New Member/Investor Introduction

[Mike Holman]

Hello, wanted to quickly introduce myself. 

I'm Mike, married with two young kids living west of Minneapolis and I turn 40 this year. My wife and I both work and have contributed enough to our retirement funds that we'd be considered accredited investors. We plan to continue our current contribution rates and not direct our retirement funds towards RE, but I would like to use some of my leftover funds to generate passive income with the ultimate goal of matching my W2 income in the next 10-15 years. In order to start that journey, I've set the goal of 2023 being the year that I purchase my first investment property. I have $75k saved up currently and plan to have an additional $75k available throughout the year. 

Given my current life-stage (and frankly energy level) I'm looking at something on the lower-end of the involvement spectrum. I realize nothing comes free, but I'm also not looking for a second job. As a result, I think I should focus on either Syndications or Turnkey properties, although I haven't completely ruled out BRRRR, with the understanding this would be more time-consuming than the other two. I've spoken with one OOS Turnkey provider and one Syndication sponsor, and need to research out to more.

For my situation, I see the pros/cons of each as:

Syndication - PROS: Least amount of work. More product options. CONS: Least amount of control. Good returns, but limited ceiling (not sure I could reach my goal on this alone). Illiquid.

Turnkey - PROS: Mostly passive. Good returns, higher ceiling than Syndication. Ownership of tangible asset. More liquid than Syndication. Ability to finance. CONS: More work than Syndication. Significant profit paid to Turnkey company. All the risks that come with homeownership/landlording. 

BRRRR - PROS: Highest potential returns with other pros similar to Turnkey. Most amount of control. CONS: Most amount of work, especially on the upfront (instead of finding one good Sponsor or one good Turnkey company I'd need to find one good realtor, one good GC, one good lender, one good property manager...). All the risks that come with homeownership/landlording.

Here are a couple of the threads I've read discussing turnkey v syndication (the top one has an even better pros/cons list):

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/... 

Normally, I would just go with Syndication as the "safer" and least time consuming option, but since my wife and I are ahead of schedule on our retirement savings with no plans to adjust our contribution rates, I'm inclined to consider a "riskier" option that offers higher potential returns. 

One thing I have noticed as I've perused the forums, I don't see nearly as many recommendations for Syndications as I do for Turnkey companies. Am I just looking in the wrong places?

Thanks,

Mike

[Travis Biziorek]

Hey Mike, we're similar age/life profiles. I just turned 40 in September.

I was living in Detroit Metro from 2017 until this past August. Over 2.5 years while there I went nuts and built a 12-door rental portfolio and an incredible network on the ground there along the way. I've done the turnkey stuff and the full gut renos that ended up being solid BRRRRs. There are pros and cons to each and you touched on a few.

My close buddy actually runs a turnkey operation in Detroit and I'm happy to make an intro there if it makes sense. But I'm also glad to just chat Detroit or general options as someone that's gone through what you're describing.

I've never been one for syndication... not yet at least. I'm just not to the point in life where I feel like I want to be that passive with it.

[Paul Erickson]

@Mike Holman, Welcome to BP, I feel that your questions on Syndications can likely be answered in the typical demographic BP seems to pull in.  Many of the BP subscribers are not quite at your level of financial security.  That being said, the resources are definitely out there.  I like the idea of Syndications, however I offer one other suggestion, you may want to look at partnering with other investors to buy properties otherwise unattainable by yourself, but not at the level of the typical syndication.  Maybe getting 3 additional investors willing to put in 750k each, and turn around and use that $3M capital to buy a nice class B or better apartment complex? owning 25% stake in a nice apartment could be a happy compromise to syndication if you find the right property manager to run the building.

[Joseph Crunkilton]

Mike, 

turnkeys are where it's at. I've bought a few and they've performed well. I spent an entire year sourcing BRRRR deals and I couldn't make the numbers work better than my turnkey rentals. Funny how that works. It also sucked up so much time.

@Zach Lemaster is who helped me. You should connect with him if that's a route you're thinking of going down. 

[Mike Holman]

Quote from @Joseph Crunkilton:

Mike, 

turnkeys are where it's at. I've bought a few and they've performed well. I spent an entire year sourcing BRRRR deals and I couldn't make the numbers work better than my turnkey rentals. Funny how that works. It also sucked up so much time.

@Zach Lemaster is who helped me. You should connect with him if that's a route you're thinking of going down. 

Thanks Joseph. RTR was the one Turnkey I’ve spoken with!

