All Forum Posts by: Clayton Mobley

@Kyle Moschkin You may be part of a relatively small group here on BP, but I'm fairly sure I've seen a few other posts similar to yours (US citizen living in China or other places with lower cost of living). Maybe set up some key word alerts to help you track down those threads and see what others are doing. I'm almost positive I've seen another post from someone in China not too long ago - you could maybe even have your own tiny REI meet up lol

As for your options, you're going to need something pretty passive, since you obviously can't be on the ground to supervise renovations or manage tenants. You still have several options, depending on if you want to invest directly in individual properties or be a bit more removed:

• Full-service turnkey investment:
  • Should be mostly passive after you do your due diligence and pick a provider, but don't skimp on your homework
  • You choose which props to purchase, but have no control over tenanting choices, some say in large maintenance expenses
  • Avg cost for solid B/B+ prop in Birmingham (and some other markets but this is the one I have data for, since it's my market) is about $100k per door; you'll pay market price for a tenant-ready, fully rehabbed property

• Partnering with someone who does the on-the-ground stuff while you provide capital

  • Can be passive if your partner really knows their stuff, but more likely you'd be fairly involved with the choices made
  • More control since you call the shots with your partner
  • You can pick which markets and price points you're interested in
  • Potential for higher returns (ie buying distressed and then forcing equity through renovation) if your partner is experienced and can execute consistently

• Investing in a syndicate

  • Many investors pool funds to invest in much bigger projects like commercial space or large MFRs, or in larger portfolios
  • Very passive, investors are not responsible for project vetting or management, but you have no control
  • May have higher bar for entry, some syndicates require large investments and you'll need to have liquid cash on hand

• Buying shares in a REIT

  • Like an ETF but comprised of real estate investments
  • Very passive, but no control over which assets are held in the fund
  • Highly liquid, easy to buy and trade, lower bar for entry

Everything is a trade-off between passivity and control, time and money. You don't really have the option to be super hands-on (which can yield higher returns for folks that do the DIY thing really well, Option 2 is the only one that could allow you to take advantage of forced equity), so your options are somewhat limited. Your main decision will be between passivity and control.

If any of the few options I mentioned above are appealing (and there are others, TICs, DSTs, etc), I'd say set up some keyword alerts to help you learn more and connect with folks who are pursuing the same kind of investments. If you have any questions about turnkey or the Birmingham market, feel free to shoot me a PM any time.

Good luck!

@Tanner Marsey I agree with folks here - this is pretty much a no brainer. I'd 1031 that bad boy into a nice little portfolio of properties that actually produce cash flow in another market. If you don't need the income, the just devote all the net cash flow to paying down the properties more quickly - you'd be surprised how quickly that snowball builds up and how quickly you can have free and clear properties under your belt. 

I wouldn't hold onto a property that's not producing cash flow, and given then you already have some good appreciation locked in and it's likely we're nearing the top of this cycle, I'd cash out, bypass Uncle Sam with the 1031, and start building your portfolio in a more cash-flow friendly market .You're in a good position, but it could be even better ;)

If you have any questions about the snowball method I mentioned above or the Birmingham market, feel free to reach out any time.

@Mark K. We focus our investments a bit further out from downtown, so the crime rates aren't a major issue. Crime tends to increase the closer you get to downtown in most markets. If your property is in an area with that much crime, it's likely more of a C-class prop or lower, which isn't really our area. We dabbled in Cs orginally but quickly discovered they weren't worth the hassle. Our properties tend to be in areas like pleasant grove, adamsville, frorestdale, grayson valley, roebuck, etc. Solid B/B+ SFRs are easier to find in the more suburban, or even rural, areas. Vassar is closer in than we usually go. 

@Cory Eldredge I'm clearly biased, but I'm a big fan of the Birmingham market. If you have any questions about new developments in this city and why we're excited about the future, reach out any time. Happy to share our most recent market report just for your reference.

Good luck on your new OOS adventure!

@Jason Belovich ok I see, sounds like you have a good short and long-term plan with regard to finances, but I agree there's no time that's too early to start planning!

As for our own numbers, all our property jackets provide info on returns and expenses for cash and leveraged investments, including amortization tables for both 15 and 30-year loans. If you'd like to take a look at a few of our interactive ROI sheets to get an idea of how the real-world numbers add up on some actual properties, feel free to shoot me a PM any time!

