200k liquid- multi family or commercial property

28 Replies

Hi all, I am new to this space and although I have been passively exploring RE to improve my knowledge I haven’t invested yet and need some direction. I have 200-250k in liquid and I want to put that money to work. My goal is to go big but cautiously so I protect my capital and have a good cash flow. I am not sure if doing alone is a good idea so in need of some advise and opinions on the options and the best way to approach this so I set myself up for longer term. Thanks in advance.

Regards,

Deepti

Well 200k to 250k in commercial is SMALL. Figure say in STNL NNN properties at 1 million you need 30 to 35% down plus closing costs so about 350k to 400k to own directly. Most stuff in 1 million range is in weak suburban or rural locations.

The higher quality assets run minimum 1.5 million and up in price for most strong suburban locations nationally.

Options are you could either join up possibly with other family members or business colleagues to buy something larger or if an accredited investor you might could invest passively into a syndicate.

An example if someone contacts me with 200k and can't add anything to it then rural type locations. If accredited they might could invest with me as a sponsor on some of the retail value add deals and be part of a larger project with more upside potential. If money is 1031 exchange money then TIC or DST's and investor has to qualify.

You might could buy a commercial retail condo for 200k down on something and own yourself. Sub 1 million is just very limited in commercial.

As @Joel Owens outlined it's going to be a little tougher to jump into a real quality commercial deal on your own with 200k and you'll be limiting yourself to lower end neighborhoods and smaller properties.

A couple of different strategies to explore would be: participating in a syndication as an LP, lending(In first position) to experienced investors at hard money rates, or putting money together with some friends/family to buy a larger property and spread out the risk.

@Deepti Mandava You can partner with experienced operators/sponsors to get you some predictable and returns on the money with fairly low risk, but be sure to really do your due diligence and feel comfortable with the person you're trusting with your money! This is pretty much your best bet for seeing the upside of big deals and spreading out the risk.

Hello @Deepti Mandava

Welcome to BP and the world of real estate investing!

You could become a passive investor in a syndication deal. You would be a passive investor while the syndicator is actively finding an apartment complex and executing on a business plan. The best part is that you get all the  benefits of real estate and don't have to deal with tenants, contractors, or property managers.

You would still need to vet the syndicator based on their track record and see if their goals align with your investing goals.

If you have any more questions regarding syndications, feel free to message me and would be happy to help.

Regarding syndications there are all kinds out there not just multifamily. That is just one asset class. I do have clients that buy very large apartment buildings I work with but I mainly focus on retail these days.

The exit times for retail tend to be shorter then the turns for multifamily. The sponsor is just as important as the deal to invest in. Another part is if you are an accredited investor. Some sponsors only take accredited investors and others will take non-accredited.

I like accredited because they tend to have high net worth and cash flow and understand investments.

Deepti, I invest directly in properties I own, as well as passively through syndication/crowdfunding.

If you invest passively, you could take that same $250,000 and put it into 5 to 10 high quality deals, and diversify across geography, asset, strategy, etc. That will reduce your risk significantly over putting all your eggs in one basket by purchasing it yourself. The other advantage is that if you choose well, the investment will be managed by someone who has years more experience than you could ever hope to achieve on your own.

As an example I am personally invested in Broadstone Net Lease, which provides instant diversification into hundreds of triple net leases across geography. The fund has full real estate cycle experience in NNN. They focus on what they believe are recession resistant asset classes like Amazon friendly industrial, fast service restaurants, medical offices, etc. They are also one of the few funds that has an investment grade rating and conservative leverage at 40% . If you want more information, feel free to private message me.

@Deepti Mandava  I would take some time and consider what you want out of real estate. I didn't do this so I popped around from flipping to small rentals to wholesaling to private lending and (now) to syndicating large apartment buildings. It took a long time for me to figure it out and I wasted a bunch of time being and was inefficient getting to my goal.


If you want to take advantage of real estate's tax advantages and have passive income, i'd suggest passively investing in a multifamily syndication. As @Joel Owens said, the timeline is a bit longer than some other assets, but if you're looking for passive investments, that's not such a bad thing either. Look for an IRR above 15% and a timeline of about 6 years and you'll see a very healthy return on your capital.

