SFH or New Build for first "purchase"....thoughts?

2 Replies

I have mentioned in a previous post that i have an investor (current consultant at company i work for in CO) in Texas interested in helping me secure my first purchase(s) in the Fort Worth are (C class homes in areas that likely have gentrification happening).  He has a company set up and his wife is a real estate professional and they are basically doing much of the leg work to pick a good deal for me and in return have offered up a 6% management fee to manage these OOS properties. 

As i have narrowed in on a few homes, another item has come to the table that is definitely interesting.  Here are the two options i am currently presented with:

1) buy one or two SFH's with the capital i currently have and get around 15-20% (or better) CoC returns on these and around 300-500 cash flow monthly

2)  Go in on partnering with this colleague / investor on some new builds:  

--> background is he purchase 10 lots of land in various areas of FW at substantial discounts to their current value. he can now build on these and a finished product could easily see 400-600 cash flow and 25-35% CoC

-->  he has his eyes on about 5-10 other lands and wants to free up his capital on these lots and also has lined up new construction loans as well

So the question is, would it be better in the beginning to utilize my capital in one or two SFH's now or potentially go in on three new builds where the risks are obviously on the length to build etc and no cash flow until rented out etc?

the other question is are there any recommendations on lawyer to help me set up a contract for these partnerships (i am assuming some type of LLC or LP type arrangement)?

would love to hear peoples thoughts on either option :)  

as a long term goal, we are looking to get these homes going and either keeping or selling interest in them down the line as we want to begin buying larger multi-plex units (nearly scored a 20 unit recently but the owner would not budge on price and the price did not quite make sense).

As I see it, you are debating between buying land to build new construction vs buying existing SFR?

The older homes are a ton of legwork and risk in occupancy. I would really try to take the step into commercial/multi-family for that capital investment. Happy to discuss legal needs for you as well.

Ron

Originally posted by @John A vanecko :

I have mentioned in a previous post that i have an investor (current consultant at company i work for in CO) in Texas interested in helping me secure my first purchase(s) in the Fort Worth are (C class homes in areas that likely have gentrification happening).  He has a company set up and his wife is a real estate professional and they are basically doing much of the leg work to pick a good deal for me and in return have offered up a 6% management fee to manage these OOS properties. 

As i have narrowed in on a few homes, another item has come to the table that is definitely interesting.  Here are the two options i am currently presented with:

1) buy one or two SFH's with the capital i currently have and get around 15-20% (or better) CoC returns on these and around 300-500 cash flow monthly

2)  Go in on partnering with this colleague / investor on some new builds:  

--> background is he purchase 10 lots of land in various areas of FW at substantial discounts to their current value. he can now build on these and a finished product could easily see 400-600 cash flow and 25-35% CoC

-->  he has his eyes on about 5-10 other lands and wants to free up his capital on these lots and also has lined up new construction loans as well

So the question is, would it be better in the beginning to utilize my capital in one or two SFH's now or potentially go in on three new builds where the risks are obviously on the length to build etc and no cash flow until rented out etc?

the other question is are there any recommendations on lawyer to help me set up a contract for these partnerships (i am assuming some type of LLC or LP type arrangement)?

would love to hear peoples thoughts on either option :)  

as a long term goal, we are looking to get these homes going and either keeping or selling interest in them down the line as we want to begin buying larger multi-plex units (nearly scored a 20 unit recently but the owner would not budge on price and the price did not quite make sense).

 Are you comfortable with this partner?  Ie do you know them well?

I think I would have some difficulty working with someone I barely knew, on buying multiple properties a thousand miles from where I live.

I think each one of those steps could be risky, ie 1) buying your first rental....let alone two or more 2) buying out of state 3) working with a new partner.  4) working with a partner who you didn't have a prior relationship with. 5) buying multiple rentals at the same time.

Look, there are a million ways to do real estate, and everyone has their own risk tolerances, niche, investment goals and capital to invest.  We personally have found that buying one property at a time is about what we can safely digest.  It takes a few months to catch up on  deferred maintenance, paint, find tenants etc.

Assume everything you do will cost you a lot more than you expect, and have reserves.  It seems like every time we have a tenant change we end up buying a new appliance or AC unit.

My suggestion,  if you are looking out of state would be to find a good group that is putting together a deal on a multi family property. Or better yet find someone who is local who can show you the ropes.

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