The $1.25 Million question - Seriously blessed but scarred

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The $1.25 Million question - Seriously blessed but scarred

Juan Salazar
Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes

Ok. I would say a little planning and LOTS of luck allowed me to invest in Austin between 2006 and 2011. I am in the process of selling my 1 remaining lots and 1 SFR and will net a little over $1.25M in cash. I feel very blessed, but now scared as to what should I do next with that equity.

I've invested previously (cash purchases - about $500K) into 2 STR in the College Station, Texas area (Close to the University), and been happy with the performance - Net Cash Flow of about $15K annually per each, and was thinking of doing some more of these, but the cities are starting to come up with crazy ordinances on STR.

So, what would you do seriously if you've or are in a better position that I am. I was told to look at commercial, but I have never done it....

Most people (not REI) go the easy route and say "buy stocks, hold for dividends", but as we know, those do not appreciate or depreslciate 馃槈.

Thank you in advance for your help...

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Lydia R.
Investor 路 Austin TX 路 Member since 2016 路 1k+ posts 路 2k+ votes
5y

@Juan Salazar First of all, congrats man! Im in Austin and I wish I had bought something, anything between 2006 and 2011. Even 2015! I think your question is a little too broad. Theres a million things you could do with that money, but what are your goals. You should have long term financial goals that you are working to accomplish and that will help guide your decision-making. Otherwise you are just a guy in a canoe with one paddle. If you are looking for passive income/cashflow then you should be looking at and evaluating rental markets or other more STR friendly markets. Ive heard good things about Waco...but Ive never spent any time there so I cant really offer an opinion. If you want to scale up into something bigger you can invest in commercial real estate projects. My boyfriend owns a private equity company that invests in commercial real estate and they just closed on a medical building site in Lakeway and have a few more Austin area projects coming down the pipeline. I'd be happy to put you in touch if you were interested in going the commercial route.

If you are wanting to be a more active investor you could look at developing single family homes or multifamily properties. Theres a very interesting concept that I鈥檝e spent some time researching, the build-to-rent. Its getting more and more common. New builds that are not sold at completion they are rented instead and then sold to a large entity looking for steady cashflow and decent returns.

Like I said, the possibilities are endless. Decide what you want, decide what your goals are and let those goals guide your next steps! Congrats again!

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  • Lydia R.
    Investor 路 Austin TX 路 Member since 2016 路 1k+ posts 路 2k+ votes
    5y

    @Juan Salazar First of all, congrats man! Im in Austin and I wish I had bought something, anything between 2006 and 2011. Even 2015! I think your question is a little too broad. Theres a million things you could do with that money, but what are your goals. You should have long term financial goals that you are working to accomplish and that will help guide your decision-making. Otherwise you are just a guy in a canoe with one paddle. If you are looking for passive income/cashflow then you should be looking at and evaluating rental markets or other more STR friendly markets. Ive heard good things about Waco...but Ive never spent any time there so I cant really offer an opinion. If you want to scale up into something bigger you can invest in commercial real estate projects. My boyfriend owns a private equity company that invests in commercial real estate and they just closed on a medical building site in Lakeway and have a few more Austin area projects coming down the pipeline. I'd be happy to put you in touch if you were interested in going the commercial route.

    If you are wanting to be a more active investor you could look at developing single family homes or multifamily properties. Theres a very interesting concept that I鈥檝e spent some time researching, the build-to-rent. Its getting more and more common. New builds that are not sold at completion they are rented instead and then sold to a large entity looking for steady cashflow and decent returns.

    Like I said, the possibilities are endless. Decide what you want, decide what your goals are and let those goals guide your next steps! Congrats again!

    8Reply
  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Lydia T. Thanks a million. You are right. I should be more clear on my goals

    0Reply
  • Daniel Meador
    Austin, TX 路 Member since 2020 路 8 posts 路 10 votes
    5y

    @Juan Salazar congrats! That's what I call a high quality problem :)

    Like was said, your goals factor in hugely to what you should do. Maybe you can live frugily with a safe investment and retire now? Maybe you want to be much riskier because you are eyeing that house on lake travis in a few years?

    As far as putting it into stocks, if you don't have some percentage of wealth in the market, I think that's a sign you should be more diversified. Simple index fund or low cost dividend funds are the way to go. (Individual stocks tend to not be, although YMMV) With a windfall they sounds like it's a large % of your net worth, I'd put some there

    Commercial doesn't have to be the path you take just because you have the funds. It's a different ballgame and maybe you want to stick with the horse that brought you here. You probably are at and advantage by knowing more than others in that space

    4Reply
  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Daniel Meador thanks..great points 馃憟

    Def need to diversify. I still have 3 kids to send to college, but I also want to put a pla in place to be able to enjoy more life when they all get out in about 10 years.

    With COVID, I learned a lot of things about what j do value, and while I still have my kids, I do want to be able to spend the majority of my time with them.

    REI will for sure be part of of equation, but I do appreciate all the other perspectives.

