Is it a good or bad idea????
Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes
Is it a good or bad idea????
Most Popular Reply
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
4yBad idea.
There are so many landmines for new investors making a big bet on their first property, particularly if they expect it to be zero work. I've seen many folks buy apartment complexes, throw a property manager in, step back, and expect the money to start rolling in.
Then come to find months or years later that the PM did a bad job and the property is now in horrible financial condition. Sometimes those folks end up losing the property to foreclosure, sometimes they manage to get out and recoup at least some of their money. Either way, it wasn't the mailbox money they were expecting.
Step back, take $100 and buy a few real estate books. Make a multi-year plan and do not bet the farm on one deal. Learn about a bunch of strategies and decide how active you want to be. If you want to be totally passive, take some time to research syndication and decide if it's right for you.
53 Replies
- Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes4y
Bad idea.
There are so many landmines for new investors making a big bet on their first property, particularly if they expect it to be zero work. I've seen many folks buy apartment complexes, throw a property manager in, step back, and expect the money to start rolling in.
Then come to find months or years later that the PM did a bad job and the property is now in horrible financial condition. Sometimes those folks end up losing the property to foreclosure, sometimes they manage to get out and recoup at least some of their money. Either way, it wasn't the mailbox money they were expecting.
Step back, take $100 and buy a few real estate books. Make a multi-year plan and do not bet the farm on one deal. Learn about a bunch of strategies and decide how active you want to be. If you want to be totally passive, take some time to research syndication and decide if it's right for you.
- Lender · FL · Member since 2022 · 15 posts · 9 votes4y
Agree with Taylor! I wouldn't make this a one-and-done investment, and think there won't be any work involved. However, if you invest in the right market, you will see equity build as well as cash flow. You would then want to keep an eye on that for an opportunity to reinvest by either selling or pull out a cash value to have multiple properties.
Of note.. I am in Florida, so I see this from the perspective of market value increase of 30-40% in the past year to 18months, which is not normal :).
- Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes4y
suggestion - use a small portion of your funds and buy a small rental property either with cash or using financing ...rent it ..this will allow you to learn some of the steps / needs / details ...make sure you become familiar with the fees that the PM firm charges and what their responsibilities are .. if this goes well maybe consider making the bigger mutlifamily purchase step
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Directly owning real estate and hiring a property management company (PMC) does NOT equal hands-off ownership.
To invest in real estate passively, like investing in the stock market, you should look at REITs and syndications.
Otherwise, you should expect to "manage the PMC" monthly, to avoid unpleasant surprises.
Logical Property Management4.9451 Reviews - 4yScott WolfPro MemberLender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
@Alex Deters, you could also put that money into private lending, or a crowdfunding site like PeerStreet to earn 6-8% return.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Lisa Cottrell We are moving to Florida this year so it's the market we plan to invest In. We don't want to bet the whole farm but a quarter or a third is our risk level.
- Lender · FL · Member since 2022 · 15 posts · 9 votes4y
Quote from @Alex Deters:
@Lisa Cottrell We are moving to Florida this year so it's the market we plan to invest In. We don't want to bet the whole farm but a quarter or a third is our risk level.
That's awesome! This market is only growing and is predicted to increase another 30% or so between Tampa and Orlando over the next year. LMK if I can help in anyway. I am a Real Estate Agent and Mortgage Loan Specialist both!
- Specialist · Indianapolis, IN · Member since 2021 · 312 posts · 282 votes4y
It depends on your investing goals. As an active investor, it's rarely "sitting back and collecting cash flow," even with a good PM. I think the best mindset is to think about it like starting a business. You're going to have boots on the ground people keeping the properties running, leasing agents, property managers, etc., and it's your job to helm the ship... which is almost never an entirely passive activity.
If you're looking to leverage another operator's experience/time and collect a check in the mail every month, then passive investing through real estate syndication is the way to go.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Taylor L. I completely understand that it wont be 100% hands off. I'd like to still be a little involved as it is my investment and i find RE really exciting. I guess learning how to properly vet a PMC should be high on the list of things to do.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Lisa Cottrell I will for sure have to do that! We don't know anyone down there.
- Investor · Dallas, TX · Member since 2021 · 11 posts · 7 votes4y
Quote from @Taylor L.:
Bad idea.
There are so many landmines for new investors making a big bet on their first property, particularly if they expect it to be zero work. I've seen many folks buy apartment complexes, throw a property manager in, step back, and expect the money to start rolling in.