[Mike Holman]

Quote from @Paul Erickson:

@Mike Holman, Welcome to BP, I feel that your questions on Syndications can likely be answered in the typical demographic BP seems to pull in.  Many of the BP subscribers are not quite at your level of financial security.  That being said, the resources are definitely out there.  I like the idea of Syndications, however I offer one other suggestion, you may want to look at partnering with other investors to buy properties otherwise unattainable by yourself, but not at the level of the typical syndication.  Maybe getting 3 additional investors willing to put in 750k each, and turn around and use that $3M capital to buy a nice class B or better apartment complex? owning 25% stake in a nice apartment could be a happy compromise to syndication if you find the right property manager to run the building.

 Hi Paul, I’m only looking to bring $75k to the table right now, not $750k. Or did you mean find 3 others w $75k and combine to bring forward $300k as a down payment? Id need to find (and vet) 3 other investors with $75k in that case.

Yes, I see what you’re saying about the BP demos.

[Mike Holman]

Quote from @Travis Biziorek:

Hey Mike, we're similar age/life profiles. I just turned 40 in September.

I was living in Detroit Metro from 2017 until this past August. Over 2.5 years while there I went nuts and built a 12-door rental portfolio and an incredible network on the ground there along the way. I've done the turnkey stuff and the full gut renos that ended up being solid BRRRRs. There are pros and cons to each and you touched on a few.

My close buddy actually runs a turnkey operation in Detroit and I'm happy to make an intro there if it makes sense. But I'm also glad to just chat Detroit or general options as someone that's gone through what you're describing.

I've never been one for syndication... not yet at least. I'm just not to the point in life where I feel like I want to be that passive with it.

 Thanks for the reply Travis. Happy to connect about Detroit. I can already see learning/researching markets being a pain point for an overanalyzer like myself.

[Paul Erickson]

Quote from @Mike Holman:

Quote from @Paul Erickson:

@Mike Holman, Welcome to BP, I feel that your questions on Syndications can likely be answered in the typical demographic BP seems to pull in.  Many of the BP subscribers are not quite at your level of financial security.  That being said, the resources are definitely out there.  I like the idea of Syndications, however I offer one other suggestion, you may want to look at partnering with other investors to buy properties otherwise unattainable by yourself, but not at the level of the typical syndication.  Maybe getting 3 additional investors willing to put in 750k each, and turn around and use that $3M capital to buy a nice class B or better apartment complex? owning 25% stake in a nice apartment could be a happy compromise to syndication if you find the right property manager to run the building.

 Hi Paul, I’m only looking to bring $75k to the table right now, not $750k. Or did you mean find 3 others w $75k and combine to bring forward $300k as a down payment? Id need to find (and vet) 3 other investors with $75k in that case.

Yes, I see what you’re saying about the BP demos.

 Oops, misread the figures, or my imagination ran wild or something... not sure. But yes partnering is a decent option to unlock an investment type that your capital currently doesn't get you to.  In your case 75K with a partner or 2 might bump you up to a unit with a few more doors, lower overhead, and higher returns. 

[Nathan Gesner]

Quote from @Mike Holman:

Turnkey still involves more of your time and energy.

If you listen to Brandon Turner, he was getting worn out by managing his rentals, even though he had property managers. He realized syndications were offering him the same returns without any of the work. Then he realized he could run his own syndications, and now he has thousands of rentals.

The reason people don't invest in syndications? They don't meet the financial requirements so it's not an option for them.

[James Wise]

Quote from @Mike Holman:

Hello, wanted to quickly introduce myself. 

I'm Mike, married with two young kids living west of Minneapolis and I turn 40 this year. My wife and I both work and have contributed enough to our retirement funds that we'd be considered accredited investors. We plan to continue our current contribution rates and not direct our retirement funds towards RE, but I would like to use some of my leftover funds to generate passive income with the ultimate goal of matching my W2 income in the next 10-15 years. In order to start that journey, I've set the goal of 2023 being the year that I purchase my first investment property. I have $75k saved up currently and plan to have an additional $75k available throughout the year. 

Given my current life-stage (and frankly energy level) I'm looking at something on the lower-end of the involvement spectrum. I realize nothing comes free, but I'm also not looking for a second job. As a result, I think I should focus on either Syndications or Turnkey properties, although I haven't completely ruled out BRRRR, with the understanding this would be more time-consuming than the other two. I've spoken with one OOS Turnkey provider and one Syndication sponsor, and need to research out to more.

For my situation, I see the pros/cons of each as:

Syndication - PROS: Least amount of work. More product options. CONS: Least amount of control. Good returns, but limited ceiling (not sure I could reach my goal on this alone). Illiquid.

Turnkey - PROS: Mostly passive. Good returns, higher ceiling than Syndication. Ownership of tangible asset. More liquid than Syndication. Ability to finance. CONS: More work than Syndication. Significant profit paid to Turnkey company. All the risks that come with homeownership/landlording. 