    In the end, I do want to have 1 small STR in places I do enjoy being - Texas, Aruba, Malaga, naybe Buenos Aires, etc. Being able to "live" in my own place then share it with other and make $$$ while is not being used is the way I want to generate some passive income.

    1Reply
  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Lydia T. Great point. I do value different perspectives

    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent 路 Austin, TX 路 Member since 2015 路 5k+ posts 路 3k+ votes
    5y

    @Juan Salazar why not invest passively with your winnings?

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  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Jordan Moorhead what do you mean?

    0Reply
  • Ola Dantis
    Multifamily Syndicator 路 Houston, TX 路 Member since 2016 路 1k+ posts 路 2k+ votes
    5y

    @Juan Salazar You are absolutely right to say that stocks don't have the same depreciation benefits as Real Estate does! 

    Commercial assets vary so you may have to do some research on the particular asset class you want to invest in. Multifamily is big in Texas (what isn't big, eh?!). 

    I think the most important thing with this kind of capital event is ensuring that you stay tax-savvy by finding a good tax attorney who is very well with Tax Strategies. You should Google Rich Dad Poor Dad Tax guy, and get the book he wrote. 

    Whatever asset you decide to go it, you are on the right track to pivot into commercial real estate investing. 

    2Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent 路 Austin, TX 路 Member since 2015 路 5k+ posts 路 3k+ votes
    5y

    @Juan Salazar investing your money passively in Apartment syndications, all you have to do is find the right deal and then collect the check

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  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Jordan Moorhead any lead you have please let me know. Wsnt to check it out

    1Reply
  • Basit SiddiqiBusiness Member
    Accountant 路 New York, NY 路 Member since 2015 路 8k+ posts 路 3k+ votes
    5y

    @Juan Salazar

    What made you invest in Austin between 2006 and 2011. Do you see a similar market now that reminds you of Austin(2006 and 2011). You may want to consider investing in that market.

    You should also develop a strategy with what you want to do in the future.
    Maybe in the past the strategy was to grow your equity.
    Maybe the strategy now is preserve the capital along with a more safe/secure investment.

    You also mention wanting to spend time with family - you likely want to be in a situation where you can have flexibility.
    Have you considered investing in real estate and outsourcing all the responsibilities to a property management company?
    Have you considered investing in a syndication?

    You also want to see if there is anything you can do now to defer the tax hit with the sale. Are you doing a 1031 exchange?

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  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Basit Siddiqi yes sir. The idea is to do a big Chuck into 1031. I also want to pull some equity for long term stocks and will want to look into syndication (honestly a new concept for me).

    My goal would be to retire in 10 years (55 y.o.) and/or just work a normal 9-5 job where I could truly not take any work home - enjoy kids and traveling.

    I calculate that if I can double the investment in 10 years, and continue to save $100K a year, I can defetely get there.

    Syndication and REIT are 2 things I want to look into for sure. Also adding some attached 1/1 Tiny homes into our current STR to increase the cash flow - currently getting about $2.5K a month on free cash flow.

    Any other recommendations are welcomed

    JF

    2Reply
  • Allen Williams
    Realtor 路 Jacksonville, FL 路 Member since 2019 路 95 posts 路 87 votes
    5y

    @Juan Salazar

    First off, congrats on crushing it thus far! This is an awesome story. If I were you I would continue the STR game. I would look into markets that are appealing for people to visit. As restrictions hopefully continue to ease people want to get out and enjoy travel and life again. I believe people worried about their health will favor STR versus staying in crowded hotels. I live in Jacksonville and have seen people do quite well with them here. I would look into markets like Tampa, Orlando, or Jacksonville. Markets that attract tourists year round. Then sit back and watch the cash flow roll in. But that is just me. There are of course property managers who have teams that can assist with out of state investing also. Hope this helps!

    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent 路 Austin, TX 路 Member since 2015 路 5k+ posts 路 3k+ votes
    5y

    @Juan Salazar I don't know your financial situation but it's much easier when you're accredited. I invest with @Todd Dexheimer and  @Joe Fairless right now and have been happy with the returns and the way the deals are run!

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  • Steve Morris
    Real Estate Broker 路 Portland, OR 路 Member since 2019 路 4k+ posts 路 2k+ votes
    5y

    In order:

    1) Get a 1031 setup with a LOCAL QI so you get your timeline right for tax deferral

    2) What type of properties do you know?  If it's residential, I'd stick with that, but gotta imagine office in in Austin is a good deal for growth

    3) You know what you're doing and have time or do you need a manager?  If you need a manager, I might expand my search area.  If you self-manage, I wouldn't make your first deal out of town.

    1Reply
  • Claudio Salvatorelli
    San Diego, CA 路 Member since 2020 路 150 posts 路 54 votes
    5y

    Hey Juan,

    Congrats, I recommend having something in hand before leaving/selling your property to someone else. The reason is that inventory is low and capital gains also will eat part of your $1.25Million. That's why 1031 Exchange is a good option when you have another property on the hook.

