Have $2 Million, what to do?
Denver, CO · Member since 2016 · 114 posts · 99 votes
Have $2 Million, what to do?
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Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10yI'd be careful about disclosing such things on a public website ... I can just imagine the sharks starting to circle now that they smell the blood of fresh meat in the water. Your inbox is about to get a workout :)
I agree you should take a measured approach and don't blow your entire wad on a single deal. If you want to invest in apartments, you may consider finding a multi-family apartment syndication deal being offered by a highly reputable provider with a long term, verifiable track record of successful investments and putting $50k-$100k to work in the deal to get your feet wet. Understand that these investments are for accredited investors (which you qualify as), who are assumed to be capable of taking the risk and doing their own independent due diligence (which you should absolutely do); these deals are not generally advertised in the open market and I would not trust those who come to you unsolicited with such deals but rather seek them out through networking and referrals. Local REI meetups may be a good place to start. BP is another place to look, but always remember the saying "Never ask a barber if you need a haircut" and try to figure out who the "barbers" are.
From there, if you want to get active to acquire and manage these assets on your own, you could tag along with your syndication provider and learn from them ... many are open to educating those that invest with them. Otherwise, you can continue to invest passively this way, or some combination thereof.
94 Replies
- 10yLevi T.Pro MemberRental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
You need to leverage, but your going to find out real estate is not that easy. I would really take your time before jumping in. You can lose your millions overnight and not be able to get out if you buy the wrong deal.
Finding the right deal is what the business is really about. You can not avoid repairs or evictions, it's part of the business, and you can bet your pants off that a PM is going to run you much-much more than 10% of gross rents.
Your likely going to need to find 60+ units to create the cashflow you want.
- Denver, CO · Member since 2016 · 114 posts · 99 votes10y
Thanks for the reply Levi. I would definitely look to get a property manager as I don't want to spend a lot of time managing the property myself, my goal is to start another tech company and not manage properties, so getting a PM is a must to leverage my time.
What do you suggest as the first step, get a broker who can hunt for good deals on apartments?
- Wholesaler · Mableton, GA · Member since 2016 · 16 posts · 5 votes10y
Jerry,
I have the opposite problem. Too many deals, not enough money.
Find a partner that plays to your weaknesses. In this case that would be someone with real estate investing experience.
You can also leverage or use your money to make money. Invest in deals and get high returns in 6-8 months.
Look into buying or acquiring a Home restoration company that already exists and is doing well.
Try some of the people from your area on BP as they may be a great resource.
Send me a colleague request if you like. I can give you ideas.
Happy investing
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes10y
I'd be careful about disclosing such things on a public website ... I can just imagine the sharks starting to circle now that they smell the blood of fresh meat in the water. Your inbox is about to get a workout :)
I agree you should take a measured approach and don't blow your entire wad on a single deal. If you want to invest in apartments, you may consider finding a multi-family apartment syndication deal being offered by a highly reputable provider with a long term, verifiable track record of successful investments and putting $50k-$100k to work in the deal to get your feet wet. Understand that these investments are for accredited investors (which you qualify as), who are assumed to be capable of taking the risk and doing their own independent due diligence (which you should absolutely do); these deals are not generally advertised in the open market and I would not trust those who come to you unsolicited with such deals but rather seek them out through networking and referrals. Local REI meetups may be a good place to start. BP is another place to look, but always remember the saying "Never ask a barber if you need a haircut" and try to figure out who the "barbers" are.
From there, if you want to get active to acquire and manage these assets on your own, you could tag along with your syndication provider and learn from them ... many are open to educating those that invest with them. Otherwise, you can continue to invest passively this way, or some combination thereof.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes10yI would team up with a local investor and be his private lender while Learning the ins and outs of the business.
7e investments53 Reviews - Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes10y
I would do private lending but you need to dip your toes in first. I can't wait to be in the position that my private lenders are in. Having their money work for them. Definitely don't dump $2 million all at once. Having too much money and not enough real estate knowledge is a recipe for disaster. I'm not saying you need to learn all of the ins and outs of real estate but having a working knowledge of what you're investing in accompanied by strong legal docs drawn up by an attorney (not dowloaded for free) will go a long way. Eventually you'll find a handful of dependable investors that you do repeat business with and it will require less and less of your time.
