Where to invest $1.4m to maximize rent? (Paying cash)

Question

In a couple months, I’ll be investing $1.3m - $1.4m into real estate, and I’ll be looking to pay cash and not have any loans. My goal is to be profiting $6,000/mo or more (if possible) after expenses, including property management. I’m single and I want to be able to quit my job and earn enough from my rental income to focus on starting a business. I don’t want to take out any loans because I don’t want the risk or reduction in rental income.

Where can I earn $6,000/mo in profit by investing $1.3m - $1.4m in real estate? I’m just starting my search, and I’m currently looking at $300k - $350k new construction single family homes in Chattanooga and the suburbs around Nashville. The rents there seem to be high relative to those purchase prices. Where else should I be looking?

I’m not particularly interested in buying old, run-down properties. New and recent construction appeals to me because I won’t have to replace the roof or HVAC for 10+ years.

Michael Fraulo · Answer

$6,000 per month or $72,000 per year, which is your NOI. Divided by purchase price of $1.3mm (using all cash), would be a 5.5% cap rate. You could park that money in the bank and get close to that. Why not just buy NNN or commercial property where you may have less management. Under your scenario, you would have to buy around 4 homes. Something else to consider.

James Hamling · Answer

Yeah Shane, your expectation is so realistic I think your biggest problem is going to be sorting through all the real viable potentials.

In my primary A-class market, you hit the nail on the head.

We have new built properties, $325k-$375k, A class area, properties, tenants.   Getting rents in the $2,500 - $3k range.

Yeah..... at least for myself this is a super easy one. Tack on exceptional market appreciation, uber strong economics etc..

Chattanooga is an interesting market too only thing that rubs me wrong is the median incomes, there really lagging. And as I have toured the market and asked questions of who's buying/renting things I was told out-state persons way too much for comfort. I like to see a market standing strong on it's own 2 leg's not propped up by out-state $ because eventually it has to stand on it's own.

I love TN and there is a lot of great stuff going on there but I would say it's priced UP on future growth vs current market fundamentals.

Same thing happened in TX and now we are seeing the inevitable pull back correction.

Chris Seveney · Answer

become a private lender. you would make 2x that amount as cashflow just do not get appreciation, but you could invest the delta into real estate/appreciating assets.

Shane Finnegan · Answer

@Chris Seveney Isn't there a ton of risk in private lending?

Becca F. · Answer

You don't mention your location but are you in the Nashville or Chattanooga area or close enough to drive there/do a short flight? I considered Nashville but decided to look closer to home (Reno or Las Vegas because Nevada has one of the lowest property taxes in the country and good appreciation) but don't have kind of capital you do and I'd be taking out a loan so not making any offers for now.

Talk to local investors (someone unbiased, not trying to sell you anything). Where are these Class A properties and new builds in the Nashville area? You mentioned being on a 45 day time line to identify properties because of the 1031 exchange so you have a little time to fly/drive out to your prospective markets.

Some suggestions:

- real estate debt funds (would need to vet the organizations). I looked at two of them that had 7.5% to 9% return. I felt that this was a little less risky than being a direct private lender but I'm not involved in lending to anyone so I could be wrong.

- Delaware Statutory Trust: I considered selling properties and doing a 1031 into DST (the idea being to be less work than managing rentals). There are fees and the downside is not having direct control like your owning your own property. Again need to research the organizations.

- rent by the room/co-living. You can usually get more rent than renting to a single person/household. This would depend on the market

- mid-term rentals: could get higher rent but you would need to furnish the home, pay for utilities and WiFi, depends on the market. People who travel for work (travel nurses/medical workers, business people), people displaced from their homes for insurance reasons (e.g. fire, flood victims), etc.

Could diversify with a combination of long-term rentals, mid-term, real estate debt funds, other types of investments (REITs, index funds, etc) - not sure of the tax implications with 1031.

Shane Finnegan · Answer

@James Hamling Why are you commenting on posts asking for help if you aren't offering help? Is it just to advertise your service and promote yourself?

James Hamling · Answer

I appreciate your position and desire Shane to get the golden road map handed out here for free.

Thing is, I do this for a living.

What goes into achieving such commanding knowledge as I have, is no less than a few hundred hours a year of active market monitoring, hundreds more hours of travel touring markets, hundreds more hours networking.

The secret is less about finding markets of opportunity as it is monitoring for markets of opportunity.

And I'll be honest, I don't like competition.

What smart person would? When you have some great honey-holes who in their right mind would shout it from the hill tops?

I have lent more then ample information, arguably way too much information, over various posts all but drawing out the map in crayola for those willing to seek.

But I am sorry, I am not interested or willing to broadcast publicly a detailed map of what, where, how. That is a service I sell, because it's worth it as am I.

I will give you one tip, BlackRock is a competitor to what I do. No, of course they don't do it putting the name BlackRock front and center but it's them. If one does just a bit of research it isn't hard to find out under what names they do this and to then lookup where they are doing what.

And they are not chasing cash-flow, there equity investing. That's a very big confirming stamp of approval on appreciation thesis when BlackRocks army of quants has indicated the same.

Shane Finnegan · Answer

@James Hamling Please tell me where you're investing in real estate and hitting those numbers on A Class properties. That's why I created this post. I need guidance.

Shane Finnegan · Answer

@Andreas Mueller If you were buying cash and wanted to have zero loan risk, would you still buy multifamily in Nashville. And when you are talking about Nashville, are you talking about the suburbs around Nashville? The city proper area of Nashville is very expensive and $1.4m won't go very far. Also, I'm hesitant to buy old properties that need renovation because there's more risk there. Furthermore, idk if that would work with a 1031 exchange.

Where to invest $1.4m to maximize rent? (Paying cash)

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