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I have 0 experience with real estate (residential or commercial), I know the market has tons of demand, prices are at all time highs, there are legal protections and long court backlogs for evicting tenants, all while index funds like QQQ are doing great. I'm expecting to have $1.2M available in Q1 2022 (assuming I earn a solid sales bonus). This does not include 401k, HSA, IRAs. Original plan was to use this to buy our first home (family of 3) but Bay Area housing prices suck. Instead I was thinking of using that $1.2M towards a commercial property out of state, something I could maybe find through a broker. $2-3M commercial property (industrial, warehousing, NNN, or multifamily), class B and higher, 10% cap rate. Then I can continue working at Google and renting in Bay Area. Is this a bad idea? Obligatory Blind Info TC: $650k+ L5 34 Years old #investments #personalfinance #realestate
My thoughts: I don’t think you should buy rental properties before you ever owned a home. Use a management company, especially if you live out of state Buying a house (rental or not) without knowing the local housing market is not advisable You are f’ing nuts for considering commercial real estate in COVID
Excuse me for being naive, but why is commercial real estate a bad idea during COVID?
Lockdowns, rent bans, overall economic decline
I can only speak of personal experience and based on it COVID had virtually no effect on the performance of the properties I invested in
Surprising. Which city ?
Dallas-Fort Worth primarily but also in some tertiary market in TX.
Texas is open for business. We are buying unrestricted land and smaller commercial buildings as investments right now. We also do this for/with a small group of investors as we are a licenced RE broker as well. $2-3 million is a good budget in my location. Hint though, 10% CAP rate does not exist at the moment. We buy office/warehouse, retail flex or land in the path of development. We don’t mind value-add properties since we’re local and have all tradesmen and contractors on call. If you want a turnkey NNN wih minimal landlord involvement you’re looking at around 5% cap while the property also appreciates. Anyway, you can DM me and we can chat in more detail.
Nice, I'm in the research phase until Q1 2022. Will message you, Texas seemed like a good location to start searching
Sure thing, just shoot me a DM anytime. Happy to help.
It's a good idea. However, 10% cap rate doesn't exist in multifamily or NNN. Also, since you have no experience it would be hard to find a lender for this purchase. I recommend to invest in a few apartment deals with experienced operators to see how this business works. Then decide if you want to own your property by yourself or continue to invest passively. In addition to that, get educated on the subject. A good book to start from is "Buying and Selling Apartment Buildings" by Steve Burgess.
When you say experiences operators are you talking about someone more than just a property manager? Good point about the cap rates, I guess I'm not sure if real estate is worth it at lower cap rates if I can just leave money in QQQ and have a good chance of doing better. As for books, I'm currently working through: " What Every Real Estate Investor Needs to Know About Cash Flow...and 36 Other Key Financial Measures" by Frank Gallinelli Next on my list is: "Creative Cash: The Complete Guide to Master Lease Options and Seller Financing for Investing in Real Estate" by Bill Ham Thinking of getting around the traditional bank lending by exploring seller financing. I'll check out the Steve Burgess book.
Gallinelli's book is also good. Forget about seller financing for apartments or other commercial properties. It it very rare these days. When I said "operator", I meant "deal sponsor" or "syndicator". That is a person or a group of people who finds a deal, raises money from investors, closes on the deal, hands it over to the management company, and then "manages the manager". That is the most important component of any deal. As for cap rates, they work both ways: if they are high you get higher cash flow but lower capital gains, if they are low the cash flow is lower but the capital gains are higher. That assumes that the property net operating income can be increased. E.g., $1 increase in NOI means $10 increase in value at 10% cap rate and $20 increase in value at 5% cap rate.