My Step-Dad owns a property worth 10-15M. Want to put that equity to work. Any ideas?
Hey Reddit,

Let me tell you about my opportunity:

My stepdad owns outright with a partner property in South Beach(Miami) real close to Collins Ave. It is worth 10-15 Million last time I did the numbers the cash flow is 500-600k annually as of right now. My stepdad is retired since 2005, he's 65 now and says he doesn't want to grow his wealth anymore. There's an opportunity for me to put that equity to work and build the portfolio and cut myself in. What do you suggest I do?
[{"id": "hskdbif", "text": "Put the equity to work doing what?  How do you intend to get it out of the deal?  Refinance or sale?  Does the partner also have similar plans?", "replies": [{"id": "hsm8oeu", "text": "I was thinking of doing a cash-out refinance. The partner is not active and will do whatever my stepdad says is best. \nI'm thinking of putting it into another deal that can pay off the loan and some. \nI need a strategy: where do I get the deal? (what type property is best? retail, office space, etc.) and so on", "replies": [{"id": "hsmb98p", "text": "Honestly your best bet is to sit tight and find a CRE developer already in the area. If you can bring some sizable cash with you they might be willing to let you coinvest in some deals. Maybe trade that cash for a seat at the table. You need to go into this with the idea that they know more than you and the goal is to learn what they do. Probably a 5-10 year plan. From there you can keep going, find a new shop, or strike out on your own. \n\nJust having cash and saying I want to be a developer is a way to get burned. Money is great but money and know how is the key.", "replies": [{"id": "hsrdf7c", "text": "Are you suggesting that I put that investment into new properties being made? Hadn't thought of becoming a developer. Honestly was just thinking about putting the money in a cash-flowing property that can pay off the debt and some. \n\nWhy is going the developer route so attractive to you?", "replies": [{"id": "hsrfjsz", "text": "Thanks for clarifying. I made a bad assumption on my end. Your correct do with the money what you want. Maybe the larger point is to find a good experienced advisor vs trying to make all the decisions on your own. In any case you are in a great position.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hske235", "text": "So I have no idea how your capital stack is structured or what the asset is or how you\u2019re getting cut in or how the partner relates or has control (or not) but from a purely financial perspective leaving all else aside\u2026\n\nIf you like the asset refi it pull cash out and reinvest the refi proceeds, the cost of capital for the debt is less than your return on equity on a new asset so you end up creating more wealth. Do that a bunch of times and you\u2019re rich. \n\nYou could sell the asset but if you\u2019ve owned it forever the ROE is probably pretty solid and couldn\u2019t be replicated. Better off upsizing with debt which is cheap right now (sharp curve and expensive caps aside) and using proceeds to buy more stuff; the cost of debt depending on what you own is probably well inside of 5% and you should be able to buy something that gets you an unlevered return greater than 5% so you\u2019ve just spread engineered wealth creation. \n\nAnyways my comment from the peanut gallery. Good luck.", "replies": [{"id": "hskeuv6", "text": "Owned outright. So 100% equity between two individuals is my assumption.", "replies": [{"id": "hskfqoc", "text": "Missed that. Yea I\u2019d 100% Take our financing on it and then redeploy the cash. If OP likes the partner / doesn\u2019t have an issue with them and their are no estate planning issue take out cheap debt and use the proceeds to buy something else.", "replies": [{"id": "hsmcumm", "text": "I have a couple of questions(please be as detailed as you can as to what you would do, I want to think like you):\n\nWhere do I find the deal? Loopnet? Local commercial brokers?\n\nWhat deal should I be looking for? (Retail, office space, or storage unit?)\n\nWhat are signs that it is a good deal?", "replies": [{"id": "hsmv6vi", "text": "CRE agent here, most of my richest clients only buy industrial. They\u2019ve tried others over the course of their long and wealthy lives, only to realise that there\u2019s nothing better than a freestanding, tilt slab concrete warehouse with some hardstand. Easy to lease, low maintenance, solid return and even in a pandemic or war period storage/manufacturing is king.", "replies": [], "depth": 5}, {"id": "htkb4v3", "text": "CRE broker here as well. Use a Commercial broker..but find a smart/persistent one. NNN Flex/Industrial Investments are the hottest right now. The Office market is doing surprising well (obviously depending on your location). Arizona is a great example. A NNN lease is the most hands off investment for a Landlord.