Young Investor, $2M plus in assets

General Real Estate Investing
1

I am hoping to turn real estate investing into my full time career. I am in my mid 20’s and have been reading as many books and forums such as this over the past year in an attempt to educate myself. I finally feel I have gained enough knowledge that it is time to being putting my money to work.

There are many post on here from new investors looking for tips on how to get started. My situation is different than the average young investor in that I am lucky enough to have well over $2,000,000 of capital to help me get started. My question for all the experienced and knowledgeable people on this forum is if you had this sort of capital when you began investing in real estate what would be the best investment opportunities to maximize your return, how can you use this sort of head start to your advantage, and any other tips/ideas you may have.

My current goal is to begin buying cash flow generating multifamily properties. My short to medium term goal would be to generate enough cash flow to cover my living expenses. I tend to live below my means so this would be about 50K a year at this point. In the long term I would like to build up enough cash flow and equity accumulation that this could be a full time career.

Thanks in advance for any thoughts or tips. I have spent a good amount of time on these forums and appreciate the huge amount of knowledge available.

2

(This is a looooong post. Get coffee first.)

thedonaldjr,

You’ve got great goals and a plan, but for the love of gawd, leave that money where it is!!!

You need to act as if you had about .20c in your pocket, not $2M.

Any investor you talk with that had a wad of money in the bank when he started will tell you about his disasters and losses. Why?

Because having that much money in the bank (or available) is the instant-rice recipe for making the most short-sighted, ignorant, stress-relieving, prideful, cocky, stupid moves e.v.e.r. !!!

That much money sitting in the bank is so easily mishandled, it’s like holding a lit stick of dynamite in a room with the gas turned on… Something’s gonna blow like Mt. Vesuvius, before anything good ever happens.

At 25… honestly, and without insulting your character and intelligence, you need to SLOW down. You’ve made a wise decision consulting this forum… Just saying. But…

$2M is like having an Olympic-sized pool of opportunity waiting for you to dive into. It gets your juices going. The problem is you don’t have any diving experience, much less know how to swim, much less hold your breath, or even do a lap without drowning.

So, what’s the answer?

Start with a wading pool. (OK, this is an analogy, not an instruction to go buy a kiddie pool…)

Fill the wading pool with some water, and splash a little, and learn how to fall face first into the wading pool without injuring yourself. Then move to the Doughboy pool and learn how to hold your breath underwater until you’re confident you won’t drown by accident. Then learn to maintain your buoyancy by dog paddling.

Then move to the bigger in-ground pool with a diving board. Learn to do cannon balls off the diving board. Then move to jumping head first and coming up alive (If you fail at this point, you’ve got other problems, besides bad depth perception).

Then practice holding your breath at the bottom of the pool until you’re confident you won’t drown by accident. Then learn to swim underwater from pool end to pool end without coming up for air. Then practice laps and learn to breathe.

After all that, you’ll have learned how to hold your breath, do laps and dive with ease (and all without a brain injury). Then you’ll be prepared to dive into the deep end of your Olympic-sized pool and begin training for the big leagues.

Short of that, and you’ll find yourself jumping headfirst into the Olympic-sized pool, only to discover there’s no water, and instantly become a financial quadriplegic.

Meantime, anyone with $2M+ is going to be almost compelled to accept what they believe are short-cuts around the practical experiences they need to make profitable decisions. Decisions based on reality and experience, not on hunches and/or bad advice from others who don’t have anyone’s best interests at stake, except their own.

With this much money, many larger, stupid mistakes can be camouflaged. But if the mistake is large enough the camouflage instantly fades, and the losses become grossly obvious, and one is left with a bulls-eye on his forehead and a message on his back that says, “I Lost $2M And All I Got Was This Lousy T-Shirt”

It will take some discipline to overcome the temptation to take the fire hydrant hose you’ve got in your hands and not just spray water all willy-nilly on shiny objects in the guise of “investing.”

So, I would suggest that you go buy a four-plex with 20% down with conventional financing, and make that work first. Of course you want a bargain. After that purchase, think about what you’ve learned by buying at the wrong price despite the agent’s advice; in the wrong neighborhood, with the wrong demographics, with a wrong management approach, with wrong tenants, and finally with the wrong financing …all after three of your tenants bail on you and do $15,000 worth of damage to your investment just because.

