​What Do I Do With $300k Post Tax?

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​What Do I Do With $300k Post Tax?

Ray Hernandez
Torrance, CA · Member since 2018 · 43 posts · 13 votes

I have some money and I'm not sure what to do with it in re. Since I know this all depends on my goals and what I'm willing to do this is it (pls don't ridicule me for my goals lol):

⦁I want to be somewhat passive in the investment. I don't care if I can't be 100% passive. I'm fine putting in work but don't want to do any flipping. More like value add buy and hold or something

⦁Down the line I want to net at least $100k/mo

⦁I have all the time in the world

Now the second one has been making me face an issue for months. Obviously you can make money anywhere in re but with my goals I'm not sure where it'd be most effective to invest with my current goals. Honestly just like to hear some different opinions. That's what I love about BP; there's soooo many different ways to accomplish your goals. I'm just trying to find my way.

But for example, I don't want to buy and hold hundreds or thousands of sfh's to accomplish my goal. I want to do something that fits my goals and will be fastest way there. And I'm not thinking overnight or next year or anything like that. Like if it took 20 years to net that with sfh's but there's an option more suited for my goals that'll take 10. I hope that makes sense.

I've narrowed it down to buy and hold multifamily because of the scalability. Still, I'm wondering if there's anyone where I want to be and has any advice on what they would do if they had to restart with only $300k and had the same goals as I do. Or anyone at all who would just like to chime in.

Trust me, I know that much isn't nearly enough for my goals. It's just my starting point. I still wonder if multfamily would be my best option or perhaps even short term lending. I honestly have never researched anything on being a short term lender so I don't know how that is. 

Any thoughts would be appreciated

cheers

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Michael Bishop
United States · Member since 2015 · 401 posts · 394 votes
8y

With that amount of starting capital and your goal of being passive, I'd recommend looking in to value-add commercial MF plays with a reputable syndicator. This type of investment matches your goal of being passive, as it's nearly 100% passive, and you could also diversify with investments in a handful of markets/with a number of syndicators. Of course, most syndicators require that their investors are accredited (depending on how the offering is structured with the SEC), but you can sometimes find deals in which non-accredited investors can participate. A few of my blogs to get your wheels turning:

What is Apartment Syndication?

8 Reasons Apartment Syndication is an Appealing Investment Vehicle

Recipe for Successfully Investing in Mult-Family Syndication

I'd be happy to discuss further so don't hesitate to reach out!

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  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Chris Grenzig Thank you for actually working all that out! It's nice to see a general road map. Is an 8% coc return "good" for a medium sized multifamily prop? Anywhere from 30-50 units?

    I'm just wondering how typical a 15% coc return would be with value add multifamily properties? If getting that high of an annual return is a pipe dream I'd think syndication would probably be best thing for me with 8% preferred return being fairly common.

    0Reply
  • Chris Grenzig
    Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes
    8y

    @Ray Hernandez I'm going to be a bit conservative and say maybe 50+ units that's fair. It also depends on the type of deal more so than the size. For example our latest Jacksonville deal (82 units) had about a 10% COC return on average. However, the first year was about 7%, year 2 -11%, year 3-5 10%, that was because we are doing interior upgrades, and our loan has 2 years of IO.

    I think most syndicated deals you can reasonably expect to make close to 15% annualized. That's the minimum return we usually try to hit for investor returns. Using the same Jacksonville property, we projected an 18% annualized return in year 3 net to investors. Most syndicators will probably talk to you with an IRR which takes into account the Net Present Value of money. Basically 15% annualized in 3 years is more valuable than a 15% annualized in 5 years; or a dollar today is worth more than a dollar tomorrow. We usually shoot for a 15% IRR net to investors which, depending upon the length of the deal, is usually at least a 17% annualized return net to investors.

