What types of real estate side hustles do people have? My intention is to work in real estate in a full-time capacity, but also have a side hustle like owning my own commercial properties or being a broker. I would like to hear of anyone's experiences with their real estate side hustles and if it is actually feasible while working full-time. Feel free to share both success and failures.
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Depends. Where are you working, and what is your "side hustle"? Being a broker while being a full time analyst for a REPE shop isn't feasible. Owning a small multifamily building on the side, and even self-managing it? Much easier.
A lot of it comes down to corporate culture. Lots of place won't mind if you're running a couple units on the side, in a certain light it can be accretive to your skill set as a developer/acquisitions employee.
I owned a couple small multifamily buildings while working for a developer, and it was fine as long as it didn't interfere with getting my shit done for my job. Was also a great launching pad, as it gave me the small amount of income and security to go out on my own
What was your first deal? Owner occupied duplex or something similar? I’m looking at doing this but finding deals that CFADS positive at 3.5%-5% down is impossible right now. Would almost prefer a correction to reset seller expectations.
5-10 unit multifamily. Honestly, the deal has been a total disaster, it's been 5 years and if we sold today we'd have to exit under our basis, just way too much optimism on the ease of management, tenant turnover and rent increase, etc.
That being said, it was a great learning experience and the building was cheap, so even getting creamed we'll probably end up getting our capital back for a low-risk deal, and learning a ton about multifamily acquisition and rehab in the process.
I sold weed for a couple years while I was an analyst. Really helped bridge the gap when I was making a small salary with no bonus
What are your rates?
$30 / Unit, $10 one time allowance for paraphernalia, 6% / 4% commission on new and renewing business respectively,
is it good business? I heard that in order to really make that work you have to build up a big book of clients. And I'd imagine that's hard to do part-time. Keen to learn whether the rumors are true. Just for curiosity-sake.
Currently working on piecing together first private syndication deal for value add multi. Have not closed on our first property yet (in DD) but have noticed the following: 1. Finding money isn't terribly difficult for these smaller capitalization profile deals ($2-5M) 2. Getting proof of liquidity is critical to getting brokers and owners to believe your story 3. Getting a guarantee on the acquisition is by far the hardest part. All these banks want to see a guarantee equal to 100% of the value of the note and nobody wants to touch that. Otherwise be prepared for full recourse.
Hi, on your third point, when you say guarantee, do you mean the banks have a "net worth" requirement? where the net worth has to be equal or greater than the loan amount? I have heard of Fannie/Freddie SBL loans having that requirement . I have also heard that many bring partners on board to satisfy the net worth requirements
Yes. Many do. Sometimes a liquidity requirement too, so you can't simply own a bunch of stuff.
Sometimes, they will bring on guys who own 1% of the ownership structure but have basically all the NW/liquidity backing.
I don't just mean liquidity. I mean a repayment guarantee on the note in addition to pledging the asset as collateral.
I have heard of guys paying an LP who is willing to sign a "guarantor fee" but generally people do not want to touch that liability in addition to already contributing their at risk equity.
If anyone has ideas for how they have dealt with this it would be much appreciated.
This is the second time this week I've heard that comment. Made me think I should start a fund just providing guarantees on non-recourse loans. I know some banks will line up a guarantor for you, but obviously they charge you for that.
what banks do that?
Yep, we have a partner that does just this thing. When I worked at a commercial bank we actually approved a loan with this guy's fund's guaranty. Weirdly, my mother was just called up today and asked to guaranty a loan for her step son-in-law for $500,000. He offered her $15,000 for it, but she declined.
Tacking on to this, what type of rates have you guys seen for the small private side of loans? I have a ballpark of SFH resi/primary resi since I just did it, and know the rates for the larger deal sizes, but just curious if there's any bps spread between what an institution would get on something vs what a small private syndicate/HNW would get (thinking like the 2-10M range).
If you were to go Fannie, your rate on a $2-10MM, 10yr, 75% LTV and 1.25x would be about 5% today, assuming you were going along with the Green Efficiency requirements and the MB didn't ask for any pricing waivers or what not. If it was relatively affordable (below 80% Avg median income), you could probably get 10-20bps reduction off the FRM.
If it was straight conventional mortgage, you'd have about a 5.25% IR. But again, if it's affordable and you don't want to put in the energy savings measures, you could probably get it to around 5-5.05%.
Edit: This is for Fannie Mae loans, not sure about private syndications.
If the MF was less than 50 units, you could have rates around 4.85% for conventional mortgages. Green would be 4.75%.
Interesting, thanks. That's a bigger spread than I would have anticipated frankly.
I'm such side-hustle guy. I actually have placed these loans with some of my investors in the last 24 months. For private loans from private groups for SFH building, you're talking 12-16% + several points upfront.
I've built 8 single family homes ground up and did a gut rehab on 2 adjacent condo units. Average profit/unit is like $80,000 with median around $40,000. I have a full time job that I'm trying to leave in the next 24 months or so in order to go full time as a specialty home builder.
What area are you doing this in? Also, what type of house are you building (normal sfh or larger custom sfh)?
