The short answer is: I'd buy a $1 million apartment complex that needs work (not too hard to find) or a small shopping center that needs work (a little more difficult to find for that price).
Some questions you may have:
Q: Why don't you buy a single family rental for cash?
A: Simple, cash is king and the more I can leverage it, the better. Why tie up 200K in one house? I wouldn't be fully utilizing one of the benefits of real estate: leverage. A key ratio that I use here is cash-on-cash return. Below is a classic (oversimplified) example that I'm sure many have seen in real estate books. (I know I have. :)
| Property Type | Cash Needed | Purchase Price | Leverage | Gross Rental Income per Month | Gross Rental Income per Year | Cash-on-Cash Return after Year 1 |
| Single Family House | $200,000 | $200,000 | 0% | $2000 | $24,000 | 12% (not bad) |
| 20-Unit Apartment Building | $200,000 | $1,000,000 | 80% | 20*$500 = $10,000 | $120,000 | 60% (wholly ratio, Batman!) |
So which one looks better on paper (well, actually on the web)? Naturally, the 20-Unit Apartment Building scenario does. Of course, there are many other things that you need to consider because now you are getting into the semi-pro league, so you have to be more diligent in everything or hire someone that can help (psst, I can help :). In the apartment building game, lenders will not be as worried about your personal credit score as much as they are worried about whether the property will be profitable. It will be a factor, especially in the smaller apartment complexes, but they want to ensure you have your share of equity (i.e. cash) in the property and that its profitable. There's a lot more to investing in apartment buildings, but this is a quick summary.
Something else that you may have caught is that I would look for an apartment building or shopping center that needs work. Why? For the same reason that you would buy an ugly property, to get a bargain deal and then add significant value. One caution on this though is that there are fewer lenders that will lend on this type of property, but they're still out there. Another option for financing commercial properties that need work is to joint venture with larger investment companies. (They're out there. I've seen them.)
Q: Why don't you buy an ugly single family house to rehab and resell for cash?
A: So the single family house is not a rental and I am actually remodeling and reselling the property quickly (withing 6 months, but ideally within 3), then I may consider paying cash for it to get an excellent deal. Even so, I think I'd still lean towards longer-term income since taxes are not as high (think short-term vs long-term capital gains tax) and you have more control over the property because when doing a remodel and resell, you are at the mercy of the market especially if it's a buyer's market.
Q: Why not just invest in stocks?
A: I like stocks. They're fun to watch when prices are going your way. The problem is when they go in the opposite direction! Another issue that I have is that I really don't have any control over the stock, whereas with real estate, I do.
Q: Why not invest in a startup?
A: Now, you got me. Depending on the situation, I would rather invest in a startup, than in real estate. Personally, I haven't done it on my own. I have invested with an angel group before. Why not on my own? Because just like in real estate, there's a lot of due diligence that needs to be done to ensure that that the startup is a viable investment. Even after diligence though, nothing's ever 100% sure. One potential disadvantage is that you may not see a return (if any) for a while (think years, not months). But just imagine, owning a little piece of the next Google...
Before I digress to much further into startup land...let me say this, every individual's situation is unique. So even though what I wrote above may sound logical (or not), in your specific situation, it may not be.
***Warning-Sales Pitch***
So consult, your tax and legal professional and when they tell you that what I mention above makes sense :), call or email me and we can create your unique investment experience.
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and they also have several real estate funds through Sterling American Property including the latest one where they raised $600 million. Maybe they were looking to spend some of their funds through some of the real estate opportunities. Man!