@Deepti Mandava

A lot of great responses here. As @Joel Owens $200k is not enough to buy a large commercial. I like the idea @Ian Ippolito gave you about spreading the funds over multiple investments. 

Before you do all that, step back and think what you'd like/can do down the road. Do you have time and desire to be an active investor or investing passively would work better in your particular case. The answer to this questions will lead towards looking into the niches either within active or passive investing. So that will be your step #2. Once you look through these niches, you can identify two or three to decide further as to what you would like to concentrate one and then you can build up your action plan. 

Best of luck!

$200k buy an occupied SFR in a LCOL and hire PM. Cash flow, but limited equity appreciation. Keep saving for a bigger investment in 2-3 years.

Since you don't have experience doing a deal, I'd recommend passively investing first in order to gain a basic understanding of the investment process as well as gain some investing confidence. 

From there, I would either start small by yourself (2 to 4 units) or find a partner with experience in larger multifamily, bring capital, and have some other active role in the partnership.

@Deepti Mandava as you can see from the guidance already shared in this thread, the common advice is to find a partner with experience.  If you have the desire to be an active investor, find an experienced partner that is active in the asset class you like the best, and partner on a deal with them.  That will give you the experience you are seeking without exposing yourself to the higher risk of figuring it out on your own.  If you would rather be a passive investor, investing in a syndication would be a great option. In either case, make sure to take the time to perform proper due diligence so you are comfortable with your prospective partner before you invest. Partnering with honorable experience will help you write a happy ending to this chapter of your investment story. 

All the best,

Jack

@Joel Owens . Thanks for the response Joel. Based on what I am seeing, passive investing / syndication seems to be best option. What are the pitfalls with syndication. Specially when you don’t know these folks personally. How good are the laws here and protections so you don’t get cheated ?

@Deepti Mandava I would go multifamily.  If the economy takes a hit people still need a place to live.   Retail/Office properties are tough asset classes to be in in a recession.  You'll see those properties vacant for years while residential units will stay full.   Best of luck.

I disagree with the statement about retail sitting vacant for years. In some cold belt states with isolated pockets of growth or properties with way above market rents that can be true. Also if the building is 50k or larger in size it can take longer to rent because not as many tenants.

Office I would not even put in the same category as retail. Office is not a necessity for most businesses like store front retail is for daily consumer traffic to the sites. Office they can move to cheaper warehouse space or the can move into their house for office.

It can also be true that you can lose your butt with multifamily properties. 

I saw both happen during the last downturn.

I saw multifamily buildings rent flatten as landlords fought to maintain occupancy levels in a down turn. Vacancy went up, rents flattened or went down.

There is money to be made in any asset class and any cycle point the key is to invest with an experienced sponsor active in that asset class for awhile and has seen the ups and downs and underwrites the deals accordingly. In the warm belt states retail is not stagnant. It Is in high demand and growth as baby boomers exit the cold belt states to warmer climates for retirement. Most small box retail 20k sq ft and under if location is good can be released in under 6 months. It also comes down to how good the tenant rep brokers are getting centers filled. Some are rock stars and others are duds.  

Deepti,
Absolutely. As a matter of fact that is exactly what I did when I was starting out. I joined a number of syndications as an LP and was learning indirectly while observing the process and asking questions.  Feel free to PM me if you'd like to chat further.


Originally posted by @Deepti Mandava :

@Alina Trigub. Thanks Alina. I want to start passive and get into active investing in a couple years. But the goal is to learn more and make good investments for financial independence. Any tips for your journey ?

@Deepti Mandava I think the answer to your question depends on geography and market.  Are you only going to invest locally in CA?  I own both multi-family and commercial properties.   I disagree with most that you can't do commercial for less than $200k.  I've done it and have a 20% cap rate on the property.  Just curious, why do you have to decide now what you should invest in?  Why not look at your available options and see which ones pencil out based on your time horizon?