Divesting into CRE after already making money in other investments?
Hello all,
    
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I have already made money via other investments and wanted to divest into real estate since it is less volatile and provides stable passive income. I have already owned 2 residential rental properties for a few years so I am not entirely new to real estate. However, I dislike how a large portion of gains from residential real estate goes to the property managers, taxes, repairs, etc. I am interested in CRE as I have more capital now and I want to take advantage of the economy of scale since I think it has the opportunity to be more efficient than a bunch of residential properties. Additionally, I think residential properties may be more vulnerable to politics in my lifetime as the government historically wants to enable home ownership. I think CRE is more immune to this since both sides of the political spectrum in this country seem to favor big business/landlords at the end of the day.
    
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I have been browsing bigger pockets, this sub, and a few other resources for a few months but it seems like most material is geared toward people who do not have much money who are trying to make money via CRE. I very well understand real estate has a lot of its value inherent in the ability to finance at low interest rates/refinance, but at this stage in my investing journey I am considering just putting between 50-100% down and just getting that 'endgame' passive income. I am fine with the illiquid equity at this point. Some themes I have noticed in my research are:
    
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-Publicly listed deals like on Loopnet or Crexi are probably bad, because the good deals are already happening without listings
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-CRE is very relationship/people focused, and investors need to find good brokers to find good deals
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-Breaking into CRE as a new investor is more difficult than if one is already established
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-I want to own directly rather than go the REIT/crowdfunded routes, but am open to the idea of smaller scale syndication (like handful of owners) but not sure how to go about finding that
  
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I initial leaned toward multifamily since it the closest thing to residential properties that I am familiar with, but I am also concerned lots of other investors do this so it may inflate multifamily prices compared to other CRE investments. I am also worried about going into something very niche and risking big vacancies or long term trend reversals in the market that could cause problems later (like maybe self storage becomes saturated or too many competitors ruin the profits in 10 years). I also don't want to call hundreds of brokers and try to establish relationships because I am open to properties all over the nation (obviously some states are better than others for real estate due to politics/population/employment etc) but it seems like brokers are more localized than that.
  
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So ultimately my questions with specifics would be:

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If you had $5-10 million and open to some additional financing, how would you find a favorable deal anywhere in the nation that would provide about 5-10% ROI per year (after operating expenses/taxes/etc)? What types of CRE would you focus on for a long term investment if not multifamily? Is there a better approach to finding nationwide deals than picking a bunch of good locations and cold calling brokerages/brokers? Are there any important considerations I am missing here?
    
