All Forum Posts by: Stephen Groves

Thanks @John Fortes!  I should clarify about my goals and intentions.  It's not actually that I don't have any desire to be active.  I am currently active in self-managing 9 rental units.  Instead, my goal is to explore other real estate investing avenues that are less active and see if I like them more/less than managing rental properties and to see how the returns compare to self managing rentals.  My end goal is to produce $40k-$50k income per year from all of my real estate ventures combined.  In terms of investment goals, I would need at least 12% return on my cash invested to make it worth it for me.  Hopefully I could exceed that return number.  If not, then I need to pursue other things.  In your experience, what is a ballpark estimate for expected returns in investing syndicators or lending down payments to flippers/rehabbers?  Thanks for your time and input!  

@Spencer Hilligoss .  Thanks for all that insight!  To give a little more context, I currently own and manage 9 doors so I have some, albeit it limited, experience in the real estate market.  My end goal would be to build enough passive income to supplement my other investment income, so that I could transition to a different career.  Specifically, I am looking to net 40k per year through my real estate investments.  Having managed rentals for a bit and having had enough time to build some liquid capital, I am wondering if fronting capital for a fix and flip would yield better returns for me than being a landlord for my rentals.  My background is in math and finance, so I thoroughly enjoy researching deals, running the numbers, keeping the books, etc.  What I struggle with in self managing the rentals is the maintenance and repair side of things.  I live in the rural midwest, where low cost fix and flip opportunities seem to be a good strategy.  I would love to work with someone who would oversee the repair and resale process while I front the money for the initial investment.  If I could repeat this process one to two times per year, I think it is realistic to think I could generate my 40k mostly or solely through this strategy.  

I would also be open to an even more hands off strategy, such as loaning money for fix and flips like @Ashley Hum mentioned.  If I could generate a high enough return on those loans, that could also help me achieve my goals.  

I think my next step has to be more networking to find someone I trust and that I can work with.  

@Jay Hinrichs . Thanks!  That is helpful to know and something I will certainly look into more. 

In your experience, what kind of time table are you looking at for those investments?  Also, how would you suggest I go about looking for/getting connected with someone in this business?  

Thanks to all for commenting here!  This is helpful.  I actually self manage 9 doors (between 3 buildings) right now, so I understand some of the basics of rental real estate.  While I have enjoyed the journey of renting these properties, I am trying to figure out if my next step is to purchase more properties, or find some other more passive way to be involved in real estate.  Hoping to find an investment for 100k-200k that can yield better average returns than what I could get by just throwing it in an index fund.  Whichever way I decide, I definitely know I need to network more to see what all is out there.  My dream scenario would be the one that @Michael Evans mentioned where I find the right partner who will manage the investment, while I front the capital, and then we split the profits.  

What is the best/most effective way to invest in real estate if you are a person with access to capital, but no desire/skills to become a landlord yourself?  If you had 100k - 200k to invest in real estate, and wanted to be as uninvolved with the day-to-day as possible, what options would you consider?  

I am interested to hear what everyone thinks about how you should analyze when the optimal time (financially) is to sell a rental property.  My oversimplified method, which I would love some feedback on/critiques of, is as follows  

Always good to start with assumptions:

1. I assume that any profit I make from a real estate deal will be invested in a low cost total stock market fund.  Since I have a long investing horizon (30+ years) I assume that I will average 7% growth of this investment per year.

2. I assume that the value at which I can sell my property will increase by 1% per year.  I am in a very static housing market, in a town with a small university.  Not much has changed here in the past 30 years and I expect more of the same for the next 30 years.  

3. Since I am not actively shopping for any further real estate investments, I assume that any positive cash flow I have on a property gets immediately invested into the same low cost index fund mentioned above in number 1.  

Analyzing all of the variables this way, it basically comes down to this:  Each year I keep the property, my positives are: (1) cash flow, (2) principal paydown, (3) 1% appreciation in value of property (assumption).  If I sell the property, my only positive to consider is how much interest I can make on my investment of the profit from the sale of the property.  

At a certain point, the 7% interest (assumption) I can make on the investment of the profit of sale of the rental exceeds the amount I make combined in cash flow, principal pay-down, and 1% appreciation.  In this very simplistic model, it seems to me that is the point at which to sell.  Of course of all of this relies on my assumptions being accurate...something that is impossible to project!  

Because I'm sure it will be brought up, tax considerations seem negligible to me considering my tax bracket, my long term capital gain tax being 0%, etc.  

I would welcome some discussion/feedback on this type of analysis.  What other things am I missing and what should I consider?  

Multiple of my recent seller financed deals have allowed me the opportunity to put zero money down.  I have had better luck negotiating zero money down with the seller than I have had negotiating a lower price point.  In short, I am willing to pay market value for the property in exchange for putting zero of my own cash into the deal.  I have taken deals in which I have very small, or zero, cash flow after financing.  I have cash reserves for unexpected cap ex's and am playing the long game on these properties, planning to make my money either once the mortgage is paid off or during the sale of the property.  

How valuable is having zero of your own money invested in the deal?  What concessions in other areas would you make to have the option to put no money down?  

How would you analyze the following deal?

Option 1: You get $320 cash flow per month.

Option 2: You get $65k in cash today, and lose $90 cash flow per month.

The $65k can be used however you want. Assume rents are mostly static and cash flow will remain largely the same over a 20-30 year period.

This is a simplified version of the dilemma I am having on whether to take a private lender up on his offer to loan me $65k and wrap it into an existing contact for deed.

All my analysis suggests that the $65k now is the better option. I have plenty of cash reserves to cover the -$90 cash flow per month. I appreciate any and all thoughts!

@Andrew Flora thank you, that is helpful. I do have both some cash reserves currently and also some W2 income. I currently have 20k per year budgeted to save/invest/buy more property. That money can be used to fund unexpected expenses.

@Sean Tagge thanks for the response. I am heavily considering exactly what you described. I actually did that same strategy with a 2 unit multi family. I resulted in a $200 per month smaller mortgage payment, and I was able to pull $30k equity out to fund another DP.