    Cheers,

    Claudio Salvatorelli

    0Reply
  • David SchmiedicheBusiness Member
    Real Estate Agent 路 College Station, TX 路 Member since 2020 路 124 posts 路 68 votes
    5y

    @Juan Salazar Howdy Juan! Congratulations on the sell of your homes in Austin! College Station is coming up with some crazy ordinances on STR. With that being said they are still very profitable investments. On deciding what to do with the proceeds does come down to what it is that you are wanting to do. From your last post on wanting to possibly semi retire in ten years apartments or multifamily investments does seem like a good investment for your goal. Even though you have never done commercial investing it would definitely be worth looking into and you could even invest in a package of quadplexes or duplexes. Congratulations again on your success and best of luck with your future investments!

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  • Carrick Young
    Rental Property Investor 路 San Jose, CA 路 Member since 2015 路 83 posts 路 44 votes
    5y

    @Juan Salazar You could also do a 1031 into a NNN leased investment and wait a certain amount of time (check with QI/tax consultant) and then refinance, pull money out and continue to add that to other investments!

    1Reply
  • Gregory SchwartzBusiness Member
    Rental Property Investor 路 College Station, TX 路 Member since 2016 路 1k+ posts 路 1k+ votes
    5y

    @Juan Salazar there is good news concerning the STR in College Station.

    1. Bryan does not have a pending STR policy. Simple supply and demand say that the rates on Bryan STR are about to increase drastically.

    2. The policy that College Station has passed does not apply to multifamily. This makes an Airbnb'ing a duplex or 4-plex a very real possibility. 

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  • Caleb Brown
    Real Estate Agent 路 Kansas City 路 Member since 2018 路 4k+ posts 路 3k+ votes
    5y

    Nice job, that's awesome! If it was me I'd invest 50% in apartments, 10% in a long term/tax deferred account for later in life, 20% in stocks/mutual funds, 10% in liquid cash, 10% for a risky investment or something you've always wanted to try and 10% for fun, toys, vacation, etc. Everyone is different and has different plans. Write down 1-10 year goals and then research which asset, investment, business matches up. If you were able to net over 1M in cash then you are smart enough to grow that 1M to more. Biggest thing is don't blow it or be spend happy. Research and make the most educated decisions you can.

    2Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager 路 Lynchburg, VA 路 Member since 2015 路 1k+ posts 路 1k+ votes
    5y

    Hi @Juan Salazar. Congrats! It really depends so much on your goals. Do you want to move out of your career and into REI? It sounds like you don't so passive is the way to go. So your goal, if you decide on that, will be to find the very best syndicator to trust with your funds.

    I talk to investors all the time who have a full-time gig and are trying to create real estate wealth on the side. They are almost always disappointed with the amount of time and expense, and how little they make. Many of them turn to passive investing in commercial real estate.  There is a reason most of the wealthiest investors in the world invest in commercial real estate. Finding the right syndicator to trust is easier, and more effective, than evaluating and managing deals.  Spend the time upfront and it will pay dividends for the rest of your life.  

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  • Tom Wagner
    Real Estate Agent 路 Minneapolis 路 Member since 2019 路 338 posts 路 219 votes
    5y

    Moses Kagan is doing awesome stuff out in Los Angeles and I would encourage you to take a look at getting a piece of that market via one of his deals.

    I also would consider responsibly dialing up your leverage slightly. Interest rates are at record lows, no need for those two properties in College Station to be free and clear, and a 50% or 65% LTV mortgage with a 15-year term at ~2% would be very enticing for a number of reasons.

    Finally, with that $1.25mm I would also look at buying a fully managed apartment building in an up and coming market. Maybe at a 5-7% cap rate. Biggest risk there is over-leveraging and finding a good full-service PM. If you are careful with your LTV and you find a good PM you will come out on top.

    0Reply
  • Lane Kawaoka
    Rental Property Investor 路 Honolulu, HAWAII (HI) 路 Member since 2011 路 4k+ posts 路 2k+ votes
    5y

    Be careful of your tax gain. 

    All investors will have to pay back the depreciation recapture (losses taken throughout the hold) and capital gain (the big payout on the end which is sale minus cost basis). 

    You can find how much suspended passive losses you currently have on your IRS Form 8582 - which your CPA is likely not giving to you and in that case you should get a new one)

    1Reply
  • Randall E Collins
    Specialist 路 Member since 2021 路 267 posts 路 113 votes
    5y

    I don't understand. WHY are YOU complaining? I'm a newbie wholesaler just trying to make a buck for extra income. I wish I had your problems as well as the problems that some of the rest of you mentioned. Why not invest some of that wealth helping others achieve and get a foot on the ground in the real estate business? On another note. Try to expand your investing area/city into somewhere beside Austin Tx. Somewhere say like the suburbs of Dallas where I live?

    0Reply
  • Juan Salazar
    OP
    Investor 路 VP, General Manager 路 Member since 2021 路 23 posts 路 21 votes
    5y

    @Randall E Collins thanks for the note. I mentioned I was scared 馃槰, never saw my note as a complain. That said, I am doing some of what you are saying - investing in another area (College Station) and teaming up with people from BP that are starting out

    1Reply
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