Author Topic: What would you do with $150K?  (Read 2285 times)

ajstro

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What would you do with $150K?
« on: January 06, 2018, 08:51:43 AM »
Hi everyone, this is my first post!

Long story short, I recently sold my San Diego condo making a profit of $150k.  I bought the condo in 2013 while the SoCal market was still recovering.  Although I got a great deal on the condo, I had to use an FHA loan and I was paying out of pocket $200 every month to cover costs.  I sold the condo because I knew I could use the gained equity for better income streams.  Currently, I'm in the process of moving to Virginia.  My plan is to leverage the $150K and buy 4-6 properties in that area.  Originally, I planned on investing in a friends company who specializes in TurnKey, hands off, investment properties.  I've decided against that route because I feel like I'm paying the company a premium for things I can do on my own.  I'm looking at buying properties in C or B neighborhoods and managing them myself.  I would prefer multifamily properties over single family homes.  I would love to find commercial real estate with upstairs apartments.  The only place I've found multifamily properties is on loopnet and sometimes on craigslist.  The $150K will also be used for repair costs and any money left over will be placed in a maintenance fund.  I know $150K isn't a lot, but maybe I'm just jaded from the San Diego market where people are buying, in cash, $500k-$750K properties.  I think if I do this right I can create the passive revenue stream that allows me to retire in 10 years.  On a sidenote, I've also thought about throwing the money in an S&P 500 tracker.  With the tax reform, this year should continue to have bullish growth.     

If you were in my situation what would you do differently?  Also has anyone paid for loopnet's full access, and is it worth it?  Thank you for any insights or opinions you might have!

Dicey

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Re: What would you do with $150K?
« Reply #1 on: January 06, 2018, 09:11:43 AM »
1. Go to BiggerPockets and start binge reading.
2. Avoid "C" neighborhoods. Be skeptical of "B" neighborhoods as well. There"s a reason for the three "L" expression.
3. After you move, spend at least six months studying the market. Mistakes are costly.
4. While you learn, park the money somewhere safe.
- or-
5. Read and invest as per jlcollinsnh and let your money grow passively.

Congratulations on the nice appreciation! However, you have left out too many details to offer more than very general suggestions. Here's one more:

6. Don't expect the CA experience to be typical of other parts of the country.

Keep posting. It will be interesting to follow your journey.

ajstro

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Re: What would you do with $150K?
« Reply #2 on: January 06, 2018, 09:45:57 AM »
Dicey, I appreciate your advice.  I'm currently stuck in Bahrain, due to the East Coast snow storm so I have nothing but time on my hands.  I grew up in Nebraska where real estate doesn't appreciate rapidly and I completely understand what I experienced in San Diego is atypical.  In fact I would prefer to invest in areas that are more predictable.  I plan on holding onto these properties as a long term investment.  What other, more specific, information would help the masses answer the question?

Cwadda

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Re: What would you do with $150K?
« Reply #3 on: January 06, 2018, 10:42:37 PM »
I recommend connecting with real estate investors through Biggerpockets and local meetups. I also recommend getting to know the area really well (literally drive around for hours), and finding investor-friendly agents. Don't use that agent that doesn't know what they're talking about and says a property is a good investment when it covers the mortgage.  Also, find a good commercial brokers.

Learn about cash flow, listen to podcasts, read books, and immerse yourself in real estate investing.

ajstro

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Re: What would you do with $150K?
« Reply #4 on: January 07, 2018, 12:20:33 PM »
I've been setting up my network before I arrive.  I have a great real estate agent that understands what I'm trying to achieve.  She is also driving me around the city and showing me the areas she would recommend.  I have a couple of meetings set up with lenders.  I also have a meeting with a contractor. 
I am searching for a home inspector that I can trust.  Any reason I should use a commercial broker if the property doesn't require commercial lending?  I can use a conventional loan for properties with 4 units or less. 

I definitely plan on finding the local REI club, and meeting the local investors.

Regarding types of properties what have you found to be the most lucrative?  I know this a very subjective questions and depending on the variance of variables answers will differ, but my underlining question is whether or not multifamily properties are better investments than single family properties?  Whenever I have found a duplex for sale, I work the numbers, but I can't find a compelling argument that says it's any better than two single family homes.  I've been told that you make your money from Multiunit properties, but the only way I see that happening is if you can find a duplex that's so cheap that one unit will cover the mortgage.  In that case the question now arises why is it so cheap?  Again I know in this situation I would need to look at the estimated repair costs and decide if the juice is worth the squeeze.  Thanks again for the insights!

