All Forum Posts by: Justin Moy

If you are hiring a PM they should have a template letter to notify the tenants of the new ownership. They should also already have leases you can use. 

The lease is typically 12 months so when a tenants lease expires you will have them sign a new lease that you / your property manager will write up. 

Make sure you get a credit for any prepaid rents at close and if any tenants do pay the previous management company it should not be difficult to get those back. I'd get back with them 10 days after close and request any rents that were paid to them by mistake and they should get that your way if they were a reputable company

I think 'high IRR' is subjective but also linked to the business plan. We're raising for a STR fund (506c) that is projecting a 15 - 17% IRR with an 8 pref and 85% LP split if that's something interesting to you.

I agree with some of the other posts that some of the higher projected IRRs (20+) I'm a bit skeptical on at the moment.

You can price this based on cap rate (NOI / cap rate) if it is stabilized, if it is value add or distressed that won't work though.

You can price it on a per unit basis compared to other apartment complexes that have sold in the area with similar size, layouts, and rents. 

You can price it compared to another stabilized renovated asset and deduct the per unit cost of renovations from that comp minus a little extra for you taking on the risk and work of completing the work. 

 That's true! Great insight as always from you Jim!

 That's true! Great addition

There are lots of ways you get returns as a real estate investor, but to replace your active income you’re generally going to focus on your cash on cash return - or the amount of money you receive every year from cash distributions.

In this example we’ll use $100,000 as your annual income that you’re looking to replace.

Cash on cash return is measured as a percentage of return from cash distributions per year based on the amount you invested.

So let's say you invested $50,000 into a deal that has a 5% cash on cash return, that means you’d receive 5% of 50,000 that year, or $2,500. If you’d like to break that up per month you can divide that figure by 12 to get ust over $200 in monthly passive income.

Here’s how that math breaks out = $50,000 / .05 = $2,500

So, how much invested do you need to have to get $100,000 in passive income per year?

We’ll find that out by dividing 100,000 by the cash on cash return percentage of a given deal.

5% is a bit lower than we’d expect to see at least with a stabilized multifamily asset, I’d say 7% is more average.

If you’re investing in deals that give an average of 7% cash on cash return you’d take 100,000 and divide it by .07 which will give you the amount you need invested to achieve $100,000 in passive cash flow:

100,000 / .07 = $1,430,000

So if you’re investing in deals that give you a 7% cash on cash return you’d need to have $1.43M invested in those deals and you’d receive $100,000 in passive cash flow per year.

Now, that amount seems high, but there are ways to get there faster than saving up a seven figure amount.

1: Start small

Most investors start investing in smaller amounts in many deals to get their money working with them to achieve their overall investing goals. To just save up from your W2 job is a tough path, but to have your W2 job + your investments fueling your cash flow accounts, you’ll get there much faster.

2: Change your strategy early on

With most deals, there is a tradeoff of cash flow and appreciation. Early on in an investors career, it’s not uncommon for them to pursue higher equity multiple investments rather than stabilized cash flowing assets.

Value add deals that involve buying a distressed asset, fixing it up, and selling it for greater profits in shorter amounts of time is a great strategy for building up a war chest quickly, rather than investing in stabilized cash flowing deals. These types of assets will have much lower cash flow but returns in or close to the 20% range are realistic.

3: Look at higher cash flowing assets

In this example I used 7% as a benchmark for stabilized multifamily, but there are other assets that have higher cash returns that you can look into.

NNN leases, ATM funds, or short term rental funds can be great examples of assets with higher cash returns. The tradeoff could be less appreciation than residential assets.

Right now we’re working with a short term rental fund that is seeing 9% in cash flow, meaning to get to $100,000 in passive cash flow there you’d only need to invest $1.1M instead of $1.43M.

Here’s a breakdown of how a greater cash return can greatly lower the time needed to achieve $100,000 in passive cash flow:

7% - 100.000 / .07 = $1.43M

8% - 100.000 / .08 = $1.25M

9% - 100.000 / .09 = $1.11M

10% - 100.000 / .10 = $1M

11% - 100.000 / .11 = $900K

12% - 100.000 / .12 = $833K

The first step to getting $100,000 in passive cash flow is to determine the cash return you’re looking to get in your investments, then take $100,000 and divide it by that percentage.

Whatever number you get, don’t worry about investing that amount from day 1, look for shorter term investments that have higher appreciation and equity multiples for you to start out with so you can get on a path to multiply your money enough times until you achieve the amount you need to have the passive cash flow you’re looking for.

I'd probably recommend buying one. I think Michael Blank's is pretty popular and fairly cheap. Or Lone Star's is free on their website somewhere. Search Lone Star Capital

 All great points! And yes...this post could have been 10x longer for sure haha. Doing my best to keep it somewhat surface level! Thanks for the added insight that is also very easy to digest!

If you’re looking to place money passively into a real estate deal, it’s important to know how much you need to have budgeted for different strategies, so lets start off with the smallest buy in to the largest.

1- Real Estate Investment Trusts (REITs)

At the smallest investment level you'll have a real estate investment trust, or a REIT.

REITs are essentially huge portfolios of properties that you can invest in even through apps nowadays that help you get started for as little as a few hundred bucks for a private REIT.

Private REITs are actual private real estate holdings as opposed to a public REIT which is traded on the stock market.

Public REITs are not actual investment in real estate, they're investments in stocks, so really there isn't a pricing barrier here just like you can invest almost any amount in another stock, you can do the same here. But for this episode if you're looking at only private investments, a REIT is your best bet to get in for the lowest dollar amount, usually you can find options for a few hundred bucks.



2 - Funds / Syndications

The next level of investment I’m going to lump in 2 types because they’ll generally have similar buy-ins, and those are private funds or syndications.

A fund is almost like a REIT but generally smaller and they'll have higher buy ins. A syndication is pulling a lot of investors together to buy one single property. So in a fund you have some more diversity and in a syndication your investment is in one asset.

Minimum investments in these 2 tend to range from $25,000 - $50,000 on average, but each group will operate these differently. Some may have $100k as their buy in, but generally $50,000 is where most will shake out.

3 - Single Investor Projects

A single investor project is almost exactly what it sounds like, you're looked to as the single cash investor in typically a smaller scale project. A good example of this is a SFH flip.

The reason these are generally higher is usually on a flip or some type of private money project the group is looking for one investor, so instead of a syndication style structure where many investors can chip in $25k or $50k at a time, they may look to you to fund the entire purchase and rehab amount.

These amounts will depend on the scope of work and type of property, but generally will cost more than $50k to purchase and fund an entire project.


All of these again are generalities and I’m sure there are exceptions to these rules but in my experience these are some good benchmarks you should have when exploring the different types of passive investment options you have.

Due diligence on their financials and get everything inspected. Snake every pipe. Ask for verification of everything. I also would ask for bank statements showing rents being deposited in the bank. With smaller operations and some guy living in the unit managing the property it's significantly easier to forge numbers. 

Run your own comps and see if the rents are average, below market, or inflated. Find another PM that is a real company and ask them to give you a budget for the property and rent analysis.