First real estate investment
My wife and I are looking to purchase our first investment property in 2021. We’ve been pondering the idea for quite some time. We’re both very busy with our regular jobs and that being said we’d like to find a turn-key property for rental to keep it as passive as possible. We’ve been set on single family homes. However, the more I learn about syndication deals I am intrigued by the concept and wonder if that may be easier to get started with. What are some of your stories? How did you all get started with your first investment?
Consider a company like Memphis Invest. They have homes already renovated and rented. All you do is buy it and hire them to manage it. This sounds like a risky purchase but they have a proven track record with about 7,000 homes in multiple states. These are not home-run purchases but they are pretty safe invesments.
I'm a CPA and therefore think in terms of taxes. For higher W-2 earners, syndications offer some of the best tax benefits out there, particular when you couple appreciating assets with cost segregation.
@Aaron Kyle Kinslow I agree with nathan and I myself have a portfolio of TK properties. It is really passive cash flow, no loss of rent in 2020, but most importantly I have as much control of my assets as I want and they are still performing very well.
Based on what you are writing, that should probably be one of the considerations. Syndication has less of that and if anything goes wrong you can't react individually.
If you like to chat about what I have done and lead from investing out of state using turnkey providers, I am happy to plan for a call
Bbe well and stay safe
Axel
My wife and I work full-time outside of real estate as well and do not have any background in real estate, construction, etc.. Turnkey route sounded like a great option for us to minimize time and risk. We closed on our first investment in October 2020!
The post below shares that experience! I would be happy to connect and share my experience or just to hear how your journey goes!
Best Wishes!
I agree with the syndications for high W-2 earners.
@Aaron Kyle Kinslow I have done both turnkeys and syndication. Feel free to message me.
@Daniel Hyman - Can you elaborate on the tax benefits of syndications for high W2 earners?
@Aaron Kyle Kinslow thanks for posting this as I’ve just begun my search as well. My wife and I are closing on our first flip this month. Even though I’m handy and my father and I did most of the work ourselves it was a major drain on our time and family. We both have have full time W2 careers we like and so we’ve just started looking into turn-key property companies.
I’ll be following along to this thread for sure!
Originally posted by @Jay Howard:@Daniel Hyman - Can you elaborate on the tax benefits of syndications for high W2 earners?
We have seen some nice savings in instances where investors invest in a syndication and one spouse elects REPS. Check out this well written article for more info and criteria of REPS election.
@Axel Meierhoefer I’d love to connect and hear your stories if available! Always been interested in out of state investing, but a little gun shy as I’m somewhat of a control freak when it comes to my money/property.
@Aaron Kyle Kinslow
I'm going to throw something out there that no one has suggested yet. SFH right now in the US are very sought after. Have you looked into some smaller multifamily? Fannie and Freddie lend up to 4 units and the economies of scale work out a lot better compared to most SFH. Using/finding a good property manager may be your toughest task through this route, but you keep control and have the passive income you are looking for.
Syndications are great for passive and as long as you have vetted the sponsor, investing alongside a professional.
I’ve never invested in a turnkey, but have always been suspect on whether it pencils compared to other deals already available in the marketplace.
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Broker Oregon (#201206275)
- Uptown Syndication
Originally posted by @Aaron Kyle Kinslow:My wife and I are looking to purchase our first investment property in 2021. We’ve been pondering the idea for quite some time. We’re both very busy with our regular jobs and that being said we’d like to find a turn-key property for rental to keep it as passive as possible. We’ve been set on single family homes. However, the more I learn about syndication deals I am intrigued by the concept and wonder if that may be easier to get started with. What are some of your stories? How did you all get started with your first investment?
I'm an investor and support myself and my family from my investment income. And I invest in both direct real estate (via residential rentals) and syndication/crowdfunding passive investments. In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.
Directly owned properties are great because they give you maximum control and the ability to tweak them exactly how you want. So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession. That's unusual and it would be very difficult to find a passive investment like that.
Also direct control means you know exactly what's going on. And, for those people who have more time than money, they can put in sweat equity into directly owned real estate. This will increase the return above what can be obtained on a passive investment.
The flipside of having the power to control everything is that can be alot of work (and a full-time job if you are putting in sweat equity). Not everyone wants that or is willing to put up with that. It also requires gaining a level of sophistication and knowledge that not everyone has the time, inclination or ability to do. And someone jumping into this as a complete newbie can expect that they have a decent chance of making some expensive newbie mistakes.
On the other hand, one of the main advantages of passive investments (via syndication/crowdfunding) is that you can hire a manager who has years more experience than you can ever hope to obtain yourself. And once you finish the due diligence, your work is done: it's completely passive. Also, rather than taking a large amount of money and investing into one single directly owned property, you can split it up into much smaller chunks across many different passive investments. This can allow a person to get much better diversification protection across geographies, asset types, strategies, investment subclasses etc. Versus putting all the eggs into one basket.
The downside is that someone has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone can do that and not everyone feels comfortable turning over control. So it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time) is unlikely to find this a good fit.
Turnkey operators are kind of in-between. However I would not consider them to be truly passive because they do not put any skin into the game like a good passive investment does (via a sizable coinvestment). This coinvestment is what mitigates the risk of the other party taking risks that could be a detriment to the investor. Turnkey operators don't work like that and they are more like a broker collecting a fee for their work (regardless of the long-term performance). So they are financially misaligned on long-term performance (and I think this is why there are so many people who have had bad turnkey experiences)
And, as someone who has done lots of rehabs directly myself, I have seen hundreds of ways that turnkey operator could take shortcuts (to the detriment of the investor but beneficial to their bottom line) which investor could never detect (or not until years later when it's too late). So personally I don't trust reviews from investors saying their turnkey operator is great (because really they have no way of knowing). And personally I cannot pull the trigger on a turnkey operator. However there are other investors who feel very differently and love turnkey operators.
