what strategy for $300K cash?
Investor · Park City, UT · Member since 2016 · 46 posts · 15 votes
I've decided I'm going to liquidate my holdings (SFH's) in an appreciating market. I should come away with $300K. Would love to get seasoned investors advice on what they would do with the cash. i.e. SFH's package? MF property? Major metro area or tertiary market? It would likely be an out of state investment as my local SLC market is way too inflated for my cash flow goals. My goal ultimately is to work toward 10K/month net passive income. I realize I will get several diff't answers which is exactly what I'm looking for- to see all sides of the cube. thanks in advance.
@Kate Weinberg depending on whether you want your cash flow to be active or passive you could become a passive investor in a MF syndication and probably fetch between 8-10% cash on cash annually. However, you typically have to be an accredited investor to participate. Message me if you have any questions! BTW, I used to live in Provo and miss Utah!
Hi Katie,
I have lived in Utah for 15 years but have bounced around a lot of other places since landing in Austin. My family is still in Utah so I go back often. I actually worked in PC for 6 years and miss the beautiful drive up the canyon.
If you are looking for cash flow I would suggest looking in the Midwest. Indianapolis and Kansas City are two of my favorites. For most people it seems that Multi Family is the goal when they have the money to do so however if you are finding good deals the single family investments can bring in similar returns as well.
It also really depends on your goals. I had a chunk of money so I went out and bought my SFH's now I am playing the waiting game to build cash to buy again. I don't want to be in this situation again so I am going to flip on the side to keep money flowing (this is in addition to my W2 job). Others will wholesale or have some other way of bringing in some extra cash.
If you ever want to chat send me a message and good luck!
@Kevin Kite yes I love living here. I agree with the midwest. My other areas of interest are TX, FL, and pockets of the Southeast. I too have a flip business on the side.
After doing some research and reading some more on BP regarding syndication, I'm coming away with the notion (perhaps incorrectly) that syndication may be a shorter term play than my long term goals? I have a flip business where I make the majority of $$. However I don't believe this will be the case forever. I feel I'm just making hay while the sun shines in this market and it won't last- at least not at the insane returns I'm getting. As such, flipping is my Short term investing strategy. I feel I'm lacking a long term game plan. A plan where I can put my $$, make steady cash flow into retirement (25+ years away) and once in retirement, have cash flow AND a high $$ asset that is owned free and clear that we could sell if need be or pass on.
I suppose you could make the argument that syndication could be a LT play if you kept reinvesting the money in syndications and/or you find a syndication that is buy and hold? I haven't run across many of those plays in the short research I did- perhaps they are out there.
But, on face, it seems to me syndication may be a ST play, and thus would be redundant to my flipping biz, and falls short of my LT goals of income producing with a backend bonus when owned free and clear? Thoughts?
@Kate Weinberg There is some simple math to do. $300k would get you 12 houses with a cash flow of $500 per house and a cash down in your pocket of $10k to $25k per house with the least risk using Subject To and Tenant Buyers.
@Kate Weinberg good call on selling SFR in this market in order to move up the food chain. Question: what's your current income source for putting more money into real estate? If you want 10k/month PASSIVE (NOT actively running a real estate biz) then you'll need to grow about another 700k in equity (1,000,000 of equity x 12%ROI = 120k annual).
Happy to discuss further any time. Congrats on coming this far! :)
Happy Hunting!
@Kate Weinberg I wouldn't let SFH vs multi hang you up. I would run the numbers and follow the best Cash on Cash return. You have a huge advantage knowing the flipping business. You can buy low, rehab then rent it out for a huge CoC return, of course it will need to be in the right market. In the hot markets in Utah you can't rent out a place for what a mortgage costs. In the Midwest you can find the deal Ken mentioned, it wont appreciate as much but who cares if the plan is to buy and hold right?
Hi Kate,
I like your thoughts on looking at MF and how you can participate in that. Not sure if you want to be active or would be interested in passive opportunities via syndications. The latter you partner with experienced operators helping them fund value add acquisitions. They are the manager, find the deal, develop a plan to create more value. You participate in the distributions during the hold period and profits from eventual sale. You can learn a lot starting out as a passive investor and down the road if passion to be more active is there, so be it, you will have learned a ton about how its done.
Here's a couple blogs to get you thinking in this direction as a potential avenue for some of your funds. In a strong market, I think the value of experienced syndicators who know their niche very well cannot be overestimated. In a new rising market you can make more mistakes but as we get to stronger markets, attracting a lot of competition, nimble experienced operators w/the relationships and knowledge can make a big difference in seeing success in this space.