Then accept the losses, and start over with your more sophisticated understanding of reality. Go buy an actual deal-of-a-four-plex, raise the rents, increase it’s value, understand how to create wealth out of thin air, and then rinse and repeat, until it’s second nature.

Then move up the food chain using the exact principals and experience you garnered with the smaller properties by scaling up to multifamily projects, commercial buildings, and finally to development of shopping centers, golf courses and …the sky’s the limit.

Then, you’ll find yourself with several hundred million in savings, and that old $2M you left in the bank will seem like chump change.

Meantime, if you start with baby steps, you’ll likely avoid blowing $2M on pipe dreams that professional snake oil salesman will tell you is the steal of the century.

So, don’t dive head first into the Olympic-sized pool without first learning to splash in the wading pool. And then when you’re ready to dive in, you’ll know to check that there’s actually water in the pool.

BTW, “The [real] Donald” crashed and burned with millions to start with. His answer to why, was that he took his eye off the ball. Well, if a situation can arise with someone with this much experience, and this many millions to “camouflage” his smaller mistakes, than it can happen to anyone with way less millions and way less experience. Again, just saying.

TheDonaldJr, you have in your hand either a bomb, or the tools to begin strip mining for Gold. It depends on how you walk with it. Either way, you need to take baby steps and start very, very small. You’ve got YEARS to scale up, and turn that $2M into $7B “TheDonaldJr. dollars.”

I’m pulling for you and wish you extreme success!!! :beer :beer :beer

3

Hi,

Bravo Javipa! Well said!


       GR
4

I suggest wholesaling first because you will get experience books are great but they they are theory. You can become a private lender for invest tje money and also invest in tax lien certificates. I have been investing in them since 2008 have not lost a dime.

5

2million in the bank…thats awesome you should do well. Have you thought about investing in other ventures. You could easily make some big money playing the online marketing game

6

I second the bravo for javipa’s post. A total newbie with $2m can be dangerous, kind of like a 16 yr old learning to drive in a brand new Maserati.

Besides, real estate investing is all about leveraging other people’s money, even when you have your own.

I also agree that wholesaling is a great place to start to learn the business from the ground up. Remember, money is just a resource, you still need experience and knowledge to know what to do with it.

Good luck!

7

Thanks for all of the replys.

I understand that having that sort of money can be a dangerous thing. I like the analogy of a 16 year old with a maserati. Lucky for me I have been able to avoid any major accidents up until this point in my life. I am in no rush since I want to do this long term so that should help me to avoid jumping in too quickly as well. I am not looking for any short cuts simply because I have money to start with. I just know that having that kind of money opens up a lot of options/opportunities that a lot of new investors may not have.

Your advice of starting slow and buying a 3-4plex is what I have been looking into. I want to buy my first property to gain some real world experience and then grow from there.

8

I am always looking for investments, but I don’t know much about online marketing or where the investment opportunities would be there.

9
I am always looking for investments, but I don't know much about online marketing or where the investment opportunities would be there.

This is a classic example of taking your eyes of your goal. You said you wanted to invest in apartments. Online Marketing is not real estate investing, much less investing in apartments.

In fact, if you go this route, it’s exactly like I said, “Holding the hydrant hose and spraying water at all the shiny objects and calling it ‘investing.’”

Focus on the objective; real estate investing. Not Forex, “online marketing”, underwater checkers tournament hosting, or whatever other immediate, and stress-relieving, “shiny objects” you might find. Keep your eye on the ball, not on distractions.

Otherwise, watch your $2M dwindle to about .20c.

10

I was only commenting on the question. I do not know much about it and therefore have no interest in investing in it. Mb I should have been more clear.

I have so far avoided prematurely “Holding the hydrant hose and spraying water at all the shiny objects and calling it ‘investing.’”… I am on this forum and doing all the research I can to try and keep it that way.

11
I was only commenting on the question. I do not know much about it and therefore have no interest in investing in it. Mb I should have been more clear.

I have so far avoided prematurely “Holding the hydrant hose and spraying water at all the shiny objects and calling it ‘investing.’”… I am on this forum and doing all the research I can to try and keep it that way.