Hope this helps.
Turnkey is how I started as a working professional. Do it 😁
@Ian Ippolito
Thank you so much for sharing your experiences on this topic. This was very insightful!
@AJ Shepard
Thanks for your response AJ. We have considered multi family units such as a triplex or quadplex. I have read about several success stories with this method. It seems as though it would bring in high cash flow. I’ve been told the downside of multi family is selling it down the road as your likely buyer would generally just be other investors. However, I still like the idea. The problem we’re having is locating really any multi family homes in our market and surrounding markets (Nashville, TN). How would you go about locating these types of properties remotely?
Thanks,
Kyle
@Aaron Kyle Kinslow You are right about the point of who would most likely buy a triplex or fourplex. That brings part of the discussion back to your goals.
You might have seen posts from me where I describe the Time Freedom Point, a point in the future where your passive income is high enough to cover all your costs and give you the freedom to do with your time what you love.
With that in mind and assuming you had 5 fourplexes that are working really well, were bought for a good price from a TK provider that also manages them for you, why would you want to sell them?
People often compare real estate investing with other investments. That's fine, but most other investments are only considered working well when they appreciated in value and the owner could sell them for a profit. That is true for most stock investments, any collectibles, gold or silver, etc.
In real estate, your portfolio would not only allow you to have appreciation but also cash flow that can, over time, cover your expense and make you free. Yes, appreciation is also happening, but if it is substantial, I would always opt to use the equity to borrow more money and buy more properties to get to the Time Freedom Point faster. That's especially true when interest rates are as low as they are right now.
So, ask yourself if you want to reach the Time Freedom Point or if you want to maximize profit from sales. It's two different things leading to different investing strategies.
Originally posted by @Aaron Kyle Kinslow:@AJ Shepard
Thanks for your response AJ. We have considered multi family units such as a triplex or quadplex. I have read about several success stories with this method. It seems as though it would bring in high cash flow. I’ve been told the downside of multi family is selling it down the road as your likely buyer would generally just be other investors. However, I still like the idea. The problem we’re having is locating really any multi family homes in our market and surrounding markets (Nashville, TN). How would you go about locating these types of properties remotely?
Thanks,
Kyle
Kyle,
So many ways to locate properties. There's probably whole forums dedicated to that subject. My first suggested step is to get on a real estate agents list and have them start sending you properties that fit the criteria you are looking for. Next, find the wholesalers in the market, network connect with them. If you want to dig deeper (larger gains and more time invested) get a list of multifamily properties from an escrow company and start contacting the owners (either mail or phone). Find a local meetups (most are virtual right now) and try to attend / network.
The first step is so that you know what retail market is, make sure that they send you "sold" property along with "new" and "pending". The next step is to find other people that are doing what you want to do and get established in the market. The last step is to actually find the people that have the deals that you want to buy.
Thanks,
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Broker Oregon (#201206275)
- Uptown Syndication
@Billy Madden
Congratulations on your first flip Billy. I’m sure that was rewarding but as you said can be time consuming. When do you plan to start investing in turn key rentals?
@Axel Meierhoefer
You made several excellent points. Rental properties are definitely unique investments in that you can experience growth through appreciation, equity, cash flow and tax benefits. The end goal for us is definitely time freedom point. The more I learn about real estate investing, the more I realize I do actually enjoy it as well. I am anxious to become a first time real estate investor in the near future. I believe turnkey will be our approach after much consideration due to the demand from my w2 job M-F.
@Aaron Kyle Kinslow sounds wonderful. If you like to have a conversation, ask all questions you might have, etc., just let me know. If you like what I have done, I can introduce you to my providers and you could check them out yourself.
just PM me and we can find a time to chat
A syndication is "easier" in that you are investing in someone else's deal. As an LP, you are passive. You simply receive investor letters and checks (or cut checks in the case of capital calls!).
But you have no control over the deal. Basically like investing in a REIT without the liquidity.
Syndications can be great if you find someone and a property you believe in!
Similar to you, I also have a 9-5 pm job that keeps me busy but since I am working from home since COVID, it has give me some flexibility to explore Rental properties. The market I am in is very competitive and pricey so I decided to go out of state. I read the Long distance Real estate investing and binge listened close to 200 podcasts in space of 6 months. A lot of the investors feedback, blogs and videos pointed towards exploring turnkeys as the easiest way to explore out of state market. I even joined a Mastermind call with Felipe Mejia and Diego Corzo and that helped answer a lot questions I had related to rental property investing. After resarching on turnkey companies, I found that Martel Turnkey works best for what I am trying to do so I connected with them and ended up placing an offer on my 1st out of state rental in Cleveland, OH back in October of last year. Let me know if you want to connect and chat about the purchase process.
@Aaron Kyle Kinslow We found syndication a couple of years ago and decided to get involved on the active side - but if you're just looking for great returns and tax benefits without having to dealing with any of the management I would certainly recommend passively investing. There are SO many opportunities available from syndicators out there...I'd probably recommend starting with defining your criteria of your risk tolerance and desired returns. I'm a part of a group of about 100 syndicators and our deals are typically 5-6 year holds with 100%+ Total Return, 10-13% Cash-on-Cash, and 15%+ IRR (8% preferred return and 70/30 LP/GP splits). Some of the deals are already stabilized and will cash flow in the first few months and others are bigger value-add plays that will take a year to stabilize and see the first distribution. If you want to pursue it further or have questions feel free to shoot me a message. I have some recorded webinars I can send you- they are a series from our partner who has 8,000 units in his portfolio that walk you through how a syndication works and what to look for. Best of luck in your journey!