Then come to find months or years later that the PM did a bad job and the property is now in horrible financial condition. Sometimes those folks end up losing the property to foreclosure, sometimes they manage to get out and recoup at least some of their money. Either way, it wasn't the mailbox money they were expecting.
Step back, take $100 and buy a few real estate books. Make a multi-year plan and do not bet the farm on one deal. Learn about a bunch of strategies and decide how active you want to be. If you want to be totally passive, take some time to research syndication and decide if it's right for you.
Couldn't agree with Taylor more. Buying multifamily is not just "buying real estate" but needs to be thought of more like buying a small business.
Bad idea to just take that money and assume you'd be able to hire the right PM for a property. Much safer to invest as an LP in a deal with an operator with a track record of success. That will allow you to observe how that operator manages the business, allow you to have the same significant tax benefits and cashflow, and learn if being a real estate operator is for you.
If you need recommendations for operators in the Lexington area, I'm happy to help out!
- Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes4y
A common misconception is that by hiring a property manager you will be a "passive investor". Property managers are great, but they aren't going to do everything. You will still need to be involved as the asset manager. Which is essentially overseeing the property manager. Investing in a syndication could be a good vehicle. That is a much more passive route.
- Rental Property Investor · Springfield, IL · Member since 2020 · 36 posts · 35 votes4y
@Alex Deters When you move to Florida, consider buying a duplex or triplex and living in one unit. This known as house hacking. Use the time, nearly rent free to get some experience and make your mistakes on a smaller scale. (There’s a learning curve). Research and try out a PM, but on a unit or two instead of 24 units. This will also give you time to really get to know your new area. And use leverage with a loan. Paying cash for an investment property translates to very low return on your money.
Congrats, and good luck!
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Dave Carter We talked about that but we have 4 kids, under the age of 4 and multiple animals. Unless they make 1500-2000 Sq ft. Tri plexes, it's out of the question. I have advised my 17 yr old brother on this approach though.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Taylor L. I'd like to invest about a third of it into a multi family. Risk level is not high enough to chuck a million at something when we just got it. I've been listening to podcasts, reading all articles on here and watching YouTube videos breaking everything down. I might try to get my commercial real estate license just so I can have a firmer grasp on the subject.
- Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes4y
Hi Alex, we have investors making straight cash investments into funds, which are portfolios of properties. This might be something for you to look further into based on the goals you’ve shared.
- 4yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
We have more or less done what you are talking about… we went from 0 to 40 doors (all 1-4 unit properties) in under 3 years. It let us quit our day jobs. However, our goal was for maximum profit… not hands off investing… so I think you have to analyze the “sit back” part of your plan. Know that property managers are expensive animals that don’t relieve you of all the chores you think they do. We chose to self manage our properties, and frankly it’s pretty easy… 95% of day to day issues are handled with a phone call. We travel internationally on a regular basis and have no issues resolving problems on the go… I have called my plumber more than once from a foreign country! In any given week we might hear from 1-2 of our tenants. You have to decide what your comfort level is with all that. If you are not someone who wants those tasks…maybe property management is for you.
I second the idea of getting your feet wet with a simple rental property first before going all in or anything. It might turn out that you hate being a landlord?!! Buying properties right… read: where they really cash flow well is harder now than it was 12 months ago… the market is on fire! But with due diligence it can still be done. But know that prices can’t keep going up like they have been and that you are probably buying near the top of market if I had to put in my guess… which should be a flashing caution light to you. It means hunt for good deals that are below market so you will have more exit strategies down the line.
Even though we have freedom of schedule, our portfolio demands a lot of our attention on a regular basis… as it should. Less so from an intervention perspective needing to fix things, but more from a directional control perspective…. ‘Should we buy this, sell that, refinance those”, etc. Down the line capital improvements take on more focus…what about that roof, the septic tank that keeps needing to be pumped… do we replace that drain field, etc. None of that is sit back hands off… but the money DOES roll in. So if you enjoy the experience it won’t feel much like work… but rather managing your nest egg. The fact it is yours and you are in total control of it is somewhat rewarding on its own. Just like your kids (if you have them) there is an intrinsic reward in seeing them do well. Unlike your kids, your properties will act like an ATM machine that magically refills each month and spits out new money to you! (Something your 401k and brokerage account won’t be able to do… much less your kids!) We are 4 years in and loving it!
All the best!
Randy
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Randall Alan I don't mind being somewhat hands on at all, I just don't know much about it at this point but very open to it. As far as the market goes, definitely have thoughts about what it's going to do but I'd rather go for it and have it crash then sit back and miss the rocket as it continues forward.