@Kate Weinberg and @Aaron Smith There are still great deals here in Utah they will most likely be "off market". Kate I have experience with owning several mulit-units but they are here in Utah. Offer a 7%+ cap rate and cash flow $400+ per a unit. It doesn't hurt to look out of state but I wouldn't count Utah out just yet; especially with one of the lowest states in vacancy rates, low unemployment and one of the top states in job growth it's still a very good place to invest. I agree with @Joe Splitrock, definitely look into doing a 1031 exchange.
@Kate Weinberg you can always find deals locally to buy. Your market is tight, but there are still value add deals to be found. Also on the syndication route, we are running them as long term investments and I suspect a good portion of syndicators are doing the same.
I think it is a great idea to cash out now while the market is high. All of my own cash is sitting on the sidelines in safe, financial alternatives. I'm waiting for the market to become sane again before I take on "equity" risk. Private lending may sound risky on the surface, but it's actually a very safe, secure position. The investor borrowing the money is taking on the risk. I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
When you sell, you should consider using a Monetized Installment Sale. This is an alternative to a 1031 exchange that will defer your taxes for 30 years, but you'll walk away from the closing with cash. Happy to explain further. PM me if you'd like more details.
I am curious, as I will have a chunk of cash coming to me soon, what sort of return are you getting on the safe financial alternative please?
@Michael Plante safe returns are going to max out around 3%.
@Kate Weinberg (and others who expressed interest in this topic).
This is almost identical to a situation I found myself in a couple years ago and we periodically hear from others struggling to find a good home for their capital.
BTW, average returns for Large Multi-family is 8-12% Cash on Cash or 15-20% IRR for a 3-5yr hold.
I am in the midst of writing a blog post about the various options I considered (stocks, private lending, SFH portfolio, Multi Family Portfolio, private equity, REITs, etc) and my logic behind selecting what i did.
If it would be helpful, I can share a draft of the upcoming post with you soon.
@Percy N. that is fantastic. Would love to see a draft of your upcoming post. Exactly what Im looking for.
All -
Thank you for all your insights and advice. I've really had to do some thinking and that's great. Here's the conundrum...I have 5 properties in NV to liquidate. I can't sell all at once (and don't think i want to) because of the lease terms. So, do i do a 1031 on each sale when the leases come up? If so, I would only have about 80K each house to put toward new 1031 properties. That does't go very far if my goal is to buy a bigger MF. Im certain I have misunderstood something....
And I also, am not 100% comfortable on the syndication route- just yet.
I think it is a great idea to cash out now while the market is high. All of my own cash is sitting on the sidelines in safe, financial alternatives. I'm waiting for the market to become sane again before I take on "equity" risk. Private lending may sound risky on the surface, but it's actually a very safe, secure position. The investor borrowing the money is taking on the risk. I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
When you sell, you should consider using a Monetized Installment Sale. This is an alternative to a 1031 exchange that will defer your taxes for 30 years, but you'll walk away from the closing with cash. Happy to explain further. PM me if you'd like more details.
I am curious, as I will have a chunk of cash coming to me soon, what sort of return are you getting on the safe financial alternative please?
I'm getting between 10 and 15% on my own personal loans. As far as pre-vetted, "canned" opportunities, the range is 7-15%. Understand that everyone's idea of "safe" is going to be different. There is "CD" safe and "annuity" safe. These opportunities eliminate the "equity" risk of investing in real estate and replace it with "debt" risk. Again, I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
@Michael Plante safe returns are going to max out around 3%.
When is the last time you got private money at 3%? or hard money, for that matter?
@Thomas Rutkowski I have never heard of private or hard money at 3%, not sure anyone on this thread mentioned anything like that either, I certainly did not. If you are mentioning it because you are willing to lend at 3% I would certainly lend from you.
I think it is a great idea to cash out now while the market is high. All of my own cash is sitting on the sidelines in safe, financial alternatives. I'm waiting for the market to become sane again before I take on "equity" risk. Private lending may sound risky on the surface, but it's actually a very safe, secure position. The investor borrowing the money is taking on the risk. I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
When you sell, you should consider using a Monetized Installment Sale. This is an alternative to a 1031 exchange that will defer your taxes for 30 years, but you'll walk away from the closing with cash. Happy to explain further. PM me if you'd like more details.
I am curious, as I will have a chunk of cash coming to me soon, what sort of return are you getting on the safe financial alternative please?
