I’ve got the $, how to leverage!?

Question

Alright...what would you recommend

I have 200k post tax of company stock

220k In 2 fully owned rentals I could BRRR

400k in IRA (not yet in a self directed fund)

60k cash

100k coming from a SF home sale in the next 6 months

The goal is to leave my full time job within a year. Desired income from investments is 80k+

Debt to income ratio is around .2 now

passive rental and business income in one year will be 30-60k (depends on the franchise business trends)

I feel some paralysis on what to do, lack of knowledge on how to use this leverage and finance new deals. I love bigger pockets. Thank you for your two cents

Will Fraser · Answer

Hi @Elisa, this is a good problem to have, but a problem nonetheless.  Even reading through your scenario I felt a bit of overwhelm, and that is what I want to draw from in my advice:

I’d recommend limiting what you are looking at right now and seeking to optimize one thing at a time.  When you look at the whole picture and seek to make big hairy audacious super-optimized moves with a very short time horizon it can very easily lead to paralysis.  If you limit it and, say, view each of these line items as a project you could attack each one to completion or to the “next bottleneck” and then work on the other ones.  For example:

• $220k in equity in rentals — action:  initiate a cash-out refi on these.  Fix interest rates at the lowest rate for the longest time possible
• $400k in IRA — action:  select SD IRA custodian, initiate new account, transfer funds.

Don’t approach all of them at once, but rather move each project as far down the line as possible until you’re finished or you are waiting on a delegated task to be completed, then start chipping away at the others.

I think you’ll be surprised at the progress you make overall by approaching them incrementally, but more importantly I think you’ll be blessed by the mental peacefulness that comes through this approach (taken from the book Getting Things Done)

Account Closed · Answer

@Elisa Rafol congrats! It seems like you're in a great financial position. If you're looking for more cashflow, you could start transitioning into the commercial space. In Cincinnati, you can get a 40-50 unit complex for ~$2,000,000. There are obviously smaller deals out there, but I would start buying apartments and leveraging from there.

Elisa Rafol · Answer

thank you @Jerel Ehlert @Kris Wong and @Paul Moore !  I'm digging in to your advice and appreciate it

Jerel Ehlert · Answer

Company stock: $200K, liquidate at approximately 80% net yields about $160K.

Rentals: $220K refi 80% of the equity yields about $170K net.

Cash is cash: $60K; same for sale of house $100K.

You can't roll over your retirement until you separate, and then you can't live off it but can co-invest with your IRA. You will have to proportionately split profits with the IRA. For this analysis, it's a wash.

Total available for investing in income producing activities: $490K. For ease of calculations, I'm rounding up to $500K.

If your desired pre-tax yield is $80K, you need a 16% annual ROI.  Doable, but you will need to be active, not totally passive. For this reason, syndication passive investing is probably not the right path.

Commercial might be available. If you find something with a lender who will give a 1.25 DSCR, you back into an NOI of $2.0M. Lack of personal experience in commercial real estate will work against you.

Private lending, when done right, can yield between 15-22% cash-on-cash. Problem is having enough deal flow to have most of your capital working most of the year. "Bench time" kills returns faster than anything.

Alternatively, if you cash out your IRA (not recommending), that adds about another $250K to your capital. An $80K yield on $750K is a 10.67% ROI. This is a highly attainable goal that can be reached by a small commercial property or private lending.

In the commercial scenario, take the same deal, but instead of maxing the loan for a larger property you keep the same property and borrow less, giving a better return because less of the NOI goes to debt service. More skin in the game might even give you better loan terms.

In private lending, you could take a more passive role in a debt fund - like syndication but the operator is lending money either directly to borrowers (like a HML) or lending to a HML who manages the borrowers (less overhead to the fund). My fund does the latter. No marketing for borrowers or chasing them down or servicing loans. Most any HML will pay out 8%. Some funds have a target return of 8, 10, to 12%. I've seen other funds advertise target returns higher, but YMMV.

Daniel McNulty · Answer

@Elisa Rafol

It would depend on how involved you wanted to be and how much risk you wanted to accept.

More Sfrs could certainly get the job done but would require some management effort.

Syndications are my personal preference but there is a pretty high bar to identify, do due diligence and build a portfolio.

There are many other asset classes available to generate income, dividend paying equities, private credit, etc that all may prove useful.

Use them all to diversify and rotate as opportunities arise and your lifestyle changes.

In all those numbers alone should be able to put you pretty close to your income target, but I would be weary of over leveraging and weary of too much concentration in any one of them. Congrats on the fun that is ahead !

Elisa Rafol · Answer

Thank you @Evan Polaski Account Closed!

Jim Kittridge · Answer

Great advice from everyone in this thread. Congrats for putting yourself in a strong position @Elisa Rafol.

As others mentioned, if you want to be more passive, I'd recommend private lending. You'll typically get a 9-13% return with experienced borrowers and proper protections in place. If you go this route, it's critical to perform proper due diligence on the borrower, the property and ensure you have equitable collateral.

If you want to be more active, you can look at purchasing rentals or small multifamily. Your cash on cash return will likely be lower, but there are other advantages to owning real estate directly such as depreciation, amortization, and appreciation. In the current environment, I would steer away from office or industrial.

Paul Moore · Answer

Great answer, @Jerel Ehlert.  Congrats @Elisa Rafol.  As has been said, the first order of business is to clearly define how you want to be spending your 30-60 working hours per week.  Then you can make decisions from there.  I like the idea of notes and other syndications if you want to be passive.

Kris Wong · Answer

You should look to scale your deal size to be representative of the type of capital you are working with. My personal preference is multifamily, but there are obviously other asset classes in office, industrial, retail, etc... Of course, we're currently looking at these asset classes through a very different lens than 6 - 8 months ago, and people will always need a place to live. When you get into commercial properties, and commercial loans, everything gets easier as your investment is treated as a business (which it is, of course). Your loan terms will depend more on the deal and your experience than on your personal financial situation. If I were you, I would diversify by looking for your own apartment deal in your target market, but also look to place some of your capital into a syndication (or 2) in other markets. There are many trustworthy deal sponsors on this site.

Elisa Rafol · Answer

Thank you @seanpan - is it likely that with a good DTI and credit score, I'll be able to get a loan for $2M with $200k down?

I’ve got the $, how to leverage!?

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