DoubleJ

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Re: What would you do with $150K?
« Reply #5 on: January 07, 2018, 02:04:35 PM »
What part of Virginia are you looking in? My family and I are fairly new investors in Southeastern Virginia, currently have a SFR and a tri-plex, and hoping to add a 4-plex by the end of February. I must echo what everyone else said about Biggerpockets! I personally find multi-family properties on realtor.com as they appear to be one of the few real estate websites that allow you to search multifamily for free. From our experience the multi-family definitely brings in more cashflow, but that is not the only factor that make them a better investment. They can save you a lot of money during times of vacancy as instead of having to cover the entire mortgage, you only have to cover the portion of the mortgage not covered by the empty unit. They also save you time in management as you only have to drive/walk/bike to one place, instead of having to visit multiple SFR. I still look at SFR, but we are now trying to focus our business on multi-family.

coopdog

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Re: What would you do with $150K?
« Reply #6 on: January 07, 2018, 07:17:39 PM »
I'm not against Biggerpockets necessarily. Just keep in mind the vast majority on that forum and nearly all the podcast interviews are with people who have never invested through a bear market. In 2009, my full time assistant made more money than me. It's a whole different ball game when there is blood in the streets.

I've never been to a "meet-up" specific to re investing, but I suspect it's packed with other inexperienced investors looking for deals/help. I'd suggest networking within you natural networking circles and mention your real estate interests. Find some people with real experience and work together.

I'm a full loopnet subscriber. Hard for me to say if it is worth if for someone like yourself. I use it on the sell/brokerage side mostly. I may have found one deal in 10 years on loopnet. Generally speaking, the best deals are just not plastered all over the internet. My best deals have come through my network via word of mouth or I sensed a hole in the market and set out to find a property to take advantage of the opportunity (the second example most recently being a warehouse). 

Another great way to break into the commercial ranks is to network with small business owners. Find businesses that are growing and need a new location. You purchase and they lease from you. Instant tenant and the numbers aren't a guess.

The richest people I know in real estate are introverts who can make themselves go to cocktail parties. They know people and love spreadsheets. 

« Last Edit: January 07, 2018, 07:35:28 PM by coopdog »

ajstro

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Re: What would you do with $150K?
« Reply #7 on: January 08, 2018, 03:49:44 AM »
What part of Virginia are you looking in? My family and I are fairly new investors in Southeastern Virginia, currently have a SFR and a tri-plex, and hoping to add a 4-plex by the end of February. I must echo what everyone else said about Biggerpockets! I personally find multi-family properties on realtor.com as they appear to be one of the few real estate websites that allow you to search multifamily for free. From our experience the multi-family definitely brings in more cashflow, but that is not the only factor that make them a better investment. They can save you a lot of money during times of vacancy as instead of having to cover the entire mortgage, you only have to cover the portion of the mortgage not covered by the empty unit. They also save you time in management as you only have to drive/walk/bike to one place, instead of having to visit multiple SFR. I still look at SFR, but we are now trying to focus our business on multi-family.

I'm planning on investing in the Norfolk, Virginia Beach area.  I originally, wanted to invest in my home state of Nebraska, as an out-of-state investor, but as a new investor I want to be more hands on with the properties.  I also think I can find better deals when I'm in the area I'm investing in.  I really need to learn the area.  I've learned that Norfolk has a lot of small pockets of good neighborhoods surrounded by questionable areas.  I need to spend a lot of time driving around the city, but I probably need to wait until the 12 inches of snow have  melted.  Fun Fact, Virginia Beach owns only 2 snow plows.  Luckily, my full time job doesn't start until mid Feb so I have some time.    Thanks for the realtor.com suggestion.  I agree with your reasoning to own multi-units.  It would seem to be far easier to manage one property with multiple units, where fixed costs are spread between multiple tenants, rather than multiple properties.  Did you find all of your units on realtor.com?  I've been looking at some of the bank foreclosure auctions for other lead generating sources.

