route might not be the best route for you if it takes up a significant portion of your liquidity.  It could be a good ancillary strategy and a place to park cash for relatively short periods if you are dealing with experienced, proven borrowers.  But this is a fixed-return type of strategy and if you are looking for upside you are unlikely to find it here.  Perhaps as an alternative you partner with your flipper friend where you contribute the cash and get a split of the profits in return.  Just be aware of the downside.

As to passive investing in a syndication, this is a very common outlet for people that have limited time, experience, resources, and/or relationships to invest in multifamily on their own, or simply do not want to invest in it on their own, opting instead for the investment sponsors to do all of the work.  One thing you said is certainly true:  you have no control.  Well, you have control over which offerings you invest in, what sponsors you invest with etc...but once the investment is made you have no control over the operations and decisions.  As long as you are investing with the right sponsor this isn't a bad thing.

But I'd advise against "online passive syndicate crowd funding".  This isn't a point-and-click strategy like ordering your groceries from Amazon...it does require due diligence and research on who you are investing with.  I'd suggest that if you are going to pursue this strategy that you focus your efforts on figuring out who you might want to invest with, conduct thorough due diligence on them, talk to references, and visit their offices...and invest with those groups directly rather than through a crowdfunding website.  

Whatever you decide, investing in syndications and investing directly in real estate aren't mutually exclusive.  I know many people that invest in private offerings but also invest directly in real estate.