Plan to retire with $3 Million - Second life in CRE
I plan to retire from my corporate management job (Bay Area, California) and start a new career in CRE. Any suggestions for a newbie - career advice, education suggestion, investment strategies etc would be welcomed.

\-SA
[{"id": "e2a2bl8", "text": "Clarification: do you have $3m now and want to invest it or do you want to make $3m while working in CRE?\n\nEdit: The best bay area CRE strategy I've seen is to:\n\n- become a VC\n- use your personal wealth to buy empty office buildings during the next recession\n- install VC portfolio companies as tenants\n- profit from fund management fees, carried interest, and have a stable supply of renters\n- sell fully occupied buildings before next, next recession\n", "replies": [{"id": "e2a461u", "text": "you can't do that with 3mm.... 3MM barely gets you the office building... try 30mm!\n\n", "replies": [{"id": "e2a4guc", "text": "That's where steps 1 and 4 come in.", "replies": [], "depth": 3}], "depth": 2}, {"id": "e2a9vsa", "text": "I understand $3M in Bay Area is not a lot money but can I buy something decent in places like Phoenix or San Diego ?", "replies": [], "depth": 2}], "depth": 1}, {"id": "e2a4f2j", "text": "if you have 3mm liquid assets and want to become a broker starting out, you're crazy. I would tell you to buy a share of an existing firm, however, note, you're going to be very unpopular being such a junior senior\n\n3mil is more than enough to get started as a developer, i started my portfolio on much less, but other advice is hard to give you - ive been doing this for as long as i can remember. It has a high turn over rate. \n", "replies": [], "depth": 1}, {"id": "e2ag7hi", "text": "Find a group of partners to pool your equity and begin taking investment to start a fund.", "replies": [], "depth": 1}, {"id": "e2ah3zh", "text": "Move to Texas", "replies": [], "depth": 1}, {"id": "e2akljm", "text": "I am an apartment broker for the leading investment sales group in the area. Feel free to message me.  I can buy you a cup of coffee and share my research report with you! ", "replies": [], "depth": 1}, {"id": "e2aqjfj", "text": "You should specify what you\u2019re looking to do! Invest? Own operate? With or without outside investors?", "replies": [], "depth": 1}, {"id": "e2ary9a", "text": "Getting a buyer representative broker is the best move for this kind of transition. They'll walk you through the process, help you identify the best investments, and negotiate for the best deal....all typically at the expense of the seller. There isn't a down side as long as you find a good broker.", "replies": [], "depth": 1}, {"id": "e2bihq7", "text": "An excellent idea, and, by the way, the other comments made to you seem pretty unhelpful. Three million is a good base for beginning. Where do you want to invest? The Bay Area has high prices, which suggests to me that future appreciation will be modest. \"Secondary\" or \"tertiary areas\" (in the language of lenders) offer much better opportunities and fewer competitive buyers. It's a good idea to buy within a reasonable driving distance, because the cost of management (money and time) will be a big variable in your future return. Next, be the smartest buyer you can be -- my favorite single tool is the concept of \"IRR\" (internal rate of return), which estimates the total financial return of comparative investments (properties, in this case).  Commercial real estate is comprised of sectors (multifamily, office, industrial, and many more), and each follows its own regional cycle. Multifamily seems, to me, the safest because people always need a place to live, and (in California) it's extremely expensive to build new construction. Owning a couple of properties is smart, because it spreads out your risk and gives you the option of selling only one if you need to. In my experience, the people who fail do so for two reasons: they pay too much for a property, and they run out of cash. With three million dollars, and using financing wisely, you might have a goal of creating a portfolio of ten million dollars of property, making you three hundred thousand dollars a year in net cash. And build up from there. Good luck, and contact me if you'd like more advice.", "replies": [{"id": "e2cwahf", "text": "&gt;The Bay Area has high prices, which suggests to me that future appreciation will be modest.\n\nThe Bay Area has most always had high prices.  That was one of the reasons Prop 13 was passed 40 years ago.  Guess what, prices are still high.  Why, because it is one of the most profitable markets in the country.  Sure. take your money to Phoenix and lose it like all the people I know.  Be careful who you talk to privately now that they know you have $3,000,000.", "replies": [{"id": "e2gniy9", "text": "My comment had to do with future property value appreciation, and the Bay Area is not one of the most profitable markets in the country for commercial real estate, in fact, it's one of the least profitable with very low cap rates and cash flow. Phoenix is, actually, doing well, with steadily dropping vacancy rates and rising lease rates.  (Prop 13 had little to do with the Bay Area, specifically. You're posting advice regarding commercial real estate?)", "replies": [{"id": "e2gsepc", "text": "Cash flow is not a profit metric and cap rates measure the demand for NOI.  Low cap rate means HIGH demand.  Prop 13 has very much to do with Bay Area RE.  Yes I am posting about commercial real estate.  Does that confuse you?", "replies": [{"id": "e2h9yju", "text": "Cash flow IS the profit metric, and cap rates are the result of NOI divided by price.  