I'm not against Biggerpockets necessarily. Just keep in mind the vast majority on that forum and nearly all the podcast interviews are with people who have never invested through a bear market. In 2009, my full time assistant made more money than me. It's a whole different ball game when there is blood in the streets.

I've never been to a "meet-up" specific to re investing, but I suspect it's packed with other inexperienced investors looking for deals/help. I'd suggest networking within you natural networking circles and mention your real estate interests. Find some people with real experience and work together.

I'm a full loopnet subscriber. Hard for me to say if it is worth if for someone like yourself. I use it on the sell/brokerage side mostly. I may have found one deal in 10 years on loopnet. Generally speaking, the best deals are just not plastered all over the internet. My best deals have come through my network via word of mouth or I sensed a hole in the market and set out to find a property to take advantage of the opportunity (the second example most recently being a warehouse). 

Another great way to break into the commercial ranks is to network with small business owners. Find businesses that are growing and need a new location. You purchase and they lease from you. Instant tenant and the numbers aren't a guess.

The richest people I know in real estate are introverts who can make themselves go to cocktail parties. They know people and love spreadsheets. 



I agree that having a strong network is one of the keys to success.  Knowing that person(s) unlocks so many doors compared to the investor on the outside looking in.  I value working with people I can trust, people that  have integrity.  I find those are the people that stand the test of time.  I'm excited for the team of people I'm building relationships with.  This is not my first time at real estate investing.  I had a mentor who owns one of the biggest wholesale real estate companies in the country.  I learned a lot from him, and more importantly I learned how difficult real estate investing can be.  I gave wholesaling a shot, but in SoCal's saturated, over inflated market I wasn't successful.  I've been doing a lot of reading on biggerpockets and there's some good information to gain from it.  I'm at the point where I need to start moving forward and start looking at actually investing.  I can only learn so much from reading, but until I start making deals I'm at a standstill. 

I think you're right that I need to find other ways to find deals.  If I can find a deal on the internet so can hundreds of other people.  I remember from my wholesaling days one technique to find properties was driving around neighborhoods looking for those properties that looked neglected as potential signs of a potential eager seller.

I need to get smarter on commercial real estate especially zoning laws in my local area.  I do feel like its a better investment over single family homes.  Solely for the fact that you write multi-year leases with fixed income, and the tenants have a stake in keeping the property looking professional.  Do i have enough working capital to break into commercial real estate?  I have enough capital to buy one maybe two commercial properties.  From your experience is that a better investment over multiple single family homes?  I do like the idea of having fewer properties that generate the same income as a bunch of smaller properties.  No one puts value on time, and the less time I spend running around the city the better.  Regarding time, my mentor once said, no rich man ever wishes for more money on this death bed.  When you buy your property do you normally have tenants in mind before buying the property?  Take for example the warehouse you purchased.  You said there was a hole in the market.  Within your network did you know of a business owner that was expending and in the near future would required the warehouse?  I think thats my one fear with buying commercial real estate is having one of those vacant property that sits empty forever.  I think everyone knows of that building(s), in their local area, that have been empty for years.

coopdog

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Re: What would you do with $150K?
« Reply #8 on: January 08, 2018, 05:19:08 AM »
Norfolk sounds like one of those places that lives or dies on shipbuilding (i.e. defense) but I really have no idea. Also sounds small enough to meet lots of people quickly.

Yes. $150k is sufficient to get you into a small commercial building. If you partner and lever up 80%, you're in the range of a $1.5 million property.

On my warehouse deal, I knew zoning and codes in my area made it impossible to construct an all metal industrial building with minimal landscaping. The older buildings were going for a premium. The people who needed these buildings couldn't pay the lease rates, but they still must have a space. So I set out to find the closest in terms of drive times. I never had a problem keeping it rented.

I've never owned residential rental. I've crunched numbers on them countless times and they have never past that test. I manage the leases for a client's residential units. They are stable and pretty hands off for him, but the returns are crap in my opinion.

Commercial is not hands off.  Multi tenant can require more day to day than residential. Someone has to make sure the trash is picked up, leaves removed, snow removed, etc. That someone is me in my partnerships and I get paid (but not enough!) to do that. The single tenant buildings are easier. You just put all that stuff on the tenant.

