Safe investments for all cash buyer
Member since 2022 · 49 posts · 17 votes
Safe investments for all cash buyer
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes@Frederick William No experience but you want to buy a million dollar multi-family property?... These two things don't go together.
We all started from somewhere but I encourage you to read, learn, engage, and understand the basics of REI. Investing is math, experience, networking, and solving problems. Without these pieces you'll struggle.
49 Replies
- 3yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
Quote from @Frederick William:
I am looking to purchase an apartment complex in Los Angeles. Target price being around 1 million. Most properties I’ve seen are in bad neighborhoods. Mostly east Los Angeles or Crenshaw area. Wondering if this is a safe place to park an all cash investment. Can’t help but think of detroit and all of the real estate investors that lost big there. Any advice is welcomed.How much experience do you have with real estate investing?
This type of real estate is sophisticated (regardless of neighborhood class), high returns, and high risk. No investment is 100% safe. Every type of REI has pitfalls to watch out for. If you don't know most them it's probably not wise to buy.
- Member since 2022 · 49 posts · 17 votes3y
Quote from @Jaron Walling:
Quote from @Frederick William:
I am looking to purchase an apartment complex in Los Angeles. Target price being around 1 million. Most properties I’ve seen are in bad neighborhoods. Mostly east Los Angeles or Crenshaw area. Wondering if this is a safe place to park an all cash investment. Can’t help but think of detroit and all of the real estate investors that lost big there. Any advice is welcomed.How much experience do you have with real estate investing?
This type of real estate is sophisticated (regardless of neighborhood class), high returns, and high risk.
No experience, besides being a renter myself. I plan to have it professionally managed.
- 3yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Frederick William No experience but you want to buy a million dollar multi-family property?... These two things don't go together.
We all started from somewhere but I encourage you to read, learn, engage, and understand the basics of REI. Investing is math, experience, networking, and solving problems. Without these pieces you'll struggle.
- Member since 2022 · 49 posts · 17 votes3y
Quote from @Jaron Walling:
@Frederick William No experience but you want to buy a million dollar multi-family property?... These two things don't go together.
We all started from somewhere but I encourage you to read, learn, engage, and understand the basics of REI. Investing is math, art, and networking. Without these pieces you'll struggle.
I don’t have much of an option. Do I let the money sit in the bank? Real estate seems like a safe investment. I am asking if certain neighborhoods in Los Angeles are worth investing in long term.
- Rental Property Investor · Coral Gables, FL · Member since 2016 · 199 posts · 266 votes3y
@Frederick William, you'd be better of finding a sponsor you trust and investing in 2-4 or more multifamily syndications, in my opinion. This is not a business you just go in and know how to manage a property manager, besides, a PM for a property the size you can buy in CA will probably charge you more than the property nets.
Search online for syndicators who professionally manage multifamily properties, but do your due diligence on them to be sure anyone you invest with is experienced, structures their deals fairly and and has references you can check. If you have the time and want to become more active, you can always do that once you get a little experience.
Multifamily properties are the best risk adjusted asset class according to studies and the Sharpe ratio. So you are right to put your cash to work. I'd even say most people ought to allocate a reasonable percentage of your overall investment portfolio into real estate, but it is best to study first and get some background in the field.
- Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes3y
Hey @Frederick William - adding on to what everyone else has already mentioned, you might find it helpful to read a couple of books on multifamily investing. It's not just enough to write a check and expect to pocket the rental revenue, even if you're buying it in all cash. Since it's your first property, you should know that having tenants and being an apartment complex landlord comes with a lot of responsibility. This includes ensuring that the building is maintained well, heated, cooled, etc.
If you have $1M sitting around in the bank, great for you, but don't rush to spend/invest it without doing your due diligence — good luck!
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
@Frederick William I would not buy anything for a year or two during that time I'd spend time here, join a local LL ir REI group. Don't panic about your money earning no interest in the bank-running out and buying property with no knowledge will be way worse.
You need to spend time watching podcasts here and on youtube. Read books and decide on what your goals are and why you want to be a LL in the first place. During that time you also need to become familiar with the laws where you will be investing and how to manage tenants and properties. All that whether you end up with a PM, or not. A PM is only a filter and some are better than others.
