What would you do with 1 Mil Cash? Multifamily?

Oakland, CA · Member since 2014 · 9 posts · 3 votes

Folks

What would one do with 1Mil or 1.5Mil Cash? Stock market is flat this year. I have a 4 unit multi family and understand Berkeley/Oakland Market. I don't mind moving to a large Unit size property. But this is an open question? Would you put down 30/40% on a Commercial Mortgage on a larger Unit?

I am so confused going from 4 Unit to Larger Multi Famiily with commercial mortgage.

Thx

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DG A.

San Francisco Bay Area · Member since 2015 · 196 posts · 181 votes

I would build a new fourplex with that money. All units would be exempt from rent control for the foreseeable future.

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Angelou Masters
Investor · Oakland, CA · Member since 2012 · 41 posts · 22 votes
8y
1.5 million is a heck of a lot of money. However in the east bay you won't be moving up to many steps from that four plexi if you're going for A or B rated properties. How about becoming a lender and charging 8-12 percent and 2-4 points for short terms loans. In this market everything is so overpriced and its hard to cashflow with quality buildings.
1 Reply
DG A.
San Francisco Bay Area · Member since 2015 · 196 posts · 181 votes
8y
I would build a new fourplex with that money. All units would be exempt from rent control for the foreseeable future.
3 Reply
Abdul Shishi
Member since 2018 · 82 posts · 40 votes
8y
Take $600,000 and buy 3 income stocks. Bdcl. Cefl.More.
That's $120,000 a year in income. Hope for the best.
You still have $900 K for Real Estate.
I actually have been doing some versionof this going on 4 years. So far so good.
0 Reply
Edward Liu
Palo Alto, CA · Member since 2017 · 230 posts · 200 votes
8y
Invest outside of California in real estate. It is very hot market for multi-plex in most markets, but still way better deals vs. CA. For all of my multi-plex in other states, last 12 month value increase is between 25%-75%.
For more than 4 units, it is commercial loans - usually 20 years loan, 25% down, fix rate for 5 years. Many large banks don't do small commercial loans less than $2M, so need to find local banks who will do loan for out of state investors. Commercial loans rely more on the merit of the property (positive cash flow) and your total net worth (you guarantee the loan), less on your personal FICO score (although high FICO score helps) and personal income. I have found commercial loans are easier to obtain than your home mortgage, if you have $1M cash.
1 Reply
Otto M.
Rental Property Investor · Louisville, KY · Member since 2018 · 6 posts · 2 votes
8y
Cash flow is king for me -- I'd put 20% down on a 30+ unit Apartment complex. Of course, in some markets you can't even get close to 30 units.
0 Reply
Michael Bishop
United States · Member since 2015 · 401 posts · 394 votes
8y
Diversify by location and asset class by investing smaller amounts in a large number of commercial deals with reputable Sponsors who have the track record, time and expertise that you seem to think you lack.
0 Reply
Ajaya A.
OP
Oakland, CA · Member since 2014 · 9 posts · 3 votes
8y
Originally posted by @Michael Bishop:

Diversify by location and asset class by investing smaller amounts in a large number of commercial deals with reputable Sponsors who have the track record, time and expertise that you seem to think you lack.
Michael
What's a good resource to find source. I have done some RealtyMogul stuff but the returns are abysmal.
Thanks
0 Reply
Michael Bishop
United States · Member since 2015 · 401 posts · 394 votes
8y
@Ajaya A. my opinion, you're on the best source for finding good Syndication opportunities. Plenty of deals/people doing deals to be found on BP.
0 Reply
Abdul Shishi
Member since 2018 · 82 posts · 40 votes
8y
Not to disparage online platforms. Those are for them to make money. If they can take you along for the ride -great.
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Account Closed
Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
8y
Im more a spreads guy than deal guy. So if you can find a 500k deal that you can get for 20% down then pump in 100k to get it to 800k , thats great.

Or if you get a 1M deal that needs 250k , ( say thats 500k out of pocket) and then get the value to 1.6M.

You'll probably have to be involved and active for those opportunities. You can sit there and try to pinpoint a deal that matches up with your cash.... but i like to focus on the spreads but if thats a smaller deal , it may come with more involvement. Good luck.