:beer :beer :beer

12

Have you joined your local REI club? Maybe that is a good place to start. I would go to the meetings and let people know what you are trying to do. Maybe you can find a more experienced investor to partner with. I would not necessarily advertise how much you have to start with as that will probably bring out every real estate conman within a 10 mile radius (which I am sure you are already used to).

Also, you can get recommendations for a good mentorship program (remember most expensive does not always equal best). At the very least, you can get the inside scoop on any deals that local wholesalers or other investors might have available.

If you find a deal, you can post the details here. The group is great about giving advice and helping with deal evaluation.

13

What sort of advantage could I gain by being a cash buyer. I would be able to access a line of credit at a very low interest rate so I do not need to touch any of my own money to pay cash. Once the deal was complete I could then refinance the property to repay the line of credit. Are there any major advantages/disadvantages in approaching a deal this way ?

14
It will take some discipline to overcome the temptation to take the fire hydrant hose you've got in your hands and not just spray water all willy-nilly on shiny objects in the guise of "investing."

…of course while you’re learning how to overcome that temptation you could aim the hose this way and spray me with some of that “water”

Sorry had to do it. This has been an interesting read. Very informative.

15

I’m verklempt…! Borrowing is a such a smarter approach. First, the lender is often a good “second pair of eyes” in judging the risk and merit of a given deal, but second, you’re risking someone else’s cash, not your own. Yay. :beer

Cash is a two-edged sword. It allows fast action. It also enables the stupidest actions.

Meantime, the steal deals most often require cash to remain steal deals.

Nobody with a steal deal simmering in the sun, is interested in waiting to see if you’ve got the ability to borrow money to relieve his problem. He’ll jump to the first guy with cash. :beer

Otherwise, Joe Schmuck, who’s borrowing money from his uncle’s brother, who knows a guy, who can borrow the money, (if) he gets out of rehab, is out of luck. :banghead

16

Um, I think you’re doing yourself a huge disservice by buying a 3-4plex when you have $2m. I would suggest spending the first million towards buying an apartment building with a 10-12 cap (get some low interest financing on it if you can) and keep the other million as a reserve to deal with anything unexpected that may come up. I have 32 apartments (two buildings). I’ll tell you that the maintenance and repairs on a 14 or 18 unit is A LOT LESS than what I would spend per apartment when I started out with duplexes and four plexes when I was 20. I couldn’t buy anything bigger back then because I didn’t have the resources you had. You’d be short-changing yourself buying something that small because you would see all the work involved on some dilapidated century old converted house and get fed up with it and all the crummy tenants such a building would attract. Remember what the real Trump said? Think Big! Problem with Trump was that he overleveraged himself and crashed. That’s not what I’m telling you to do. Think big, but don’t overleverage yourself like Trump did. There’s a lesson there about overleveraging and that’s the one you should take from him, not think small. You don’t get anywhere in life if you think small.

As for the pool analogy. You know how I learned to swim? My dad picked me up and threw me into the deep end of the hotel pool when I was about 5. I waved my hands and instinctually figured out how to doggy paddle back to the edge. And, I spent a lot of time in the water after that. I think you can guess how my dad taught me to ride a bicycle and learn other things. Some might think of it as child abuse. I think of it as instilling initiative and what doesn’t kill me can only make me stronger and to this day I still have a lot of respect for my dad for the way he raised me. My old brother, maybe not. And my brother still is plugging away with a couple apartments. But I do.

I doubt you would crash and burn after stating you spent the past year reading books and forums on real estate investing. I think you have a good handle on the situation.

With those kinds of resources, you need to show a little more ambition and push yourself.

If you spent $1m, you would still have a million in reserve. With that kind of reserve, you can hire the people you need to get you further. I would suggest hiring a group of professionals. Do your due diligence. When you put an offer down on an apartment building, hire an experienced appraisalist who’s done many appraisals, hire a structural engineer, environmental and building inspector who can properly assess the building, hire a former claims adjuster with an infrared camera who can spot heat loss or water penetration issues from the roof, hire a real estate lawyer that actually has rental properties.

