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
- 4yJames WilcoxBusiness MemberReal Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes
Quote from @Alex Deters:
Me and my wife are coming into $1 million here soon. We do not want to "work" full time. If it's even possible, would it be a good idea to buy a multi family, hire a property management company and just sit back and collect cash flow? I don't know if I'm being to vague but I've never invested in real estate but I find it very very interesting.
@Alex Deters hit me up since you are local and I am Lex BP contact, I can put you in the right direction. Just need to hear a little more about your goals. I am accredited so I can help you understand maybe more where to go from here. I agree with some of the comments to be a bit cautious but it is possible to be a bit more "passive". You will always have a hand in any investments you make and they all come with some level of risk. I don't agree with buying an apartment with little experience.
REI James w/ eXp Realty54 Reviews - Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4yThat’s awesome that you are exploring all of your options. If you haven’t already I would read the book, “Rich Dad, Poor Dad.” That will give you a better idea about real estate and investing. I would also listen to the podcast on bigger pockets starting at the beginning. I think it’s really important to know your area and know where you are investing. You can buy a four unit anywhere but will it appreciate over the years? Will you get good cash flow? What kind of tenants will you have? There are just some good questions to ask to make sure what you are doing will be successful.
Quote from @Alex Deters:
Me and my wife are coming into $1 million here soon. We do not want to "work" full time. If it's even possible, would it be a good idea to buy a multi family, hire a property management company and just sit back and collect cash flow? I don't know if I'm being to vague but I've never invested in real estate but I find it very very interesting.
I have the same goal of not wanting to work and being able to just sit back and relax. I have set up systems in place and goals to be able to get there. If you ever wanna chat more I would love to. Realestate is fun to me and is a passion. - Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes4y
In many states tenants are still being protected from Covid, some are reluctant to seek employments using tenant protection as reason. They get rent for free, utilities and food aid. If employed, it is cash or unreported. Some of them have not paid full rent since 2020. One west coast county with 10.1m population mandate it will be 2023 before court will review eviction cases.
Multifamily means you have high probability dealing with these people.
- Real Estate Agent · Arlington · Member since 2016 · 162 posts · 100 votes4y
+1 for @Sam Shueh - combine what he said also with "Tenant Mutiny" - aka, tenant unions who seek to combine efforts to have no one pay rent within an apartment
- PA · Member since 2010 · 339 posts · 168 votes4y
Several reply’s suggested syndicates. I haven’ researched them yet, but my knee-jerk response is that the syndicator, developers and property managers make a bulk of the revenues and that the investors receive a very modest return.
In addition to syndications, you might consider high credit corporate NNN properties
Property managers are really expensive and will not take care of your property. This means you will spend 8-10% of your gross income plus leasing and renewal fees and accumulating deferred maintanance will make your investment less and less hands-off and your capital expenses will increase as time goes by.
In addition
- Investor · Garwood, NJ · Member since 2018 · 66 posts · 66 votes4y
Hey @Alex Deters - First off, congrats! That is awesome. Such an exciting time for you. As a few others mentioned, since you don't have much experience or knowledge about real estate investing yet syndication could be a great avenue for you to learn without too much risk...it's like getting paid to get an education. (You invest and make a return and get to learn from the syndicator at the same time) Part of mitigating the risk is finding someone way more experienced than you with a track record of success to invest with - the chances of them successfully executing a real estate investing strategy are higher than you since you have no experience yet, and since you said your hands are pretty full with your kids, this sounds like it could be a good option for you. If you are willing to invest 1/3 or 1/4 of the $1M you could get involved in 4 or 5 different syndication deals depending on the minimums (the average minimum I usually see is $50K, but there are deals that have lower and higher minimums too of course).
If your main goal is to learn and potentially be more hands-on down the line, and maybe become a syndicator yourself, this is a great way to learn. You get the inside access to how these deals are put together, markets are selected, underwriting is done, etc without having all the responsibility and success of the deal on your shoulders.
