What would you do with $3-5M?

Some background:

Mid 30's, coming from a construction CM/ consulting background, owner of my own sole proprietor company and relocating to the southeast from NYC, hence giving up said business (newly married, wife does well in her profession, upwards of $1M/yr.. a fairly recent development).

Background in construction is primarily in Mixed Use/ Multifamily developments. I've always been interested in Multifamily and see the kind of money principals make from the other side of the table. Long term goal I envision is to acquire a portfolio of value add multifamily that I can hold and collect strong cash flow.

I've been talking with some users on WSO privately and have appreciated their suggestions and valuable insight, figured I'd open this question to a wider audience to get some more input. 

Between my wife and I's incomes/ savings we have about $1.5M-$2M I could use to put into my first deal for an equity slug (ideally looking for a 20-50 unit multifamily w a value add component). I could raise another $1-3M between my friends/ family to make potential LP's.

Now with that out of the way, my track record is obviously limited to my construction experience. I have a few decent contacts in the market I'm moving to (a buddy heads multifamily for a JLL competitor... some good brokers, etc). 

My question is: Are these advantages enough that if you were me, you go full send into your first deal and hit the ground running? Or would you take a job somewhere in CRE to expand your network, knowledge, track record etc?

Some have suggested maybe trying to break into Commercial Mortgage Brokerage and trying to do my first deal on the side as an avenue that could be valuable to pursue. Its enticing to me because I think I would enjoy learning the intricacies of structuring the deal etc.

How would you play this? If you would choose to take a job for experience, what path do you think would be most beneficial?

Keep in mind I'm 10 years out of UG, have no desire to take a GMAT or go institutional.

Thanks for getting this far!

 
Most Helpful

I think that right now is not quite the right time to go full send into anything. Joining a Mortgage Banking operation could prove fruitful in learning to evaluate good opportunities. It might even make more sense to join a Mortgage Brokerage that focuses heavy on construction given your background. 

Housing right now may be market specific however there has definitely been a trend of more people moving out of high cost markets (especially on the MF side) and moving into SFRs in cheaper markets. I would advise against investing in core MF product due to high competition in the space, and weak demand for MF housing from tenants (the worst kind of combination since you are overpaying for assets with limited income growth opportunity). There is definitely a lot more opportunity in the other asset classes that are not MF since while demand for MF remains high, the demand for Office, Retail and Hospitality is currently pretty dry. If market conditions continue and forbearance starts to burn off, there may be some distressed asset opportunities in the near term which would be a much better launching point than MF (especially if you'd like to be in the value-add space). Plus, from a taxation perspective, having distressed assets is advantageous since you can offset your high income with potentially negative cash flows (once factoring in debt and depreciation etc.). When the market recovers and there is significant pop in value, you'd be able to 1031 the gains and repeat the process. Maybe some day multifamily will be the better play and you'll have more capital to be able to play in that space. 

 

I’m not sure if I would go full send into a market I don’t know very well with subs and consultants I haven’t work with. 
 

why not start with construction first then move onto the equity side once you have your feet on the ground? 

 

Dude if you really have that equity ready just go for it. Take down a deal in your market. Nice and easy a/b location, solid multifamily asset 10-20 units with a little value add opportunity. None of that third tier market blue collar housing bullshit. Sounds like you have the construction experience to manage that rehab process. Since it’s your first deal, I’d probably go easy and pick a deal with simple low hanging fruit rehab opportunities like changing flooring, counters backsplash appliances that kinda shit.

I dont see the point of going into mortgage brokerage. May be find a finance guy you can partner with instead so he can underwrite these deals with you? Sounds like you’re in a great spot my man. Good stuff! Its going to be a full time job just trying to source your first deal and getting the financing and your capital together man.

Not sure what you need our advice for. I wish I have a couple MMs sitting ready to be deployed lol.

Array
 

Thanks for the advice! I've spoken to a few friends who are in capital markets and debt brokerage, all have given similar advice to the tune of I'm just going to end up hiring a professional to arrange the financing anyways, so not too beneficial of an experience for my end goals / a basic understanding of the process and ratios etc will suffice. I'm starting to think unless I can find a way into an acquisitions role, that my full time may be better spent looking for deals, underwriting what I come across, and focus on expanding my network.

 

Honestly, why not do both?  You have the background to manage some of this, and the skills (it seems) to save on some rehab costs, and that's great.  But what are you making off this?  A tiny asset management fee?  Maybe a small-ish acquisition fee?  If you want this to be the basis of a new career move then it behooves you to buy and hold.  And I guess you can live off your wife's income, which maybe makes it work.  But most shops aren't going to care if you're spending a few hours a week doing your own thing, so why not go somewhere where the hours don't seem insane and you can devote time to both?  My old shop had a bunch of people doing this, and as long as they got their shit done and it didn't take up an obnoxious amount of their time, no one cared.

TL;DR - If you have the option to do both, go for it.  If you had to choose one, it sounds like you're in a solid enough financial position for the next few years to make starting your own shop work.  There will always be a reason not to make the leap - market too hot, market too cold, etc.  You're young (in terms of this opportunity, at least!), you're beginning a new chapter anyway, your wife's salary can support any reasonable lifestyle, sounds like no kids quite yet but might be soon (given the "newly married" bit, at least)... it sounds like the timing will never be better for you.

 

Thanks for the advice! I'm starting to think that if I can break into an acquisitions role in a smaller shop where I can really get involved and wear a couple different hats it would be really beneficial to do that and try and source my first deal or two on the side as you suggested. I think my biggest obstacle to that would be my age and inexperience, seeing as from everything I've seen analyst acquisition roles are hard to come by and going to finance bro's right out of college. I think having owned my own successful business for the last decade and having some hands on industry experience would work to my benefit, but I dk if anyone would be able to get over the lack of a finance background other than an ECON BA.

 

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