Recommendations for First Deal

I have some cash on hand that I'd like to put to use in Real Estate. I've become convinced that I'd really like to put it to use in the Multifamily space, but struggling with the best way to do it and looking for recommendations from those of you with more experience.

I can sit and tell you about "deal criteria", but that's pretty pointless when I'm still unsure about execution.

So, I'd like to put ~$150-250k towards this investment. I do have a few friends that I could potentially get to co-invest, but that's definitely not guaranteed. I'm currently in a Tier 3 city where I could get SOME smaller MF properties on my own conventionally, but they're probably not exactly what I want.

As I see it my options are:
1. Look for a 4-8 unit B/C property and purchase it myself
2. Try to get co-investment and get 10+ B units (which is more where I'd like to be).
3. Invest through a Syndicate (although I don't think sending Grant Cardone $200k benefits me as much as it does him).
4. Try to syndicate something of size myself and get 100+ B Units (which is where I want to be eventually)
5. Other?

I'm open to any suggestions. Given my lack of real estate experience I tend to think #4 above is unrealistic, but with my professional title (CFO), experience (CPA/ Corp Fin) and knowledge I might be underestimating that a little bit. Also, I'm not looking for the huge syndicate/management fees, I'm truly look to co-invest.

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Comments (13)

Mar 13, 2019

bump.

Any advice from you guys who seem to have more experience would be appreciated.

@Consulted60606 @Stoo @Ricky Rosay @CrusaderCapital @InVinoVeritas @PacNumber @CRE @Surfing Pirate @thhddd @Sham Wow

twitter: @CorpFin_Guy

Mar 13, 2019

I guess the real question is, how much extra work do you want to put in with your investment?
On a scale of 1-5, 1 being very little 5 being dirty ass hands

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Mar 13, 2019

Probably a 2.

While I wouldn't mind doing some work on the units upfront, I'd plan an paying a management company to handle most things.

twitter: @CorpFin_Guy

Mar 13, 2019

I won't do it because it's too time consuming

I prefer just to max out 401k, 529, HSA, backdoor Roth IRA, company stock purchase, which already add up to 90k a year for us, then invest the rest, if there's still any, into index fund and forget about it.

Plus your primary home is already a sizable investment and exposure to real estate

Mar 13, 2019

OK, appreciate your opinion.

I'm taking advantage of all of those already (except I dont get company stock purchase, but I do get equity grants so call it even). This is really cash, just sitting in cash and CDs. I don't want to put more in the stock market and think this would be something that works for me.

Agreed on the home, but I've purchased a fairly moderately sized home. In 20 years (if I never move), it will hopefully be a fairly minimal part of my net worth. One of the reasons I'd like to add a MF asset or 2.

twitter: @CorpFin_Guy

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Mar 13, 2019
  1. Note that 4 units is residential, 5+ is commercial. This is key in terms of financing the deal- very different types of loans you'll get.
  2. Possible and I've seen it done. Just have a plan for "if shit hits the fan" and when you plan on selling. Everyone needs to be in agreement IN WRITING BEFORE the purchase is made. Talk about buyout options and all that.
  3. Just don't do that. I don't trust Grant personally. There are better options out there.
  4. That would be a full time thing. If you want to- go for it. That's how Sam Zell started.
  5. Consider 2-4 units as well. The financing is just more attractive honestly. You have more risk for tenant turnover, but you typically get longer term tenants. Weird dichotomy of forces.

5.1. Consider REITs

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Mar 13, 2019

Just to add to a solid response:

1 5 or more unit loans are difficult to get without having real estate experience.

2 Be careful with funds from friends/family as it can ruin relationships.

5 I started with a 3 flat and it was just enough to manage while working a full time job. If you don't want to get your hands dirty, you can always hire a property manager (just plan on adding 15% to expenses).

Mar 13, 2019

Thanks for the high quality response.

I do know that 4 is resi and 5+ is commercial. I also know that commercial is a little more difficult, but I have the impression (maybe incorrectly) that if I have a 25% down payment and sufficient reserves I could manage to get myself a loan.

I really don't want to go to friends and am not sure if it would even work, but it is an option that I could pursue at last resort.

I think syndicates are an option, but like I said - they'd reap most of the benefits. I used Grant's name primarily as a joke. I wouldn't be using him.

I probably should open up more to the 2-4 range. Partially because I planned on using a management company, I have been wanting to leverage $/door and go a little bigger.

twitter: @CorpFin_Guy

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Mar 13, 2019

I think your money would be better served buying a well located duplex or quadplex, renovating, and refinance or sell depending on which is most accretive. The best option would be to live in one of the units for obvious reasons while renovating.

I would absolutely not invest in a syndication scheme. You could look into the mobile/manufactured home space as well for better yields.

Mar 13, 2019

Yeah, this seems to be @SponsorPromote general advice as well.

The wife and 3 kids aren't moving into a 2-4 unit building. We dont have an opulent home by any means, but that ship has sailed for me.

twitter: @CorpFin_Guy

Mar 13, 2019

Yup. This is my personal plan for my investments in a 12-24 month time frame. Mobile home parks do seem interesting. They have a negative stigma but in reality, quite a few are pretty nice, safe, and most retirees.

Most Helpful
Mar 13, 2019

You could probably get a 5+ unit loan from a local CU as your first deal. This only works if you live in the market where you bought. CU's only lend to local members for 5+ unit (for the most part). Price per unit will be much lower than a 4 plex but as many have stated, higher down payment, etc.

Start small. Not sure your market but lots of markets can deliver 5 units for $125k a door. Buy stabilized and fully renovated as your first piece. Trying to hit a home run on your first deal is not recommended.

Don't do what I did. Don't try and hit that home run by getting in over your head with expensive private debt, then a seller carry, etc. Do something really clean and boring to establish yourself and build a resume. Once you've done that, then maybe branch out to a value add deal.

I'm not doing anything exciting because I'm no longer the heavy on my deals. My ego was humbled in the recession enough to accept smaller but safer returns that allow me to sleep at night. I now have a couple clients that are hip to PE. Once a year I tend to find a decent deal that PE would have interest in. I bring in this client on the buy side. If the equity is $3mil, we're 10% of that and I contribute up to 20% of sponsor equity for my shares. I get to be a part of low debt deals in a great market that will make it through the tough times. The sponsors have all the experience and contacts to renovate on time. They also, because of their experience get me in the door with the PE. Btw, on this deal I brought my client to the PE, so now I get a little street cred with the PE.

I figure if I invest $50k a year and get sponsor shares, over time that's going to be a nice diverse portfolio of 5% - 10% ownership on a ton of deals I don't have to micro manage.

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Mar 13, 2019

twitter: @CorpFin_Guy

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