- Investor/Syndicator · Cincinnati, OH · Member since 2014 · 470 posts · 599 votes10y
@Jerry Shen Congrats on your success! I invest in apartment deals. I am a huge proponent of this strategy because there are no better strategies when you factor in the tax advantages and power of leverage.
Here is a forum where I go into more detail on why I choose apartment investing over hard money lending.
https://www.biggerpockets.com/forums/48/topics/321...
I think @David Faulkner is on the money. Syndications may be able to provide you all that you are seeking in an investment.
Good luck on your new venture!
Feel free to reach out if you ever have questions on apartment investing. I am happy to help.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes10y
Hey Jerry, congratulations on the successful sale of your business....nice work. Your first decision may be whether or not you want to participate passively in others deals or directly purchase your own (or some combo of both). They both have their pros and cons. If you decide on the passive route, you will want to search for and vet sponsors and then their projects, which will require you to learn more about deal analysis if you plan to properly vet the projects. If you plan the direct investment route, I'd recommend reaching out to the MF brokers in your area and getting up to speed on what is available in line with your capital and strategy. Part of this exercise will be developing your strategy. You can also search loopnet to gain an understanding of who has most of the listings in your area and start some deal analysis even if you are not interested in the property. Have the brokers give you references on PMs, lenders and mortgage brokers and start vetting them as well. You are going to want to vet the PMs contractors as well both for cost and reliability and see where they fit with your strategy. You can get your education either this way or find mentors or partners to help the process. To directly answer your question, I'd recommend splitting it up and your first deal may help you assess your appetite to continue. You can also follow the passive path and split it up even more. Good luck.
- Denver, CO · Member since 2016 · 114 posts · 99 votes10y
Wow thanks so much for the advice guys, gold mine of info here. I'm definitely going to look into syndications, as I'm not looking to do RE as a job but use it as an investment vehicle that can throw off cash for starting additional technology companies (my real passion). I suppose the trick will be picking the right syndicate =)
- Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes10y
Glad to be of help Jerry. Keep asking questions on BP. Networking and seeking advice from those who are walking the walk will significantly accelerate your path on the RE learning curve.
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes10y
I used to listen to the Lifestyles Unlimited podcasts all the time and they had several of their apt investors putting deals together. Texas seems to have some of the better returns for apartment buildings as well.
I would follow David Faulkner's advice. I would not want to throw 2 million into a deal without having any significant experience in the model and definitely not on my own.
Put in 100k to 200k on someone else's deal who has some verifiable experience/success. Learn the ropes from them and then consider going in on some bigger chunks of money or being the lead investor on the deal.
But that group seemed to have a pretty good expertise when it came to larger apt complexes and they have a pretty decent size group of members. They would also make a point to say how many of their members had won apt investor of the year (or something like that) for both local and national awards. So they must be doing something right - or else they're the only ones applying to win the awards. :-)
And before anyone asks, I have never been a member of the group nor do I have any financial incentive, interest or motivation to promote anything. I used to listen to their podcasts and actually liked some of their SFH business model advice (best product best price, etc).
But always thought that if I came into a bunch of money, that would be one thing I would strongly consider. The devil is in the details though. Gotta find out what their multifamily program costs and whether its really that easy to get into some of their investors' deals or not.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Syndications are only as good as the sponsor... at the end of the day. So if you go that route make sure they had decade plus experience and verifiable track record... if those deals go south so does your capital your the first to get wiped out.
and to Second Davids response there are many No money my great deal folks on BP .. so be careful there.
you do have options though.
I like A nd B class MHP's must be on city sewer and water.. not nearly the turn over that apartments have. And as they say they are not making anymore of them.. so liquidity is good .. and lack of competition IE someone builds a brand new apartment down the street from you and steals a bunch of your tenants... LOL.
A very well placed shopping center with national long term anchor tenants could be an option.
Hooking up with a very good HML will give you the return you are looking for but no tax shelter but a lot of liquidity.
You want to get with a very seasoned Commercial Broker in your pursuits of these investments.
