Rental Property Investor · Dallas, TX · Member since 2014 · 15 posts · 5 votes
If you were going to invest all of it into CRE how would you do it? Split it up? One big purchase? Use it as a down payment and take on debt or no debt?
Warren Buffett said “Keep all your eggs in one basket, but watch that basket closely.”
Since my focus is multifamily I would probably spread that $2.5m across 20-30 properties located across multiple MSAs. That would be my eggs in one basket in terms of asset class yet diversified from the perspective of market.
Personally if I had $2.5 million I would separate it and not put all my eggs in one basket. It all depends on your risk tolerance and possible fallback if you lose it all. That's one of the things with investing is nothing is a sure deal. Me personally I would split it up between commercial, industrial and residential income bearing properties. But I am also not a big Baller with $2.5 million. Let's see what the rest of BP has to offer.
Warren Buffett said “Keep all your eggs in one basket, but watch that basket closely.”
Since my focus is multifamily I would probably spread that $2.5m across 20-30 properties located across multiple MSAs. That would be my eggs in one basket in terms of asset class yet diversified from the perspective of market.
@Michael Le - it was Andrew Carnegie who coined that phrase. Warren is very diversified. Hard questions to answer without age, goals, need for income, target IRR, active vs. passive. If you want purely passive investment, I have done well lately with syndicated multi-family in the $20-$50m range.
Ash Patel Stuart Humphreys I have a multi family for $235k needs $300k in repairs values over $850k there's a lot of potential with a cap rate of 25+\-
Thanks @Paul Fagot. I appreciate the offer but doing a $300k rehab remotely sounds like a lot of work. Until rates rise and value's fall, I'm passively investing.
Part fix and flip/buy N hold as well more marketing tools,branding hiring systems alone with other Groupon short term INVESTORS projects like a land development project of some sort also check out what companies are doing good in the stocks market and put 4-5 figures in 50 plus shares
Thanks for the feedback Ash Patel any advice on what I should do now with it? I can't seem to find a buyer to get interested in it, Even if the governments paying for people to live in it. (Section 8) plus it's in a B-/C+ area. Me and my partner just don't understand why we haven't gotten any interest.
It all depends on how much of the work you want to do. You may want to consider being a hard money lender. Make a great return on your cash and not have to do the work. Or maybe split it up and do half hard money lending and half put into other deals or JV's.
Me personally, I'd keep doing exactly what I'm doing today only on a bit larger scale. Keep Grinding!!
@Paul Fagot - if you are in a time crunch, partner with another wholesaler and offer them a small commission. You could get a few bids from a contractor. That will help you get a firm number on the rehab and make the buyers feel more comfortable. Finally, you can put together a package deal for an investor where you manage the rehab.
Ash Patel I am working on this with another wholesaler and we have a contractors bid for $250k but we put it at $300k just in case something comes up. We have everything figured out and all the numbers, along with the old property mangers number and he'll talk about all the numbers the property brings in and what it's all about. So I guess it's just finding and searching for the right buyer.
Stuart, I would put a majority in different mutual funds and bonds that get a return better than 4% which would give you 100k a year. Put some money in real estate for the diversification and your fun money to mess around with and grow your portfolio. Would go with the more conservative approach with that kind of money because you could live off your investments without really doing anything by making conservative financial decisions.
I'm lazy, so if I had that much in cash in real life, I'd probably just toss it in the stock market and like off the dividends and appreciation. Historical stock market returns are about 7-8% annually, so I could expect about $175-180k a year, which is more than enough to cover my basic needs. I know you said it had to be in CRE, but that seems like more work than it's worth if I'm holding that kind of cash.
I also wanted to comment really quickly on @Paul Fagot's solicitation; you're talking about a pretty small ROI for a building that needs 250-300k in repairs. The risk on something like that is very high, so I think you'd need to drop that offer by at least 100k before you get any serious bites. I assume it's a teardown and rebuild? I can't imagine an apartment building that would cost that much to fix and still be worth less than a million. Maybe post some details so you can get some feedback from the types of people who buy that type of property.
Jacob Pereira it's not a tear down the whole building is brick and strong. Roofs good and foundation are good. I have a $250k rehab bid to back it up (only said 300k to play it safe) there's 11 rooms that need to be fully gutted and rehabbed the others need cosmetics flooring paint electrical and plumbing. But yeah I can see trying to get it cheaper because that reason of ROI. Cap Rate is 25+/- plus the rooms can be rented out to section 8 and they'll always be payed for. The property manager the was dealing with this property said the owner before he passed was making good money on the property. But thank you for the feedback I'll have to figure something out with getting the price further down.
@Paul Fagot, it's not about ROI and cap rate in this case, it's about risk. If you can invest $550k (or just a half million if you take the more aggressive estimate) and get a guaranteed return of $850k, that's a great deal. Now once you break that down to $250k for the cost of the land and the bones of the building and another $250-300k for repairs, the risk becomes MUCH higher. I've never even heard of such an extensive rehab for a building under the $1M mark, but I know from doing 20-100k rehabs on buildings worth less than $500k that you never fully know the extent of the problems until you've pulled all the walls down and looked behind. Even then there can be mistakes made or other issues. I certainly wish you luck, but I think you're going to have to bring down the price significantly to move your building quickly. I hope I'm wrong, and I would love to hear about it when you get the deal done; I always love to learn more about real estate deals, especially when they prove my cynical self wrong.
@Stuart Humphreys, First you need to get educated about where you want to invest so someone doesn't separate you from your money by selling you a deal. I would put most of it in a safe investment like municipal bonds and only buy one or 2 properties and see how it goes. I would then get more aggressive in buying houses or apartment buildings. Definitely keep your investments in at least 2 different baskets, maybe more.
I would split it into $125,000 amounts (5% each) and use each amount as leverage and do 20 different deals. If you used 3:1 leverage, you would be able to invest in $7.5 million worth of properties with great money management diversity (no single investment is more than 5% of your total investment).
@Stuart Humphreys Whatever decision you make, I would caution you to leave some cash out of the property for reserves. It's great to be able to purchase a 50 unit for $2.5M, but what are you going to do on day 2, when the day to day management/operating expenses begin to surface?
If you were going to invest all of it into CRE how would you do it? Split it up? One big purchase? Use it as a down payment and take on debt or no debt?
Buy over time vs all at once. That way you don't end up tossing all your cash into one event that could not perform as you expect. Give you time to gain experience and price your buyers better. Good luck!
Invest in leasing out commercial property. Investors over look this opportunity but you can make pretty good cash flow buying NNN Investment Deals. Forget 401K because those are just stocks we gamble on, but real estate is the best investment today. Let's network together to complete these deals.
I would purchase SFR and Multi Family rentals over a period of time. Take out a HELOC against each rental and do flips with the HELOC money. This way you have a passive base but also the ability to juice the return of your 2.5 Million when flip opportunities arise.
Ideally, you learn where to pick up flips in your area by doing a good job of buying the rental properties well.