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Thanks for any information.
[{"id": "hm7efll", "text": "Following", "replies": [], "depth": 1}, {"id": "hm7fa3u", "text": "Divest?", "replies": [{"id": "hm8eds7", "text": "Yes, divest into. Much like invest out of!", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm7g2t1", "text": "I'm in the process of selling an investment as well, and I've been thinking of CRE for many of the same reasons you mention. More stable, less susceptible to government mandates like no evictions, renter's rights, etc. Of  course, returns are a bit lower because of that element.\n\nI've only just started investigating, but I personally want to be closer to my investment, even if I have a management company handle daily stuff. The ability to drive to a location to check up on maintenance issues, renovations, etc., vs. having to fly seems worth it. $5-10 million is a lot of cash, but I wouldn't feel comfortable living hours and hours away from my property. The scale just isn't there, IMO.\n\nAs for finding deals, I've been looking on Loopnet  with the mindset that the best deals aren't on there, but it's a stepping stone to reaching out to various brokers, tell them what I have in mind, how much capital, and other parameters, and then to keep in touch with them so they actually know I'm serious and reach out to me when a good deal actually does come along.", "replies": [{"id": "hm7l8te", "text": "I feel like my local area is not an ideal location (it's not bad there's just better places to invest). I also travel a lot and plan to continue travelling so I don't think staying close is an option. One of my residential properties is really far away and if I got the feeling the property manager was scamming me (multiple questionable repairs/charges etc) I would just get a new manager. Not immune to getting ripped off but I feel like being geographically close isn't enough of a deterrent to be worth it in the long term. I can understand the comfort factor though.", "replies": [{"id": "hm8urjl", "text": "Me and my father did CRE exclusively as developers for many years. Now we do multi family and mixed use. CRE is much more risk. Some of our best cash flow comes from CRE, but your anchor tenants are in economic dire situations. Losing an anchor like a grocery store or department store can destroy you. 3 unit strips may work.\n\nIf you have 5-10 million to invest you can meet the cost of entry to be private equity for a developer. Right now in California we are giving our investors 6% preferred return along the way and then on sale we average about 23% ROI per year and exchange into the next project. But that number is moving up. Our last project just sold with a 30% ROI and an industrial park early this year at 40%.\n\nWe are financed through 2050 though lol. If your wanting to find a developer you can could call and ask, most will take your money. Don\u2019t go with big firms, they run bloated. Local developers no the cheap contractors in town and have way way way better margins. Find a firm with a good track record. Make sure they think this isn\u2019t your first rodeo and tell them you need your finance and business manager to review everything. They will be less likely to try to screw you.\n\nIf you find a good developer they will make you rich. We have one person financing us and we made 130 million on a 28% ROI over the last 8 years.", "replies": [{"id": "hmflz48", "text": "In my city the trend is doing large luxury residential condo/ rental apartment developments and using a grocery store, restaurant, bank, gym i.e. something the residents can use daily as the first floor anchor tenant. Triple net the first floor and sale the units above.", "replies": [{"id": "hmfonjz", "text": "We just sell the whole building. The ROI is much better if your the builder. This is called mixed use and is almost required in every city across America now. Luxury apartments are being done cause the rent per sq ft is higher and it\u2019s only way to make new builds feasible in most city centers. If they are smaller marketed for middle income they are usually quasi luxury and still expensive to live in.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm7hh8a", "text": "You can do the grunt work yourself if you\u2019re willing to invest in your own accounts to some of the major websites. For instance, you can get your own Trepp account, see what properties have a loan coming due (12-24 months) and call the owner to see what their plan is. Maybe they would look to sell. In terms of asset class, industrial and multi are the hottest right now so there is a lot of competition. In your size range however, you\u2019d be competing mainly with smaller shops, so I think those asset classes could still work.", "replies": [{"id": "hm7lcmk", "text": "Thanks, I will look into Trepp. Are there any other accounts/services you recommend?", "replies": [{"id": "hm7uy1z", "text": "Been out of the brokerage side for a couple years now. But I\u2019d suggest costar, reonomy and trepp. There\u2019s been discussions on these types of platforms on this sub so you can do a quick search", "replies": [{"id": "hm9xxa3", "text": "Just out of curiosity, how much does trepp cost?", "replies": [{"id": "hm9zit9", "text": "No clue, but I\u2019m sure it is not cheap. When I had an account I was at one of the major brokerage shops so I never knew the costs", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm7iiiy", "text": "I think I would pick an area that has positive demographics and growth trends and network with 5+ brokers that have listings you like.  Tour properties, meet them, run numbers, track what they sell for, network with some other investors who have similar criteria.\n\nAfter 6 months you'll be an expert and know how to spot a deal.  Don't shoot too early.\n\nMulti-family, self-storage, mobile home park are good but highly competitive.  I really like industrial and long term trend and feel you can be a bit more creative in use, subdivision and tenant targeting.  Retail I'm least excited about.\n\nYou are presenting too many options and finding a deal nationwide in any asset class is overwhelming.  I'd pick 1-3 geos and an asset class and pull up your sleeves.", "replies": [{"id": "hm7lnyu", "text": "Do you have any resources that would help in investigating the demographic/population/employment/etc factors or is it all just looking up individual statistics with whatever you can find? I think you are right in maybe I need to pick some specific states/cities that are good candidates but I am not sure how I should narrow those down or compare them. Thanks for the info.", "replies": [{"id": "hm7mw4i", "text": "I buy in the market I live in and do projects that require heavier operations so I am not an expert in picking other markets.  My starting point would be: population growth, domestic and foreign migration and robust job growth.  