Best way to maximize rental income with $800,000+ in cash?

Question

Hi all,First time posting here, but I have been lurking for a while. A friend's parents asked me for help to invest approximately $850,000 into the LA (and surrounding) real estate market. As they are international investors, they won't be able to get any financing, so any deal(s) to be made will be all cash deals.I've done tons of reading and listening on BP, but I feel like I am still way over my head. I would like to give them the best options possible to maximize their monthly income from this investment.So dear BP community, what would you do if you had this cash to invest and financing is not an option? Would you look into a duplex/triplex that requires some TLC before renting them out? (But rent control is an issue). Would you buy multiple condo units in different up and coming districts/areas to rent them out? Invest into an REIT? Invest out of state into higher risk markets like Cleveland?Any advice will be very much appreciated. Thank you in advance!

Jason Carter · Answer

I agree with @Manolo D. You don't have 800K, you have 3.2 M. It's a mindset. It's intimidating but it can be done. Buy at that price in the right area of LA and your appreciation will be exponentially higher than a 500-8000K house. But I understand that its different strokes for different folks. My 2nd option would be to go with something like @Matt R. suggested. I'd stick in LA if you want appreciation. I'd consider Inglewood and I'd look at South LA near future expo stops. The area below Leimert Park down to Slauson is hot. It even has its own BP meetup now. Lots of flips going on.

Michael Bishop · Answer

I would advise them to at least look into apartment syndication. Being international, passive investments with little to no required active management or sweat equity should be extremely appealing. Not to mention target equity multiples north of 2.0x, CoC easily reaching 10% and IRR in the 18%+ range. Provided that they're accredited, with that much cash, they could spread their investments around multiple deals and even multiple Sponsors, minimizing risk to an extreme degree. Check out my blog on some of the top reasons, in my opinion, why apartment syndication is a great option:https://www.biggerpockets.com/blogs/10191/66365-8-...I'd be happy to connect and discuss! Best of luck to them, and to you in providing them with sound advice, you've come to the right place.

Manolo D. · Answer

800k at 25% as down will give you 3.2M. Think bigger. Small apartment complex or a 5+ unit. Commercial financing is less stringent.

Matt R. · Answer

Perhaps something like this 699k duplex in Inglewood ( No rent control.) They can stop by their property in 10 mins from LAX. Should have good appreciation and rent appreciation moving forward.https://www.zillow.com/homedetails/2516-W-85th-St-...Good luck!

Michael Plante · Answer

Personally I would pay cash for duplexes in OH or NYProfit could be Over 250k/yearAppreciation would be approx 0 per year BUT then again if you bought all in one area you could actually fix them all up and force appreciation

Michael Bishop · Answer

@Jared Kenealy I guess I should have specified that my experience, and these numbers, are in the DFW market. I've seen plenty of deals throughout the country with these same returns and better, but, like you said, I haven't looked at the LA market enough to speak to specific numbers.That being said, my recommendation to @Brian K. was not specifically aimed at the LA market. In fact, I think that international investors are better served looking elsewhere.

Ali Boone · Answer

You can barely even buy a single-family home around LA for $800k, and even if you buy one, it won't cash flow. I agree with @Manolo D. about going commercial. I don't know the exact financing requirements for commercial loans, but internationals may be able to get those because it's based off the property and not the buyers. Commercial would be more steady cash flow. But I also agree with @Lee Ripma ... are they insistent on LA? There's more cash flow....basically anywhere else, even on commercial.

Thomas S. · Answer

You need to get financing if you ever want to see any cash flow. The opportunity value of cash at a conservative 10% will kill any possibility of achieving cash flow with a all cash purchase. Leverage is necessary to gain positive cash flow.However if all they want to do is park their cash for safe keeping they would make more money investing in a REIT unless appreciation is their primary goal. Assuming they have the money to carry the property then this is a entirely different option.You must know what their investment goals are...cash flow, appreciation, both ?????Your best option however would be to partner with them...50/50. They put up the cash you qualify for the financing and manage the investment. Win/win.

Ryan O'Mara · Answer

@Brian K. Just b/c they are foreign nationals doesn't mean they can't get financing. There are lenders willing to lend. LTV may be greatly reduced (usually 50-60%) but it can be done.

Manolo D. · Answer

Steve Kontos Three hands in the cookie jar will usually end up in a lawsuit.