Hi from LA, Seeking Passive Investments: turn-key,crowdfunded,etc

[Christopher Otani]

Hi, I've been lurking around this forum for over a year now. I appreciate the wealth of knowledge on this website and the helpfulness of the many user who are active here. I've been busy investing on my real estate education first while slowly building my cash for an initial investment. I am now at the stage where I am about ready to take the plunge into real estate investing.

A little about myself. I am 25 years old, born in Hawaii and living in the Los Angeles area now. I work full time as a Mechanical Engineer and will be starting my masters in Engineering Management at the start of 2018. I enjoy my job very much and have no intentions of leaving any time soon. That being the case I am seeking very passive real estate investments. I’d like to supplement my income with passive cash flow and continue to re-invest to give myself the opportunity to retire early.

I currently have $20k saved up as cash, and $10k in an emergency fund that I could dip slightly into if required. I also have $25k in a IRA that I could potentially roll into a self-directed IRA if it makes sense to do so. I am saving cash at a rate of $1650 a month so in a year I should have $40,000 saved up for an first investment. Additionally, my father expressed interested as going in as a 50/50 partner with me which is another option.

My initial thought was to house hack a multi-family home since I could get started with less than 5% down, but upon further research my local market just does not cash flow positive and do not look to be good investments. This has led me to look into my out of state options.

So far I’ve narrowed it down to two options; Turn Key rental properties and crowd funded real estate.

1.Turn Key - I’ve heard great things Memphis invest and have a called scheduled to get more info and start looking at their offerings. From my understanding, most properties are in the $120k-150k range which would require closer to $35k cash to start. I’m also looking into pursuing other turn-key providers so if you have personal experience with a company and would recommended them I’d love to hear from you about your experience.

2.Crowd Funded – Being a non-accredited investor, my options are limited. From my research the current front runners are Holdfollio and Groundfloor. 

-I like that Holdfollio has a large stake of their own money in each portfolio (20-30% typically) and the company has been very high recommended by a colleague. Cons are that they only offer about 4-6 new portfolios a year, it’s not very diversified (10 properties in the same city) and minimum investment is usually $10k.

-Ground floor appeals to me since the minimums are much lower that it would allow me to dip my feet to test the waters. They offer more properties and range in low to high risk which give a wider range of ROI. With this platform I could spread $100 across 40+ investments and hopefully diversify a bit more. They are also shorter term so my cash isn't tied up as long. Cons are that you aren't gaining any long term equity with this method, just cash flow.

Given my situation, what would you recommend? Continue saving more to get started with a quality turn-key? Go with Holdfolio or a similar crowd funded site? Explore other real estate investment option?

I look forward with hearing your responses and becoming more involved with this community of investors.

[Andrew Johnson]

Christopher Otani I think your first step is thinking through what market you want to be invested in if it isn't the greater Los Angeles area. Are you looking at Memphis because you *want* to be invested in Memphis? Believe in the city? Believe in the growth? Or because Memphis turnkey providers do a great job of advertising? Replace "Memphis" with any city or metro area that you want. It's not about any city in particular, it's about your method to choose it.

If I'm in your shoes I'd start with: I want to invest in _____ or ______. In those geographic areas my options are: ___ turnkey, ___ crowdfunded deal, etc.

If, however, you're geographically agnostic, just put your money into a publicly traded REIT. Or a group of many REITs that focus on different things. There's no lock-up, they're just about 100% liquid, etc. If, in the future, you find the right property in the right market you can sell. You don't get that liquidity with crowdfunded deals.

Or just say that you 100% believe in the Memphis/Cleveland/Toledo/etc. market, economy, future, and start deciding between the various ways (including turnkey) that you can get into that market.