Also just want to mention that syndications provide tax benefits from depreciation the same way owning your own rental properties would.
You may want to consider doing a combination of both buying a few smaller rental properties yourself and getting involved in some syndications. Depending on how involved you want to be or not. Just some food for thought!
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Christine Bellish Everyone keeps mentioning syndication and we don't qualify for it. I think I'll take everyone's advice and just start small at first, I like the idea of having actual ownership of the whole property and equity/appreciation.
- Investor · Garwood, NJ · Member since 2018 · 66 posts · 66 votes4y
Hey @Alex Deters I messaged this back to you, but wanted to post publicly to help others as well:
I'm not sure what you mean by "we don't qualify for it." Do you mean that you are not accredited?It's a pretty common misconception that you have to be accredited to invest in syndications, but that's not the case. I think most people are misinformed because the syndication deals that are advertised are open to accredited people only - these are called 506c syndications, but there are also 506b syndications which are are open to both accredited and non-accredited investors.
Not as many people are aware of 506b opportunities because they can't be advertised - you have to network and have a personal connection with the people who are running the deal.
If you invest in a syndication you do have equity in the deal and benefit from cash flow and appreciation as well as write offs from depreciation, but I totally understand if you want to be more hands-on and buy some rental properties for yourself :)
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Christine Bellish Yea when you Google syndication, says you have to be accredited and meet certain qualifications. It is nice to know that you don't have to be accredited.
- Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes4y
Buy a small rental close to where you live if possible ,I would not mention how much money you have keep that vague but let them you know you are serious .
Tip toe into this with caution spending only a portion of your money do your home work Google any company that you are looking at hiring to mange your rental see what you find .
- Los Angeles · Member since 2022 · 97 posts · 96 votes4y
As for managing a single-family home, a duplex, or a 100-unit apartment building they all require the same amount of knowledge and while many people say that there is more risks when owning an apartment building those people are full of beans. The larger the number of units the less risk you have because if you own a duplex and two tenant move then you have zero income to pay your bills. When you own an apartment building multiple tenants can move at the same time and rather than being stressed like with your smaller properties you are actually ecstatic because the more vacancies you have the better for you because then you can increase your rents and when you increase your rents you automatically increase the sale value of the property, significantly. It is very difficult and risky to move tenants out of a single-family home or duplex so you can rehab the property to increase the rents when you have a mortgage.
On the 5th of every month at exactly 5 pm my wife and I jump into our van and make our rounds to collect our rents from several apartment buildings we own. Our tenants drop their rents into a locked box and we pick up close to $200k in rents in about 1-1/2 hours and it economical and good time-management when you can bunch your business into one or a few neat and convenient locations.
It doesn't make sense to start small and lose out on making many times more profit for a period of time and then lose out on a huge chunk of profit because you could have purchased units for less money in your early years and later you will have to pay higher prices per unit.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
@Jim K. Wanted to get your opinion on this.
I would buy some real estate. The part that sucks is it is a little bit of work and a million dollars won't get you to financial independence. I would buy a personal residence you could househack as well. And as you learn and study this stuff I think you could be financially independent in a couplefew years. Maybe you could each work so part time easy job to supplement your life style for a while.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@George Azita haha I was feeling the same way about it as you. But due to my inexperience and the advice of everyone here, maybe I should start small? Ideal situation would be to find an investor that would let me shadow them to show me the ropes but everyone says you should bring something to the table but right now I'm still figuring out how to get to the table.
- Real Estate Agent · Daytona Beach, FL · Member since 2019 · 37 posts · 15 votes4y
With the proper initial investment in education, I believe it's a great idea to get started and build your systems and teams. It's a big step in the path to financial freedom, but there is a lot of work to be completed before you are able to not "work" full time. You will need to purchase the right properties, manage your property manager, have a network of contractors, and learn to manage the setbacks.
- Rental Property Investor · Lexington, KY · Member since 2022 · 25 posts · 15 votes4y
@Frank Zhang I'm ok with that, I don't see that as work though. Working 12 hr days at a job u hate is work to me.
