New York City, NY · Member since 2017 · 3 posts · 1 vote
Hi everyone. I'm brand new to BP and looking for some opinions/advice from all of you experienced investors.
Here's the question:
If you had roughly $850,000 cash to invest in buy-and-hold properties, and your priorities are 1) to maximize cashflow and 2) minimize risk, what would you do?
Assume you live in a market that does not cashflow well at all (New York).
Also assume that appreciation is not a priority.
Other assumptions: you have some time on your hands but zero experience in rehabs.
You intend to hold these properties for a long time.
Cash spends the same no matter where you live. If you can't buy in New York (which I'm not sure your looking in the right places), then buy out of state and hire a property manager.
It's been a while since I've been to New York (never been in the city) but I know there are a few opportunities in areas like Buffalo, Syracuse, Endicott, etc.
Cash spends the same no matter where you live. If you can't buy in New York (which I'm not sure your looking in the right places), then buy out of state and hire a property manager.
It's been a while since I've been to New York (never been in the city) but I know there are a few opportunities in areas like Buffalo, Syracuse, Endicott, etc.
I know you will get LOTS of feedback on this question because there are truly thousands of ways and places for you to invest with those goals. (especially depending on how passive you want this investing to be).
Personally, I'd try to find a quality A/B apartment complex with local/in-house management or a portfolio of cash-flowing TK properties in an area of the country I'd like to visit and have fair landlord protection. I'm obviously biased towards Memphis, but I'm sure there are other areas in the country who can offer similar returns and have similar laws.
Best of luck! Let us know what you decide to do! :)
@Michael Graystone - How much do you want to be involved? If you want to do the rehab work then start looking for off-market properties in areas where you want to invest. If you want something more passive, then either TK or on-market properties with a good PM company. Honestly, I'd look at both of those options because you might find a better deal through an agent or through TK. Also keep your eye on the BP marketplace for portfolio deals. You might find a better deal buying in bulk.
I think Ed and Elizabeth both gave you great advice. The comment that you wanted to maximize cash flow, and minimize risk could be tweaked a little bit on the reply from Ed. His suggestion was obviously the best to minimize risk, but not the best for cash flow. I think you could accomplish the same thing with maybe 50% equity in each property as long as it was in an area of future growth.
I have been extremely successful using the Texas market place. I have posted on here numerous times about a subdivision I have in South Texas and three large apartment complexes in the Dallas area.(one of those is in escrow at the present time and due to close shortly). I have been absolutely stunned with the ability to increase rent on all those buildings.
I'm not suggesting that area, but if you could find one that has aggressive growth, movement of businesses to the area, and other criteria that have been mentioned often here on bigger pockets, I think you could be successful in a very few number of years.
Haha, Cats Exotics just got a 2001 6.0 Diablo in monterey blue. The first monterey blue Diablo I have seen for sale since I bought mine 3 years ago. No idea what they are asking yet, but I would guess $350,000
Well, I usually preach "invest for income". So, I'd spread that across as many commercial multi-units as you can. Minimum 10-year balloons, 15-year amortization if you can, maximum 20 year.
I hope you are not suggesting this is a good location for Michael to place his $850,000. I don't think he is looking at this as discretionary funds like some of us do. The time will come. If he invests wisely at this time. I have two exotics parked in my garage, but I didn't have to determine between play toys and solid investments.
if you were going to buy out of state, would you go with a turnkey provider or try some other approach to get better returns?
I've not bought turnkey before. My experience with out of state is you want to find a property manager that either has their own crew on staff or that is willing to take on the responsibility of also maintaining the rentals.
A good idea if you are looking to buy out of state but don't have much experience may be to invest in a syndication with an experienced sponsor in value-add deals.
This would allow you to have an experienced operator who knows the market run the deal and you may receive higher cash flow in addition to forced appreciation.
Another benefit would be that you will be investing in a much larger 2-40 million dollar and get the economies of scale that come along with of property of that size.
I would put it in the bank, maybe a low yield no risk investment while I go out and get a job, internship or something that gives you experience in whatever field it is I want to invest in.
Gain as much knowledge and experience as you can first then go back and ask yourself the same question.
There is a big difference between reading up about a particular subject and actually getting hands-on experience. You will notice that your mind will change a million different times until you actually figure out what the right decision is.
10-15 homes at 12% cash-on-cash returns, somewhere outside of New York, obviously.
If you can live off $8-$10K a month, you're set. At 0% appreciation for your lifetime, you could still leave your estate the $850K in equity and nice cash flow.
@Michael Graystone You're in an enviable position! You've already gotten a lot of really awesome feedback, but I would add one thing: you don't have to deploy all that cash right now! You mention you have time but no experience in rehab, which sort of implies you may have some interest in a more DIY approach if you felt like you had the know-how.
The great thing about REI is that you don't have to choose one direction and then stick with it forever. You absolutely can start somewhere easy, low risk, passive, like turnkey, to put your money to work while you learn a bit more about other areas. There's no reason why you couldn't deploy some of that cash, say half, into a good sized portfolio of turnkey properties in a better cash flow market (there are plenty) and let them provide monthly income while your tenants pay off your loans. If you don't need the cash flow as income, devote it all to paying down the loans faster - basically still having your tenants buy you investment properties, but speeding up the process.
As for the other half of your nest egg, keep a bit out in cash so you have it to deploy quickly if you find something awesome, but take the majority and toss it in a low-fee index ETF to get some low-risk returns - you can pull out what you want, when you want it (unlike a mutual fund), instead of having to refi or sell RE to free up capital. Keeping some of your capital pretty liquid until you know what you want is a good idea, but you should still be putting those dollars to work.
In the meantime, you can take your time learning the ropes of scouting deals and doing rehab work. If you have unlimited time, you could use a bit of that cash to finance a flip that will let you get the hands-on experience you want, but without the pressure of needing to flip it fast - you'd have your passive income portfolio as a backup so that even if you make every rookie mistake in the book on that first flip, you're not all-in on a high risk venture.
If it turns out you like the DIY thing and want it to be more than a hobby, you've got $400,000 to pour into it. If it's not for you and you decide passive income is what you're looking for, grow your turnkey portfolio or expand into other passive investments - diversify.
There are a billion ways to use the money you have, and the right one(s) will depend on your priorities and what you want to do with your time. If you like the idea of REI as a business and you have the time, great. If you want to race sail boats or travel or do charity work and just need your cash to be making more cash to support your dream, you can do that too.
Whatever you do, vet everything thoroughly. Once people know you have a big chunk of change, the sales pitches will be unending. There are so many amazing people here on BP that will be fantastic resources to you, but make sure you put in the leg work to determine who you want to work with based on reputation, track record, and hard numbers.
You would be looking most likely out of state. Once you do that, being more passive in orientation is a viable strategy. I currently favor syndications where you are partnering w/experts who have experience in their respective niches. Currently favored niches include value add multifamily apartments (200+ units); pooled investments in self storage and mobile home parks where you might be investing in several properties spread out over several states in leading growth cities. There are long trends in place and these assets have fairly low betas compared to the market in general and some downside protection built in. Think folks store more stuff in good time and bad. Affordable housing and more renters are long poles in the tent. Here some light reading on these areas.
Since you don't have any background or expertise, why don't you hard money lend at 10%+ interest on short term loans? $850k @ 10% will yield $85k/yr and never touch principle, and all you have to do is cash checks. Ask for points or even higher interest and you are making $100k+/yr.
Hard money lending with no background or expertise is a pretty quick way to lose that $850k. How do you know if the properties you are lending on are worth what you are giving? How do you know if the people you are lending to have the ability to execute?