Personally Investing in RE
Im 26 working as an associate in portfolio & asset management at a large institutional real estate investor, and love the exposure to these large complex deals were involved in. However, due to savings and other things, I have a good amount of cash that I want to deploy into CRE (~$200K).
For anyone that’s invested their own money, what kind of deals did you start out with? Looking for more of a passive income stream since I don’t want to leave my position yet, but also want to be directly in deals, as opposed to investing in a retail investment platform (BREIT, SREIT, etc).
I’m assuming some of the more experienced people have been in these shoes. How would you guys recommend getting myself into deals? Is it possible with only ~$200K to get into maybe a closed-end REP fund?
Open to other suggestions as well. But levering up and buying a smaller property personally isn’t really my ideal strategy since I work ~60-70 hours per week as it is.
What would you guys think?
Thank you monkeys
Even assuming you're able to invest in a closed-end fund, because of how small your contribution would be, the closest you'd get to the real estate is receiving (curated) quarterly reports about the fund you're invested in and being able to say that you own (but don't manage) X property. Is that direct enough for you?
If not, instead of funds, you could work with a syndicator who has no or only a few equity partners. Given that you'd be a larger portion of the capital (and therefore also exposed to more risk), even as a LP you could probably get your hands a little dirty in the details.
Another alternative is to move to a GP with the option to co-invest in the company's deals/funds. Particularly since you'd presumably be working the asset management side, everyday you'd be getting paid a salary to work directly on properties that you're personally invested in. This is where I'm at.
Curious to see what options others suggest.
I had about the same amount of money as you when I was your age, I’ll walk you through why it’s not a good idea to invest in RE ***as an LP*** at a young age.
1) Your career is already riding on the success of US commercial real estate. As you get older, this will be even more true. Use your savings to invest in other industries
2) You’re young, probably don’t have much dividend income, so you’ll be missing out on one of the biggest benefits of owning CRE - being able to use the depreciation to offset dividend income from other investments.
3) Your investment horizon is super long because you’re young. This means you can focus on investments that don’t necessarily pay current income today but could be the company or industry of the future. This isn’t the case when you’re old and living off the income from the millions you’ve saved. On top of this, your equity multiple in real estate is extremely limited compared to non-RE equity investments.
4) similar to 3, principal protection isn’t super important right now. You can afford to make moonshot investments because you have your whole career ahead of you. $200k is basically nothing in the grand scheme of your career.
5) On top of all of this, you’re paying tons of fees to a GP. It makes sense to pay these fees when you’re older and 1-4 are no longer applicable. Why give 20% of your profits to someone else if you don’t have to?
I could honestly write more reasons but I have to run.
Now… if you and your buddy are looking to take down a 10-unit building in the suburbs, raise some LP equity and earn a promote, my advice would be totally different.
A lot of closed-end funds require accreditation. Not 100% sure, but thats some minimum net worth or earnings over a couple years.
You could possibly look at smaller NNN assets, $200k might be tough but if you could find someone to throw in with you it’s doable. That’d be the lowest maintenance direct investment I think.
Also, the crowdfunding platforms give you some access to direct institutional-type development deals. These also require accreditation though, and tbh hard to find good offerings - in terms of pref, fees, and promote structure. But thats your best bet for direct investment in legit deals
Do you currently rent or own? If you currently rent, then i would advise buying a property for yourself to live in. I understand rates are high now, but if you do a bit of homework, I'm sure you can find a property in a decent market that you can afford. You can also wait a bit for prices to come down hopefully (smart owners may have locked into a 30 year loan when rates were low, but I'm sure there are a handful that refinanced with only 5 year adjustable, so my prediction is by 2025-2026, prices should come down as these owners may be forced to sell when their rate doubles.) You may also want to consider investing in multifamily (2-3 units) so that the rent you receive can help with the mortgage or you could buy a SFH and house hack.
Now there are several reasons I recommend buying your first "investment" property for yourself to live in. 1.) you can leverage up to 95% (sometimes even 97%), but if you don't want to pay PMI, you can still leverage up to 80%. 2.) You build equity rather than paying rent which is literally just money down the drain. 3.) All the tax benefits...mortgage interest deductions, tax free gains on the first $250k ($500k if married). 4.) Build up your credit score so you can make more investments in the future.
Find me another asset that provides you any of these benefits...and once you do, please let me know so I can also invest. Thanks
Also, owning an asset means you have to take care of it. So you'll end up building a lot of skills that will be important to your career. Bidding out repairs, understanding a little about how plumbing and electrical systems work, day to day maintenance of a roof, a yard, etc.
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