    However, not every syndicator or deal is the same, you have to look at their assumptions and see what they are underwriting to. The biggest one I see all the time is the exit cap rate upon sale. A lot of people will assume a LOWER cap rate than upon purchase. This assumes that the market will continue to go upward and not remain the same or decrease. Personally, and the way I was taught, we underwrite to a HIGHER cap rate and usually add 10 basis points (.10%) to the cap rate for every year we plan on holding the property (5 years 6.5% cap purchase to a 7.0% cap sale).

    There's a bunch of other things like vacancy, delinquency, reserves, fees, income increase each year vs expense increase each year, etc. that can be changed very slightly that can turn a bad deal into a good deal on paper. At the end of the day you have to look at the track record of the sponsor, and then you have to have a level of trust with that person in order to invest with them. 

    Edit: I should clarify re-reading your question. 8% for under 50 units is doable and a good return for sure, it's just significantly tougher to find quality property managers that will do less than 50 units, because if they are that good why would they continue to do sub 50 unit properties? Obviously there are many that do and they have viable reasons, it's just not as likely as there being an alternative reason. Also, an A class asset in a top 15 MSA by population is never going to make you 8% COC, however 20 units in a small tertiary market thats a C class asset probably will; but that property is not going to appreciate like the A class asset probably will. That's why we tend to look for B+ to solid C properties which have good cash flow and have some upside on sale as well.

    3Reply
  • Vince DeCrow
    Chicago, IL · Member since 2016 · 94 posts · 87 votes
    8y
    Originally posted by @Ray Hernandez:

    @Vince DeCrow Hey, Vince. Like Chris down below I'm a little biased towards multifamily. Besides limiting my downside risk with a diversified portfolio, what are the other main advantages of diversifying my portfolio? How are the returns?

    With multifamily I can really focus on one thing and achieve some pretty good returns but to be fair that all comes down to my ability to find real opportunities.

    Buy and hold multi-family investing could be a great strategy if executed properly, however the strategy doesn't have the proper risk/return profile for you to reach the income level that you are striving for in the time that you are trying to reach it with your intended investment amount. When you hold a diversified portfolio you are not only limiting your downside and volatility risk, you are also positioning yourself to capture non-systemic returns that occur in other real estate asset classes and investment strategies outside of buying and holding multi-family assets. 

    1Reply
  • Tyler Kastelberg
    Real Estate Technology · San Francisco, CA · Member since 2016 · 262 posts · 265 votes
    8y

    @Ray Hernandez

    @Chris Grenzig

    Chris - Great advice for Ray. I underwrite deals for syndicators and developers who at times want to assume an exit cap rate at or below their acquisition cap rate. "Word on the street" is that developers in tier 1 markets are starting to feel the impact of their aggressive cap rate assumptions on returns.

    1Reply
  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Chris Grenzig Chris I cannot thank you enough for all this information. I'll definitely be looking deeper into syndicators with everything you've said in mind.

    Good point about the property managers with under 50 units. With multifamily going big does seem to have much better benefits.

    Thank you again for all the insight on syndicated deals. I have a lot more to consider and know a lot more of what to expect!

    0Reply
  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Vince DeCrow Thanks for all the info, Vince! Very interesting. I'm open to anything to fits my goals and seems fun so I'll start looking into partnering with a fund manager and learning more about all that. Know of any good articles that would provide me with more information on this? 

    0Reply
  • Jonathan Twombly
    Rental Property Investor · Brooklyn, NY · Member since 2014 · 722 posts · 1k+ votes
    8y

    @Ray Hernandez to follow upon what @Chris Grenzig (hey, fellow BK syndicator - we should chat sometime) says, the 50 unit and under deals can also get a bit tricky in terms of staffing.  Our smallest deal is 54 units and we are able to manage it cost-effectively by sharing staff with a larger property nearby.  But, as a standalone, the issue becomes getting good staff for the property.  It's too small for full-time employees, and it is very hard to find high-quality employees who are looking for a part-time job.  Maybe you get some female property managers who have had kids and don't want a full-time position, but it's much harder with maintenance, because high-quality maintenance staff are always in high demand and hardly ever want part-time work.  And you definitely don't want to hire full-time staff for a property that size, because labor costs will eat all your profit.

