Investor · Huntsville, AL · Member since 2015 · 149 posts · 80 votes
Hi all,
So here's where I'm at.
My goal is to cash flow $4k per month ASAP. Why 4k? Bc that is roughly my monthly expenses. 1k of that is the property taxes on my home!!!! I have about 250k capital to work with and I am open to many strategies that I can implement from a mainly passive role. I make 6 figures and have phenomenal benefits that I'm just not ready to give up yet to take a more active role in my investments. I'm open to buy and hold in no worse than C neighborhoods...turnkey or otherwise, private lending, joining a syndication deal or joint venture, or anything else that makes sense. But I do want CASH FLOW CASH FLOW CASH FLOW. If anyone has any weighing in on this subject I'd love to hear from u thanks!!!!
@Charles Worth I like all you said, I am in a similar situation and a followup question is: as an accredited investor, is it better (in your opinion) to invest time and find a good relationship with a sponsor you can invest with, or do your due diligence on the various crowdfunding websites you can find out there?
On the pros, by investing chunks of 10/15k, crowdfunded deals seem to offer diversification that is not easy to achieve by directly working in syndicated deals where you have to put 50k/100k/150k min.
On the other hand, the quality of the sponsors might be much lower, and without developing a real relationship one might end up with several lemons.
It's important you figure out what type of real estate investing works best for you. I highly recommend attending several REI club meetings and listening to several pod casts on here (if you haven't already). When I first started, I used these avenues to help determine what fit my criteria which was out of state investing mainly because I wanted monthly passive income. Once you determine this, you can meet those successful investors and shadow or partner with them.
Are you an accredited investor? Syndications open up a lot of possibilities and most of the operators require accredited status. I like large, value add multifamily, self-storage and mobile home parks where there are strong trends in place for more renters, storing stuff in good times and bad, and increasing demand for affordable housing. These niches have some downside resiliency with the right sponsor, location and management. Most of the deals I review offer say a 8% preferred return and target 8-10% cash on cash returns with upside of 18% to 20% IRR over say a 5 year hold period.
So, to get $4K/mo off $250K is a bit of a stretch but many of these sponsors offer refinancing or supplemental loan opportunities to return equity back to investors in a shorter time horizon like 2-3 years which could increase CoC and IRR numbers that can get you in the ballpark you desire.
Once you identify a niche or two you like, vet the sponsors. Link below is a decent overview of ideas and embedded links to drill down into. Hope this helps.
Assuming you are accredited, why do you want cash flow? If you make 6 figures your tax situation I assume would make cash flow today not always the best strategy. As someone who doesn't need to fund their lifestyle you have an advantage over all those that NEED cash today. Something that pays less but has a higher IRR can be both safer and more profitable than a cash flow deal that pays monthly. Course it depends what you are looking at. I am not a big fan of appreciation investments personally (in this market at least) but there are many other ways to get IRR type investments. Value add for instance is as much dependent on execution as market forces but you will have to wait for an exit if you buy a class B apartment in a syndication, at least for much of the return.
If you really still think cash flow is king there are a number of strategies you can use including lending that could give you cash flow today.
@Charles Worth I like all you said, I am in a similar situation and a followup question is: as an accredited investor, is it better (in your opinion) to invest time and find a good relationship with a sponsor you can invest with, or do your due diligence on the various crowdfunding websites you can find out there?
On the pros, by investing chunks of 10/15k, crowdfunded deals seem to offer diversification that is not easy to achieve by directly working in syndicated deals where you have to put 50k/100k/150k min.
On the other hand, the quality of the sponsors might be much lower, and without developing a real relationship one might end up with several lemons.
@Charles Worth I like all you said, I am in a similar situation and a followup question is: as an accredited investor, is it better (in your opinion) to invest time and find a good relationship with a sponsor you can invest with, or do your due diligence on the various crowdfunding websites you can find out there?
