I'm a bit out of the normal than most here on the site but if I had that kind of cash I would look at syndicating a mixed use commercial/residential building in an up and coming downtown area somewhere. I'm an architect so I would be able to do all the design work and CDs as additional equity in the deal (which you wouldnt have) and, depending on the size of the building, I would GC it also. That would give me well over $500k in equity easily, so I wouldn't have to syndicate to much more towards a construction loan of a couple million. Once complete, I would refi & pay everyone out and be the sole owner (preferably) and keep the new building as a long term hold. The refi & cash flow from this would allow me to repeat this process over and over again. This same type of strategy would work for almost every building type....multi family apartments, purely commercial building, self storage, SFH sub division, etc. This is not everyone's cup of tea though and I realize I'm in the minority here but this is the business I want to build and run. I'm too young to sit by and just let passive income come in while I retire at 35. Thats not my personality type either. This passive income would allow me to work and build buildings that are better for the community than to have to solely think about the bottom dollar.
But I will also suggest something a bit more traditional for you to think about. First you need to decide if you want to start a business in REI or are you solely looking for passive income on the side while you keep your day job? Nothing wrong with either. Its totally a personal preference. For example, I love my job as an architect and do not want to replace it with being a full time landlord.
If you want to replace your job then you have a lot more options and really you just need to pick what you think you would like the most. Does owning an apartment complex sound fun? Dealing with tenants something that you think you would be ok with? Or are you not really a people person and would prefer something more along the lines of a mini storage facility? Both can require a lot of work if you are going to do everything yourself...or do you need to consider hiring a couple people as well? So you'll also need to consider your business strategy as well.
If you are wanting to keep your day job, be that for the long term or short term, I would suggest looking to partner up with someone. Let them be the one that runs the day-to-day operations and you are the money man for the job. You can figure out a way to split ownership based on the work everyone does. This couple apply to any number of building types. Again picking something you think you would like. You also have the option of becoming other people's hard money lender. Let them do the work and keep full ownership but you collect the interest and payments. Another truly passive income would be to put your money in a syndication and just let that project do its thing and you get paid. Not as profitable as other ways but you are limiting your risk and limiting your involvement.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@AP Horvath. What are your goals for investing? Replace income? Financial Independence? What is your WHY for investing? Build a real estate empire where you are hands-on OR build an investment portfolio that will sustain you now and into the future so you can pursue something you are passionate about? These are the questions you need to answer for yourself... this will inform your investing roadmap.
For me, I want choice on how I spend my time and create an impact where I can help others do the same. So, I chose to build a time-leveraged real estate business focused on cashflow and quick equity harvests that fund a two-tiered recession-proof investment strategy. That portfolio darn near grows on it's own now, and I can focus my time and energy on teaching others to do the same.
What is it you want to do? And I can help give more granular feedback on how to make that happen.
Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
6y
@AP Horvath I would find a mentor, go in on an investment with that person, and just be a sponge. Soak up as much knowledge from them as possible. Once you have done a few deals with them and you're comfortable enough to start doing them on your own you can go solo.
Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
6y
@AP Horvath do you see yourself spending time involved with all of the details of RE investing ( finding deals, doing walkthroughs, negotiating with sellers, getting estimates, working with contractors, putting out adds and screening for tenants, dealing with property/ tenant issues, applying for loans, booking keeping, etc) ?
If yes, the margin of safety rule I use is - A deal that you can refinance and get 100% of what you put in (purchase + repair costs) and still cash flow every month likely has a strong margin of safety.
Other advice is take what the market gives you. For example I’m find it difficult to find properties in decent areas for a price that meets the margin of safety rule above. However I’ve been finding that even though these deals won’t cash flow they can work as flips.
If your answer is no to the first questions above, then maybe consider checking out syndications, turn key rentals, private lending to experienced investors, REITs, etc.