I may not have a specific tenant in mind, but I do have a general idea. i.e. small attorney's office, real estate office, hair salon, etc. Ask yourself why they would want your building over competing properties. If I have no trouble answering that question, then that's when I get the warm and fuzzies.




« Last Edit: January 08, 2018, 05:26:07 AM by coopdog »

sammybiker

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Re: What would you do with $150K?
« Reply #9 on: January 08, 2018, 06:32:16 AM »

On my warehouse deal, I knew zoning and codes in my area made it impossible to construct an all metal industrial building with minimal landscaping. The older buildings were going for a premium. The people who needed these buildings couldn't pay the lease rates, but they still must have a space. So I set out to find the closest in terms of drive times. I never had a problem keeping it rented.

I've never owned residential rental. I've crunched numbers on them countless times and they have never past that test. I manage the leases for a client's residential units. They are stable and pretty hands off for him, but the returns are crap in my opinion.


@coopdog, not to derail too much but I'd really like to see a numbers example of a commercial deal, when you get a second?

I ask because I'm completely residential and all the numbers I run on commercial deals don't pan out.  I'd be keen to see how you approach things.

coopdog

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Re: What would you do with $150K?
« Reply #10 on: January 08, 2018, 05:51:52 PM »
OK. Found my old spreadsheet for the warehouse-

Purchased in 2010 for $157,000 with cash at auction
Made about $7,500 in improvements

Rented for about $1,800 a month
Gross = $21,600
Less vacancy of 10% (don't think it was even this high) = ($2,160)
Effective Income = $19,440

Operating Expenses:
Taxes = $1,450
Insurance = $1,100
repairs and maint = $600
tax prep = $100
Total OpEx = $3250

Net Income = $16,190

One rent escalation about year 3 to $2,000 a month
3% expense escalators

Cash flows after taxes

Year 1: $14,520
Year 2: $14,480
Year 3: $14,405
Year 4: $15,947
Year 5: $15,834

Sold in 2015 for $250,000

Before tax IRR 18% after tax 14.5%

Certainly not setting the world on fire, but not bad either. Would have been a whole lot better levered up, but it can be tough to borrow money when your assistant's tax return is healthier than your own.

Frankly, I could have managed it better and got a little more rent and probably a bit higher sale price.







« Last Edit: January 08, 2018, 05:53:23 PM by coopdog »

Cwadda

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Re: What would you do with $150K?
« Reply #11 on: January 08, 2018, 07:10:04 PM »
Quote
Regarding types of properties what have you found to be the most lucrative?  I know this a very subjective questions and depending on the variance of variables answers will differ, but my underlining question is whether or not multifamily properties are better investments than single family properties?  Whenever I have found a duplex for sale, I work the numbers, but I can't find a compelling argument that says it's any better than two single family homes.  I've been told that you make your money from Multiunit properties, but the only way I see that happening is if you can find a duplex that's so cheap that one unit will cover the mortgage.  In that case the question now arises why is it so cheap?  Again I know in this situation I would need to look at the estimated repair costs and decide if the juice is worth the squeeze.  Thanks again for the insights!

The deal is in the buy. The most lucrative deal IMO is when you can buy a distressed property, force appreciation, then cash out refinance, getting all of your initial investment back.

sammybiker

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Re: What would you do with $150K?
« Reply #12 on: January 09, 2018, 08:19:27 AM »
Thanks for the numbers.  Awesome deal, well done.

I guess the thing I can't wrap my head around in commercial is the vacancy and knowing that I'll be able to keep the property rented.  This vs owning a residential real estate in a decent school district - I know that I'll always have that thing rented.

I see far more vacant commercial buildings, even in today's booming market than I do residential. 

But I think what it comes down to is really understanding the commercial market, what sort of building and location a business is going to be looking for and going after that niche - as you did and mentioned in your earlier post.

Thanks again for the details. 