- Engineer · San Jose, CA · Member since 2016 · 62 posts · 9 votes10y
Also, you want to keep a tight timeline on when to exit. Exit strategy is at best one of your best option. Another thing is future net worth comparison that makes investment sense. An analogy is earning a net 1.5% ROI after taxes in equity investment (stock purchases) everyday for 300 days equals to 450% net profit gains. While search, discovery, research, analysis, team development, inspection, approval, permitting, pre-construction, planning and construction phase, local government bureaucracy, release, trust deed inspection, verification, sales period, closing period can take up to 300 days hoping for a net worth gain of up 20% and a 3% property appreciation may also be an option.
So, you can compare say $200,000 cash investment in
1. Stocks at net 1.5% daily ROI (execution time, 1 second to 2 hours a day) for 360 days.
$200,000 x 450% = $900,000
Net Gain = $700,000
2. Real Estate, property or properties. Buy Low, Sell High within 360 days with 20% net ROI and 3% appreciation
$200,000 x 20% = $40,000
$200,000 x 3% = $6,000
Total Net Gain = $46,000
Or, you may combine these and along a conservative approach in real estate investing, leverage properties for buy low sell high (rehabs, flipping for turnkey), then cash purchases for buy and hold properties for residual income. Then use leverage again for the same technique.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Abe Gonzales not sure he wants to be a day trader :) and sometimes day traders don't have a winning day.
- Engineer · San Jose, CA · Member since 2016 · 62 posts · 9 votes10y
Hi Jay,
I am not sure, either. I am very sure though that investment in properties are in the order. Property investment has one of the highest probability in winning as long as timing, right execution, and exit strategy is in place. Property investment losses is not acceptable but manageable. Losses in stocks can be held in autopilot at 1.5% but can be opened in threshold when it trends up, then autopilot at targeted gains before exit.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
Hi Jerry Shen,
Congrats on the sale of your tech business. I have another client that bought commercial retail property that sold his tech company for 50 million years back.
The key question is how hard you want to work. Sounds like you want to keep growing the money while funneling more tech business start ups.
Be careful of people offering up to buy this and that etc. Another consideration is the 2 million your total net worth or do you have other liquidity and assets? You don't have to answer here.
I don't buy the more deals than money talk. If people have true deals the buyers will be everywhere. If they are overpriced bloat not underwritten correctly than usually only the unsophisticated investor will bite to purchase those properties.
Sounds like you to want to stay passive. Texas is a good state with no income taxes but the property taxes are a crusher ESPECIALLY with apartment buildings. Retail NNN you get the tenants to pay the property taxes. 250,000 off of 2,000,000 is a 12.5% annual pre-tax return.
Tougher in multifamily now as that is cap rate compressed heavily in most areas. You will see a 6.5 cap listed and when underwritten properly will be in the 5's.
Dealing with multifamily made more sense 4 to 5 years ago when cap rates were high and you had a larger payoff down the road for the increased headache. These days you can get into more passive investments with much less work.
Reach out and talk to a couple different people and see what is out there and what makes sense for you. With a syndicate there is a hold time.
I focus on mainly larger multifamily and commercial retail assets. More retail assets in the last few years due to where cap rates are at. I do syndicating. My strategy currently is STNL retail development.
Investor split is 60/40. Typical hold is 2 years. Cap rate to cost is close to 9 plus cap and we sell at a 6.5 cap.
If you do go multifamily focus on a very high quality asset constructed in the last 10 years in an excellent location. Do not buy the 50 year old buildings these flippers are selling with new carpet and paint saying it is "turnkey". To really be hands off you need about 80 doors or more. The last thing you want is a constant headache from a property taking away from your creative spirit to invent again.
- Denver, CO · Member since 2016 · 114 posts · 99 votes10y
@Joel Owens thanks for the advice and yes you are right I am not interested in spending a lot of time managing real estate I would rather get passive cash flow that I can invest into my next tech startup. And no that is not my entire net worth just the amount I would like to earmark for RE investing
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
Hi Jerry,
I would talk to various people about possibilities.
Remember that various people will relay experience based on the asset classes they like.
