Want to build Real Estate Portfolio; Where to Start
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Gash Nag Sounds like you have a lot to learn. That's ok - everyone starts somewhere - but don't fall in love with any strategy details too soon.
Some napkin sketch numbers for you:
You said you'd prefer apartments in So Cal and you want $25k net per month. I assume you mean $25k free cash flow. Ok. I assume you plan to leverage, and figure about $250/door/m. That would be 100 doors. Assuming you're paying $150k per door, that's $15M in property value. Leveraged at a typical 30%, that means you've got capital committed around $3M.
*IF* you can execute on that, you'd be at about 10% cash on cash and 18% total return on capital in year 1 ($20500/m in principal reduction on a 5% 25am loan), ignoring appreciation.
Those are solid numbers, and there's nothing easy about building a portfolio like this. And every additional person likely complicates it 2x.
If I was in the shoes I think you're wearing, I think I'd be looking more at either 1 or 2 bigger properties, commercial buildings, or just loaning money. When you get to large residential (20+ unit bldgs), you're swimming with sharks and more likely to be the chum.
10 Replies
- 10yGino BarbaroPro MemberRental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
You can get real estate agents by going on to loop net or your mls and look for brokers that list these types of assets. Begin to call them and develop a relationship. Tell them what types of properties you are targeting.
Your other team members, such as your attorney or accountant, can give you referrals for a broker. You can also visit your local chamber of commerce and check out what brokers belong.
I think you should begin by identifying what friends you will be partnering with, and then draw up a detailed business plan describing partner duties and goals.
I think if your goal is to net 25k per month, you are going to have to have a higher goal than 50 units. Begin to analyze your market for returns and you will get a better idea
Good Luck
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes10y
Originally posted by @Gash Nag:
Couple of my friends and I are looking to start investing in multi-family apartments. All of us are with regular day time jobs and have less time to manage.
Scenario I envision is: Pool up some money and buy few properties and Identify property managers to manage them. My friends and I will be retiring in next 15 years and so our plan is to own atleast 50 units by then so that we can make approximately 25K per month.How do I start? I am trying to find out how do we even start? First identify a team of good RE agent; We need RE agent that can help get deals; But question is: Which markets? We are open to have in SO California preferably, but willing anywhere ; So how do I get RE agents in different markets?
Then, Some of them in team want to get lawyers opinions on any liability issues that may come up from renters. We will also need a financial company to provide us loan.
I am sure similar questions may have been asked umpteen times but could locate the thread. Please point me to any resources.Hello and welcome! It depends on what you are how fixed you are and how money do you have. You might want to think about being a wholesaler at first than get into flipping and buy & hold. You' re better to start outside of San Diego so you can find something more affordable. The main thing is to take action and have a Feeling of the how much you need. I am 59 years old and I am looking for something to do part time. I am from and raised in Dallas Texas. I found BP about 3 months ago and I am still learning. I graduated from college and got a broker license in 1980. I have been in the construction business since I was 17. If you think I can be of help to you please contact me at any time. Good luck!
- Investor · Rochester, WA · Member since 2013 · 221 posts · 30 votes10y
I would start attending any local REI clubs and network there, you can find references to agents, property managers, lenders etc. Find an investor friendly RE agent. Structuring your partnership, I would meet with a lawyer on this. Once you guys nail down a solid plan, I would start calling lenders and see what kind of financing you can arrange. Build your criteria, do you want to start with small multi family units? Or larger complexes?
Apart from the numbers, you also want to evaluate neighborhoods. Be sure you're comfortable working in the area you choose with the type of clientele living there. You can always change the property, but not the neighborhood. Best of luck!
- San Antonio, TX · Member since 2015 · 23 posts · 9 votes10y
Hey Gash -
One option would be to start with some smaller investments in real estate equity crowdfunding projects. From there you could make contact with people doing this, follow the lifespan of documents, things like that. It can be great hands-off experience.
- Investor · Flower Mound, TX · Member since 2015 · 179 posts · 48 votes10y
Fair warning here.. educate and do you due diligence, Invest wisely.
Develop a relationship with apartment investors to partner with. They will get paid for helping put it together and you will get the benefit of working with a pro. You mentioned time isn't plentiful but you will need to invest the time to ensure the venture's success.
This wasn't in your OP but there is another option. You could potentially be a private money lender. There are much worst things than getting 8% to 12% and even higher while being secured by real estate.
- Gash Nag Sounds like you have a lot to learn. That's ok - everyone starts somewhere - but don't fall in love with any strategy details too soon. Some napkin sketch numbers for you: You said you'd prefer apartments in So Cal and you want $25k net per month. I assume you mean $25k free cash flow. Ok. I assume you plan to leverage, and figure about $250/door/m. That would be 100 doors. Assuming you're paying $150k per door, that's $15M in property value. Leveraged at a typical 30%, that means you've got capital committed around $3M. *IF* you can execute on that, you'd be at about 10% cash on cash and 18% total return on capital in year 1 ($20500/m in principal reduction on a 5% 25am loan), ignoring appreciation. Those are solid numbers, and there's nothing easy about building a portfolio like this. And every additional person likely complicates it 2x. If I was in the shoes I think you're wearing, I think I'd be looking more at either 1 or 2 bigger properties, commercial buildings, or just loaning money. When you get to large residential (20+ unit bldgs), you're swimming with sharks and more likely to be the chum.
- 10yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Gash, are you and your friends accredited investors? If so, there is another option that may suit you better, since you said you all have day jobs (and presumably don't have lots of time to spend on this), and also don't sound like you have much experience.
Purchasing the properties directly gives you more direct control, but also requires a lot of time in picking out the properties. It also requires expertise, and judgment in picking up the manager as well. Additionally, since you are new, it exposes you to a lot more individual property risk. If you end up picking poorly, you can end up losing a substantial part of your money or even all of it.
If you are accredited, then another option is to go with real estate crowdfunding. Rather than putting $500,000 each into a single property, you might split that into $50,000 investments in 10 properties. That way, you are much more diversified and protected against a single failure. Additionally, you won't have to interview a whole bunch of managers, because the manager comes with each one of these investments. You just will have to make sure you like the one that is included.
And the other advantage is that you are not limited to your local area. Chances are it's not the absolute best area to maximize your return the country, and there are probably other locations that could give you a better return.
The disadvantages that you would be giving up direct control. However, if you don't have much time to spend on this, that might actually be an advantage.
The Real Estate Crowdfunding Review - Investor · Dallas, TX · Member since 2014 · 112 posts · 83 votes10y
Welcome to bigger pockets in the multifamily world. I'm an investor who has a single-family, one 8 unit and then I am passively involved into syndications for multi family properties. It took some time to learn about multifamily properties and find this syndicator that I trusted.
I was suggest that since you have jobs it is best to invest in someone else's deal. Every investor that I talk to taking over a multifamily property run the numbers and then close the property.
After the property is closed there is generally a 2 to 3 month window where the purchase sure is pretty involved with managing the manager and getting the property run how they would like.
I am not an accredited investor { million dollars net worth, or I believe $250,000 for a single to $350,000 married couple income for two years}. I paid for some education to become sophisticated and to be able to invest in multifamily deals I am aware of two companies that I've worked with in Texas contact me if you want to talk more.
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