BRRRR - PROS: Highest potential returns with other pros similar to Turnkey. Most amount of control. CONS: Most amount of work, especially on the upfront (instead of finding one good Sponsor or one good Turnkey company I'd need to find one good realtor, one good GC, one good lender, one good property manager...). All the risks that come with homeownership/landlording.

Here are a couple of the threads I've read discussing turnkey v syndication (the top one has an even better pros/cons list):

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/... 

Normally, I would just go with Syndication as the "safer" and least time consuming option, but since my wife and I are ahead of schedule on our retirement savings with no plans to adjust our contribution rates, I'm inclined to consider a "riskier" option that offers higher potential returns. 

One thing I have noticed as I've perused the forums, I don't see nearly as many recommendations for Syndications as I do for Turnkey companies. Am I just looking in the wrong places?

Thanks,

Mike

 Welcome aboard playa.

[Amber Gonion]

@Mike Holman welcome, to BP. If you investing with a turn key company like ours your involvement is minimal. Doing brrr by yourself is time consuming with all the factors and the experience needed is tough for first timers.

[Drew Sygit]

@Mike Holman seems you have the basics, including that while the IRS considers owning rental properties "passive investing", the reality is it is NOT!

If you invest directly in rentals, you should spend 15-20 hours researching PMC's, then the same amount of time interviewing 3-5.

If you pick a GOOD one, you'll then only need less than 10 hours/month managing your manager:)

[Alli Breighner]

Hi Mike, welcome to the BP community! 

I'd love to connect and discuss more about your future investments. 

[Mike Holman]

Is there a dynamic calculator for Syndication returns out there? I'd like to check an exercise I just tried. I wanted to see how long it would take me to be passively generating my income ($150k for this exercise) using Syndication. I made the following assumptions:

1) $50K annual investment from W2 job. 2) 8% annual CoC return (cash flow distribution), less 20% tax rate. 3) 5 year hold for each investment with 50% return at the end of each investment, less 20% tax rate.

In this exercise, ALL proceeds (distributions, profits upon sale) were reinvested in addition to the annual $50k annual investment. I'm showing it would take 18 years to replace my current income. I feel like something has to be wrong in my calculations. 

[Andrew Geier]

I'm pretty sure you can invest with Josh Dorkin or any of these BP guys. I haven't looked into it with the BP guys but ashcroftcapital.com with Joe Fearless one of the billionaire real estate guys.... You can invest with them and they show you what you're rate of return will be depending on your amount/time invested. Like I said I haven't looked myself with any of the BP creators personal websites but I'm sure if you look up any of them they will have an INVEST option and explain how you can invest with them. 

[J Scott]

The big reason why you hear more about turnkey than syndication here on BiggerPockets is simply that many syndications require the investors to be accredited. And, for the most part, any of the folks here on BP are newer, less experienced, and don't have the financial resume to be accredited as of yet.

As for being able to model returns, every syndication is going to be different, though you will see a good bit of commonality among them. I would recommend that you find a syndicator you would like to work with, schedule call, and talk to them about what their typical returns look like for their deals.

My experience, most are happy to sit down with you and walk you through with a typical deal looks like, how they are underwritten, and what the return structure (and projections) are likely to be.

[Claudia B.]

Hey Travis! I saw this response you had to someone else and wanted to ask you a question about the Detroit market. I live in Toronto, Canada and I’ve got some STRs in the US but curious about other markets that might be closer by.  That being said, Detroit has a bit of a stigma around it and I was curious about your experience with renters as I’d just imagine it to be very problematic.  Is my perception a reality and if so, did you have a way to work around that without too much effort? I’m not a full time investor so I can’t be dealing with too many headaches at once!

thanks for your time!

[Chris Levarek]

Sounds like you have a good understanding of the options. Keep it simple.

Do you really have the time or experience to actively manage a BRRRR. If so, do it.

Otherwise...

Do you really have the time or experience and know a solid Turnkey operator with track record and have the capital, if so do it.

Otherwise...

Do you know a solid syndicator with track record and have the capital, if so do it.

I mean you can weigh a thousand indicators. Investment styles, asset types, group track records, returns, tax benefits, markets, etc.

Each will vary Turnkey, Syndication and BRRRR investing options.

My suggestion, is start simple. 

Do you want to work and learn real estate actively? 

Then make your decision and ask the next question. Do you want to invest in SFH or apartments?

Then ask the next question. Just keep going down until it's clear. You'll know from there.

[Mike Holman]

Quote from @Chris Levarek:

Sounds like you have a good understanding of the options. Keep it simple.