With that kind of money, you can hire people who can get you a lot further along in life. But, also use your instincts. Walk around the neighbourhood of that building. Understand the local economy. Ask yourself if you could live in this area for a few years, if you are willing to live in this apartment building and could you live in any of these apartments. If you moved in, could you live with those tenants in your building. Could you get better people in the building if you cleaned it up or is the area a write off. What kind of tenants and rents do neighbouring buildings have. A little bit of common sense goes a long way in becoming a successful landlord.

It doesn’t sound like you need to take baby steps here and live in regret about what you could have accomplished. You have the tools and resources to get far in life and if you don’t know what to do you can always hire somebody with experience. The rich kid doesn’t ask to be a private when he wants to join the army and has that urge deep down inside that he was meant to live a military life; he finds a way to use his background and resources to get him into West Point to be a General.

DW

17

Dave,

You’re an experienced investor and I’m imagining you’re older than 25.

I’m also imagining that you didn’t have anywhere near $2M at your disposal when you started. Of course I could be wrong on all these points.

However, I’ll bet you didn’t jump right into an apartment purchase on your maiden voyage into real estate investing. If you did, and survived, before crashing and burning, you’ll be the poster child for beating the odds.

Meantime, thedonaldjr doesn’t have any practical experience in this field. He’s just got theory and a wad of money. Those are the two ingredients that just beg for a crash and burn.

From what I gather, thedonaldjr has never negotiated a lease with a tenant. He’s never done a background check. He wouldn’t know where to go to verify an apartment seller’s numbers. He wouldn’t be able to interpret operating numbers with insight.

Thinking big doesn’t mean starting stupid. And “dropping” someone into a $1M apartment purchase with no prior experience analyzing deals, and just explaining that he’ll need to buy at an 11 CAP, is just… (shaking head) the worst.

The very issue of “impatience” is the one you’re feeding into here. I know that thedonaldjr, sitting on a pile of cash is gonna get “real impatient” and there is a huge temptation to go big, go large, go everywhere, and then crash and burn, because he’s bitten off more than he could chew.

Starting small is not giving up on himself, or thinking small, or settling. It’s called building a strong, experience-based foundation and understanding of ownership, negotiations, working with poeple, if not making tiny, survivable mistakes and knowing “what” the mistakes were …and then correcting them in the future, to avoid making unsurvivable mistakes later.

You’re just waving a shiny object and suggesting that a reasonable, conservative approach is just too banal, time-wasting, and small. Well, the approach I suggest is the approach that the wealthiest people I know all used. On the other hand, I know more people who attempted to leap frog, like you’re suggesting, and their lives were certainly more colorful.

Colorful as in losing their businesses, their homes and their reputations, if not all their money and being forced to start from scratch. Of course they learned some lessons. One of them was to start small, and crawl up the ladder.

That said, some people invite drama and trauma into their lives. They’re so bored, fearful, troubled, that drama and trauma are welcome distractions. Nothing you say to them, will dissuade them from the most reckless, short-sighted, uninformed actions. Why again?

Because they don’t know where they’re going, and don’t care how they get there. It’s just money. So, “Go big.”

18

I came from nothing. I’m now about a decade older than 25. Didn’t have $2m to start with. I’m sure you didn’t start with $2m either. I bought my first duplex when I was 20 and an opportunity arose. It was a fixer upper. Had to get my dad to cosign and I managed to put it all together. It took me until I was 29 until I bought my first 18 unit which ended up being another fixer upper. I tried to do it sooner, but couldn’t get the funding. Had I had the funding, I would have become a lot larger a lot sooner. It’s interesting learning new things though. But, guess what? I don’t work for anyone else anymore. I make enough to employ myself and I don’t have to whore myself on the internet. I have a nice sportscar, a large pickup, a personal watercraft, collections, tonnes of material stuff and I bang hot young women (and luckily I don’t have to pay child support either). Is that financial freedom? I guess so.