OK. Found my old spreadsheet for the warehouse-

Purchased in 2010 for $157,000 with cash at auction
Made about $7,500 in improvements

Rented for about $1,800 a month
Gross = $21,600
Less vacancy of 10% (don't think it was even this high) = ($2,160)
Effective Income = $19,440

Operating Expenses:
Taxes = $1,450
Insurance = $1,100
repairs and maint = $600
tax prep = $100
Total OpEx = $3250

Net Income = $16,190

One rent escalation about year 3 to $2,000 a month
3% expense escalators

Cash flows after taxes

Year 1: $14,520
Year 2: $14,480
Year 3: $14,405
Year 4: $15,947
Year 5: $15,834

Sold in 2015 for $250,000

Before tax IRR 18% after tax 14.5%

Certainly not setting the world on fire, but not bad either. Would have been a whole lot better levered up, but it can be tough to borrow money when your assistant's tax return is healthier than your own.

Frankly, I could have managed it better and got a little more rent and probably a bit higher sale price.

tralfamadorian

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Re: What would you do with $150K?
« Reply #13 on: January 09, 2018, 09:30:05 AM »
Yes, thanks for the information on your commercial property! This is something I also have considered for the future.

Regarding Norfolk for the OP, as you've mentioned there are many not very good parts of Norfolk. Make sure your team includes some folks who have lived there for a long time and really know which parts are on the rise and which are slipping. Also, the sea level is rising in Norfolk, which was a low-lying area to begin with. And thirdly, I would recommend taking some time to think about whether you really want to tie your future investment to the whims and profitability of the shipyard- Norfolk's economy is completely dependent upon it and if you buy there, your investment would be too.

coopdog

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Re: What would you do with $150K?
« Reply #14 on: January 09, 2018, 11:47:34 AM »


But I think what it comes down to is really understanding the commercial market, what sort of building and location a business is going to be looking for and going after that niche - as you did and mentioned in your earlier post.



Agreed. It's my full time job and I've been at it in some capacity for 17 years. Nearly all of it on the commercial side with some residential brokerage sprinkled in.  I have nothing against residential re. Just not my thing. I manage about 250k sf of industrial, so I was pretty confident in the warehouse deal.

However, I think once you know what to look for and how to evaluate a market or sector, you can figure a new market or sector pretty quickly.

DoubleJ

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Re: What would you do with $150K?
« Reply #15 on: January 09, 2018, 05:50:25 PM »

I'm planning on investing in the Norfolk, Virginia Beach area.  I originally, wanted to invest in my home state of Nebraska, as an out-of-state investor, but as a new investor I want to be more hands on with the properties.  I also think I can find better deals when I'm in the area I'm investing in.  I really need to learn the area.  I've learned that Norfolk has a lot of small pockets of good neighborhoods surrounded by questionable areas.  I need to spend a lot of time driving around the city, but I probably need to wait until the 12 inches of snow have  melted.  Fun Fact, Virginia Beach owns only 2 snow plows.  Luckily, my full time job doesn't start until mid Feb so I have some time.    Thanks for the realtor.com suggestion.  I agree with your reasoning to own multi-units.  It would seem to be far easier to manage one property with multiple units, where fixed costs are spread between multiple tenants, rather than multiple properties.  Did you find all of your units on realtor.com?  I've been looking at some of the bank foreclosure auctions for other lead generating sources.


Our realtor has actually brought us all the current properties that we own. Yea, Norfolk definitely has some good, and a lot of not so good areas. To get a quick glimpse when I am researching properties, I like to use trulia.com which gives you the relative crime rate around the property that you are interested in. TRIG is one of the main real estate groups in the area, I travel for work often so have not been able to attend a meeting, but they seem to be pretty good and cover a range of topics, there is a membership fee though. As far as the mustachian community goes, a member created a facebook group for Hampton Road mustachians, fyi.

JacobEhrgott

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Re: What would you do with $150K?
« Reply #16 on: January 14, 2018, 06:45:37 AM »
Not a huge fan of commercial RE right now. With the internet exploding tons of these brick and mortar offices are falling by the wayside. Too much supply not enough demand price per square foot will be dropping not increasing on office and store space imo. Id stick to residential.

clarkfan1979

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Re: What would you do with $150K?
« Reply #17 on: January 15, 2018, 06:37:57 PM »
I would buy a 4-plex and live in one of the units. With 10% down, I would look for properties in the 500K range.

If you buy a 4-plex and live in it you can get a owner occupied rate and you only need 10% down. If you buy more than 4 units you will need 25% down and the rate will be higher (commercial loan). Commercial loans are typically 1% higher than a owner occupied loan and typically only fixed rates for 10 years and then variable.