Also, we have 4 kids! Hands are full all the time.
- 4yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Lisa Cottrell:
Quote from @Alex Deters:
@Lisa Cottrell We are moving to Florida this year so it's the market we plan to invest In. We don't want to bet the whole farm but a quarter or a third is our risk level.
That's awesome! This market is only growing and is predicted to increase another 30% or so between Tampa and Orlando over the next year. LMK if I can help in anyway. I am a Real Estate Agent and Mortgage Loan Specialist both!
What is your reference for a reliable source forecasting anywhere near 30% appreciation for Tampa or Orlando? Note that would be double the appreciation that Tampa experienced in the last 12 months.
I agree with all the posts that recommend the OP start with a syndicator. You should be able to qualify as an accredited investor (barely if you only have $1M) based on net worth. Because you want to eventually own the MF RE yourself, look for a syndicator that will let you shadow them (as well as has a long track record of performance). This would mean a syndicator local to you. I make this recommendation not because I think this syndicator will out perform other syndicators that are not local, but because the value of being able to shadow a successful syndicator is significant.
Good luck
- Lender · FL · Member since 2022 · 15 posts · 9 votes4y
Quote from @Dan H.:
Quote from @Lisa Cottrell:
Quote from @Alex Deters:
@Lisa Cottrell We are moving to Florida this year so it's the market we plan to invest In. We don't want to bet the whole farm but a quarter or a third is our risk level.
That's awesome! This market is only growing and is predicted to increase another 30% or so between Tampa and Orlando over the next year. LMK if I can help in anyway. I am a Real Estate Agent and Mortgage Loan Specialist both!
What is your reference for a reliable source forecasting anywhere near 30% appreciation for Tampa or Orlando? Note that would be double the appreciation that Tampa experienced in the last 12 months.
I agree with all the posts that recommend the OP start with a syndicator. You should be able to qualify as an accredited investor (barely if you only have $1M) based on net worth. Because you want to eventually own the MF RE yourself, look for a syndicator that will let you shadow them (as well as has a long track record of performance). This would mean a syndicator local to you. I make this recommendation not because I think this syndicator will out perform other syndicators that are not local, but because the value of being able to shadow a successful syndicator is significant.
Good luck
Hi Dan, see the Case Shiller index article here. https://www.floridarealtors.or... Working with buyers here, we are watching them get beat out by droves of people offering prices 10s of thousands over asking price when the homes were already priced 20-30% higher than they would have been less than a year ago. Side note - Not that I am going to sell my own home, but I purchased my current home just about 18 months ago and the market value has risen around 40-45% since I purchased it. :) We can't keep enough inventory to match all the buyers either moving here or trying to buy their first home.
- 4yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Alex Deters:
@Randall Alan I don't mind being somewhat hands on at all, I just don't know much about it at this point but very open to it. As far as the market goes, definitely have thoughts about what it's going to do but I'd rather go for it and have it crash then sit back and miss the rocket as it continues forward.
Also, we have 4 kids! Hands are full all the time.
So I would just be very careful getting into a field you admittedly know little about… that in no way is to say “don’t do it”… it’s more about being at risk of being exploited. It takes me back to the old saying of “a fool and his money are soon parted.”
Every marketer of their product will try to make their “way” sound the best. Their property is awesome, etc.
For me, I wanted to be in control… I don’t like syndication because it is TOO MUCH like being in the stock market… you have no control of who is driving that bus… you just know what the destination is supposed to be. It definitely won’t maximize your profits because by definition you are sharing them with the leadership that put the deal together. Nothing wrong with that, and for a hands off investment like syndication is, it is to be expected. But it wasn’t for me. Likewise for property management, I didn’t want to give away a third of my profit on financed properties to a property management company. (Yes they charge 10%, but after all your expenses it comes close to 1/3 of the profit left over). But again, I might consider a PM for you as being a better intermediate option… you could own the property… get the appreciation in trade for some loss of monthly profits to the PM. I see that as a better option than no control at all.
1-4 unit investing is small enough and easy enough to understand that you will have no problems grasping all the moving parts. The biggest worry in the beginning would be knowing what a good cash flowing property looks like… ie. Is this the best property to maximize my profits. Finding great ones isn’t easy. Finding good ones today isn’t too bad, but still harder than in the recent past.You will need to learn to run numbers on properties for whatever market you invest in, and determine whether property A or B is better. In its simplest form it’s mostly a cash flow analysis. But it can be nuanced further…. Adding in current and future repair expectations (ie. How old is the roof, for instance). If you have to replace that in a year, your true cash flow for that year will probably be negative that should affect your thinking about a property. It may still make total sense to buy, but perhaps a reason why you offer less for the property.