I'm getting between 10 and 15% on my own personal loans. As far as pre-vetted, "canned" opportunities, the range is 7-15%. Understand that everyone's idea of "safe" is going to be different. There is "CD" safe and "annuity" safe. These opportunities eliminate the "equity" risk of investing in real estate and replace it with "debt" risk. Again, I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
Thank you for the info
Would this be similar to what I am doing?
I buy a property in bad shape for cash. fix it up
Sell it holding the mortgage with 20% down at 7% with balloon in 5 years
In my limited experience I am getting 20% above ARV market just because I'm willing to hold the mortgage and don't run a credit check
The 20% down more than pays for the time and expense to foreclose if it should come to that.
I don't know why anyone would lend at 3%? Never have seen any money at anywhere near that rate. Maybe 3 points plus interest but not 3% interest.
I think it is a great idea to cash out now while the market is high. All of my own cash is sitting on the sidelines in safe, financial alternatives. I'm waiting for the market to become sane again before I take on "equity" risk. Private lending may sound risky on the surface, but it's actually a very safe, secure position. The investor borrowing the money is taking on the risk. I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
When you sell, you should consider using a Monetized Installment Sale. This is an alternative to a 1031 exchange that will defer your taxes for 30 years, but you'll walk away from the closing with cash. Happy to explain further. PM me if you'd like more details.
I am curious, as I will have a chunk of cash coming to me soon, what sort of return are you getting on the safe financial alternative please?
I'm getting between 10 and 15% on my own personal loans. As far as pre-vetted, "canned" opportunities, the range is 7-15%. Understand that everyone's idea of "safe" is going to be different. There is "CD" safe and "annuity" safe. These opportunities eliminate the "equity" risk of investing in real estate and replace it with "debt" risk. Again, I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
Thank you for the info
Would this be similar to what I am doing?
I buy a property in bad shape for cash. fix it up
Sell it holding the mortgage with 20% down at 7% with balloon in 5 years
In my limited experience I am getting 20% above ARV market just because I'm willing to hold the mortgage and don't run a credit check
The 20% down more than pays for the time and expense to foreclose if it should come to that.
Exactly. That's how I got started. Only I would never risk my money at 7%. I did a 5 year balloon with 9.9%. That deal just refi'd out a couple of months ago. Since then I've come across some other canned solutions where I don't have to do the underwriting.
I think it is a great idea to cash out now while the market is high. All of my own cash is sitting on the sidelines in safe, financial alternatives. I'm waiting for the market to become sane again before I take on "equity" risk. Private lending may sound risky on the surface, but it's actually a very safe, secure position. The investor borrowing the money is taking on the risk. I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
When you sell, you should consider using a Monetized Installment Sale. This is an alternative to a 1031 exchange that will defer your taxes for 30 years, but you'll walk away from the closing with cash. Happy to explain further. PM me if you'd like more details.
I am curious, as I will have a chunk of cash coming to me soon, what sort of return are you getting on the safe financial alternative please?
I'm getting between 10 and 15% on my own personal loans. As far as pre-vetted, "canned" opportunities, the range is 7-15%. Understand that everyone's idea of "safe" is going to be different. There is "CD" safe and "annuity" safe. These opportunities eliminate the "equity" risk of investing in real estate and replace it with "debt" risk. Again, I'm either going to make a very nice, risk-adjusted return or I'm going to inherit the collateral securing the note.
Thank you for the info
Would this be similar to what I am doing?
I buy a property in bad shape for cash. fix it up
Sell it holding the mortgage with 20% down at 7% with balloon in 5 years
In my limited experience I am getting 20% above ARV market just because I'm willing to hold the mortgage and don't run a credit check
The 20% down more than pays for the time and expense to foreclose if it should come to that.
Exactly. That's how I got started. Only I would never risk my money at 7%. I did a 5 year balloon with 9.9%. That deal just refi'd out a couple of months ago. Since then I've come across some other canned solutions where I don't have to do the underwriting.
Great to hear I am on the right track
For the 9.9% was that a loan for a house you were selling or a separate house?
Your post has given me the courage to go higher on the interest :)
Any chance if you know, I have 7 properties to sell. Am I handcuffed by the law that says I can't fonance more than 3 per year?
Great question @Kate Weinberg, I have seen this scenario many times while working with my clients. If you want to be very hands on, buying a multifamily by yourself may be your best option, just know that multifamily and single family are two different business models. Very few things about them are the same. So educate yourself before jumping in. Also, most lenders will penalize you slightly on the leverage since you are a higher risk borrower having no experience. Also your debt would be full recourse, meaning if you default, you are responsible for the entire amount of the loan, not just your investment.