Northern Virginia for all of the ground up builds and District of Columbia for the condo units. The ground up builds have averaged under 2,500 sf but one was, like, 3,500 sf and one was less than 2,000 sf.
I want to get into building really space efficient homes that are in the 1,500-2,000 sf range. Target audience is middle and upper-middle class people. I think people with honest, gainful employment should be able to afford a nice home in America. That's my passion.
You can tie deals up with your savings and try to assign them to other buyers. If you don't find anyone before you have to remove contingencies and release the deposit blow out of the deal. Seen it done. Know a guy who pulls down like $500k-$1M annually doing this but he's doing it FT.
Seems like you would get a bad reputation if you bail on a deal
Isn't that basically what wholesaling is?
Yeah it's wholesaling. I tried doing this when I was right out of college. You have to set up a website, SEO marketing tools, get out on food and drive for dollars and door knock to find prospects. My market wasn't a very good market for it as there were already some big wholesalers who dominated the market. I got one house tied up under an option agreement where I had 3 months to find a new buyer. Basically, the owners wanted $150k no matter what and the market value of this 3/1 house was likely near that price, so there wasn't a big enough discount to other buyers. House was rented out to a young family with 3 kids and the husband and was difficult to deal with as he wouldn't let me enter the property often (owners were out of state).
Honestly, you can make decent change wholesaling, but it's a full time job that just takes an insane amount of hustle. Not very effective to do as a part time job..
Easiest side hustle is owner-occupied small multi. You can get conventional financing and enjoy some sweat equity if you're in certain markets. I did this early in my career. Finished one project, moved on to the next, leaving a string of profitable apartment buildings behind me. By the time I quit, the accrued rents over the course of one project were enough to finance the next deal.
"Easiest" is a relative term of course. If you have no construction or construction management experience, this can be a long, lonely, expensive road.
1,000% agree. The caveat is that there are many U.S. markets that are lacking in this product type, or they are prohibitively expensive. I so wish these deals existed in my neck of the woods. :(
I’m sure once you drive out for an hour or even 45 minutes prices become reasonable and cap rates higher
When you say owner occupied multi are you talking about less than or equal to 4 units? Are you using fha? How many units and what type of financing if you don’t mind me asking?
FHA financing is 3.5% down on 1-4 units. Conventional is 15% down for a 2 unit and 25% down for 3-4 units. Most people look for 3-4 units that cash flow and finance it with an FHA loan. And yes owner-occ multifamily refers to 4 units or less.
This is going to sound difficult, but “Easiest” side hustle would be buying a 60+ unit multi with 90%+ occupancy where you can hire on-site third party management. Freddie Mac small balance would finance 80% of purchase price + rehab with 3 yrs of IO at 5.15% (give or take 20bps) on a 10/30. Freddie Small balance doesn’t require ownership experience however you or you and your partners need to have net worth equal to 100% of the loan amount and post closing liquidity equal to 10% of the loan amount. Hardest part of pulling this off is 1- finding a deal, 2- finding a high net worth person that will sign non-recourse carve outs, and 3- raising the equity via 506 d syndication. 1- Cap rates are too tight to qualify for 80% in most markets (Freddie is constrained at a 1.25x dscr), so your deal needs to be either off market (truly off market) or in a secondary or tertiary market (Albany, Greensboro, Tulsa, Spokane, etc). 2- people will sign carveouts if you find the deal and/or raise some of the equity. Their share of economics is totally dependent on what you negotiate. 3- raising equity. Network with hnw individuals interested in investing in real estate. Don’t wait until you have a deal under contract to close this. Hire a good securities lawyer.
That’s the “easy” way to buy small multi. Finding the deal, raising the equity, etc is painful but once you close it’s very little work. 2nd deal and all deals after this will also be a lot easier to close.
The alternative is flipping single family, buying a 2-4 house hack 3% down deal with no cash flow, wholesaling, etc. All these strategies can make money and are easier to get into, but in the long run, less passive, less money and not as scalable.
Tacking onto this - to all the people who have actually started side hustles and / or are opening your own shops, how long did it take you after graduation / your first job to pull a deal together? Did you have all the connections and capital you needed through family etc. or make them in college/ ULI?
I'm starting to do a deal on the side and we plan on opening up a shop soon (deal is $100M+). I'm not fresh out of college, but it has taken me 3 years in CRE to build relationships enough with the right people (the right people with access to the right capital) to bring me to this point. We aren't totally there yet, but hope to be soon.
what about doing real estate mortgage broking on the side? or ethical hacking? I'm thinking a bit more white-collar type of side hustles.
I think value investing or real estate investing are good side gigs for finance professionals. No conflict of interest to get you fired, and you can just keep pushing salary cash into those directions.
Become a residential broker and just serve your friends/family.
Don’t know why you got MS here other than some prestigious guy hating on the non prestigious world that is resi brokerage.
Truth be told.. collecting 200-300bps on a sale could be good money. It’s not easy but not that complicated. Especially in a high COL area, one decent sized deal could be $10k-30k.
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