Yours is a tough situation. If you don’t have the time to invest in owning the properties outright, accepting lower hands off returns might be a better path, but you will likely miss out on some of the biggest wins we have experienced where we have held onto a property for a few years and doubled, and sometimes tripled our money on our original investment.
All the best!
Randy
- Los Angeles · Member since 2022 · 97 posts · 96 votes4y
Buy the largest apartment building you can afford to buy with the money you have. Don't spend $50,000 of your money so you have reserves for repairs and other unknown expenses. This will be the best decision you ever made./
VERY FIRST!!! Learn to do the math, read many books on real estate and learn not to make decisions based purely on the advice of friends and professionals. Advice is great, but you need to have enough knowledge in your head so you can make your own decisions and so you have forsight.
Never hire a property management company because they manage properties totally different than hands-on owners because they defer maintenance to make you happy by generating more profit and they rent to tenants you would not rent to. While you may enjoy a property management company getting you decent profits the problem with that is the deferred maintenance will eventually get to the point where your will wish you would have taken care of issues in a better and more-feasible way throughout your ownership.
The best book I ever read is the 'Encyclopedia of Commercial Real Estate Investing' by Terry PaInter. You can get the book on Kindle or at a bookstore for about $29 and this book covers everything in detail that other books do not. This book covers the most important thing you need to know and that is 'the math' because if you don't know how to do the math you can't analyze properties to get the most bang for your buck, no real estate broker will do the math for you to suit your agenda, you will not know where you are going after you purchase a property and will not enjoy the real estate business and not enjoy dealing with tenants when you don't understand how much money you are making in addition to cashflow.
Go to bestline plumbing.com, scroll down to the link 'MS Access Software, download the free software and learn how to analyze properties before you get too excited and purchase the wrong property.
Dealing with tenant including the bad tenants is actually a lot of fun when you understand only a few simple things I don't have time to explain, but my wife and I manage several fairly large apartment buildings and properties in 4 states with no property management company and we never let tenants get us stressed nor emotional because we constantly do the math and we are on top of our game. Strangely, when we had a property management company we added more fuel to the fire and had additional problems rather than less because we had more problems with the management company than we ever had with our tenants and then we had to deal with both the property management and the tenants and then every property the management company managed was totally destroyed because the management companies don't have the time to and will not do period inspections like a hands-on owner.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@George Azita I will for sure go and grab that book, thank you.
- Lender · Austin, TX · Member since 2022 · 18 posts · 12 votes4y
You can't dump $1,000,000 into an investment property and sit back and relax and expect to see loads and loads of money coming in. There are lots of risks with this, one being the property manager being absolutely horrible and come to find out 6 months in the property is damaged or run down.
The smartest thing for you to do is to acquire some basic knowledge. Read a couple real estate books, online blogs, or even listen to podcasts. Some great books to read include "The Book on Rental Property Investing" and "Mastering the Art of Commercial Real Estate Investing". Besides from this you could use a small portion of your money to invest in a rental property. This would be much lower risk and you would learn a lot from it!
I see you are from Kentucky, so, generally, you'll need a down payment of around 3% for a conventional loan and 3.5% for an FHA loan. And, on top of the money, some other factors such as your loan type and credit score could affect your ability to purchase an investment property.
I hope this helped! Feel free to reach out if you have anymore questions.
- Lender · Austin, TX · Member since 2022 · 18 posts · 12 votes4y
You can't dump $1,000,000 into an investment property and sit back and relax and expect to see loads and loads of money coming in. There are lots of risks with this, one being the property manager being absolutely horrible and come to find out 6 months in the property is damaged or run down. The smartest thing for you to do is to acquire some basic knowledge. Read a couple real estate books, online blogs, or even listen to podcasts. Some great books to read include "The Book on Rental Property Investing" and "Mastering the Art of Commercial Real Estate Investing".
Besides from this you could use a small portion of your money to invest in a rental property. This would be much lower risk and you would learn a lot from it! I see you are from Kentucky, so, generally, you'll need a down payment of around 3% for a conventional loan and 3.5% for an FHA loan. And, on top of the money, some other factors such as your loan type and credit score could affect your ability to purchase an investment property.I hope this helped! Feel free to reach out if you have anymore questions.
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