Developer · Austin, TX · Member since 2020 · 82 posts · 61 votes
6y
Hi @Manny Cirino -- funny that you mention Dollar General, Walgreens and the ilk --
I was just perusing https://www.matthews.com/ and saw that one-tenant NNN deals like that had extremely high cap rates, which seems enticing, of course -- the danger is that you cannot renew them for a long-term lease and you get stuck on a property custom built for their use.
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
6y
@AP Horvath it is true that you can't purchase the NNN properties and immediately increase the rents, but many of the leases have reset dates of rent increases and options they can exercise at the end of there lease terms which were based off future projects, which may or may not fall in your favor depending on market cycles you fall in.
You should buy based on it how passive the investment is and how comfortable you are with the returns you'll recieve.
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
6y
@Dennis M. so we / you can buy props for 10- 15k and sell them for 40k avg ? If so I will buy one, see how it goes. If what you say is correct I will buy 10 more, and do again and again,
What about repairs ? Who are you selling to, home owners ? Again all in pricing ? I find it very difficult to believe we can buy for 15k and sell for 30k with zero repairs, actually its not reality.
Developer · Austin, TX · Member since 2020 · 82 posts · 61 votes
6y
@Manny Cirino -- (or anyone else - feel free to chime in) this might be a dumb question on my part -- but in single-tenant NNN cases, can the would-be buyer arrange a new lease (contingent upon him closing the deal with seller) with tenant before the purchase is consummated?
Just for fun --- let's say I was interested in this deal here:
But I didn't love the lease terms in place now -- could I renegotiate a lower rental rate but longer term lease? Again, >>before and contingent upon<< I actually buy the property?
"Hey, I want to 7-year lease and I will give you X% better terms."
Or is that frowned upon? Or disallowed? How do these work? I imagine the seller doesn't want the buyer talking to much to the tenant -- but the tenant is critical to deal value.
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
6y
Its says tenant to sign a new lease once the deal is closed so they are open new lease terms. I am sure you can work something out. Just keep in mind the market today is not going to be the same market in 7 years. If you lock them in for 7 years you still want and escalation on rents over X amount of years. And you still have to grant them some sort of option at the end of the lease.
I say don't sell your self short. Don't be afraid of losing a long term tenant because of lease terms. Lower the terms Could be seen as a sign of desperation. If the company is doing well they will pay and if they are not they won't pay rent regardless of the terms.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
6y
Unless you are in an area with historically good appreciation (such as Los Angeles), don't count on it. Focus on the cash flow. If you are just starting out, investing locally isn't a bad idea either. You know the area, can be more hands on in the beginning, and go from there.
Developer · Austin, TX · Member since 2020 · 82 posts · 61 votes
6y
Hi @Manny Cirino -- I appreciate your responses but I think you are underestimating the main risk in a single-tenant NNN deal -- for example, that property is 33k SF --- if they don't renew and the economy isn't super great in three years, the owner could be stuck with a zero vacancy white elephant, struggling for a new tenant for an idiosyncratic piece of real estate.
Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
6y
@AP Horvath. I would buy 2-4 plex deals where it made sense. Finding off market deals are hard, but payoff much better if rents are low and older owner took their eyes off their property. I would buy as many as possible but SFH dont give me the leverage I need.
If you had a few hundred thousand in cash, ready to invest in RE -- what would your RE investment strategy be?
Spread it around? land, multifamily, SFR, commercial or simply concentrate on one specific type of RE investment?
How much debt/leverage would you take on? And how would you prevent a downside scenario?
Context: I am married. Zero debt other than personal residence. Married with 4 young kids. Make money in tech.
AP, the answer is "It depends".
It depends on...
1. Your goals and what you want real estate to provide for you (do you want to supplement your income/ replace your income/ put $10M cash in the bank/ leave a legacy for your kids/ etc? and please don't say all of the above - you have to choose one)
2. Your resources & skills other than money (do you have great credit score, high networth/ do you have some business/management/leadership or entrepreneurial skills, or do you like to work with your hands?)
