My husband and I recently inherited a large sum of money and would like to begin our RE investing journey. I plan to pursue on a full-time basis. Currently in the midst of learning as much as humanly possible. We haven't quite got enough for accredited investor status, so syndications are (largely) out, though the short-term goal would to establish net worth at $1M (and maximize cash flow, naturally). I live in Manhattan, NY.
To experienced investors: how would you get started if you had access to this capital? We can afford what newbies would normally consider A LOT of units, but I'm not about to, for example, make a down-payment on a 800K portfolio of multifamily homes in Rochester, NY and screw it up due to (inevitable) rookie mistakes.
I would REALLY appreciate any ideas! $400K total out-of-pocket is possible at this point.
@Lauren C. Condolences on your loss and congrats for taking a good first step by reaching out on BP. Here are a few things to consider:
1. What's your long-term strategy? Do you want to stay in NYC? Or will you move in the future? This could be a factor for markets you choose to invest in. Your short-term strategy is cash flow, so looking for good cash flow markets will be key.
2. Do you want to be an active investor and build up your portfolio deal by deal? Or do you want to be passive and partner up with experienced investors/operators?
3. Do you want to be a lender or an equity investor? Lending will cap your upside but your ability to be secured in the properties you're lending against provides some downside protection. Equity investing allows you to achieve unlimited upside but there are risks with every deal.
4. Do you want to buy and hold or do you want to flip? What type of properties are you most interested in - single/multi-family, mobile home parks, self storage, etc?
5. What kind of research have you done on markets, strategies? BP has a ton of books and podcasts that can help you out. Here are a few books to add to your list:
6. With $400k, you could carve out some of your capital, build a team, pick a good cash flow market, do 1 or 2 smaller deals, get some experience and then start to scale as you get more comfortable.
Most investors have one of three things: Time, Money, or Experience. If you are missing one or two of those things, leverage what you do have with someone who has what you are missing.
I'm not a financial advisor, I just play one on TV, nor am I a securities attorney, and I don't know a great deal about your specific goals or situation, but I would not put all your eggs in one basket to start.
You have money, great! What you lack is experience. Do you have time? Could you network with an experienced investor to bring your money and your time to a deal? Could you just bring your capital to a 506(b) deal as a Sophisticated Investor and learn/earn that way?
Whatever strategy you choose, it's better to get started small, than wait and wait and wait for the perfect big deal to come along. In my humble opinion.
If you wish to be an active investor, then I would suggest you start small and bring your capital (and time?) to an experienced investor who focuses on ONE strategy (multifamily, self-storage, mobile home parks, house flipping, etc.) Whatever, just pick the one you understand and like the best.
If you wish to be a passive investor, then I would suggest you diversify across asset class, operator, and geography. You can invest passively as a non-accredited investor, you'll just need to network with operators who are doing deals under SEC reg 506(b) as a sophisticated investor. These are deals that will not be advertised, you will have to find them by networking with operators.
Good luck to you.
@Lauren C. as others have mentioned, though not being accredited does rule out a good portion of experienced operators, it is still possible to find solid offerings for non-accredited folks.
Do keep on soaking up info until you are both confident enough to move forward with a strategy/partner that you both believe in. All the best!
@Lauren C. I would recommend going slow. I have seen individuals in your same situation go through the majority of their inheritance much quicker than they anticipated and with little to show for it.
Since you're new to RE, If you were a client of mine I would probably recommend investing the money relatively conservatively in the stock market and then using a collateral line of credit in order to dip your toes into real estate.
What I tell W2 employees... For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you... but just remember why we got into this... To be free from a JOB.
Focus on being an Investor not a Landlord.
Do the math here… with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I had 11 of these and good systems in place but still had 1-2 evictions a year and 3-4 big things that were normal annoyances like plumbing leaks, damages from hurricanes, or some vandalism. Image if I had 30, just 3 x those numbers.
Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.
If your net worth (income minus expenses) is under $200,000 or barely save $30,000, syndications are not for you. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble.
@Lauren C. Start slow, start deliberate. Define your strategy first and stick to it.
You’ll also have a LOT of people trying to get their share of your new-found wealth by helping you in their own defined business niche. If they aren’t militantly aligned with your aforementioned strategy, don’t engage. You are now CEO of You, Inc. and you need to act as such. Learn, listen, don’t abdicate your role to somebody who has a shiny new thing, and start slow.
Oh, and start slow.
@Lauren C., I am sorry for your loss as well. You are very wise for asking this question. I did a BP show on the answer to this topic and I think I cover all of this in the 1st 15 or 20 minutes. https://www.facebook.com/watch/live/?v=1057432534603353&ref=watch_permalink
If you want to invest in a syndication that accepts non-accredited investors, there is a list of potential operators on The Real Estate Crowdfunding Review website from what I understand (as a syndicator myself I cannot access it - you have to be vetted as an investor!). Best wishes!
@Lauren C.
Good Morning @Lauren C,
Congrats on your inheritance!
First, Steven Berges mentioned in his book “The complete guide of Buying and selling apartment building” that “Establishing an acceptable level of comfort with risk is a process that can be developed one step at a time through your life experience. (Pg 17 pp2)”.
With this being said, it is always a good ideal to start small into a small commercial building with few units so that you can build your experience and risk comfort level.
There is a town not too far of NYC that I find a great town to invest. It has 3 universities, 2 main hospitals and a mix of industry. I lived in Brooklyn, NYC and now I lived in Stamford. I am currently under contract for a six units apartment.
I’m looking now into a 12 units complex with a cap rate of 7.78% and low maintenance. I am open for a partnership or a private investor. I can pay a good interest rate for a loan.
If you want,You can send me a private message. I wish you all the best in your real estate investing journey.
Hamlet
Hey Lauren,
I agree with @Andrew Hogan, @John Fortes and @Neil Henderson.
Single family homes/small multi-family = full time job (even with property managers)
Apartment syndication (limited partner)/owning notes = passive income
It depends on what your goal is. A lot of people are fooled into real estate being "passive income". The only people who truly get mailbox money are the banks/investors that own the mortgage (notes) or limited partners (a group that provides only money) in a real estate syndication. A 506b (95% of all real estate syndications) requires a pre-existing relationship and a knowledgeable investor. If you're interested in learning about apartment syndications I recommend you read the book: The Best Apartment Syndication Book Ever by Joe Fairless or you could connect with me or any of the other guys I mentioned at the top.
I hope you find what you're looking for.
Best,
Regarding ROCHESTER NY specifically, those #s looked great on paper to us as newbies. They're up for sale now. Anti-landlord laws and bad tenants have taught us a lot, particularly that there are much better areas for cashflow with a lot less headache!
@Lauren C.
Lauren , I'm part of a capital group active in Rochester, NY. We love helping out people new to the market. If you wanted to connect let me know !