On the pros, by investing chunks of 10/15k, crowdfunded deals seem to offer diversification that is not easy to achieve by directly working in syndicated deals where you have to put 50k/100k/150k min.
On the other hand, the quality of the sponsors might be much lower, and without developing a real relationship one might end up with several lemons.
If I were you I'll do a flip first. Use a hard money lender at 10 or 20% down payment. Make sure your rehab costs are as precise as possible. Look for a higher end flip with atleast 60-115k profit. Once complete refi out and put it back on the market. Use the capital you have now to find something in a decent area. Not to expensive and not too cheap and get another loan(whichever you want) for that property(MFH atleast 3-4units) find tenants in it. Collect rent at $1,000 per door if not more.
@John B. in my experience, the syndicators who require more money are those that have more experience. They've learned that a person who can only invest $15k will value that $15k way more than a person who can invest $50k will value their $50k.
I had a client tell me that one of their bigger investors followed up WEEKS after they drafted high six figured from his account "just to make sure they got the wire okay." Weeks, not minutes, hours, or even days. Crazy!
Folks with big money don't play with small fish and vice versa.
As I understood the original post, he's looking for cash flow to pay some bills. The strategy of lending money and getting interest income is not a smart strategy as its is not tax efficient. In contrast, syndication via LPs flow like MF apartments are very tax efficient, tax advantages of property tax and mortgage interest deductions, accelerated depreciation making these very nice vehicles for putting cash in your pocket w/o a high tax bill during the hold period. Often times you will see very little of any taxes on the annual K-1 statement until you sell, then you recapture on the depreciation. Use of 1031 exchanges can continue to defer most of the potential sale taxes.
@Chris Mignone, I agree with @David Thompson, if you're an accredited investor and depending on how active you want to be you may want to consider getting into a syndication on an apartment or other commercial property.
syndication would probably be my recommendation too. You will probably only cashflow about half(2000/mo) in the deal, but the right deal will do a cash out refi in a few years, keeping your cashflow and still returning a high percentage of your original investment. Then you find another deal for that money.
I'm sure you could cashflow $4000/ mo with your investment of 250,000 but it would have more moving parts. Since you don't hate your job, are accredited, and don't need the cashflow,I would look at a slightly slower path to the $4000/ mo number.
@Chris Mignone - Lots of folks have already mentioned syndication and that's not a bad idea. As @David Thompson said hitting $4K a month may be a stretch but you can surly maximize cash flow by either syndicating or partnering with other like minded investors. You could also go it alone as $250K gives you $1M buying power but I get the impression that you are looking for more of a passive role.
This thread is great. I'm piggybacking as I'm in a similarly situation to Chris; not yet accredited. Open to doing deals myself as well as passively investing. Also, any recommendations on syndications to look into?
@Daniel Long IMO if you're considering investing in syndications you should go to syndication education events. Because...
Not being an accredited investor, you need to have a pre-existing relationship with the sponsor in order to invest.
Until you learn at least the basics of syndication and whatever particular asset you're interested in, you don't know how to tell a good deal from a bad one.
The cost of the program is relatively low vs the amount of money you'd need to invest. Think ~$1,200 with admission, flight, lodging, and expenses. Not a huge cost if you're potentially risking hundreds of thousands. Less depending on how frugal you are.
Brad Sumrok has an event coming up in July. That would be a good place to network and learn a bit. I like the Real Estate Guys' Secrets of Successful syndication event. See my post on that event here.
Also look for commercial/multifamily real estate specific meetups in your area. For Investors By Investors might be close - I am not a SoCal geography expert. I had the chance to see Jeremy Roll (FIBI founder) speak in February at Joe Fairless' conference. If passive investing was my strategy I'd do my best to learn from and mirror Jeremy.
What is the major difference, pros/cons of syndication versus crowdfunding, beyond the basics like accreditation, high entry bar($50k min) etc. ?