Your other option is to invest with a professional multifamily investor who syndicates deals. You would be 1 of several investors who are pooling your funds to buy a much larger, less risky property with a non-recourse loan. A non recourse loan limits the investor's loss to only their investment. Exceptions apply.
In regards to your 10k/mo goal, or 40%/year average, that is only doable with value add multifamily properties. We have done it several times before where the investors averaged a 60-75% return per year only because they received a huge refi cash out in year 2-3 for 150 to 200%. After the refi, the stabilized properties operate at about 8-10% return. Just keep in mind that these deals are very risky and involve large rehabs based on market data with no guarantee of success. You want a very experienced syndicator who specializes in the market you are investing. I see lots of out of state investors over paying for value add properties only to end up missing their proforma targets because the believed the exaggerated market figures the broker provided them since they had no market experience.
In regards to your question about syndicators, I am a full time syndicator but I can put you in touch with any of my investors who are participating in our current deals if you have questions about what its like to be a Limited Partner. For what its worth, it is a very hands off option and the investors are not involved in the day to day. We may have a vote every 2 or 3 years to refi or perform a large update to the property, but otherwise the syndicator manages all of the day to day and provides monthly and weekly reports along with conference calls.
I believe @Joe Splitrock recommended a 1031 exchange but don't think that will work since those only apply to a single asset. And it has to be an exchange from a single asset to an equal sized or larger asset. Since you have multiple assets you are selling at once, i do not think this option is available to you. But please check anyway.
@Mike Dymski Her expected returns during a downturn depend more on where she invest (tertiary market vs MSA) and the type of investment (value vs yield). its almost an impossible question to answer since there are so many variables.
I may be misunderstanding what @Abel Sng but we syndications average around 200-300% over a 5 year period, although we specialize in value add which is riskier but pays better.
Great question @Kate Weinberg, I have seen this scenario many times while working with my clients. If you want to be very hands on, buying a multifamily by yourself may be your best option, just know that multifamily and single family are two different business models. Very few things about them are the same. So educate yourself before jumping in. Also, most lenders will penalize you slightly on the leverage since you are a higher risk borrower having no experience. Also your debt would be full recourse, meaning if you default, you are responsible for the entire amount of the loan, not just your investment.
Your other option is to invest with a professional multifamily investor who syndicates deals. You would be 1 of several investors who are pooling your funds to buy a much larger, less risky property with a non-recourse loan. A non recourse loan limits the investor's loss to only their investment. Exceptions apply.
In regards to your 10k/mo goal, or 40%/year average, that is only doable with value add multifamily properties. We have done it several times before where the investors averaged a 60-75% return per year only because they received a huge refi cash out in year 2-3 for 150 to 200%. After the refi, the stabilized properties operate at about 8-10% return. Just keep in mind that these deals are very risky and involve large rehabs based on market data with no guarantee of success. You want a very experienced syndicator who specializes in the market you are investing. I see lots of out of state investors over paying for value add properties only to end up missing their proforma targets because the believed the exaggerated market figures the broker provided them since they had no market experience.
In regards to your question about syndicators, I am a full time syndicator but I can put you in touch with any of my investors who are participating in our current deals if you have questions about what its like to be a Limited Partner. For what its worth, it is a very hands off option and the investors are not involved in the day to day. We may have a vote every 2 or 3 years to refi or perform a large update to the property, but otherwise the syndicator manages all of the day to day and provides monthly and weekly reports along with conference calls.
I believe @Joe Splitrock recommended a 1031 exchange but don't think that will work since those only apply to a single asset. And it has to be an exchange from a single asset to an equal sized or larger asset. Since you have multiple assets you are selling at once, i do not think this option is available to you. But please check anyway.
@Mike Dymski Her expected returns during a downturn depend more on where she invest (tertiary market vs MSA) and the type of investment (value vs yield). its almost an impossible question to answer since there are so many variables.
I may be misunderstanding what @Abel Sng but we syndications average around 200-300% over a 5 year period, although we specialize in value add which is riskier but pays better.
You can exchange multiple lower value properties into one larger value property. You still need to follow all the normal exchange rules and timelines. Talk to your local 1031 intermediary to understand the logistics.
As far as your average return of 200-500% over a 5 year period for syndication. Do you have long term data to back that up? Someone who bought into a syndication 5 years ago, did so in 2012 when prices were rock bottom.
When I read the topic, I looked up and I could have sworn I saw vultures circling. Sure enough, I clicked and bam there they are trying to get a piece of that sweet $300k. Everytime someone post I have $xxx to invest, the same folks come out of the woodwork with "advice" that involves your money getting in their pocket. BE CAREFUL! Find your own deal/investment, don't let them find you.