I doubt he’d crash and burn. 1) He’s been reading a lot up on it for the past year and he’s going to take a hands on approach to his success

  1. He’s not going to overleverage himself. I’m guessing he’d follow my advice and keep half of it in reserve for those bigger problems that may arise. Even Donald Trump in his book said his biggest mistake was overleveraging himself. Always cover your downside. And guess what? Even though he overleveraged himself and took a lot of beatings, he still owns a ton of buildings. His approach, even though a little wreckless, was successful. Not that I’m advocating that. I’m not. The reason people crash and burn is because they don’t have a reserve IMO. When the Fire Marshall or code guy comes along and orders you to do a bunch a things and you don’t have the money to do it or hire people to get you out of a mess, it’s game over. As long as the money’s coming in and there’s a decent cap and he believes in what he’s doing, and he has a reserve fund. he’ll figure out an answer–always, and become successful at it.

  2. He can get advice on some of the challenges that come up on the forums. I’ve been on this forum for over a year and seen decent answers to all those issues and questions you just brought up. It’s not rocket science. Anyone can learn it and apply it fast if they’ve got the passion and desire to read, listen and do it. I could easily mentor and walk someone through the whole experience and jump into an apartment building and be successful at it if I wanted to and I’ve had people ask me when I’m gonna write a book on it. Not yet. But, someone with experience can offer some really great shortcuts to making real solid leaps.

  3. He’s going to hire the right people by asking more than one person for advice. I’ve gotten out of so many messy situations it’d make your head spin because I searched for the right person to get me out of that mess, not the first person. Again, he has to take an active, hands on approach. It’s not a mutual fund. You really have to be involved to be successful.

  4. It’s not an efficient use of resources to start at the bottom if you have the resources. If he were to buy a McDonald’s Franchise for a million bucks, I bet you he’d make an amazing return on it and he doesn’t need to work as the fry guy starting at minimum wage for a year to know how to run a McDonald’s successfully. When you buy experience, they’ll tell you how to do it successfully because they know what works and what doesn’t from experience.

19

Correct me if I am wrong but I thought real estate investing was all about leveraging other people’s money?

Also, I am new, well-researched, highly ambitious, and I have a high tolerance for risk. I don’t quite have a decade over 25 yet but I am not far off. And if I had $2mil, I was not going to tie half of it up on my first deal, with my second half as my reserve to bail me out if, sorry when things go wrong. That amounts to risking every penny I own.

As for hiring experienced people (because working with experienced people is a garuantee of success, right?), if you don’t know anything about that level of investing, how are you going to interview them to know they know their stuff? Are you going to go based purely on recommendations? So now, not only are you risking you entire $2mil on your first deal with no experience, but now you are blindly following a bunch of advisors whose advice you cannot vet, based solely on the recommendation of a bunch of people you don’t know. Not to mention, you are the only one with any skin in the game, cause you are paying them a salary (from your reserves) so if you succeed or fail, they still get a check. Does that really sound like a good way to go?

As for donjr knowing something because he has been reading for a year, have you ever seen an inexperienced MBA graduate get a job as CEO straight outta college? Gosh darn, I wonder why not, I mean he’s been studying for 2 years.

As for not being able to do larger deals sooner because you could not raise the funding, well there is probably a reason no one would give you the money when you were younger and less experienced, and why now, people are probably begging you to take their money. I am guessing the difference is time and experience. And you might look back and tell yourself if only you had gotten that funding, you would have made so much money. But you also might have lost all of someone’s else money and gotten a reputation that would have set you back quite a number of years.

In fact, I am betting that losing out on that opportunity made you so hungry for a deal that size that it was the drive to make you try that much harder the next time an opportunity like that came around. And then when it did, you took all the lessons you had learned from that failure and made sure that this time you would succeed. And you did.

One last thing: when your dad taught you how to swim by throwing you in the deep end of the pool, I am sure he was watching over you the whole time, ready to jump in and save you if there was even a hint that you were drowning. If donjr jumps into the deep end of the pool and starts to drown, who is going to jump in and save him?

20

What a hedonistic version of financial freedom. Here’s a tip: bragging online makes you sound like an idiot.

Getting back on topic, starting with 2 mil is a little too much too quick. I suggest you start making connections, meet the right people, and start slowly. Don’t advertise your 2 mil or people will try to take advantage of your lack of experience. Try to get an experienced partner/ mentor and have him walk you through a couple of deals. I would also suggest to diversify your investments.