- Attorney · Claremore, OK · Member since 2013 · 125 posts · 61 votes4y
I think Warren Buffett said "When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience." By announcing your lack of experience and large expectation you may have painted a target on yourself. As many have said in this forum, get experience. Starting here at BiggerPockets is a great way to get experience. Asking questions in the forums as you did is a great way to learn. Read books and learn before you do anything. Be wary before trusting your money to others.
- 4yRyan DavidsonPro MemberRental Property Investor · Brook, IN · Member since 2017 · 69 posts · 12 votes
Quote from @Alex Deters:
Me and my wife are coming into $1 million here soon. We do not want to "work" full time. If it's even possible, would it be a good idea to buy a multi family, hire a property management company and just sit back and collect cash flow? I don't know if I'm being to vague but I've never invested in real estate but I find it very very interesting.
@Alex Deters as you have read there is many great options given here. Most importantly educate yourself and be careful. That is a great position to be in and if I put myself in that situation here is what I tell all the newer people I discuss real estate with.
1. Definitely search for that house hack multi family if possible. 1-4 you can still get the low down FHA loans to get in cheap and save you money. Typically 2 units will pay part of your mortgage, 3 units can pay most of all expenses and you could live very cheap, 4 units should work out to earn you cash flow eliminating your housing expenses. Having 4 kids ourselves I see how that could be difficult, not possible for my family now but if I could have started out this way I would have and it is very powerful. $1,000,000 unit is only 35K down.
2. I would find the STR market I would want to invest in for higher returns and cash flow to live on. We were just looking in the Orlando market and it is crazy right now but would still cash flow. With you moving to Florida you can easily find a market close enough to manage and learn the business. $500,000 to $1,000,000 STR is $1-200,000 down. The problem you could run into is a STR is typically considered a 2nd home you need the 20% down and are liable for the loan, meaning most banks need to approve your finances. Not having a stable income could be trouble finding the financing. Do your research and you may find a way to get creative for the lending. If bought right this property could generate $5-10,000 month cash flow.
3. I would then find a mid sized 25-75 multi family unit to purchase or become a private investor in a larger deal in the mid west. Depending on the deal I would buy between $1,000,000 and $3,000,000. Down payment $2-600,000. If I purchased this property it could cash flow $2-7,000 per month or more. As a private investor it would be more sit back and passive income, but could reduce to $1,000 to $3,000 per month.
Doing this would diversify me through multiple avenues and limit risk to my monthly cash flow, with limited expenses.
Total down payment could look like $835,000 leaving $165,000 for reserves or first year of living. Living expenses could be minimal to negative, with maximum income potential to $17,000 per month. Depending on lifestyle this could be retirement ready. Continue to reinvest the profits and grow your wealth.
Happy to connect and discuss further if you would like, see if we can help each other.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes4y
Quote from @Alex Deters:
Me and my wife are coming into $1 million here soon. We do not want to "work" full time. If it's even possible, would it be a good idea to buy a multi family, hire a property management company and just sit back and collect cash flow? I don't know if I'm being to vague but I've never invested in real estate but I find it very very interesting.
If it was that easy, I would say go for it. There is a lot more work and risk that go into it though, in order to have a successful investment. If you are going to buy a MF on your own, you should really start educating yourself and learning the industry. What you can learn from books and podcasts is a great start, but I would suggest finding a mentor and getting experience on the street. An alternative route is to invest the money passively through a syndication, hard money loans, etc. This will actually allow you to sit back and collect the money, with much less effort and knowledge.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes4y
Quote from @Eric Bilderback:
@Jim K. Wanted to get your opinion on this.
My folks left me $55K of equity in their house when they died, with my brother holding the other $55K. I have no opinion on what I would have done if that had been a million in actual money. I also have no advice for that situation worth listening to.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
It was a joke. I still laugh every time I see this question from your answer about what other forum could there be where random people show up weekly soliciting advise about where they should invest a million dollars. I will try and stop tagging you on these questions (sorry overkill) but I found your answer very amusing.