To become a successful REI is a lot of work but it is the best ride ever!
- 3yJewel B.Pro MemberNew to Real Estate · Lehigh Valley, PA · Member since 2021 · 352 posts · 120 votes
Quote from @Frederick William:
Quote from @Jaron Walling:
@Frederick William No experience but you want to buy a million dollar multi-family property?... These two things don't go together.
We all started from somewhere but I encourage you to read, learn, engage, and understand the basics of REI. Investing is math, art, and networking. Without these pieces you'll struggle.
I don’t have much of an option. Do I let the money sit in the bank? Real estate seems like a safe investment. I am asking if certain neighborhoods in Los Angeles are worth investing in long term.
You have the option of educating yourself before rushing into a huge purchase that has a lot of risk.
Beyond that, there's a lot you can do in Real Estate with a million dollars. Leverage is a great tool as well. No need to buy 1 property for a million cash when you can buy...more than 1 for example. Could always buy 1, make sure that goes well first, then buy more. Foolish decisions are made when rushing.
There's also the stock market and syndications.
Explore your options. And you can always do hybrids.
- Member since 2022 · 49 posts · 17 votes3yI don’t want to take on too many loans. I want 1 property that I own. And collect rent from that 1 property.
Quote from @Jewel B.:
Quote from @Frederick William:
Quote from @Jaron Walling:
@Frederick William No experience but you want to buy a million dollar multi-family property?... These two things don't go together.
We all started from somewhere but I encourage you to read, learn, engage, and understand the basics of REI. Investing is math, art, and networking. Without these pieces you'll struggle.
I don’t have much of an option. Do I let the money sit in the bank? Real estate seems like a safe investment. I am asking if certain neighborhoods in Los Angeles are worth investing in long term.
You have the option of educating yourself before rushing into a huge purchase that has a lot of risk.
Beyond that, there's a lot you can do in Real Estate with a million dollars. Leverage is a great tool as well. No need to buy 1 property for a million cash when you can buy...more than 1 for example. Could always buy 1, make sure that goes well first, then buy more. Foolish decisions are made when rushing.
There's also the stock market and syndications.
Explore your options. And you can always do hybrids.
- Member since 2022 · 49 posts · 17 votes3y
Quote from @Bjorn Ahlblad:
@Frederick William I would not buy anything for a year or two during that time I'd spend time here, join a local LL ir REI group. Don't panic about your money earning no interest in the bank-running out and buying property with no knowledge will be way worse.
You need to spend time watching podcasts here and on youtube. Read books and decide on what your goals are and why you want to be a LL in the first place. During that time you also need to become familiar with the laws where you will be investing and how to manage tenants and properties. All that whether you end up with a PM, or not. A PM is only a filter and some are better than others.
To become a successful REI is a lot of work but it is the best ride ever!
I have been a tenant in Los Angeles. I know about rent stabilization, inspections, section 8, cap rate, vacant rate, finding a good handyman. I don’t know what else there is? - 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
Quote from @Frederick William:
Quote from @Bjorn Ahlblad:
@Frederick William I would not buy anything for a year or two during that time I'd spend time here, join a local LL ir REI group. Don't panic about your money earning no interest in the bank-running out and buying property with no knowledge will be way worse.
You need to spend time watching podcasts here and on youtube. Read books and decide on what your goals are and why you want to be a LL in the first place. During that time you also need to become familiar with the laws where you will be investing and how to manage tenants and properties. All that whether you end up with a PM, or not. A PM is only a filter and some are better than others.
To become a successful REI is a lot of work but it is the best ride ever!
I have been a tenant in Los Angeles. I know about rent stabilization, inspections, section 8, cap rate, vacant rate, finding a good handyman. I don’t know what else there is?Post again in a few years Frederick, in the meantime don't waste your time learning!
