Best opportunity for a cash heavy investor?

Question

Where do you think there is more opportunity: (1) doing 200K BRRR deals on the outskirts of Austin or (2) buying land, rezoning, and developing? Or something else?

The situation:

I have a successful business, and it's churning out a fair bit of cash. I could easily pull together 200K and might be able to get as much as $1 million. Perfect credit, long W-2 history. No need for immediate cash flow, but depreciation and eventual cash flow would be nice.

Not scared of doing the work to add value. Rehabbing, rezoning, maybe even going vertical, although I'm less interested in the last one. I'd rather have a few small headaches than one giant one, if you catch my meaning.

About 10 years ago, I managed a $50 million real estate portfolio for a group of investors in the southeast. Land, apartments, houses, trailer parks, pretty much everything. My father was a developer, and I learned a lot from him, but I'm rusty from a decade focusing on my own business.

Anyway, just starting to watch the market and talk to investors and brokers in the business. I'm a fan of Bigger pockets, so I figured I would post a broad question like this and say hello to everyone. :-)

Jerel Ehlert · Answer

Trying to rezone in Austin MSA is the epitome of swimming upstream. Just work with the zoning the city wants. Will save you time, energy, and effort in getting projects done. If you work with them, they might even accelerate your plans. Mixed use is a good route.

Jesse Daconta · Answer

@Jon Morrow$200k BRRR deals may be less risky than buying land/rezoning/developing. I'm not a fan of either of these strategies in our current market unless you have a pipeline to off-market deals.SFH/land development (residential) profit is dependent on the emotions of the public - like the stock market but usually less volatile. This is why we went the commercial real estate route. Commercial real estate is based on actual results and not emotion.My 2 cents :)Best,

Mack Benson · Answer

I think both may be tough and very time consuming. The speculation of development in that market may, and I stress may, show higher returns but it is very labor intensive and you would likely be competing with established high performing firms already in the space. A post like the subject line in the will likely get a lot of attention and most will suggest their preferred method of investment from passive to active like the two methods you mentioned. With your history of building businesses you may be up for the task of starting a development firm or even a BRRRR business, each has its merits. Development can have a higher up side but also carries more risk. Networking is tough right now but have you been able to connect with anybody in your market who is active in either of these spaces?

Nicolas Thatcher · Answer

@Jon Morrow- With the Austin market currently in a league of its own, my recommendation would be to focus your attention on advice from local experts. Not to say that the advice from other professionals from other parts of the country or even the State are not worth considering, but with all the nuances you get with development in Austin as mentioned by both @Aaron Gordy and @Jerel Ehlert, it's often better to stay local. As for me, I am currently working on rezoning my half-acre lot in East Austin from SF-3 to SF-5 or 6. Time is not an issue for us since we have tenants on the property with good cash-flow. We simply want to maximize profits from the land and also have fun doing it since it will be our first development project in the area.

Aaron Gordy · Answer

@Jon Morrow That is a impressive track record. It seems that you understand the game a bit. Yes, you can rezone property in the city but its a headache. You can pay folks to take your headache out of the equation and rezone it for you, of course. It will be easier to rezone commercial property. It's done all the time. If you are trying to get depreciation and cash flow that is impossible with land. It's possible to buy a house on large tracts of land that can be depreciable on the outskirts of the city but the cash flow probably won't be there without a little creativity.

Dan M. · Answer

Why not minimize risk and act as a hard money lender. If they default you get the property so your still involved with real estate and there could be alot of upside with little risk either way as long as you crunch the numbers.

Jeremy VanDelinder · Answer

Great thread. We are working a lot on the North side of Austin. Primarly with SFRs, but I have a piece of land out in Liberty Hill--I'm liking what I am seeing start to happy out that direction. Likely I will develop it down the road. Let me know if there is any way I can help--particularly in Williamson County. Good luck!

Jon Morrow · Answer

Jon Morrow · Answer

Nina Hayden · Answer

I agree with both responses. I’m headed in the syndication route myself. I have the opportunity to build as well but I’m not sure I want to mess with that yet. I’ve also met with commercial developer in the DFW area to invest in. I can put you in contact with him to discuss if you would like the opportunity and see if it’s something that aligns with your investing goals. I have an economic 2021 outlook from one of our economists that I can share with you. He talked a great deal about this. Either way, take your time. With the market being a sellers market, you’re not going to find much unless it’s off the market.