With apologies, another "What should I do?" post (but with a few twists)
Hello to the community. I know there are at least 100 threads on this great site that deal with “getting started,” and assure you that I have tried to digest as much as possible before resorting to another “help me” thread. After much reading on this site and others though, I now find myself at the point where I know enough to be overwhelmed and not enough to be able to fully concentrate on a “correct” path. As everybody reading this has much more real estate investing experience then me, it occurs to me that most of you would be in a better position to help me focus my efforts then simply forging ahead unguided.
So, here is my situation. We are three siblings in a family relatively new to real estate investing. One sibling – not me – has some limited experience in out of state, low cost, prepackaged rehab rentals, but not the level of experience to guide what will be happening over the next 6 months. We will be selling off three farm parcels by the end of the year (three separate transactions of approximately $2-3M each) with no debt, and would very much like to complete 1031 exchanges to avoid a very big tax hit this year. The sale is primarily to diversify our risk, not because of a need to liquidate. Thus, very unintentionally, we find ourselves needing to make (by our measure) a big splash in the real estate market in a relatively short amount of time. From what we understand of 1031 exchanges, we will need to identify and close on all new acquisitions in a very tight timeframe after these farm deals close before year end. As the most business minded sibling, this situation is particularly uncomfortable for me as I have traditionally built my business (non-real estate) with a methodical approach with small initial investments that grew over time as I learned from my successes and mistakes.
Each of the three siblings has a relatively active family life and other careers (the remaining farming at this point is managed by parents and largely turn-key), and thus taking on a new “career” of 30-40 weeks working as a real estate investor for the next 10-30 years is not highly desirable for any of the siblings. That said, two of us are willing to put time in now and oversight over the next decades to ensure that the family legacy extends to future generations. Similarly, we do not have any major financing/capital issues (at least we don’t anticipate any), as most in the family are conservative by nature and would not be comfortable being highly leveraged. As simply as I can state it, investing this money wisely would improve the three siblings lives, but all have more to lose from being TOO risky then we have to gain from benefiting from such large risks.
After some initial discussions with the other siblings, we all have the same goals. We want to generate cash flow each year for the benefit of our families and would love to see the family’s nest egg continue to grow. We want to do so without being overly aggressive, particularly by overleveraging that could jeopardize the family’s other assets, and we want to be “involved” in decision making and new ideas (particularly as we learn from our experiences), but do not want the day-to-day hassles of dealing directly with tenants and/or a laundry list of repairmen whenever tenants experience problems. For this reason, even if we were to purchase a larger apartment complex, we would be hesitant to not have an outside management company managing the property.
While our goals are aligned, how to go about achieving those goals is not as easy. One sibling is not experienced in the business world, and thus largely defers to the other two. My other sibling has purchased six small residential units from a professional rehabber that fixes them up and then rents them out on her behalf for a management fee. Thanks to zero vacancy and almost no repair costs the past three years, she is convinced that continuing this strategy would be the best course. I left my career as a corporate lawyer to start my own business 8 years ago and now have a company that I own and manage with a couple of employees. I have shaped it to be largely turn-key, so that I work on it when I want and am able to vacation for large stretches without worrying much about day-to-day activities. After my initial research and reading, it appears that while my sibling’s real estate investment strategy is one way to go, it is not necessarily the best or only direction to follow. My experience in law and business has given me enough insight into real estate investing to be very intrigued, but has not resulted in a connection with individuals that have the particularized knowledge to serve as a mentor or give even basic advice on what paths to pursue.
One last point, all three of us are located in California, albeit in very different parts of the state (one Northern, one Central and me in Southern Cali.). Given a buy-and-hold for rental income strategy preference, I am assuming it makes more sense to consider investments out of state (given a lot of investing in California seems to be fueled by appreciation of the property rather than cash flow). For anybody that has indulged this longwinded backstory, I am wondering if you were us (and more particularly me), what course would you follow in your research? After our first acquisitions, I am sure that I will be in a good position going forward to evaluate and grow our investments over time. But, starting cold, it would be great to hear any thoughts you might have as to where to focus given our goals, and perhaps how to make connections with mentors/brokers that are out there to legitimately work together rather then simply out there to generate commissions from a new entrant into the real estate landscape (particularly given our uneducated opinion that we might need to invest out of state to achieve our goals).
The temptation to add another 100 facts and questions to this post was strong. But I realize if this post was any longer the few that have stuck around this long would probably give up on me. So, if there is any information I could offer to help you help me, I would welcome it. Thanks in advance for your thoughts.