- 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
If you want to be passive and just "sit back and collect cash flow" - I do not think buying a property is your best bet. That is a VERY active investment - even if you have a good property manager (which is another completely different post! I was an active investor in real estate attempting to be passive as you indicate you would like to be and it turned into a full time job. Now, I invest in passive real estate syndications - this is completely passive and the returns are better than when I was active. The reason the returns are better is because I effectively hire professional asset managers to handle the asset, the financing, the property manager and much more. After I decide to invest and send the wire - I truly do sit back and collect the cash flow. As others have said, you don't need to be accredited - but as soon as you have that $1,000,000, congratulations you are accredited!
The best way to start is to join a Community (or several) of other passive investors and learn from them. I would also highly recommend reading "The Hands-Off Investor" by @Brian Burke. It is the best book on passive syndications from the side of the passive investor that I have seen.
Good luck!
- 4yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votesI would disagree that $1mm can’t get you to financial independence if you are cunning with your money. My wife and I have bought 25 properties with less that that much money, and it allowed us to quit two six-figure corporate jobs without ANY sacrifice to our lifestyle with money left over. We travel frequently, pay for our own health insurance, have newer cars and are improving our financial position even more in this up market by selling our least liked properties for crazy profits right now…which we use to pay off other previously purchased properties that had higher interest rates to boost cash flow even more.
Quote from @Eric Bilderback:
@Jim K. Wanted to get your opinion on this.
I would buy some real estate. The part that sucks is it is a little bit of work and a million dollars won't get you to financial independence. I would buy a personal residence you could househack as well. And as you learn and study this stuff I think you could be financially independent in a couplefew years. Maybe you could each work so part time easy job to supplement your life style for a while.
Some of this is perhaps luck of getting into real estate 4 years ago, but regardless, you just have to start, make smart decisions of what to buy, and do what the market tells you.
For instance, the past year, the market said, property values are high and money is really cheap. We said, let’s take our expensive mortgages (like 5.625% from 2018) and cash-out refinance them. We lowered our interest rate on those and used the appreciation in them to take out cash and pay off other properties entirely. If we needed cash for purchases we would have put that cash towards more properties; but we also do a flip here and there as well, so we have used the profits off flips to acquire new properties. So for us it’s about developing strategies that fit with the opportunities the market is giving.
We have bought very few houses recently because lately the market has said “these deals aren’t as good as in the recent past.” So if you are trying to enter the market right now, it’s definitely harder… rates going up, prices on fire. So it means looking at more deals, and biding your time for the right ones to come along. Wholesalers are still beating the bushes and finding deals with ‘meat on the bone’ that still make good investment sense (read: well below market). But even those are higher these days. I would recommend patience… don’t buy high just to get into the game. Always buy smart… wait for the good deal… it will come along.
Someone above mentioned a 6 cap property. That’s a really poor return (to us). You will have to translate the following numbers to both today’s market, and your local conditions, but when we started buying properties 4 years ago, we asked “What is the optimal property to buy?” To both maximize profits, and to stretch our dollars so we COULD be financially independent. Doing the math (then) it was this: Any property that costs under $75,000 that we could rent for over $1,000 a month was our best bet. The higher the rent, or lower the purchase price, the better the deal got… but that was our “measuring stick” at the time. So we were typically buying B- to C+ properties with that strategy - but it accomplished our goal of stretching our money and good cash-flow returns. Our average cash out of pocket was $20-30,000 per property. Fully loaded mortgage with taxes and insurance was $500-800, and some properties were so cheap we didn’t even finance them. Most of the properties needed some love and attention to be rent ready… but typically not more than $5,000… like “replace the floor coverings and do some simple deferred maintenance.
To use some real numbers… our best 2 deals: we bought one 1100sf house for $50,000 that rents for $1,400; and another 1,000sf house for $45,000 that rents for $1,250. Each needed about $10,000 in work (one needed a new bathroom and flooring); the othe floors and paint. But on just over $120,000 invested we are cash flowing $2,200 per month (over $26,000 per year) just on these two properties.