You haven't mentioned IRR, which compares different investments for returns with varying down payment, cash flows, and estimated future values. And I don't know what Prop 13 has to do with today's investment decisions. So, yeah, you do sound confused. ", "replies": [{"id": "e2heonw", "text": "&gt;Cash flow IS the profit metric, and cap rates are the result of NOI divided by price.  You haven't mentioned IRR, which compares different investments for returns with varying down payment, cash flows, and estimated future values. And I don't know what Prop 13 has to do with today's investment decisions. So, yeah, you do sound confused.\n\nYou should Google cash flow vs profit.  You are making a rookie mistake confusing the two.  You can have cash flow and not be profitable and you can be profitable and have no cash flow.  I'd love to see you even articulate your made up definition of \"cash flow\".  Since Prop 13 basically caps your property taxes it is a very important consideration when investing in CA property.  ", "replies": [{"id": "e2nwjwv", "text": "Net cash flow in commercial real estate is calculated by taking total rent revenues less expenses less financing costs. Property taxes are an expense, and I still have no idea why you keep talking about Prop 13. IRR is a much more useful tool, by adding in varying cash flows and an estimate of future value. If you need to Google these terms, God help you. ", "replies": [{"id": "e2oackc", "text": "&gt; Cash flow IS the profit metric  \n&gt;  \n&gt;Net cash flow in commercial real estate is calculated by taking total rent revenues less expenses less financing costs.\n\nBased on your statements I can be more \"profitable\" by having a larger down payment.  You have to admit that makes no sense.  ", "replies": [{"id": "e2pzq77", "text": "It makes no sense to you, because you're not knowledgeable about the actual business. I work with CRE investors every day, and not one ever uses the word \"profit\", which is so general as to be useless. Net cash flow, cash-on-cash, IRR, and return on equity are far more specific terms, and provide an intelligent comparison between alternative investments and properties. My original post was 240 words, and you're fixated on arguing over one sentence: that the Bay Area is expensive. You think that's good, but it's tougher to make money in an expensive area in commercial real estate compared to less expensive areas. Good luck in the future.", "replies": [{"id": "e2qfxwi", "text": "&gt;It makes no sense to you, because you're not knowledgeable about the actual business.It makes no sense to you, because you're not knowledgeable about the actual business.\n\nIf you are in the business and you are trying to convince anyone that \"Cash flow IS the profit metric\" then I have to believe you are a scammer.  Also  real estate is all about supply and demand.  Of course scammers want to sell crap properties in crap markets so they want novices to believe a high cap rate is the \"better\" deal when all it really tells you is that there less demand for the NOI.\n\nBut then you've avoided answering any question and seem to be changing your statement of cash flow being profit.  Scammers do that a lot.", "replies": [{"id": "e2rzf7w", "text": "Let me defend my profit-metric statement. Profit is really a term that relates to an individual\u2019s tax return, and I already mentioned a number of better, more specific terms that professional investors use. (No one uses the simplistic term \u201cprofit\u201d in my experience.) A buyer acquires a commercial real estate property, usually with financing. The NOI is rent revenue less expenses (or profit, if you prefer), and net cash is NOI less the cost of financing (the actual result to the owner). If the cap rate is less than the interest rate, that\u2019s called negative leverage, and it\u2019s tough to make money with negative leverage. (You seem to think it\u2019s a benefit for some reason). With positive leverage, the investor has \u201cnet cash flow\u201d, and frankly, the more the better.\n\nYou infer that a low cap rate means great demand, and a \u201cprofitable\u201d market. If you remember the original post to which I replied, the individual wanted to invest three million dollars in commercial real estate. He would probably make more net cash flow from buying multifamily properties in Sacramento or Modesto than buying retail or office in downtown San Francisco. Using that positive cash flow, he would 1) provide business health to survive setbacks and 2) be able to finance new acquisitions. From a buyer\u2019s viewpoint, low cap rates are a negative, high cap rates are good. \n\nWhich brings me to \u201ccrap markets\u201d. You may mean from an investment return viewpoint, or because of the people (not Bay Area residents) that live there. And \u201ccrap properties\u201d may be deals that need renovation, and management, and could provide benefit to the neighborhoods they\u2019re in, and the investors who buy them. Using those phrases tells me a lot about how you see the world, and people who aren\u2019t like you.