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Crowdfunding or Bricks & Mortar

Started by jimmoney, September 18, 2018, 04:28:37 PM

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jimmoney

Hi All,

Hoping to get a few opinions.  I have an opportunity to purchase a condo in Florida that should yield an 8.5% annual return (net monthly profit = $500 with a $70,000 purchase price).  However, that doesn't include unexpected maintenance costs.  The property would be handled by a property management company and I own another condo in the same complex managed by the same property management company.  So I know what to expect and it would be very little work for me.  Consider it passive for the most part.

I realize that crowdfunding could potentially yield a greater return and is truly passive so it's got me questioning what to do.  In the past I would have immediately gone after the condo but having recently started to pay more attention to FIRE and many other investing areas I am finding myself having a hard time making a decision.

So, what would you do?  I'm interested in the varying perspectives/opinions out there from all you savvy investors!

Thanks in advance for your thoughts!

Sincerely,
Jim

Hayden

Hi Jim,

Just a side question, how have you seen condo performance as a whole? Do you think that a condo is better choice versus a single family home as far as rental property goes. I cannot give much insight as to which route is better, but I am curious on the investment side what you have experienced. Any thoughts would be helpful for me.
Very Respectfully,
Hayden

jimmoney

Hi Hayden, wish I had some insight for you but I haven't had a lot of experience with condos specifically.  Seems to me it's more about the specifics of the property rather than whether it is a condo vs a single family.  If the numbers work, they work regardless.  But someone here may have some better insight for you...

Sam

Buying a rental property condo in Florida at this point in the cycle seems risky. Please look back to what happened to condo prices in Florida during the last bubble.

I'd focus on the heartland.
Regards,

Sam

jimmoney

Thanks Sam.  I was thinking that and believe me, I understand.  I already own two properties there that I bought just before the bubble burst.  Obviously, those are underwater, to say the least.  Since then though, they haven't increase all that much and I thought buying this one at auction for what seems like a good price and for good positive cashflow might be a good idea even given where we are.

I'll put a lot more serious thought into it and may just invest more with Fundrise.

Money Ronin

I have owned both single family homes and apartments as investment properties.  Currently the majority of my real estate is in apartments.  Here are some of my criteria for real estate investments:

1. Good bones (e.g., no detrimental features that can't be fixed such as insufficient parking)
2. Infill (i.e., more homes can't easily be built nearby)
3. Desirable location (e.g., people want to live there due to jobs, schools, trendy restaurants, etc.)
4. Cash flow (whether you buy for appreciation or not, you must cash flow)
5. Leverage (any property can cash flow, I hope, when paid with 100% cash.  I want to cash flow with a down payment of 25% to 35%).

If you already own two other condos in Florida, you should have a better sense of actual maintenance costs.  Maintenance and vacancies are going to kill any returns you project, especially if your returns are mostly predicated on cash flow.  In my market and buildings, my cash flow is almost zero because I invest a lot in maintenance and upgrades.  But I can get buy even if 25% of my portfolio is vacant for a few months because I've built that margin of error into my projections before I bought.

I have a lot of planned turnover as I "upgrade" the tenant base.  I make very little money on cash flow, but I've done very well on appreciation due to leverage.  I also make some money as my tenants pay down my mortgage.  In order of impact to buy bottom line, it's:
1. Appreciation
2. Tax benefits
3. Principle pay down
4. Net cash flow (hopefully this will increase over time)

It sounds like you are in a market where appreciation is limited.  In that case, your cash return needs to be stellar.  8.5% (likely less) is not a good enough return to motivate me to invest given the hassles of real estate.  I would look to other markets and crowdfunding.  Personally, I'm hanging on to a bit of cash for the next opportunity.

jimmoney

Thanks Money,

FYI, I've decided against investing in the FL property and am considering my approaches elsewhere.  Really appreciate the responses!


dpatton

Question about crowdfunding property does it give you the same tax benefits as an outright owner of Real/Tangible property?

For example I own a Duplex and am paying down a lot with a house and a mobile home on it. All are rented all are in a Holding LLC and all are being managed by a Servicing LLC with a contract with a contract property manager.

I'm wanting to prepare for my next play but don't necessarily want the exposure of more realestate. I've started looking into crowdfunding and another outlet but I wonder if I'll still have the benefits of realestate?

1. Actually physical asset that I can depreciate on taxes while it appreciates in land value.
2. Writeoff due to maintance items, etc.
3. Building equity and ending up with a paid for asset.

Thanks for input.

Cheezus

Quote from: Money Ronin on October 01, 2018, 06:48:03 PM
I have owned both single family homes and apartments as investment properties.  Currently the majority of my real estate is in apartments.  Here are some of my criteria for real estate investments:

1. Good bones (e.g., no detrimental features that can't be fixed such as insufficient parking)
2. Infill (i.e., more homes can't easily be built nearby)
3. Desirable location (e.g., people want to live there due to jobs, schools, trendy restaurants, etc.)
4. Cash flow (whether you buy for appreciation or not, you must cash flow)
5. Leverage (any property can cash flow, I hope, when paid with 100% cash.  I want to cash flow with a down payment of 25% to 35%).

If you already own two other condos in Florida, you should have a better sense of actual maintenance costs.  Maintenance and vacancies are going to kill any returns you project, especially if your returns are mostly predicated on cash flow.  In my market and buildings, my cash flow is almost zero because I invest a lot in maintenance and upgrades.  But I can get buy even if 25% of my portfolio is vacant for a few months because I've built that margin of error into my projections before I bought.

I have a lot of planned turnover as I "upgrade" the tenant base.  I make very little money on cash flow, but I've done very well on appreciation due to leverage.  I also make some money as my tenants pay down my mortgage.  In order of impact to buy bottom line, it's:
1. Appreciation
2. Tax benefits
3. Principle pay down
4. Net cash flow (hopefully this will increase over time)

It sounds like you are in a market where appreciation is limited.  In that case, your cash return needs to be stellar.  8.5% (likely less) is not a good enough return to motivate me to invest given the hassles of real estate.  I would look to other markets and crowdfunding.  Personally, I'm hanging on to a bit of cash for the next opportunity.

I have one property left to sell.  I owned 4 rentals free and clear.  Decided to pull that money back and pay off my primary mortgage for various reasons.  The ONLY way I would do physical real estate again is how you are doing it.  With loans.  I wouldn't do it for cash flow.  That was my mistake.  Take loans out, let the tenants pay off the loans.  When the tenants are done paying off the loans for you, then you have a nice big asset.  Make sure you have SOME cash flow to offset maintenance, tenant churn, etc.  But overall, I would do it for the long haul - let the tenants pay off the loans and build equity.  Kind of a beautiful thing.

I'm just waiting for the next real estate burst when I can buy up some properties cheap again.  Right now the market is way too high where I live (hence the benefit in unloading all of my properties for very healthy profits).  But when (if) they come down again and the numbers work, I'm getting loans and buying some multi family units.