We bought 2 duplexes for $160,000 (total) that were fully rented ($45,000/unit.) Rents when we bought them were $500 a unit. 4 years later we have moved them to $950 / unit.
Those are perhaps the unicorns of our portfolio, but the point is, buy smart and you will reap the rewards. Minimize your expenses where possible .(ie. Self manage for maximum profit, it’s really pretty easy). Be patient and opportunities will present themselves.
All the best!
Randy - 4yJay BreitlowPro MemberProperty Manager · Orlando, FL · Member since 2020 · 137 posts · 85 votes
Quote from @Ryan Davidson:
Quote from @Alex Deters:
Me and my wife are coming into $1 million here soon. We do not want to "work" full time. If it's even possible, would it be a good idea to buy a multi family, hire a property management company and just sit back and collect cash flow? I don't know if I'm being to vague but I've never invested in real estate but I find it very very interesting.
@Alex Deters as you have read there is many great options given here. Most importantly educate yourself and be careful. That is a great position to be in and if I put myself in that situation here is what I tell all the newer people I discuss real estate with.
1. Definitely search for that house hack multi family if possible. 1-4 you can still get the low down FHA loans to get in cheap and save you money. Typically 2 units will pay part of your mortgage, 3 units can pay most of all expenses and you could live very cheap, 4 units should work out to earn you cash flow eliminating your housing expenses. Having 4 kids ourselves I see how that could be difficult, not possible for my family now but if I could have started out this way I would have and it is very powerful. $1,000,000 unit is only 35K down.
2. I would find the STR market I would want to invest in for higher returns and cash flow to live on. We were just looking in the Orlando market and it is crazy right now but would still cash flow. With you moving to Florida you can easily find a market close enough to manage and learn the business. $500,000 to $1,000,000 STR is $1-200,000 down. The problem you could run into is a STR is typically considered a 2nd home you need the 20% down and are liable for the loan, meaning most banks need to approve your finances. Not having a stable income could be trouble finding the financing. Do your research and you may find a way to get creative for the lending. If bought right this property could generate $5-10,000 month cash flow.
3. I would then find a mid sized 25-75 multi family unit to purchase or become a private investor in a larger deal in the mid west. Depending on the deal I would buy between $1,000,000 and $3,000,000. Down payment $2-600,000. If I purchased this property it could cash flow $2-7,000 per month or more. As a private investor it would be more sit back and passive income, but could reduce to $1,000 to $3,000 per month.
Doing this would diversify me through multiple avenues and limit risk to my monthly cash flow, with limited expenses.
Total down payment could look like $835,000 leaving $165,000 for reserves or first year of living. Living expenses could be minimal to negative, with maximum income potential to $17,000 per month. Depending on lifestyle this could be retirement ready. Continue to reinvest the profits and grow your wealth.
Happy to connect and discuss further if you would like, see if we can help each other.
Yeah orlando is a bit wonky now. Go get em Ryan and good luck my man!
- Investor · Tampa, FL · Member since 2016 · 679 posts · 288 votes4y
Hello Alex Deters, you say you are a Rental Property Investor in Lexington. The Safest thing to do is to Buy your Home. You could make it a fixer upper and add some up front value or like I did, a Townhome in a like new or new Community with low HOA. Live in it for two out of five years and it is a Tax-free Sale of your Residence after that. No need for a Manager. During that first year you find another, maybe, fixer upper and you Rent that until you Sell you Homestead. That way you have a Tax-free Real Estate Machine for the rest of your life and you can manage one Rental very easily with good Screening of the Tenant and a Handyman. You have a Million, so, I would pay Cash for the Home and always make sure that you would live in any property you buy after that. You can move up to bigger homes if you want, until you get to the place where you want to downsize and really be in control of anything that is going to happen to your properties in the future. You have may different Passive Investments you can make with the remainder of your Money and you have Time to study all the different methods and results.
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