- Member since 2020 · 45 posts · 46 votes3y
Where to start.... I would not buy anything in Ca. Born and raised there but left 18 years ago. CA is very tenant friendly. I would invest in RED states because they tend to be more owner friendly. $1M could buy you $3-$4M with leverage a few months ago but $2.5-$3m should still be attainable today in MF. Do the research on the state or the syndication you are interested in. I would spread it around in multiple deals. Remember, you don't need to, or should, go at it alone. Partner with someone that can help you grow. Join a mastermind group like Grant Cardone, Rod Khlief, Brad Sumrock etc. Be careful of REIT's... look up Blackrock for current examples of what not to invest in. Best of Luck...
@Frederick William folks are giving you the right advice but seems not what you’re looking for. If you’re dead set on a LA MFH, you can’t get much for $1M…. heck, most of the land is worth more than $1M without the structure.
I suggest to stay out of city of LA and hug the coast if you want to reduce risk. East Side, South Bay… maybe even Long Beach.
$1M still not going to get you much without leverage, so maybe go 50% LTV and target $2M acquisition. That'll get you mostly duplexes and tris, but you can land a quad here and there. Make sure you underwrite property taxes using acquisition price.
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Here’s a general rule of thumb. If you have to ask a generalized question about real estate investing then you probably aren’t knowledgeable enough to adequately evaluate, manage, or negotiate a property purchase.
You’ll make many costly mistakes in your first few property investments. That’s with taking the time and effort to study and become knowledgeable about real property investing. Without the knowledge it becomes a crapshoot - will a bull market bail you out or will a bear market wipe you out?
Even with knowledge you’ll make mistakes - hopefully not as costly - because while knowledgeable you’ll lack experience.
You have no choice because bank rates are low? Over the long term treasury bonds will cover the rate of inflation plus about 2%. That’s one choice, especially while you are educating yourself in real estate investing. CDs, money market funds, mutual funds, bonds, TIPs, REITs, closed end funds, syndicated real estate deals, high interest private real estate loan funds, plenty of choices.
And one more thing. 80% of property managers do not perform adequately. Either because they’re incompetent, unmotivated, over worked, have other more important business interests, are managing property as a sideline or lack people skills. The 20% that do perform adequately have more business than they can accept, and often turn down offers. Finding an adequate property manager for a war zone property may be impossible. I know many people who purchased war zone type units and were relieved to sell after 12 months. They made money, sometimes high cash flow, but looked like they aged 10 years in those 12 months. Please be cognizant of the fact that purchasing a apartment complex, especially a small class c or d complex in a less economically strong area is not anything like investing in stocks, mutual funds or syndicated real estate deals. It’s at a much higher level of intensity, commitment, and risk.
- Member since 2020 · 69 posts · 21 votes3y
Quote from @Don Konipol:
Here’s a general rule of thumb. If you have to ask a generalized question about real estate investing then you probably aren’t knowledgeable enough to adequately evaluate, manage, or negotiate a property purchase.
You’ll make many costly mistakes in your first few property investments. That’s with taking the time and effort to study and become knowledgeable about real property investing. Without the knowledge it becomes a crapshoot - will a bull market bail you out or will a bear market wipe you out?
Even with knowledge you’ll make mistakes - hopefully not as costly - because while knowledgeable you’ll lack experience.
You have no choice because bank rates are low? Over the long term treasury bonds will cover the rate of inflation plus about 2%. That’s one choice, especially while you are educating yourself in real estate investing. CDs, money market funds, mutual funds, bonds, TIPs, REITs, closed end funds, syndicated real estate deals, high interest private real estate loan funds, plenty of choices.
And one more thing. 80% of property managers do not perform adequately. Either because they’re incompetent, unmotivated, over worked, have other more important business interests, are managing property as a sideline or lack people skills. The 20% that do perform adequately have more business than they can accept, and often turn down offers. Finding an adequate property manager for a war zone property may be impossible. I know many people who purchased war zone type units and were relieved to sell after 12 months. They made money, sometimes high cash flow, but looked like they aged 10 years in those 12 months. Please be cognizant of the fact that purchasing a apartment complex, especially a small class c or d complex in a less economically strong area is not anything like investing in stocks, mutual funds or syndicated real estate deals. It’s at a much higher level of intensity, commitment, and risk.
- Member since 2020 · 69 posts · 21 votes3y
I’m in agreement with the others, you need to learn this business before you jump into it. It’s too sophisticated for any novice.
