Alternative real estate investments?

Question

I own 1 rental property that I bought 10 years ago. I let it sit and have been collecting rent on it... In the meantime, I had a family and am busy w/ my career. So then I started reading about the BRRR strategy and how if I take $$ out of this property I can buy another, fix it up, rent it, then buy another, and again and again. That sounded like lots of fun. So I did a cash out refi on the rental and I just got almost 200K back now. Instead of the property cash-flowing at $600/m in my favor, its now a break even and I still have 25% equity in it. I'll raise the rent soon too, so not too worried about that..

However, in the meantime I decided I don't want to be a landlord any more. I cant decide what a good way to reinvest the $$ is. I want to keep it in real estate without being a LL and i don’t want it in the stock marker. I was considering crowdfunding / syndications but am new to that too. Any suggestions?

Michael Bishop · Answer

@Sam Bromano as others have said, syndication seems right up your ally. Before you dive too deep, you should do some self education since you're new to this, as you pointed out. There are seemingly unlimted resources on the topic here on BP, but here are a few articles to get you started:https://www.biggerpockets.com/member-blogs/10191/68640-what-is-apartment-syndicationhttps://www.biggerpockets.com/member-blogs/10191/85359-how-to-vet-a-syndication-sponsorhttps://www.biggerpockets.com/member-blogs/10191/72631-top-20-questions-by-investors-interested-in-syndicationHope this is helpful!

Adan Ibarra · Answer

HI Sam

Crowdfunding/syndication is a very good way to put your money to work and a lot of the times, you can earn a higher return than if you were to do a real estate deal directly.  I work for a GP who is a syndicator (so I might be biased and please understand that as you read my reply).  Solid Sponsors or GP's are able to get you into a larger deal that you normally couldn't get into yourself.  In addition, they have teams that work for them instead of a one or two person operation.  We typically try to pay our LP investors a 20+ % return (our financial model require a 21% IRR over a 5 year hold) in order for our firm to undertake the property.

So what I'm trying to say, is that I would look a syndication more deeply.  Some require a minimum investment of $25k so you can diversify your investment into multiple deals (which is a smart idea (not all your eggs in one basket)) and into multiple asset types (self storage, industrial, multifamily, retail, etc...).

At the end of the day, you would be passive, you don't have to worry about guaranteeing any loans and you will smile every time you go the mailbox and see you received a distribution!

Have a great day.

Trevor Ewen · Answer

@Sam Bromano

As a syndication investor, I think it's a great way to go passive. Although, it often keeps your principal tied up in the 6-10 year range.

Another option I would recommend is private lending. Turnaround is shorter and returns a more predictable.

There are also several people on BiggerPockets that do a lot of note investing. It's not my speciality, but Note Partials may also be something that would interest you. I would do some searching on the topic. Seems fairly passive (although higher risk) from what I have read, but this is not a sophisticated or experienced opinion.

Don Konipol · Answer

@Ian Ippolito

“Won’t get the sweat equity returns”.  Hit the nail on the head.

Ian Ippolito · Answer

Sam, there are a lot of advantages to investing in crowdfunding/syndications over direct ownership. The main one is that after you choose the sponsor, your work is done and your money is doing the work and not you. Generally, you can also diversify into many more properties, many more geographies, many more asset classes in many more strategies than you could if you were forced to purchase it all on your own.

The downside is that you have to feel comfortable with vetting a sponsor. And you will not see the sweat equity returns that you would get from directly owning your property.

If it's a fit for you then there are lots of choices. The first big thing though is to understand if you are an accredited or nonaccredited investor because the options are very different depending on that. Which one are you?

Chris Seveney · Answer

@Sam Bromano

Depends on how active you want to be. Passive investments are syndications, REIT’s and mortgage notes (performing ones or buying partials)

Ian Ippolito · Answer

I'm not a financial advisor so this is just my personal opinion.I think you said you have $200k available. Split 4 ways that would be $50k which is a reasonable entry point for some of the lower minimum syndications/crowdfunding deals.You do not need to pay someone to get vendor neutral advice, as there are plenty of sources where you can get a newbie introduction to the terminology, as well as learn how to do due diligence, and develop your own personal criteria that meets your own specific risk tolerance and financial situation. Feel free to private message me if you want to discuss further.

Michael Bishop · Answer

@Sam Bromano I'm not sure what you mean by common. Assuming you're referring to the split, i.e. 70/30 or something similar, then it's not one or the other, but rather a combination of the two. The LPs get the preferred return before the split takes place.

In terms of the accrued instance that you mentioned, that would be deal specific. My guess on the deal you're referencing would be that there's a 6% pref with a 2% accrued/catch up, in which case the accrued would be caught up during an equity event - refinance, supplemental loan or yes, the sale of the property - for a total of 8%.

Sam Bromano · Answer

@Michael Bishop these were awesome, thanks!

Quick Q - When/why would someone select preferred vs common?

I also saw a deal where the return was 8%, 6% current and 2% accrued. Does that mean the 2% doesn’t go back to the investors until the property is sold?

Is it common for LPs to visit the property?

Sam Bromano · Answer

@Don Konipol I agree and this is painful. I just pulled out 6x of my original down payment/investment on my one property that I bought 11 years ago. I still own it now and worst case is it’s not cashflowing much anymore. However it will appreciate long term nicely and i will raise the rent.

When I look at the REI deals that promise a 2x equity multiplier over 7 years it doesn’t seem sexy at all. However, I just don’t think I can bring myself to be an LL again, honestly I think i just got lucky with the first place.

Alternative real estate investments?

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