Investor · Dallas, TX · Member since 2017 · 14 posts · 14 votes
Ok. Hypothetical. You have $10,000,000 to deploy. You have to deploy it right away or you lose the money. What would you put it into? (it should all go in one asset type and class). My hope is that this helps people see what folks are keen on in early 2022.
Almost none of these answers complied with the specific rules provided except Jay's double tax free muni bonds (and the girls and booze - if you consider that the same asset class!! ha ha).
The exercise was to put 100% of the $10M into ONE single asset class and asset type! So class A apartments, or class C storage, or . . . Not 10% here and 30% there.
My answer, whichever deal I could find quickly in the Class B apartment with value add or the class B self storage with value add. Rinse and repeat in 3-5 years.
Whoever stated CRYPTO, please remind me of this answer if you ever sponsor a real estate deal, I will be sure to place you in my circular filing cabinet.
Hi @Gabriel Craft my firm is in a situation somewhat similar to what you asked about. We have chosen a portfolio of self storage and mobile home parks. They are both recession resistant and have a lot of mom and pop operators, therefore a lot of intrinsic value potential to add value.
Buy the block...meaning go to Chicago, Atlanta, DC, Philly and buy bandos and tax lien properties. Fix up. Put some on sec. 8 rentals and some as owner finance to good tenants who need a hand up. You rebuild neighborhoods and make good returns....just need the right team to manage the moving parts...good question!
Ok. Hypothetical. You have $10,000,000 to deploy. You have to deploy it right away or you lose the money. What would you put it into? (it should all go in one asset type and class). My hope is that this helps people see what folks are keen on in early 2022.
I always feel these questions are rarely on the up and up, but here goes.
Attorney response: it depends.
Depends on desired target return, risk tolerance, active participation willing to make, etc. etc. etc.
Fire and forget (forward all mail to Tahiti): Drop all $10M with 3-5 HML funds sprinkled around the USA at a solid 8.00% ROI.
Work now/Play later #1: 2-3 ground-up multi-use facilities in central Texas (my back yard) paid for with mostly cash. Typically grade+1 level retail, 1-2 floors office, 3-6 floors of residential (apartments or condos), attached parking structure, below grade storage facility, roof-top solar, and rainwater capture for common areas.
Work now/Play later #2: like #1, but add in a land play. Buy with more land than needed, sell off unused to fund all-cash or same debt with more facilities.
Work now/Play later #3: like #1 or #2, but sell off different parts (POA regime).
Debt fund: I self-fund the same HML fund (above), that buys HMLs at 80-90% face value + X points. Many HMLs use lines of credit from banks to table-fund their loans. Institutional investors sell off loans all the time. This is the same. Returns vary by product, and 16% is not much of a stretch but 20%+ requires a bit more creativity. Target returns can be leveraged up (or down) with use of borrowing (going from $10M to $15M by borrowing from other lenders).
As a PNW local I would be investing in secondary markets around Seattle. Seattle is expanding their Lightrail over this decade and properties within walking distance of the lightrail stations are quickly increasing in value. With $10M I don't think I would even bother looking at a value add or buy land value. I would just buy a stabilized renovated property and live off the cashflow.
10m cash buys 40-50m in real estate. I’d do heavy value add and buy 25m a year worth each year on a two year churn cycle with a minimum of 25% equity build and 10% cash on equity position. That gets you 500k cash flow year one 1m year two and so on as you continue and revolve that cash. After year 5 you have 2.5m cash and 31m equity on 125m in real estate.
Outstanding value given in this thread. As someone above iterated, a lot depends on risk/return objectives:
Appreciation? Cash Flow? Tax Mitigation? Everyone can agree your opportunity to achieve all above the depends on your Direct Access to the Deal-- on the ground floor. A Commercial Mixed Used Land Development project, from a Real estate standpoint, can be large enough to support capital deployment requirement. Can you have differing degrees of exposure on one deal alone?
Of course. You can Achieve secured returns on Debt investment mixed with equity stake position negotiated!
*cough-over here*
You could Connect with Deal Origin based Syndicator-investor/Developer and Leverage your capital on an Off Market Privately Available Commercial Mixed Use Development Project. It's all about relationships, of course.
See if you can negotiate a Debt investment position on Raw Commercial-Resi Land Acquisition Project whereby you retain an equity interest in the Development profit center*- ALL the while being 100% PASSIVE
Invest on the Debt Side (Be secured to the Raw Land) and try and negotiate an equity stake in Holding Entity developing or Equity Stake on General Partnership Team.
For Example kinda*.. Let's say you connect with recommended aforementioned type of "BiggerPocketer" investor-syndicator you came across on the Forums and you become acquainted with them. Through this relationshiop you learn of this type of opportunity--example only
Loc- Atlanta market
Entry: Acquistion $7-10million for 30Acres which includes 7 parcels in what is a Mixture of 5 Land Parcels and 2 existing Sfr. that are in stable condition builts in late 70's.
Value Add Plan: Force Appreciation with Development mix of residential units (townhomes&sfr's) and corporate guaranteed leases on commercial pads (est 90,000 leasable SquareFeet of Built to Suit Development that'll lease ($25-30/SF/YR) Leasable commercial and command sub 7 cap.
Exit(s) - The Residential will be vertically developed and sold in phases.
The segmented valuation at a 6.75% cap rate valuation- The commercial parcels alone would valuate around 38-41M, of which 80% LTV Refi would be Exit Profit Center for Investors, Debt and Equity all the way around.
Land Value:- Acquisition and Development. Strong national Commercial interest has brewed for Built to Suit Lease development coupled simultaneously with attached residential new units for years. Family owned and willingly sidelined until now.
Local municipality is in great support of development as long as it includes Neighborhood Center (grocery store tenant)
This Project will include Neighborhood center and other Commercial pads that would with tenanted by those that will help derive a sub 7 cap rate valuation.
HYPOThetically speaking your firm/you would have your cake and eat it to, so to speak.
You/Your Entity Role: Buy Secured Note for Package Acquisition - **$7m @ 7-9%APY Secured to the Deed with 1st Lien Position.
Negotiate a favorable Equity stake in the Development profits 8-10+% Equity on project :
Exit Will be in Profits from 100+ Residential Townhomes/SFR New constructions which will gross around 70-100k per unit
however, try and negotiate stake in forever mailbox money of commercial aspect of projects
After Construction Value 60-70mil+
PP $6-$7mil
Would love to talke more about your hypothetical problem of deployment
80% VT (Vanguard total world stock market index), 20% AGG (bond index). Withdraw 300K per year from the portfolio with no danger of running out of money ever.
If you have 0-3M then maybe need to get more creative.
Interesting to see the responses through various people's lenses. An interesting study in unintentional bias (yes, as an active sponsor I am sure I also have my bias/opinions).
Couple real-world factors that may influence the decision :
- Primary purpose of investment
- Tax treatment (e.g. are you looking to offset capital gains?)
- Investment horizon
Oh....and $10mm does not go as far as you think.
Believe it or not, we are currently talking to a Family Office that is deploying 20x that amount just this year. Depreciation is a big deal for them.
I would continue to do what got me to the 10 million, if that opportunity no longer exist then I would slowly try new things until I found a new investment that worked for me. I would be careful to try not to invest too much at the beginning until the strategy is proven and try to be as caution as I can not to over invest until I am familiar and see it worked on a smaller scale first.
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