Also $1 million isn’t enough money for the type properties, it sounds like , you are seeking. And the Crenshaw area is the “ new” most gentrified area in Los Angeles proper. Look at Adams area from LaCienega to Arlington that’s all gentrified with hotels etc. So, there’s going to be some growth for years to come. But you need the knowledge to understand what parts and what properties, that area, are best to purchase. There’s a reason most of what you are seeing is still in tough parts of those areas.
Good luck!
- 3yJacob SloopBusiness MemberRental Property Investor · Virginia Beach, VA · Member since 2020 · 274 posts · 111 votes
@Frederick William
It very unusual for people to buy apartments all cash and 1 million sounds low especially for LA.
Like others said, find a solid syndicator and invest in their deal as an LP
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Low end neighborhoods are usually best in cash flow, it's the risk you take. What's more important to you? Quality of the asset or the income it produces?
Seems like you want to park your money and collect rent. Nothing wrong with that. Would recommend A-B stuff. Low end rentals are very hands on and no for the faint of heart.
Just find a newer built place with the rents you are comfortable with and buy it. A class investing is very easy with way less risk. Your returns will be lower, but with no mortgage you’ll be happy will the mailbox money and should easily beat the bank. In Indianapolis that would buy you 8-9k a month in gross rents in A/B class stock. Not sure what that buys in CA.
Good luck.
- 3yTravis BeckBusiness MemberFresno, CA · Member since 2016 · 54 posts · 16 votes
Have you looked into other markets in CA that cash flow better than LA? Since your hiring property manager to take care of it, you may be better off finding something in a different area.
- Lender · Tampa, FL · Member since 2020 · 113 posts · 119 votes3y
@Frederick William if you like the idea of multi-family as an avenue to help you reach your financial goals, but don't have the necessary experience to underwrite, acquire, and operate an apartment complex I would leverage what you already have.It sounds to me like your best bet would be to find someone who's already buying apartment complexes and find ways to help them in exchange for getting experience and connections that can help you do your own deals in the future.
The most straightforward way to accomplish this is to partner up with a deal sponsor as a limited partner. Typically this is a minimum of a $50k investment, projected returns in the mid-to-high teens, and a 3-7 year hold period.
I'll shoot you a message and we can talk more about it if you'd like
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes3y
If you’re just looking for a good, relatively safe return on your cash I would suggest first trust deeds. I’m currently getting 8.75% with a company I’ve used for ten years.
- Lender · Northwest Indiana · Member since 2021 · 55 posts · 26 votes3y
Quote from @Frederick William:
I am looking to purchase an apartment complex in Los Angeles. Target price being around 1 million. Most properties I’ve seen are in bad neighborhoods. Mostly east Los Angeles or Crenshaw area. Wondering if this is a safe place to park an all cash investment. Can’t help but think of detroit and all of the real estate investors that lost big there. Any advice is welcomed.I am not an expert on LA or Crenshaw but I would say if you are looking for a safe investment I would urge you to leverage whatever property you do decide to buy. If you park $1M in 1 asset it could go south. All your eggs are in one basket. Consider spreading that $1M over multiple properties. Diversifying across multiple properties in different markets will mitigate your risk.
@Frederick William I disagree with the folks saying you can't invest in an apartment building bc you have no experience. We all had no experience at one point. Just make sure you educate yourself before pulling the trigger. Your education should cover REI in general and your particular submarket specifically.
The fact that you are asking about these neighborhoods suggests that you have a good deal of research to do RE submarket. It appears you know this and that is the reason for your post. But I'm not sure this forum is the best place for that specific info. Sure, maybe a handful of LA residents will pipe in w some info, but that it a small sample size and chances are they're not truly familiar with the neighborhoods you mentioned, just have an outsider's bias towards them.
Go drive around. (I'd say walk but this is LA we're talking about.) Get a sense of neighborhoods and sub-neighborhoods. Look at job and demographic data. If you can get a sense of median rent history, that info will also be useful so you can see past rent growth.
Having said all of the above, I would recommend starting w small multifamily before graduating to larger buildings, even if you have the capital for larger buildings now. You will make mistakes as you learn, and having so much capital invested will likely lead to sleepless nights.
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