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hsmcvwo", "text": "This is correct", "replies": [], "depth": 3}], "depth": 2}, {"id": "hskr4di", "text": "You could 1031 into something kicking off a bit more income, but still conservatively leveraged.", "replies": [{"id": "hsl7x7f", "text": "Agreed. OP just need a to decide whether cash or cash flow is more important. No way to replicate the cash flow of a fully owned asset. Do you want to invest in more and grow a portfolio, or just enjoy the benefits of a single unlevered asset?", "replies": [], "depth": 3}, {"id": "hsmd55j", "text": "&gt;Yes, I know that's an alternative but my stepdad would rather continue getting the cash flow.   \n&gt;  \n&gt;So I have a couple of questions(please be as detailed as you can as to what you would do, I want to think like you):  \nWhere do I find the deal? Loopnet? Local commercial brokers? Etc.  \nWhat deal should I be looking for? (Retail, office space, multi-family or storage unit?)  \nWhat are signs that it is a good deal?", "replies": [{"id": "hso0l1j", "text": "Hey, I'm a Commercial Broker in Miami at APEX Capital Realty. I'd be more than happy to share our inventory and how we can be of assistance to you and your step-dad. Hit me up at [jesse@apexcapitalrealty.com](mailto:jesse@apexcapitalrealty.com)", "replies": [{"id": "hsrbgf3", "text": "No thanks, don't you see I'm learning here. Besides you're not adding any value in the comment.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hsl5pus", "text": "Nothing more to be said, this is it", "replies": [], "depth": 2}], "depth": 1}, {"id": "hske5qn", "text": "&gt;There's an opportunity for me to put that equity to work and build the portfolio and cut myself in.\n\nBro either this is made-up or your step-dad is the worst businessman ever. He is a deca-millionaire, but will \"cut-in\" his step-son with presumably little-to-no-knowledge of real estate investment in order to \"Build the portfolio\"? \n\nHe's already making half a million a year on CF alone, why does he need you to grow anything...?", "replies": [{"id": "hskfbv0", "text": "Even better, owns it outright. Which means they were savy enough to properly manage the asset for long enough to pay down the debt but don't have an exit plan. \n\nI hope it's real and they get a cut of a perfect deal.", "replies": [{"id": "hsklqho", "text": "Could very well be he wants to own the asset and not keep growing. Frankly I\u2019m a bit in that camp with my portfolio - some assets I plan to just have paid off and stick with consistent cash flow even if it\u2019s not the optimal return play.\nFor non-RE professionals, this isn\u2019t uncommon.", "replies": [{"id": "hsmb9wj", "text": "These are actually the actual circumstances. My stepdad wants to stick with consistent cash flow. He's a non-RE professional.", "replies": [{"id": "ih67hc8", "text": "Actually the actual truth.\n\nAre you actually full of shit?", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hsl5uhn", "text": "Dude prolly watched an episode of Succession and was like OHH I have an idea!", "replies": [], "depth": 2}, {"id": "hsmb6fr", "text": "Hey, yeah, I explained he's not actively investing in growing his wealth anymore. That leaves the obvious opportunity for me to get smart and grow the portfolio for a cut of what is generated thereafter", "replies": [{"id": "hsmjbqj", "text": "Bro, in no world ever would I give my child - with no experience - money to \"get smart\". If I were a decamillionaire with no interest in growing my portfolio, why would I risk it with a complete noob?\n\nI don't believe your post. Have a good day.", "replies": [], "depth": 3}, {"id": "hsmlqdn", "text": "If you have to ask Reddit you are not right for the job or you are a straight up liar.", "replies": [], "depth": 3}], "depth": 2}, {"id": "hsmvtjv", "text": "\"Here kiddo go have some fun\"", "replies": [], "depth": 2}], "depth": 1}, {"id": "hskf967", "text": "Refinance to pull equity out and use loan proceeds to finance a new acquisition where you are part of the GP ownership. Is his partner aware of this plan to cut you in? He will most likely need to sign off. \n\nIf it were me, I'd find the new deal first and ask your stepdad every question I could think of along the way. Keep him involved. Learn his business strategy and how he evaluates deals. Make him comfortable with your ability to run this business. Once you can apply those skills, and you've found a good deal, you know where your capital is coming from.", "replies": [{"id": "hsmc92n", "text": "Thank you so much your comment is so valuable. This is what I want to do. Yes, his partner would if I present a good deal to grow the portfolio without affecting the cashflow they are currently receiving from the property. \n\nI have a couple of questions(please be as detailed as you can as to what you would do, I want to think like you):\n\nWhere do I find the deal? Loopnet? Local commercial brokers? \n\nWhat deal should I be looking for? (Retail, office space, or storage unit?) \n\nWhat are signs that it is a good deal?", "replies": [{"id": "hsmluc5", "text": "Jesus Christ.", "replies": [], "depth": 3}, {"id": "hsmss24", "text": "You need to ask your stepfather these questions he is your mentor", "replies": [{"id": "hsnv89k", "text": "I don't think the stepfather is even aware of OPs \"plans\"", "replies": [{"id": "hsrcpej", "text": "This is correct, I will present him with the plan when I know all the nuts and bolts", "replies": [], "depth": 5}], "depth": 4}, {"id": "hsrclhg", "text": "He's a boomer Non-Re Professional, he bought and held. He doesn't know all this stuff, can you please share more info on how you would do this if you want to help?