Do you really have the time or experience to actively manage a BRRRR. If so, do it.

Otherwise...

Do you really have the time or experience and know a solid Turnkey operator with track record and have the capital, if so do it.

Otherwise...

Do you know a solid syndicator with track record and have the capital, if so do it.

I mean you can weigh a thousand indicators. Investment styles, asset types, group track records, returns, tax benefits, markets, etc.

Each will vary Turnkey, Syndication and BRRRR investing options.

My suggestion, is start simple. 

Do you want to work and learn real estate actively? 

Then make your decision and ask the next question. Do you want to invest in SFH or apartments?

Then ask the next question. Just keep going down until it's clear. You'll know from there.

The bolder part feels like a good process for making a decision. The only wrinkle I'd add is that IF my financial exercise above is accurate and I decide the timeframe to achieve my passive income goal is too long, then perhaps I'd need to re-evaluate my time investment of the BRRR or Turnkey options (with an eye towards finding ways to invest more time in order to do those instead of Syndication).

[Ruchit Patel]

Some turnkey providers are also offering new construction deals. Insane returns with that, if done rightfully in a good area. I recommend everyone to do that for passive investment. 

[J Scott]

Quote from @Ruchit Patel:

Some turnkey providers are also offering new construction deals. Insane returns with that, if done rightfully in a good area. I recommend everyone to do that for passive investment. 

Remember that returns are directly correlated to risk.  If new construction development could command lower returns, operators would offer lower returns.

[Daniel Anshus]

hi @Mike Holman if you are looking to be passive I would siggest speaking with @Todd Dexheimer and syndicators like him. He is a top tier syndicator and is the person I trust most with this. Feel free to reach out and I can connect you with Todd and other syndicators

[Ruchit Patel]

Quote from @J Scott:

Quote from @Ruchit Patel:

Some turnkey providers are also offering new construction deals. Insane returns with that, if done rightfully in a good area. I recommend everyone to do that for passive investment. 

Remember that returns are directly correlated to risk.  If new construction development could command lower returns, operators would offer lower returns.

 Do you mind elaborating on it, please? 

[J Scott]

Quote from @Ruchit Patel:

Quote from @J Scott:

Quote from @Ruchit Patel:

Some turnkey providers are also offering new construction deals. Insane returns with that, if done rightfully in a good area. I recommend everyone to do that for passive investment. 

Remember that returns are directly correlated to risk.  If new construction development could command lower returns, operators would offer lower returns.

 Do you mind elaborating on it, please? 

In any efficient market, expected returns and risk are correlated.  In other words, if you see an investment that projects higher returns, it means that the investment is going to be higher risk.

This is why we refer to US treasury bonds as the "risk free rate."  Because these are considered the safest invest around (lowest risk), they tend to also generate the lowest returns.  As you move into higher risk investments, the projected returns increase.  

Buying a stabilized property (a property that is in no need of repair or improvements) is going to be lower risk (and generally deliver a lower return) than a property that is in disrepair and needs either physical and/or management improvements.  At the same time, a property that is in need of repair is going to be a lower risk (and generally deliver a lower return) than a property that is being built from the ground up.  This is why stabilized properties might generate 6% returns, "value add" properties (properties in need of repair) might project 14% returns, and ground up construction might project 20% returns.  Higher risk; higher projected return...but also more that can go wrong and generate a loss.

Long story short, if you see one investment has projects a 10% return and another that projects a 20% return, it doesn't mean that the second one is better.  The second one is higher risk, and depending on your risk tolerance could be better or worse.  

This is also why you need to look at a lot more than just the returns.  You need to also evaluate the team that is operating the deal, the location of the deal, the property itself and the other potential risks.

[Todd Dexheimer]

As someone who owned nearly 100 rental homes (1-4 family) and had them running like turnkey properties, they are still a ton of work. The turnkey method works great until it doesn't. My properties were of the BRRR method, acquired from 2008-2015 and hand picked. Even buying in the best of times to buy, we never cash flowed as well as we expected. The issue with a house is that you have roofs, furnaces, AC's, water heaters, siding, plumbing, etc. A roof needs to be replaced and that kills your cash flow for 3+ years. Then the water heater goes out, then the furnace, etc. The other issue is that if a tenant stops paying rent and you have to evict them, you're out the rent for a month or 2, plus likely repairs.

The issue with turnkey is that of the above, but also that most properties are located in C class submarkets. If history tells us anything, it is that C class is the first to go down, goes down the most percentage wise and is the last to come back up. During a recession, C class is the profile losing their jobs the most and have the least amount of savings. Even without a recession, as inflation continues, they're the demographic that gets squeezed the most.