I'm at a Cross-Road
I’ve had a really busy few months... and everything has led me to the question at hand.
As many of you may know, I took a trip to China in April. My wife is Chinese so there are obviously some visits to family in there, but there was another reason for the trip - finding investors. We were successful and picked up a couple people who will send some cash to the U.S. for investing.
Oh yea, and during that trip we found out...
My wife is pregnant...
Yea, huge news, right? That's number 2 for us. My wife is about 12 weeks along and everything looks good and healthy.
Then I had a couple weeks home before heading off to my Annual Training for the Army National Guard. I headed on over to Ft Dix for the first time ever.
Being a Captain, currently assigned as a Company Commander, I coordinate training, set the tone for the unit, lead through delegation and providing guidance...
and I got to play with things that go boom...
And go on patrols...
...and almost got taken out by a forest fire...
I also got to roll around with things that bite and sting…
Yep, now I have Lyme Disease...great.
Can you believe that New Jersey has cactus and lizards?
Honestly, my Annual Training has absolutely nothing to do with my cross-road - I just wanted to show you all what I've been up to lately.
How to Take Real Estate Investing to the Next Level
I have the money and investors now to bring my real estate investing to the next level, but there are too many options and I'm not sure where to go with it.
Up until now, I have made all my money in 1-4 unit rentals. Though I can find these deals in my sleep now, it still requires effort from me to find, negotiate, walk through, and coordinate these deals.
And my question is - how does this all fit in with my goals.
My goal is to pick up and start traveling the world by the end of 2017 so I need to be 100% hands-off by then.
Right now I'm financially independent and can afford plenty of trips, but we aren't quite able to just up and leave.
Most people would be completely satisfied to just enjoy life in their hometown or city, but I'm not the kind of person who is satisfied by this. I dream about traveling to dozens of countries and giving my children a completely unique education and a world-wide perspective on life.
So, I've started looking into syndicating.
What is Syndicating Real Estate?
This is just a fancy word for 'putting deals together' but doing it with a group of high net-worth people who are looking to invest but don't know how to (or are too busy to) find real estate deals.
The "principal" is the person who does all the leg work and get's to take a portion of all the rents and equity (10-20% usually) just for being the person to find the deal. The other investors on the deal are passive and get to split the remaining 80-90% based upon how much money they invest.
Minimum Deal Size for a Syndication
There is no legal or technical minimum size, but it doesn't make financial sense to do it if the deal is too small because of the high costs involved with putting the deals together.
Also, it's important to have a 3rd party property management company on-site to take care of all the day-to-day details of management. The principal shouldn't get sucked into do that.
Realistically, the minimum deal size should be $2 million or more. Once you hit the $2 million mark, the fixed costs to get started drop under 2% of the total deal. Obviously this number is flexible depending on potential appreciation.
Also, to get on-site management, the property should have 70-100 units in it. This could be lower in more expensive states or even higher in cheaper areas.
Pros and Cons to Syndicating Real Estate Deals
- earning a piece of the deal for doing the leg work.
- putting little money down.
- The market is crazy hot right now for large multi-family properties.
- Limited experience in this area.
- Finding investors is a full-time job.
- What do I do with my other properties?
- Is commercial property in a bubble?
- Cap rates are very low, is this the new normal or will they go up?
- Can I turn syndicating into a passive business?
The Alternative to Syndicating
I think that 70+ units in a geographic area could have a full time manager as well.
I currently own over 20 units in Massachusetts. Normally 20 units wouldn't be enough to provide a great life to the owners, but because I found such great deals, the profit margin is huge.
Because I'm earning so much on 20+, I think I could get a full time manager if I had around 50.
So the alternative is to continue buying up properties like I have been, and get to a number where I can hire a full time manager.
- I know real estate in that market already.
- I have a tested system in place to earn huge returns.
- 1-4 unit properties are priced by comps, not by cap rates.
- I could turn it into a completely passive business if I hire the right people to find great deals for me.
- Will require a huge investment of time over the next couple years
- It's harder to find investors for small properties
- Can I do it in 18 months remotely from Texas?
Which Option Should I Choose?
Option 1 - Jump into syndicating and buy larger apartment buildings.
Option 2 - Grow my investments to a size that I can operate them with a full time manager.
What are your thoughts?