You are probably going to get a lower initial return with those requirements but I would say the rent growth should make up for it overtime.", "replies": [], "depth": 3}, {"id": "hmfafa0", "text": "Your best source for analyzing locations is going to be Costar they have analytic reports that go over pretty much everything you would research for to determine a location to invest. Costar is pretty intensive in their information and is why subscriptions are pretty expensive. As a commercial associate we get discounted rate because we share between a larger group of members but not everyone has national access so it would be a higher rate to compare cities nationwide.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm7ujhy", "text": "Have you thought about LP investments in syndications?", "replies": [], "depth": 1}, {"id": "hm7wt1h", "text": "Are you looking to invest in long term performing properties or shorter term value add opportunities?\n\nFor your investment margin, I suggest you seek out reputable build-to-rent developers in hot markets like Utah, Colorado, Idaho, Phoenix and Austin. \n\nNew builds in emerging markets will not fail you provided you confirm sufficient cash flow. Do your research and vet the syndicators well. Here's a good article that's helpful regarding emerging markets https://attentivesolutionsllc.com/blogs-by-the-non-blogger/f/how-to-evaluate-emerging-markets", "replies": [], "depth": 1}, {"id": "hm8acox", "text": "Multifamily and Industrial. Yes, these are the hot asset classes, but if you are parking money for a 5-10% annual unlevered return it won't matter much. There are still 5-6% cap deals out there in both asset classes. Question is, it sounds like you are adverse to 3rd party management, so:\n\nAre you self managing? If so you may think about to staying within your MSA. Also, I would look at NNN industrial, for self managed deals outside of my MSA. Industrial is very hot in certain markets, but cash offers have a way to win deals, especially if you can close fast.\n\nAlso my read on your criteria is that you are fairly risk adverse. New vintage, stronger submarkets with strong demographics is what I'd go for.\n\nFind a buyer's agent to find deals for you. Many will jump to help source deals with your criteria if you show available cash in the 5-10m range.\n\nSomeone also mentioned passive syndication. This what we do in office, industrial and multifamily. This type of fractional ownership works well for our HNW and UNW investors who want the benefits of ownership without day to day asset and property management. ie: pass through taxes, 20% pass through deduction, bonus and accelerated depreciation resulting in offsets to passive income etc, levered upside, opportunity to diversify among different deals etc..) I may be reading it wrong but it sounds like you don't want to share the upside to manager or partners, which is fine. Passive investments aren't for everyone.", "replies": [{"id": "hm8v3ks", "text": "Industrial and multifamily has been insane for us. I would question someone giving me that cap rate though. 4.5% is a steal by me. We don\u2019t sell over 4.15%", "replies": [{"id": "hm9ygp1", "text": "Agreed, 100% -- But it's a big country, and ymwv with lots of MSAs over 500,000 that have lots of different asset quality levels. For industrial I'd be looking at Tier II cities along the i70 corridor. Like KC, St Louis, Indy or OKC, Tulsa", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm8p3ki", "text": "Some good advice here. Also consider looking at NNN property investments. There are a handful of brokers that cover most of the US. Assuming you\u2019re not looking for a \u201cvalue add\u201d deal these generally trade a well vetted yield and often times have long-term upside if bought in the right areas.", "replies": [], "depth": 1}, {"id": "hm8p6o3", "text": "My opinion, you are \u2018nuking\u2019 your problem.\n\nIn the Navy, we used that term when you were overthinking the obvious scenario, like a nuclear scientist. Ha. \n\nIt sounds like you like to read, but not take calculated risks? CRE is somewhat calculated, IMO. You can see the current trends, and following those trends, means you are jumping on the right bus. If you invest now while it\u2019s still in up-tick, you likely can only made a bad multi family buy if it\u2019s in an extremely unsafe area, or in a region with a lack of job growth and influx of new comers. That seems to be counter intuitive. \n\nStick to the tertiary markets of strong performing secondary markets, those are likely to see appreciation and rent growths as the cities move out, and the wise get space. \n\nI say multi family all the way, your reason is same as ours\u2026we were smart enough on residential, CRE should work? So far so good, but takes a bit of time and reading like you are saying! \n\nBTW your first point is not always correct. I have strong cash flowing apartments from LoopNet that just needed a slight tweak of PM, rent raises, and or expense decreases. \n\nGood luck!", "replies": [{"id": "hm8vkha", "text": "I would caution anyone going into CRE now that isn\u2019t already large. CRE can be great cash flow as a smaller position to fund other things. But you have to be able to eat losing an anchor tenant. Grocery stores will be alright, but even CVS is shutting down tons of stores. We lost a goodwill and it took 3 years to replace even with us covering TI in a busy area. Department stores are also dying. Your best bet is something that has multiple units sized for small and local businesses. They are much easier to fill, although rent may be inconsistent.\n\nHaving an anchor unit is preferable but you have to be able to eat some costs if you have leverage on the property at all or you could go bankrupt.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm90np7", "text": "I raise money for a bunch of CRE operators by means of syndication (Representative of actual ownership) - happy to have a call with you and see if your interest align. \n\nPm me.", "replies": [], "depth": 1}, {"id": "hm9qvum", "text": "If you are saying that you actually have $10m in equity to invest. (Big diff between $5m and $10m). The first question is how much work do you want want to do??\nIf you want zero work, I would buy two NNN deals in strong markets with credit tenants with at least 10 years of term.  I would also put at least $1m in VTI. \n\nIf you want to do more work, then a multi tenant property or a multi family.  But it can be a ton of hassle.   A NNN chase bank or Aldi is more my speed", "replies": [], "depth": 1}, {"id": "hmakxvk", "text": "If you\u2019re looking for long term holding properties funded primarily with equity you\u2019re right to avoid multifamily right now given the return profile you want. Multifamily is selling at a 3-4.5% cap rate right now, so after accounting for capex reserves you\u2019re not getting anywhere near a 5-10% ROI unless you can juice income somehow.\n\nFor cash flow investors I\u2019m a big proponent of open-air retail (strip malls, power centres, STNL deals, etc). I think good assets are generally underpriced right now and it\u2019s easy to find mismanaged properties.", "replies": [], "depth": 1}]