3. Your willingness/availability to devote time (do you want to do it actively or passively; if actively, can you devote 15-20 hours/week?)
4. Level of control you want (passive means you lose control in exchange for being - passive)
5. Your risk tolerance (are you comfortable qualifying for a mortgage on a rental property? are you comfortable investing out of state? can you sleep well at night if, say $100,000 is stuck in a deal for 3-5 years or would you rather see it out of the deal in 12 months or less?)
For example, if your goal is to supplement your income, say to earn an extra $2,000/month so your house payment is taken cared of and you want to do it passively and you don't want to qualify for another mortgage, then investing $200K in an apartment syndication deal can be good. My passive investors in an apartment or hotel syndicated deals get 6-8% preferred return and 30-50% of the profit of the deal - giving them a 12-15% IRR. $200K earns them at least $2,000/month effectively (12% IRR for example - but given as, say 6% pref or $1,000/month and the rest are accumulated and distributed when the property is sold). And they love it because they spend NO TIME to earn it.
If on the other hand you can spend 15-20 hours a week, you have great credit and don't mind qualifying for a mortgage, and love to work with your hands, then you can do the work yourself - maybe buy a 4-plex that needs some renovation and coordinate the renovation. You can do BRRR (Buy-Rehab-Rent-Repeat), buy a 4-plex for $100K (for example), put in $100K of renovation and increase the value to $300K, refinance your $200K capital out and do it over and over.
@Dennis M. so we / you can buy props for 10- 15k and sell them for 40k avg ? If so I will buy one, see how it goes. If what you say is correct I will buy 10 more, and do again and again,
What about repairs ? Who are you selling to, home owners ? Again all in pricing ? I find it very difficult to believe we can buy for 15k and sell for 30k with zero repairs, actually its not reality.
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
6y
You are absolutely right, which is why I am more fond of the big box retail chains. Me personally I wouldn't bother doing a NNN lease with a less established company because I don't know how they would hold up during a recession. I say stick to the bigger names.
@Dennis M. if what you say is correct we should talk. I’ll take as many as you got to pay you a very handsome fee
Thank you for offer but I’d rather just hold these notes I created long term in my trust . I do have private money that helps acquire them though but I try to limit that so I can retain the equity myself .I would only spend 2k to pretty them up if they are bad sometimes they don’t need a thing but an “owner will finance “sign in the yard .
@AP Horvath During my real estate career, I have worked with both Commercial and Residential investors throughout the nation originating for performing and non performing properties(REO, etc). Based on my experience, Residential income producing properties were consistently generating income and there were fewer losses vs Commercial income producing properties in the long run. We used to say; that everybody needs a house to live compared to those that had the extra funds which would allow them purchase investment properties.
You are absolutely right, which is why I am more fond of the big box retail chains. Me personally I wouldn't bother doing a NNN lease with a less established company because I don't know how they would hold up during a recession. I say stick to the bigger names.
There are still risks that need to be understood in NNN. Big box retailers & Well rated companies can still go under, credit ratings can change, areas can change, and sites can even go dark.
You are absolutely right, which is why I am more fond of the big box retail chains. Me personally I wouldn't bother doing a NNN lease with a less established company because I don't know how they would hold up during a recession. I say stick to the bigger names.
There are still risks that need to be understood in NNN. Big box retailers & Well rated companies can still go under, credit ratings can change, areas can change, and sites can even go dark.
There is risk in almost any investment you make. But going back to my original statement I would only buy NNN is stable big markets where population and tourism are common. There are alot of companies I am a fan of and many I would not bank on lasting at all.
For example I am a big fan of Dollar General I am seeing how fast they are growing and spreading and how much of an impact they have on the areas they go in to. I see the same with Wawa, also I like Walmart and Chipotle aswell, but I am by no means an economist so. I am only speaking on investments I am comfortable with.