@Jason Belovich also, should we take Option 3 (cash) to mean you currently have $150k to invest? if so, leveraging that via Option 1 could get you nice little portfolio of 5-7 props right off the bat (using out avg price of $100k, with 20-25% down and keeping a little cash as a reserve buffer). In this case, the snowball would pick up speed pretty quick!

I'm not super familiar with the Fundrise strategy, but I took a quick look at the website and, while I agree the passivity is definitely a huge plus, I think you're right to consider the control factor. Of course, the best way to have total control is to really DIY the thing, scout your own props, manage the rehab, managed the tenants - but then you lose passivity completely. It's always a trade-off. A turnkey option (of course, I'm biased) allows you to be almost entirely passive (once you cut the check, don;t skimp on the due diligence prior!) but still gives you some amount of control in that you have the opportunity to see the properties before buying, or at thevery least, visit the provider and see some of their properties so you can get an idea of the workmanship, area, tenant base, etc. With 'real estate fund' option, you have no idea which investments are being chosen, so you are just that one more step removed. But, again, folks invest in the stock market all the time, in ETFs and mutual funds, so it's certainly not a bad idea - I'd just emphasize that consideration if you're concerned about not being able to actually see or vet the projects you invest in.

@Jason Belovich Wow, this is awesome! I love a new investor who loves data !

As for your options, I think you've already pointed out that the Local (4) more DIY investment doesn't really fit your goals or needs, though I always appreciate when new investors do the work of hashing out their options. I'm not an expert in your market, of course, but if your primary goal is to focus on passive income, I think you'd be better served by some of your other options. I know you used estimates, but at $200 net flow per door on Option 4, you could do just as well or better with Option 1 (leveraged turnkey purchases) with a lot less work. 

You've already noted your chosen growth strategy (the snowball) and that is almost always my recommended strat for folks who don't need the income right away - it actually can be a huge surprise to folks when you run the long-term numbers for them showing how quickly loans start falling away. Of course, the snowball gets rolling much faster when you're able to purchase a small portfolio right off the bat, but that's just not feasible for a lot of folks. Sounds like you have the right idea about turning your cash flow into accelerated paydown, but also a realistic idea of how long it will take you to get the ball really rolling given your savings potential. 

I would say, however, that you could likely do better than the $150 you estimated. Of course, it depends on the market, the provider, the specific props, but I think you cold bump that up to $200 pretty safely if you stick to solid B/B+ props in secondary/tertiary markets (which won't fee any upcoming downturn quite as badly as primaries like SF and seattle). 

I would also note that you can get solid investment props for less than $150k in several markets (shout out to Birmingham ;). I like that you're focusing on higher-end props and not trying to stretch your cash into as many doors as possible by looking at cheapies in the C/D range. Stick to B/B+ (A props are good for appreciation but the PITI almost always destroys any potential cash flow) in secondary and tertiary markets. In Birmingham, for example, you can get a solid B+ prop for $120-130k, renting for $1200+, $275 net flow per month with a 30-year loan. B-class (still in solid rental areas with high rental demand) props can be less than $100k (Avgs: B-, $80k B $100k, B+ $120k+). Naturally, Birmingham is my home market so i'm biased, but the South and Midwest have several solid markets where you can find similar figures. Point being, you can get $200+ per door in net flow with a smaller investment.

I would recommend talking to a few different operators in markets you like and getting some solid raw data. Find the average values, rents, returns you can expect for reasonably comparable properties and plug those 'educated estimates' into your spreadsheet to get a more accurate idea of what Options 1 and 2 will look like.

@Daman Oberoi I'm a turnkey provider in Birmingham, so I may be shooting myself in the foot here, but if you need an agent rec (and perhaps an attorney as well) feel free to PM me any time.

Good luck!

Basically, there are two ways to sell a property in a tax-savvy way. Whether they are turnkey or not doesn't really matter, and both require a CPA and a little bit of fancy footwork. A 1031 exchange also requires a Qualified Intermediary, so make sure you talk to one early if you consider this option.  

The only difference between exiting a turnkey investment vs selling any other property is that you buy it at market value, so you need to hold it for a while before selling to make it worth your while. Turnkey investments are not short term, so make sure you're ok sitting tight for a while before you pull the trigger. That doesn't mean you can't pull out equity down the line or use other strategies to continue to build your portfolio, but you should be comfortable with holding the property for 10+ years.

If you have any questions about the 1031 or 121 strats, feel free to tag me or PM. 

Good luck!