New Investor, have capital, need suggestions.

8 Replies

The wife and I sold a property and took a check of 400k after sale. We moved to an area that is overpriced RE and are happy to rent for now. Rent is now 1850. Household income is 260k pa. What are my real estate options? The 400k is sitting in a bank and I am considering investing with a turnkey company as I don't plan to be involved too much in property management. Should I invest cash or take a loan and leverage? Is SFR through turnkey companies with 10% annual returns good idea or can I do something better with that capital? I also have a 100k in equity in a vacation rental property which isn't appreciating or giving any positive cash flow. It's breaking even. What is the community's advice for my position?

@Rob Bryant Turnkey is not all passive. You still have to manage the PM. If you do go turnkey get your own appraiser and inspector to evaluate the property. If you have more -money than time look at some syndication deals. Most have IRR project returns in middle teens.

You really should evaluate your $400k and vacation equity in the context of your whole portfolio which you didn't share.  We don't know if this is the total of all of your savings or just 1%.  That can make a big difference as you think about what you need for liquidity.

Why do you want to invest in direct real estate ownership? Obviously, it is to make a profit, but there are other ways. For example, you could buy into a REIT if you are looking for a passive investment. A REIT will give you more diversification than buying into a turnkey operation and should be lower risk.

A turnkey approach with $400k could yield a handful of properties with no leverage or at least double that number with leverage, assuming you qualify for the leverage. The number of properties depends on property prices and expenses you can support, as well as your desired real estate portfolio size. Using leverage usually gives you an opportunity for a higher IRR, but you are also buying into the risk of defaulting on the leverage. Those payments don't stop if your rental revenue stops!

Most property managers offer discounted rates for more properties to manage.  You might want to set one of their breakpoints as your property count goal if that makes sense for you.

@Rob Bryant you need to figure out what you want out of your investment. If you're looking for regular cash flow with little to no work, investing with an experienced syndication sponsor is probably your best bet. If your goal is to significantly grow that capital and be an active investor, syndications won't really help with that (unless you're on the active investor side). 

Either way, I am not a fan of turnkey properties. Too much work, too little returns, and all the headaches of being a landlord. 

My advice, if you're looking for passive income, is to spread your $400k out among a few different value-add multifamily operators, over a few different locations, and diversify that risk. It's possible that over the next 3-7 years that money will double through cash-flow and forced appreciation. 

Originally posted by @Rob Bryant :

The wife and I sold a property and took a check of 400k after sale. We moved to an area that is overpriced RE and are happy to rent for now. Rent is now 1850. Household income is 260k pa. What are my real estate options? The 400k is sitting in a bank and I am considering investing with a turnkey company as I don't plan to be involved too much in property management. Should I invest cash or take a loan and leverage? Is SFR through turnkey companies with 10% annual returns good idea or can I do something better with that capital? I also have a 100k in equity in a vacation rental property which isn't appreciating or giving any positive cash flow. It's breaking even. What is the community's advice for my position?

 Welcome to the site Rob. I see a lot of folks in a similar position to you in that you are living in an expensive market so you look towards turnkey companies to get the cash flow you are seeking. Tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@Rob Bryant

Since you mentioned you're a new investor, spend some time educating yourself on various REI strategies. Decide what's more important to you: time or money. Which one you're willing to have less. And only then chose a strategy with these assumptions in mind. Here're a few articles to help you make an informed decision:

https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estate

https://www.biggerpockets.com/member-blogs/10850/85836-should-i-buy-a-turn-key-property-or-invest-in-a-syndication

https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

@Rob Bryant As people have mentioned already, you can make good money doing just about anything. You just have to find what works for you. Whatever you do, just do as much due diligence as possible. Take your time. Whether it's a turnkey provider or syndicator. There are syndicators out there with track records of 15%+ returns per year. Be careful about looking at track records through the past 10 years. The rising economy has lifted everyone. If you're risk averse, look for companies with a track record in their asset class through a recession.

Thanks all for all those guidelines. 

Syndication is interesting but the few deals I looked up seem to require me to be an accredited investor, which I am not. Is that standard?

On the question about how much is this part of my net worth. I don't have much outside of this except 401k. So I need to be careful, this is 80% of our accessible net worth. 

@Rob Bryant just like the others are saying the first step is to educate yourself on your options and weigh that against your risk tolerance, need for liquidity and time to realize the ROI . Obviously you are already doing that since you are on BP!

Regarding getting into a multi family syndication deal, you do not need to be an accredited investor. I’m not accredited and I’m invested in over 1,400 units across 6 properties. With that said I did join a program to educate myself so that I can qualify as a sophisticated investor and meet people and establish a pre existing relationship. Now that I’ve been at this for a couple of years I get a few emails a week for deals that I can invest in. If your interested in what goes into evaluating a multi family deal PM me. I’m typing this on my phone and there’s way too write with my thumbs :-)

Stephen

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