I am also looking for any recommendations and feedback on syndications
The crowdfunding sites used to only be open to accredited investors. Now they are open to all, but there are some strict requirements on non-accredited investors. I am not going to look it up but I don't think you'd be able to invest $250K all at once, especially since that reflects a large portion of net worth for someone who is not accredited.
Okay, I will look it up. Here is a copy and paste from Investopedia:
If you make less than $100,000 per year or your net worth is below that amount, you can invest up to either the greater of $2,000 orthe lesser of 5% of your income or net worth. If your annual income and your net worth exceed $100,000, you can invest up to 10% of your income or net worth, whichever is less, up to a total limit of $100,000.
With a syndication, you have the opportunity to meet the person face to face and build a relationship. Actually, most syndications that allow non-accredited investors require that the investor have a pre-existing substantive relationship with the syndicator. There are various SEC regulations that must be followed. A good syndicator will be retaining the services of an SEC attorney when raising funds.
Hey Chris: There are many option. You have to look at a few things
1. Goal
2. Time Frame to accomplish this goal
3. How much time you are willing to dedicate to reach this goal
4. You understanding of real estate and experience
5. Risk to capital evaluation
250K invested invested in my market in very safe suburbs around Chicago will yeild $ 60K all day long and equity. The problem is you have to set it up for yourself that requires time and effort.
In terms of lending. Just my suggestion lend to people who have money and credit. Minimum score of 700+. They are borrowing the money to grow but have their own money. Less risk. If you lend on rentals for the front end part of the purchase and part of the rehab you will be safe because you have an exit strategy.
You can do 2 point on the front end and 4 month interest only loans at 12%. The key is knowing the asset you are lending on that is critical. I would never lend on anything I would not mind owning. There are a lot of very low risk people you can lend to that are using a Purchase rehab rent and refi strategy.
Personally stay away from flip lending just to reduce risk.
Of course turn key rentals. I have never bought those to can't comment.
Or going into bigger sponsored type of deals. I have not done those to I will stay away from commenting on those as well.
Lot of opportunities but do extensive homework before investing. You have a fairly straight forward goal and you can achieve that no issue.
@Andrew Holmes thank u for detailed response! I'm starting to think I should stay away from lending bc I want to reduce my tax liability as much as possible. I'm meeting with my CPA next week and he invests in buy and hold so I'm hoping he can offer me some insight on the most tax efficient, cash flowing, passive income possible. I'm starting to think it's in rentals
Before I can answer I'd like to know what the remaining $3K of expenses is composed of. Specifically is there any debt associated w/ these expenses. For example a monthly car note of $500/month w/ a liability of $50K. I ask because increasing cash flow happens by purchasing assets that throw off cash & it also happens by paying off liability on assets that do not through off cash.
When we got started, in a similar situation to yours, we leveraged our capital & credit to purchase assets (mostly SFRs) to flip, paid off all liabilities that didn't produce any income, then started to use profits from flips to purchase assets that threw off cash.
Most real estate crowdfunding sites are open to accredited investors only. The few that are are pretty much private REITS. (Fundrise, RichUncles and Realty Mogul)
You might have to clarify the exact capital structure. When you say $250,000 capital, do you mean $250,000 cash, some line of credit, equity in a house, approval from a financial institution for that amount , 401K money?
There are some insane turnkey deals that are cash-only BRRRR+turnkey deals in Baltimore. Some of the best price-to-rent ratios in the country right now. With $250k- buy 2 of the properties at $100k each, once the BRRRR is completed (by someone other than you), refinance for the higher appraisal amounts, get most of that cash out and rinse and repeat as many times as you want. Cap rates 10-14% on each, so while getting most of your cash back out, you're then bringing in the cash flow on each.
Steve Kontos what has been your experience with investing out of state? How do you know the areas or get a proper inspection on the properties in these areas? Do you invest in states where you know people and can rely on them? I too would like to invest for cash flow rather appreciation which in New York can be difficult.