Some like single family whereas I just do not get excited about it. Every investment will have a positive and negative to it whether the hold time, risk to capital, reduced return for a more solid property, more liquid versus non liquid investments etc.
Happy to hop on a call.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes10y
If you decide to take the more passive route, you are off to a good start in finding deal sponsors right here on this thread and on BP. To continue to expand your opportunities, reach out to your CPA, stock broker, high net worth friends and colleagues, others you know who have sold businesses, attorneys, etc and find out if they have any referrals to developers/sponsors that they are investing with. I invest in private placement discount retail stores and see PPMs for grocery stores, hotels, multifamily, shopping centers...the list runs the gamut. My access came through high net worth friends and colleagues and a stock broker who diversifies his clients' portfolios with real estate. As others have mentioned here, vetting the developers/sponsors is critical. I allocate a good chuck of my assets to direct investments of my own rather than through my developer contacts to help mitigate that risk (plus I want control).
On a side note, when you have a windfall like this, you may want to reconsider your overall asset allocation and also what assets you hold in taxable versus non taxable accounts. Need proper personal liability coverage as well with your increase in net worth. All of these are topics for another post but important none-the-less.
Congrats again and good luck.
- 10yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
@Jerry Shen it's a lot easier to lose $2MM in real estate than it is to make $2MM. If you lack confidence in your ability to choose the right real estate, the advice to invest in passive private placements in real estate is sound.
That said, it's also easier to lose $2MM investing in private placements than it is to make $2MM. Just like choosing the wrong real estate, choosing the wrong investment sponsor can cost you. @Jay Hinrichs gave you great advice to choose a firm that has been in the biz for 10+ years. With where we are in the cycle now, 12+ years is even better...did they survive the big downturn?
You also need to look at their track record, dig into their investment philosophy and investigate how they approach the due diligence process on their acquisitions. Look at their financial projections, do they make sense? Are they complete? Are they conservative or aggressive? If you don't know the difference, ask them to explain the difference and see if their response makes sense. Ask about the performance of their full-cycle offerings, and how that performance compared to the offering's projections. Ask about a deal that didn't go according to plan and how they handled it (if they say every deal went according to plan, they haven't done enough deals yet to warrant your investment). Ask to see a quarterly report from one of their portfolio properties and see if it presents clear, concise information and appears to conform to common accounting standards. Get on a plane and visit their office and meet the executives in person.
If you put effort into finding the right sponsor(s) to invest with, you can reduce the likelihood that your experience will mirror some of the horror stories out there. Many folks that write about substantial losses in private placements skipped the important step of conducting thorough due diligence on the sponsor that they chose to invest with.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
AS we all know RE has its ups and downs and what I look at with what I call the POST 08 sponsors or investors is they were operating in what has to be about the easiest and best time in the last ( well forever).. so when you look at track records of those that started in 2009 or 2010 .. that's great but its been all blue sky and wine and roses.. Along with so MANY who decided to jump into the syndication game... granted many of these folks will go on to great careers its just from an investor standpoint one must be very careful you can never fully comprehend how a company can and will do unless you have rode through a tough patch.. So its easy for these newer companies to point to perfect track records...
Crowdfunding portals are a perfect example.. they don't have to report their bummers but believe me they have all had them.. And the industry is all post 08 and we have not even had a economic slow or turn down...
- Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes10y
@Jerry Shen congratulations on your success, and welcome to BP. Whatever decision you make will probably be a good one :)
- 10yGeorge DespotopoulosBusiness MemberLender · New York, NY · Member since 2016 · 936 posts · 287 votes
@Jay Hinrichs - Well said. A lot of below average/mediocre fix & flip investors have been bailed out by Home price appreciation over the last 5 years. The real measure of successful investors will be determined over the next 5 years in my opinion...
MoFin Lending4.9152 Reviews - Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes10y
Hi @Jerry Shen, agree with @Jay Hinrichsregarding syndications. If you are an accredited investor, you can buy into institutional grade $50-125M projects with as little as $100,000 and diversify. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. This is the world of Delaware Statutory Trusts.
- Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes10y
The best advice I can give you is listen to @Jay Hinrichs and @Brian Burke, they've forgotten more about REI than most of us could even imagine.
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