Ontario, CA · Member since 2017 · 2 posts · 1 vote
Hi Guys,
I've recently received quite a bit of money from my equity investments but I'm looking to venture out into real estate.
I have no idea where to begin! I've looked up some information on YouTube and I recently discovered BiggerPockets. It's seems like a very good forum so far! The internet is however loaded with information so I'm a bit confused where to begin.
I'm dedicating the next year to educating myself about Real Estate. I'm looking into purchasing a couple 5-20 unit apartments. My big question is Cash VS Leverage, which is the better way to start?
I've recently quite my job to stay home with my two kids but I really want to get into Real Estate. I also need the ability to generate cash flow. I'm in my mid 30s and ready to do something that will grow my family's wealth even more. Please help?
I definitely agree with @Jay Dean, @Shawn Ackerman, & @Shawn Ward about maybe wanting to partner up with an experienced multi-family investor for your first investment if you want to go that big out the gate. I recommend starting to network with multi-family investors at your local REIA/Meetup group for investors.
Concerning cash or leverage...I'll always choose leverage so you can maximize your ROI and flexibility in acquiring more properties. There are a ton of lenders (both private & commercial) that you can access through networking and a little focused research.
There are more considerations to take into account but that is my opinion on your question.
In my opinion moving directly into 5 - 20 unit apartment buildings is a huge first step. I'm not sure I would do that if I was in your position unless I could partner with someone who knows how to buy and manage properties of this size.
With regard to cash vs. leverage, I prefer to buy in cash. I feel like it improves my position especially in a competitive environment. I can always do a cash out loan later if I chose to.
@Beverly Joseph The basic thought process is when looking to scale, unless you will use bank leverage as it's low cost and fairly easy to acquire if lend-able. However if your simply looking to park your money then that option is also good as real estate is a solid asset class. I've built a real estate portfolio beginning from 1 SFR and I've used the banks money over and over. Buy cash/Delay Finance/Repeat. This strategy has been done mainly on residential properties 1-4 units however I'd imagine commercial will not be much different. In the end it's all about the numbers. Best of luck to you. Always remember to persist and you will WIN!!!
@Beverly Joseph good question. If the pockets are deep enough and you can start on a smaller deal like @Jay Dean suggests (which I would to), then do it cash. I like leverage since it allows me to diversify and do multiple deals.
But, first thing I'd do is find a partner to do a joint venture or so who's very experienced. At minimum get a local mentor who can teach you the ropes. Work smarter , not harder.
I definitely agree with @Jay Dean, @Shawn Ackerman, & @Shawn Ward about maybe wanting to partner up with an experienced multi-family investor for your first investment if you want to go that big out the gate. I recommend starting to network with multi-family investors at your local REIA/Meetup group for investors.
Concerning cash or leverage...I'll always choose leverage so you can maximize your ROI and flexibility in acquiring more properties. There are a ton of lenders (both private & commercial) that you can access through networking and a little focused research.
There are more considerations to take into account but that is my opinion on your question.
Beverly Joseph
I am a little biased as I do loans, so fair warning...
With money as cheap as it is... it's hard not to finance these things out. If you have enough cash to pay cash, then you have enough to do a 50% loan to value on two properties. You are using the banks money to improve your position and you are actually growing not just pulling cash off each month. Now you don't need to go fully leveraging. But a good 50% LTV will get you good rates and you will have plenty of "skin in the game." The only real way to grow in this business is leverage.
Hope this helps!
@Beverly Joseph So, if I were in your shoes, I'd stop reading this response and go talk to a lender. In fact, I'd probably go talk to 2-3 lenders. Get an idea of what you *could* qualify for if you wanted to go down that road. Get comfortable with what your loan terms would be. A lot of new investors think that commercial multifamily mortgages are the same as their 30-year fixed-rate non-recourse loans that they have on their home. They're not. I have a couple of commercial multifamily properties and I'm a fan of loans and leverage. Why? I get to write-off mortgage interest against the income of the property. We both live in California and, let's face it, we're not a low-tax state. And if you want to buy in California a ton of the purchase price (value) is in the land so there's less in the area of "improvements" to depreciate. Not to mention that money is (at the moment) still historically very cheap. That said, if you start talking to lenders and hear things like 5-year balloon, full-recourse, etc. and that translates (for you) into "it's hard to sleep at night with those terms" then stick to cash. Real estate isn't a guaranteed return, there are risks, and while we all (including me) have our theories, successes, metrics, etc. it's not our debt at the end of the day :-)
Go talk to a lender, at least then you'll have some good "real world" loan terms to factor into your analysis.
I've recently received quite a bit of money from my equity investments but I'm looking to venture out into real estate.
I have no idea where to begin! I've looked up some information on YouTube and I recently discovered BiggerPockets. It's seems like a very good forum so far! The internet is however loaded with information so I'm a bit confused where to begin.
I'm dedicating the next year to educating myself about Real Estate. I'm looking into purchasing a couple 5-20 unit apartments. My big question is Cash VS Leverage, which is the better way to start?
I've recently quite my job to stay home with my two kids but I really want to get into Real Estate. I also need the ability to generate cash flow. I'm in my mid 30s and ready to do something that will grow my family's wealth even more. Please help?
This depends on so many factors... what is your budget? That would sort of determine where you can afford to buy a 5 to 20 unit apartment and if to use cash, leverage or both.
I would say research turn key investment property companies and if their company morals align with yours or what you seem fit for such a company explore purchasing one from a provider or two. Then while you're truly close to as passive real estate income study their systems and processes. This will mitigate your risks from starting out by taking down a multi unit apartment complex from the get go and provide valuable insight on what they do that works, what they could do better, and what they aren't doing that you should do when operating your portfolio or training someone to operate it for you. You can get hit on a small all cash single family home if the company you vet out turns out to be bologna or you can gain valuable insight on companies that are doing things right and take it up to handle things on your own over losing hundreds of thousands with rookie mistakes. After all taking that one year to learn won't teach you how to avoid every mistake, in fact it could deter from even getting started at all from all the horror stories you'll learn from your education period. Why not learn mistakes and successful models on another company's dime?
Warning, thar be many sharks in these here waters ... no need to chum the waters with "I've recently received quite a bit of money" ... caveat emptor. If you don't already own property, then finding a good deal on a home that your family can use for a primary residence and where you can learn the ins and outs of property acquisition and rehab hands on may be the best at this point. As mentioned, you could buy and fix all cash and cash out refinance later if you choose to.
In my opinion moving directly into 5 - 20 unit apartment buildings is a huge first step. I'm not sure I would do that if I was in your position unless I could partner with someone who knows how to buy and manage properties of this size.
With regard to cash vs. leverage, I prefer to buy in cash. I feel like it improves my position especially in a competitive environment. I can always do a cash out loan later if I chose to.
0 to 5 is frightening to me too! My suggestion is first figured out exactly what type of investor you want to be and then start off small to make sure your processes are correct and perfected.