Real Estate Investing
Have saved a decent chunk of change as a result of frugal habits through my analyst stint + beginning of PE stint. Anyone here have experience with small scale real estate investing? Don’t have a preference for a specific category (SFH, MFH, commercial, etc.), just want to hear how people have been able to kick start this process / what types of returns you’ve seen?
Saved up money and invested with my family. Started with a small sum (~100k) and bought a precon. Market went crazy and we sold for a $400k profit over a 3 year period.
Used that money and other savings to buy some industrial land and two commercial buildings. This was not all at the same time and occured over the course of 1.5 years. Sold the land earlier this year for a hefty profit and am in the process of fully leasing out 1/2 commercial buildings. The other is half leased and cash flowing. Will be selling this fully leased building soon after and should see a ~600k profit on the low end.
From my understanding and experience, smaller dealers are usually a lot more lucrative (if you're buying right) because the market isn't as efficient at this level. We bought all these assets under market value because we pounced on the opportunities as soon as they became available and didn't hesitate to put in (mostly) firm offers.
Can you talk about how these opps were sourced please ?
Was my question as well. And strongly agree with the thesis that small market is most inefficient, hence my interest.
1/3 was through MLS, 1/3 was an exclusive listing through a broker and 1/3 was an off market acquisition through a friend who knew someone looking to sell but had no luck via MLS (due to unrealistic expectations at the time).
I have an idea of what you mean by can you elaborate on the inefficiences you mentioned? Just want to see if we are looking at things the same way.
Stuff like being able to buy so deeply under market value is the one that comes mostly to mind. As well, people not understanding the full value of what they own, mostly because they don't have access to capital that would allow them to unlock that value.
At deals $5-10M+, you start to run into people with smart money and they start to run the yields down because they know exactly what can be done with the property and they have sufficient access to capital.
Even though I work in real estate, I struggle to understand why you would want buy your own property unless you check one of the below boxes
A) you plan being a RE entrepreneur full time at some point
B) you work 40 hours a week and need a side hustle
C) you have so much capital to deploy that you can afford to pay someone to property manage and handle all of the menial work
It’s so much freaking work. I had a dentist as a landlord and she was making nothing off of us (I could see her purchase price via Zillow and obviously knew how much she was charging for rent). And we were constantly calling her with problems. If she just took her $150k down payment and put into blue chip stocks she for sure would have made more money and had zero headache
Ive been looking a 3 and 4plexes in my area and just can’t bring myself to pull the trigger. I don’t need another job on top of my current job
I think you’re oversimplifying a bit; you don’t have access to her underwriting assumptions / thought process so who knows how rigorous she was in analyzing the purchase. I had a similar situation where an actual realtor broker from out of state owned a condo in the city and was leasing to me - he had bought it because his daughter lived around the corner, and rented it because he wasn’t ready to move there yet. Long way to say that even ‘sophisticated’ players may make sub-optimal moves.
She used to live in the condo and then moved out and bought a bigger one. So yeah she prob didn’t do any underwriting.
My point is - even if she bought it at the perfect price and was clipping 5% coupon every year, it’s still a ton of work for that relatively small amount of income. I would rather invest $50k in a syndicated deal if I want diversification and a 5% yield. I never have to lift a finger that way and the returns are likely similar
For me, this was the whole point of working in real estate. I didn’t want to work for someone else my whole life. I wanted to own enough property one day to support myself and be my own boss. Maybe it’s cliche but that’s my goal. I originally thought that was why everyone got into real estate, but learned over the years that it’s different for everyone. That being said, I own a few properties that are 3-5 units each. My suggestion is to house hack your first multi unit if you don’t already own a home. Don’t buy real estate and then go pay rent somewhere. My other piece of advice is not to get too caught up on the cash on cash on your first deal. I bought my first property about 3 years ago. Cash on cash was about 8% at the time (which I felt was low back then) but I believed in the location and it was a solid property. Since then my equity has tripled and rents have increased significantly (20%+). Sure, there was a lot of luck there and we all know how rents and values trended up this past year. But if I got caught up on that average looking CoC I would have never done the deal. That being said, don’t be dumb. Underwrite repairs, vacancy, etc. Things will break and you will have regular maintenance and turnover. You will most likely have to be your own PM unless you find a killer deal where you can afford to pay someone else. Another piece of advice, get something close to your office/home. I get a call every few months for an issue. I pop over after work or during lunch to take a look if necessary. I have repairmen I know and trust that I can send to the property and I don’t even need to meet them there. For me, this is a gateway to grow bigger. Maybe in a few years I’ll have traded out of some of my deals into something in the 10+ unit range. Maybe sooner. Nothing happens overnight but I’m farther than where I thought I would be a few years ago and I’ve learned so much from owning a few small deals. Beats the hell out of putting my cash in the s&p. When I get bigger and the deals can afford it, I’ll hire a PM to handle things. Maybe in 5-10 years I’ll be raising funds to put big deals together and I’ll have enough of my own capital from these “small” deals I did to actually take a meaningful chunk of the GP.
Awesome comment, thanks for sharing. Do you work at a GP in acquisitions or development? If so, how has that informed these personal property investments of yours ? I’d imagine there’s a stark difference, but could be wrong. Thanks.
One of those, yes. It’s a significant difference, but at the same time it’s the same underwriting principals. You just have to make the right assumptions. A 300+ unit deal will have a much lower cost per unit for repairs/maintenance than a 5 unit deal. Same goes for pretty much all other expenses. Feel free to PM me any other questions.
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