Why are we doing this again (investing in single MF properties)?

Multi-Family and Apartment Investing
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Why are we doing this again (investing in single MF properties)?

Marc C.
Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes

Here I sit, working a Master Lease Option on a 60-unit. It's a decent deal: $50,000 to hold it for 3 years. It's mismanaged and has upside. Needs a minimum of $300,000 to get it from a C to a B. In other words, I will plunk down $350,000, and I'll be able to turn it into a respectable property that I can own for years. I hope to earn a 10% CoC and plenty of equity upside. It's a good deal, but it involves plenty of risk and a lot of hard work.

Or I can take that money and put $50,000 into multiple deals through crowdfunding sites. I am already in the Fundrise income eREIT, which is paying 11%. I've put $50K each into two different mobile home park funds that will pay at least that and have equity upside. There are numerous multifamily deals listed on sites like RealtyMogul, RealtyShares, and Crowdstreet. RealtyMogul has its MogulREIT. Fundrise has 3 other REITS that combine equity and cash flow. Non-accredited investors can invest in the REIT products. Soon, there will be numerous sites using Title III crowdfunding which will allow non-accredited investors to invest a little in multiple deals; SmallChange.com is the first; there will be many more, including some state-based sites).

So, with crowdfunding, we can spread the risk around multiple properties and opportunities throughout the country. We can invest a little in commercial, multifamily, industrial, you name it. Each sponsor has far more experience than I do. Yes, the IRR's offered by these sponsors are in the 15-18% range vs. 20-25% that I project for my project. One has to pay a little for others to do all the work and to get a lower risk. Should be roughly same tax incentives either way.

So why should I invest a huge portion of my life savings into one property and do all the work myself instead of just taking the money and crowdfunding it? I would be curious if others are wondering the same thing. Why are we doing this? 

Let me ask it another way: If you were an accredited investor looking to place money in real estate, why would you buy individual properties and do all the work yourself if you could place the money easily in multiple deals in multiple locations?

Thoughts?

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Dean Letfus
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
9y

In the GFC, in New Zealand where I am from, virtually every non bank lender went under, failed completely. Many of them were funded by private individuals, many of whom put their life savings into supposedly bullet proof investments. Thousands of people lost their life savings.   Many many more went from being quietly well off to not knowing how they could ever retire.  In America it was in some ways even worse with so many losing their homes etc.

Both events were caused by other people having control over either your money or your assets.  And a similar situation can AND WILL happen again!

So this is just one good reason to own your own assets and keep control of your assets, wealth and cashflow.

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  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Charles Worth:

    @Jon Q.

    Good point. There is underlying leverage, leverage most small investors can't get and def not without a PG but what I assume you are referring to is more the stub piece (typically 20% - 30%) which is what the CF investors many times are contributing for the sponsor (i.e. equity or in your message HNW). 

    However, and just my opinion from this side of the fence (i.e. investing in syndications) many of those not full time and/or without the proper track record shouldn't be asking others for that piece unless the deal is amazing and/or they partnered with someone else to take on much of the responsibilities, at  least in this market we are in now.  I know everyone was there at one time I do get that and I get that there are exceptions (i.e. really great deals) but I think its really tough for someone without a lot of experience to know what that exception is. As someone with a full time job (more than full time) and capital in the bank taking those types of risks with equity type money for my own personal stuff is a big leap. 

     I'm not talking about those people Charles. Of course only those investors with a good track record will be able to raise equity capital.  My investors capital is as important to me or more important than my own capital because how I manage it has a direct impact on my reputation...the most valuable thing I possess as as a real estate investor.

    Managing and growing my and investors' capital is my full time job.

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  • Charles Worth
    Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
    9y

    @Jon Q. understood and I was not referring to you at all as well as a number of other people on here but I know a bunch of people without that who expect to get the same type of leverage on C assets at best and in some cases even better terms than experienced people get (I get e-mails from people all day with little experience wanting to raise highly levered private money at like 6% - 7%).  I don't think most are bad people I just think they don't view it from this side of the fence and/or assume they are supposed to use OPM all day long even when the venture is risky and the OPM probably isn't really looking at the risk as they should. 

    Again you certainly don't fall into that category I know you are cautious and this is a business for you but out of the people on this forum maybe 20% fall into that category? Nothing wrong with that, I am certainly not on your level but I also know that. 

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  • Jacob Pereira
    Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
    9y

    @Jon Q. hit the nail on the head. Sure, in @Marc C.'s scenario you only make 20% returns on the total amount, but if you factor in that you're only putting in 25% of the cash, you're really making 80% annual returns (simplified math; I know the reality depends on the year, interest, closing costs, etc.). Either way, that's quite a bit better than 11% CoC. Heck, even just fully passive investments in S&P index funds will make you 7-8% over time (not including dividends), and you don't have to read the fine print, nor are you exposed to potential amateur businesspeople.

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  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Charles Worth:

    @Jon Q.

    Good point. There is underlying leverage, leverage most small investors can't get and def not without a PG but what I assume you are referring to is more the stub piece (typically 20% - 30%) which is what the CF investors many times are contributing for the sponsor (i.e. equity or in your message HNW). 

    However, and just my opinion from this side of the fence (i.e. investing in syndications) many of those not full time and/or without the proper track record shouldn't be asking others for that piece unless the deal is amazing and/or they partnered with someone else to take on much of the responsibilities, at  least in this market we are in now.  I know everyone was there at one time I do get that and I get that there are exceptions (i.e. really great deals) but I think its really tough for someone without a lot of experience to know what that exception is. As someone with a full time job (more than full time) and capital in the bank taking those types of risks with equity type money for my own personal stuff is a big leap. 

    Deal doesn't have to necessarily be "amazing", it just has to be attractive enough that you can sell it and your ability to execute your investment strategy and generate your target return while minimizing risk... so again, having a track record is important.  And frankly, who cares what everyone else is doing.  Do what you think is right and achieve your personal investment goals.  Investors will be investing in you and your ability equally as much as in the specific property.  So trust is key.  That's why developing investor relationships takes time.

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