10-15% on a syndication for me is not attractive because i believe i can far exceed those returns on the right deals ( and i believe any smaller investor , especially in the sub 1M space can ) if they work hard enough and become knowledgable enough -you might have to tweak your asset class strategy and what markets you are in though )
1 Reply
Grant Rothenburger
Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
8y
@Ajaya A. I would invest it in a couple/few syndications from trusted sponsors. I would choose that for two reasons: make money now, learn the syndication biz.
0 Reply
Brian Ellis
Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
8y
Land Development
0 Reply
Curtis Rouse Jr
Realtor · Atlanta, GA · Member since 2015 · 266 posts · 182 votes
8y
@Ajaya A. I would go and buy an apartment building in the range of $4mm - $6mm based on a 75% LTV. Depending on your goals and aspirations is dependant on answering this questions as well. For me personally, I want to get as much bank debt (leverage) as possible to control an asset that is cashflowing from day 1 and just as important having a truthworthy team in place to manage the asset. With compressing cap rates in this hot market, I would be very careful not to purchase something just to purchase because you have the money. I aim for at minimum 10% ROI on my investments with a possibility in 3 - 5 years to double (these are mostly value add opportunities). If you ever need help analyzing deals, I've built a financial model that I help investors analyze these larger apartment deals. The BP calculators are great as well and where I started. Best of luck and let me know if I can be of any assistance!
1 Reply
Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
8y
I own direct real estate, syndications and crowdfunding deals in my portfolio. There's lots of misinformation/incorrect perceptions in the comments above.
The crowdfunding platforms are essentially syndications that are done online. I've found that the quality curve is similar in both: there are a few really excellent sponsors, a few really horrible ones, and most of them are somewhere in between. I have been very happy with the performance of both, so the idea that no investor makes money in crowdfunding has not been my experience.
However, there is an argument to be made that the absolute top-notch, most experienced sponsors currently don't need crowdfunding, because they've been around for so long that they have a pool of dedicated investors that fund themselves very quickly. So they have no need to pay a fee to a crowdfunding sponsor. This is at least partially true in my opinion. However, a few also choose to dip their toe in the water and experiment, so I feel that crowdfunding sites can still provide a good source of leads.
Realtymogul focuses on nonaccredited investor offerings, which tend to be much higher fees, have almost no skin in the game, and much less choice and selection than accredited investor options. Since you have over $1 million, you would qualify as an accredited investor, and would have access to thousands of other crowdfunding sponsors/syndications that are many times better, in my opinion.
To answer your initial question, I would personally spread out my bets, rather than put it all into one thing. That's actually what I do: the majority of my real estate portfolio is in direct real estate that I own, then the second highest allocation is in syndications/crowdfunding debt. (The idea here is that if there is a meltdown, the equity holders are the ones that will get killed, and I will be the one foreclosing on them and owning the properties to recover principal). My third highest allocation is in very long-term equity that is conservatively underwritten (low ltv, and designed to go for 7+ years). I'm personally not interested in the typical 3 to 5 year deal, in case the next recession is severe, and the banks shut down loaning again causing defaults. Hopefully that won't happen in the next recession, but I'm conservative so I don't take a chance.
The Real Estate Crowdfunding Review
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Alina Trigub
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
8y
@Ajaya A. I would definitely take the diversification route if I were in your shoes. So agree with @Ian Ippolito on the concept of diversification.
I'd put some money into the stock market, some in active and some in passive real estate investments. If you're not too familiar with the stock market, go with conservative Index Funds through Vanguard or other providers. For the real estate, you can put some money into lending and get a fixed rate. I can recommend some providers if interested. And then invest the rest of the money in buy&holds. Now whether you do the latter yourself or invest in someone else's deal through syndication or crowdfunding platform it's up to you. My personal choice was and still is syndications, but everyone is different. Bottom line, no matter what you decide, in addition to speaking with folks on BP, educate yourself in each area prior to investing, learn as much as possible!
If you need more help, feel free to PM me.
Good luck!
1 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Ajaya A. I think the best course of action for you is to loan me the 1.5M at 3 percent interest only for 20 years. All joking aside don’t say how much money you have on BP and utilize the search function to see what other threads say as this question is asked about 100 times a day
1 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
8y
Ajaya A. If you had no experience I would start with a single family home and do it remotely out of state where you learn how to do that first. There are a lot of junk deals using crazy assumptions and without any kind of experience or base level it would not be wise to get into a syndication.
0 Reply
Mike Carr
Investor · Newark, DE · Member since 2012 · 81 posts · 45 votes
8y
Increase marketing budget. Find a solid self storage deal and partner with an experienced syndicator and put up part of the equity. Then find another deal and partner with a management company and again, put up some equity. While the deals are underway I would attend every self storage event to network. Then use the track record from the deals to syndicate deals on my own...possibly leverage the partnerships again if they work out well.
After a few deals I would start to build out my own team to scale the business.
1 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
8y
1 mil
Buy
10 flips
Approx profit based upon personal experience 50k/
A year from now have 1.5 mil
0 Reply
Will G.
Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
8y
Plenty of nice properties around here waiting for "California money" .
It's terrible time to be acquiring real estate, more so multifamily.
1 Reply
Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Probably apartments in metropolitan for income. T-bill interests are paying higher now matching mediocre equity.
My client just put $1.2M down and got a $2M mortgage to live in a 2200 sf home in South SFBA. Their PITI is $14K monthly for 30 years. That 1.2M or 3.2M does not go a lot way here.
0 Reply
Michael Wagner
Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes
8y
That's a great problem to need to solve! Personally I would invest in Value Add Storage Properties but what you do will depend on your area of expertise, interest and as importantly your investment objectives. Do you want a steady stream of consistent cash flow to live off of? Perhaps lending is the way to go. Or purchase a turn key asset managed by a third party. Are you looking to grow the wealth and don't need cash flow in the short term? Then I would look at Value Add plays where you can buy an under performing asset and fix it to double or triple its value in 2-3 years. Whatever you decide, Good Luck!!! If you do end up seeking "others" to help you invest the money, I wouldn't lead with the "I Have a Million Bucks" line. That will lead you to investing your money into deals that excite you....I think you would be much better off spending some time building relationships with others and then "Invest" in those relationships/the people running the deals. You'll be far better off long term. Even if you were to get lucky on the first deal....youll be back to square one as soon as the deal is over and you'll have to seek out the next opportunity. IF instead you focus on PEOPLE and RELATIONSHIPS, your successful deals will lead to more opportunities. Hope that helps some!
Mike
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Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
8y
Originally posted by @Will G.:

