Need advice on best use of ~$500k cash to buy multi-unit

I have savings + private financing that I’ve been using to do flips and I’d like to use the funds toward a bigger deal with great cashflow.

However, I live in New Jersey where everything is ridiculously overpriced and good properties sell for lows of 4-6% cap rates.

I don’t know what else is out there.
Is it realistic to purchase a $2M asset with 10% cap rate and a 20-30% down payment?

If you had $600k to put toward a major deal, what would you look for? I’d love to hear feedback from experienced multi-unit owners.
Please avoid potential ideas, just want to discuss experienced deals.

I’ll give you the same advice a lawyer gave me. He said:

You’ve done incredibly well hitting singles and doubles for years. Don’t change a thing. I’ve seen people come into my office who built fortunes hitting singles and doubles. Then they decide its time to swing for the fences and they end up getting crushed.
Instead of just doing what got them to where they are they venture into something new and blow it.

My experience with commercial property is exactly the same as yours. The asking prices now are insane. The people buying this stuff have no room for error. That tells me everything I need to know. If it’s too expensive…I’m out.
I don’t over think it.

Buying commercial property is the toughest thing to do because unlike residential property, people that own GOOD commercial property know what they have and what it’s worth. I’m not saying you can’t get a deal. I’m just telling you that I can make 40% to 70% on the money I put into residential real estate and my holding time is measured in weeks or months. I own commercial properties and they make money. But it’s a death by a thousand cuts. Commercial rates for insurance, commercial rates for taxes, commercial rates for utilities, insurance costs that go higher every year because of the non stop personal injury lawyer advertising 24/7 on TV BEGGING people to slip and fall in front of your building.
5-8% caps rates SUCK…But people pay it. 10 caps don’t exist where I invest. Too much money chasing too few properties.

There are better, more profitable ways to make money.

Take that $500K and put it into as many residential properties as you can. Turn 'em and burn 'em. In and out. Partial rehabs are my current favorites. Find a great deal on a property that has major problems like no heating system and a leaking roof. I’ll have a roof and heating system installed and then STOP. I’ve just created a BANK FINANCEABLE property
Where there was none. List it on the MLS and let them out bid each other for it. Total rehab time in 2-3 weeks.
I can buy those for $80K put $12K into them and sell them for $175K in a week.

A $2,000,000 building with your current 5% CAP Rate is going to generate $100K year but you won’t see that with the financing you’ll need. More like half that or $50K. I can crush that return in 2 months with almost no risk and no mortgage.

Just a thought.

I’ll just say this:

Be “patient” and hang in there.

Nah, I’ll elaborate a little more…

You may have to wait a month. You may have to wait a year or more. Open a discount stock market account and buy liquid, under book value REITs paying 8-9% interest while you’re waiting, so you’re a step ahead of inflation and still in the game. I bought my first duplex when I was 20. From 22 onwards, I was trying to buy 50-100 unit apartment buildings using creative financing techniques with no success. I had the drive and it was frustrating as hell not being able to do what these so called gurus did. In a couple years, most buildings made no sense with 3% or less cap rates, which I knew would happen from all the books I read talking about cyclical real estate markets. I was stuck with the duplexes and small rentals I had for almost 6 years in my city.

Finally, I found something nice and moved 300kms away into an 18 unit apartment building that would pay a 12%+ cap once fully rented, but it was still half empty with under market rents, so based on the history it didn’t have that kind of awesome cap, but the potential was there, I did my research, and I proved the cap to be right. So, don’t be too quick to dismiss a so called “low cap” building.

What I learned about going after larger buildings with renovation mortgages, etc., and the contacts I made in the finance industry trying to buy 50-100 unit buildings helped me get that half-empty apartment building financed. Now the building is worth three times what I bought it for. Plus, from all the lessons I learned about the stock market, I’m averaging 25%+ after tax annual returns on my undervalued stock picks like a younger Buffett was doing. That’s not through crazy day trading either, but through long term picks. I’m 42. I could retire by selling everything and still live and travel quite comfortably off the dividends. I’m a multi-millionaire now. I’m set for life at this point. You can get there too. It’s all about patience. Enjoy the process and the journey.

Appreciate the extra time God is giving you by making you wait. It’s likely you’ll have to move to another city to find that building, so start selling larger items around the house you don’t need anymore because you won’t realize how much stuff you have until you’re moving it and that you’ll have to donate three quarters of it to charity or the landfill if you don’t sell it in that extra time. It’s unnecessary stress you’ll be putting yourself through if you do it all at the last minute. Find some hobbies to keep you going and not stress you out so much about that one topic.

You can either hate the market now or love the fact that God is teaching you some important life lessons that will help you later on in life. It’s all a matter of having the right perspective in life.

I don’t know what else is out there.
Is it realistic to purchase a $2M asset with 10% cap rate and a 20-30% down payment?

[/sub]If you had $600k to put toward a major deal, what would you look for? I’d love to hear feedback from experienced multi-unit owners.
Please avoid potential ideas, just want to discuss experienced deals.

It’s not realistic because cap rates may push higher before they come in. Interest rates are trending higher and lease rollover risk needs to be factored into that , if the market pulls back you are in the first loss position with that structure. I personally would take the opposite approach and put myself into second loss position by Originating 60-70% LTV debt on a Mix Use Property, hard lock box the rents, and escrow for every expense imaginable . Anything happens your loan accrues at default rate interest 20-24% . Originate the loan at 9-11% +1-3 points. This way if the market pulls back you are last to be exposed and your profit has a tremendously higher probability of being realized than being a landlord.

If I was only working with 600k I would never take it and put it into 1 deal. Knowing me I would Originate 5-7 separate loans in FL at 10-12% on some NOO Resi. Spread my risk .

I dont have a feel for REITS in the last 4-5 years. I rather Originate and take an A participant and make 25% + on the scrape.

I just wanted to thank all 3 of you for your advice! I’ve been following all 3 of you for years on this forum and your views, advice, motivation are truly priceless. I don’t visit this forum as often as I used to but when I do - I always look for posts from you 3 (and others as well, lots of great experience on this forum).

I’m still figuring out my next moves, and it’s overwhelming to say the least.

I own 6 properties under my name at this point worth almost $2M (majority of it is with private funds but there’s no mortgage and the properties are all under my name). 3 are flips that will be sold and 3 are rentals. I’ve tried to go to a bank to obtain a line of credit but they want supporting 2 year tax returns, rent rolls, and an insane amount of documents which I don’t have so I haven’t been able to qualify for a line of credit at a reasonable rate.

I’m tempted to sell properties but don’t want to pay the capital gains tax. And a 1031 seems good in theory but where on earth will I find suitable properties to purchase? Definitely not in New Jersey. If I sell a $600k property, I won’t find anything competitive for $600k to purchase.

I think a good option now is to apply for a portfolio loan. I’m still learning about it but if I can refinance 4 rental properties under one umbrella loan at 75% LTV and a competitive rate, then it’ll free up significant liquidity with no taxable event while allowing me to keep all my properties. Maybe the recent Dodd-frank de-regulation will offer new solutions from the local banks as well.

I’m confused and feel like I’m all over the place, but not complaining. I started with nothing, came a long way and now I really need to figure out how to take things to the next level.