\n\nI notice that you pick sentences out of my replies that you can dispute, out of misunderstanding. These are complex issues, and non-professionals often have difficulty understanding them. In my career, I explain these issues to investors. I\u2019ve come to recognize individuals who are learners and succeed, and those who focus on arguing and bickering, and, well, don\u2019t succeed in life. \n\nI stand behind my advice to the original post, in which I encouraged him to buy wisely and grow his portfolio. Once again, good luck in the future. \n", "replies": [], "depth": 11}, {"id": "e2rzxd3", "text": " Let  me defend my profit-metric statement. Profit is really a term that  relates to an individual\u2019s tax return, and I already mentioned a number  of better, more specific terms that professional investors use. (No one  uses the simplistic term \u201cprofit\u201d in my experience.) A buyer acquires a  commercial real estate property, usually with financing. The NOI is rent  revenue less expenses (or profit, if you prefer), and net cash is NOI  less the cost of financing (the actual result to the owner). If the cap  rate is less than the interest rate, that\u2019s called negative leverage,  and it\u2019s tough to make money with negative leverage. (You seem to think  it\u2019s a benefit for some reason). With positive leverage, the investor  has \u201cnet cash flow\u201d, and frankly, the more the better.\n\nYou infer that a low cap rate means great demand, and a \u201cprofitable\u201d  market. If you remember the original post to which I replied, the  individual wanted to invest three million dollars in commercial real  estate. He would probably make more net cash flow from buying  multifamily properties in Sacramento or Modesto than buying retail or  office in downtown San Francisco. Using that positive cash flow, he  would 1) provide business health to survive setbacks and 2) be able to  finance new acquisitions. From a buyer\u2019s viewpoint, low cap rates are a  negative, high cap rates are good. \n\nWhich brings me to \u201ccrap markets\u201d. You may mean from an investment  return viewpoint, or because of the people (not Bay Area residents) that  live there. And \u201ccrap properties\u201d may be deals that need renovation,  and management, and could provide benefit to the neighborhoods they\u2019re  in, and the investors who buy them. Using those phrases tells me a lot  about how you see the world, and people who aren\u2019t like you.\n\nI notice that you pick sentences out of my replies that you can  dispute, out of misunderstanding. These are complex issues, and  non-professionals often have difficulty understanding them. In my  career, I explain these issues to investors. I\u2019ve come to recognize  individuals who are learners and succeed, and those who focus on arguing  and bickering, and, well, don\u2019t succeed in life. \n\nI stand behind my advice to the original post, in which I encouraged  him to buy wisely and grow his portfolio. Once again, good luck in the  future. ", "replies": [{"id": "e2siuuh", "text": "&gt;The NOI is rent  revenue less expenses (or profit, if you prefer) The NOI is rent  revenue less **expenses** (or profit, if you prefer)\n\nNot correct, you only subtract operating expenses.  CapEx which is not accounted for in the cap rate calculation can wipe out all your \"positive net cash flow\".\n\n**\" If the cap  rate is less than the interest rate, that\u2019s called negative leverage\"**\n\nNot in all cases,\n\n**\"those who focus on arguing  and bickering, and, well, don\u2019t succeed in life.\"**\n\nTypical scammer speak.  \"Trust me you are a loser if you don't buy this deal.  Ha Ha\n\nYou still haven't responded to my statement that you can buy \"positive cash flow\".  Kind of hard to address that and keep to you original claim!\n\n**\" From a buyer\u2019s viewpoint, low cap rates are a  negative, high cap rates are good.\"**\n\nYou don't understand that buyers and sellers create cap rates.  In the Bay Area a $100,000 NOI will sell for $2,000,000.  That is negotiated.  The BUYER is saying I can be profitable at $2M and the seller is debating if they should let it go for only $2M.   Now if this BUYER goes to the inland valley as you suggest he will look at a $100,000 NOI and say,\" Hmmm, exact same NOI of $100,000 but the market and I think it is only worth $1,250,000 at a 8% cap AND sellers are willing to let it go at $750,000 LESS than what sellers are getting for the exact same NOI only 90 miles away.\"  OK, where's the profit metric there?  And why are buyers paying MORE for \"badder\" cap rates and less for the \"gooder\" cap rates.  Dude, you are a scammer.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "e35iv4n", "text": "OP, as you can see there are plenty of unqualified people that are willing to \"help\" you with your money.  The sneaky ones want to get you offline to sell their crap without any oversight by the RE community.  It's OK to have different opinions of different markets but as you can see some cannot articulate their bogus claims.  \n\nI have plenty of discussions on forums where someone claims this and that and when I ask them to explain exactly how that works they get defensive and start name calling and eventually disappear when challenged.  These are the people you want to avoid in your RE career.  \n\n[https://www.appraisalinst](https://www.appraisalinstitute.org/rates-and-ratios-used-in-the-income-capitalization-approach/)[itute.org/rates-and-ratios-used-in-the-income-capitalization-approach/](https://www.appraisalinstitute.org/rates-and-ratios-used-in-the-income-capitalization-approach/)\n\nNotice this in the description:   \"cautions for avoiding misuse.\"  This is what I see all too frequently on the forums where people use the terms backwards.  \n\nIf you really going to get into CRE you should take the 5 day course on the income approach to value.  \n\n [http://www.myappraisalinstitute.org/education/course\\_descrb/default.aspx?prgrm\\_nbr=N403G&amp;key\\_type=CO](http://www.myappraisalinstitute.org/education/course_descrb/default.aspx?prgrm_nbr=N403G&amp;key_type=CO)\n\nGood luck!", "replies": [], "depth": 1}]