    You need to ask property managers if they manage nearby properties that have some excess capacity and can share labor and get some of the cost off those books.  Sometimes properties around 100 units have the same problem.  It's hard to staff exactly the right number of people, but if you have 100 units near 50 units, you might be able to get into a good sharing arrangement on a maintenance tech with another property managed by the same company.

    1Reply
  • LaTonya Johnson
    Investor · Houston, TX · Member since 2015 · 23 posts · 3 votes
    8y
    Awesome question! I just posted a request for advise in structuring a 16 unit apt complex that is truly a value add, and I receive valuable information from this post. Thank you all.
    1Reply
  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Jonathan Twombly That's a good tip! But yeah, although the 50 unit may be cheaper compared to a 100+ it seems better to go for large scale multifamily to find full time employees like you said.

    But if I do end up acquiring a 50 +/- unit I'll be sure to look for 100 unit complexes near it. Really good tip

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    8y

    @Ray Hernandez I would start by defining what "down the line" means to you. For some 3 years is down the line and for others it means 30 years. There's very different investment strategies that accompany those targets if your goal is $100K/month. 

    0Reply
  • Anthony Palmiotto
    Hard Money Lender · Sea Girt, NJ · Member since 2012 · 125 posts · 37 votes
    8y

    Feel free to reach out if you are interested in investing in a real estate syndication focused on multifamily properties that would offer a preferred return.

    1Reply
  • Mike Krieg
    Investor / Syndicator · Austin, TX · Member since 2015 · 366 posts · 220 votes
    8y

    I love questions like yours. If it were me I'd drive the investment toward the passive options. This would lead toward a multifamily option. At that point you need to network like crazy to find deal sponsors. There are many, thankfully, you can connect with here on BP. Look for track record, conservative underwriting, a good team, good market fundamentals, and a solid exit plan that provides you with a 1031 escape hatch. Very doable to get at the 100k goal with some patience! 

    1Reply
  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Mike Krieg thanks for the kind reply!

    However, I'm still struggling with whether I should find a syndication or invest directly. While syndications are far more passive I wouldn't want to sell an asset after the typical 5 years. I'd want to keep it for as long as possible and let it cash flow.

    But with syndications I do get access to big deals, the best markets and all the expertise I'd need. I truly don't know which path to go right now. If you had to pick one or the other for the time being would you still go with syndication? I just want my money making the most it can.

    Sorry for such loaded questions lol. I'm pretty confused. Thanks for all your insight!

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y

    @Ray Hernandez With syndication you have no control over the deals and the exit. If you want control over your investments then I would stay away from syndication and focus on your own deals and building your own portfolio.

    0Reply
  • Ray Hernandez
    OP
    Torrance, CA · Member since 2018 · 43 posts · 13 votes
    8y

    @Brian Garrett I'd just want to keep it long term so building my own portfolio does attract me but then I miss out on all the expertise of syndications and best markets. So much to consider lol.

    Thanks for the reply!

    0Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    8y

    @Ray Hernandez my 2 cents on passive syndication vs buying your own properties: You can't pick without knowing who sponsors the deal. I'd rather own a 50 unit of my only option for syndication was run by Bernie Madoff, but if Sam Zell was the GP I'd hand over my cash in a heartbeat. 

    Also, asking an obvious question, but you are an accredited investor, right?

    0Reply
  • Salem VanderStel
    Financial Engineer · Atlanta, GA · Member since 2016 · 20 posts · 14 votes
    8y

    @Ray Hernandez

    Hi Ray,

    I'll echo many of the comments on here that you need a highly experienced group, and if you have a deal with Sam Zell you should take it. 

    If you have any questions about syndicates, I'm happy to answer then.  Of course, I am a syndicator, but there are advantages and disadvantages of syndications that ultimately rely on the investors goal. Typically syndications are best for investors looking for long term stability and tax sheltered cash flow, as opposed to a smaller project that would have higher returns but carry more operational and market risk. 

    Best,

    Salem 

    1Reply
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