Plenty of nice properties around here waiting for "California money" .
It's terrible time to be acquiring real estate, more so multifamily.
Why is it a terrible time to be acquiring real estate?
0 Reply
Will G.
Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
8y
record low cap rates, are one symptom of the last 10 years of artificially low interest rates. The fed stated goal (with interest rate policy) is to "boost asset prices and encourage stock market investment". All the money printing has caused serious distortions in the economy, so what we have now is a lot more risk than what may be "normal"
I don't pretend to know whats going to happen but the landmines on the economic landscape are real and significant. The bond market is in a bubble due to fed purchases, record debt in student loan,auto and credit cards, the imf says 15% of listed companies can't affordthe payments on their debt, and this year has seen 65% increase in corporate bankruptcy filings, tesla has never made a dime, amazon makes 0$ on merch sales, etc,etc
Short term buy and flips are probably a lot less rissk now. There are even discussions on "disposition adjustments to cap rates" for multifamily on this site! That means few expect cap rates to be lower when selling in the future and are debating how much cash flow will evaporate at resale due to higher cap rates.
Personally, last two deals under contract, bank wanted 50 and 55% downpayments due to purchase price overvaluations, and owners don't care, just waiting for "California money"
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Mike Krieg
Investor / Syndicator · Austin, TX · Member since 2015 · 366 posts · 220 votes
8y
If its my 1.5 milly, I'm targeting IRR deals north of 17% IRR, run by professional proven sponsors, diverse assets, metros, 50-100K per deal, cash on cash criteria double digits. I also want to some forethought by the sponsor on how rising rates will affect the exit. Specifically, I'm demanding a rate sensitivity analysis on those exit cap rates, AND, I want to see a good track record of returning capital back on refi's and loans, etc. to minimize my risk. I love MF and will stay put. Plenty of great deals still, but it is getting competitive. Not the time to gamble on the rookie sponsor.
Here's more of my take on MF in general:
https://www.biggerpockets.com/blogs/10553/70328-5-reason-i-prefer-multifamily-apartments
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