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsko8da", "text": "This is perfectly plausible. My father and uncle own a property in my city, fully paid off. CF is 350-400k. We had an offer for 5.7mm, they don't even want to consider it.", "replies": [{"id": "hskuyiu", "text": "Well yea, I would rather have 350-400k in perpetual cash flow than 5.7M in taxable capital gains.  \n\nPeople writing this stuff have no idea.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hskuy4v", "text": "CAP rates are very low in South Beach. You will get low LTV loans if you can convince him and his partner to do a cash out loan. Additionally if they don't have a mortgage they are probably including every expense possible to reduce their taxes. These inflated expenses will further reduce loan proceeds that will be DSCR constrained.\n\n1. Discuss a partner buyout. Financing to either sell to partner or buy out from partner to fully control the property to solely control the property.\n2. Bring in deals to buy for comparable or better investment returns. Bonus points for 1031 exchange.\n3. Get involved in property management, leasing and daily operations to be a problem solver if 1. And 2. are declined.\n4. Discuss getting a small $1MM loan from your dad to start your own real estate empire.", "replies": [{"id": "hskxwrr", "text": "#4 LOL", "replies": [{"id": "hsnah40", "text": "The only way to go if you can lol", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsl6j5s", "text": "Refinance it at 4% and buy TIPS.", "replies": [{"id": "hsl7ker", "text": "What is TIPS?", "replies": [], "depth": 2}, {"id": "hsmcltf", "text": "&gt;TIPS.\n\nYes, I understand the refinancing part. But not sure what TIPS means can you go into detail?", "replies": [{"id": "hspsj1s", "text": "Treasury inflation protected securities.", "replies": [{"id": "hsrc8m1", "text": "Thank you", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsmo6xk", "text": "You can take out a refi and put it straight into a Stablecoin crypto like UST. You\u2019ll earn about 19% and the risk is fairly low. I would consider doing this with a decent amount (if you can refi 12M, putting $2M into this would yield you about $380k a year while holding essentially a peg to the US $)", "replies": [], "depth": 1}, {"id": "hsmokha", "text": "Sell it and 1031 into a larger asset.", "replies": [], "depth": 1}, {"id": "hsmw95i", "text": "CRE investment banker here. There are products that will allow you and your father to access the equity without having to refinance the current loan. You'll just need to be sure that your new projects will exceed the incremental cost of capital of taking out the equity in order to be accretive to the portfolio.", "replies": [], "depth": 1}, {"id": "hsmy3fa", "text": "Long term fixed rate debt is likely the answer but don\u2019t over leverage. Debt is cheap right now but won\u2019t stay that way forever.", "replies": [], "depth": 1}, {"id": "hsn34r4", "text": "It seems to be a great stand alone project. Do you really want to meddle with a success?", "replies": [], "depth": 1}, {"id": "hsnsfw2", "text": "A lot of haters on here... They probably don't own anything themselves.\n\nAssuming most of this property value came through appreciation (ie, it was purchased for a lot less than it's worth)... Refi and put a reasonable amount of debt and look for a second asset to buy. Don't use your maximum leverage, prepare for the worst even if you expect the best.\n\nIf you sell you'll have to give up half in tax anyway ... It sounds like you'll get a step up in your basis soon.\n\nGL", "replies": [{"id": "hsre2yy", "text": "Yeah, I'm really glad people like you comment though! \n\nGot it, Refi &amp; don't use maximum leverage.\n\nYes, most of the value came through appreciation. What type of second asset do you recommend? (Current property is retail, keep in mind I would be managing the second one)", "replies": [{"id": "ht87dbo", "text": "I would just avoid office because those have heavy capital requirements with retenanting.  Maybe a Net leased retail or industrial property?  Those tend to be easier to manage but nothing is perfect.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsnu5y7", "text": "We should meet. I own some stuff near 84th &amp; Collins", "replies": [], "depth": 1}, {"id": "hsobo54", "text": "I wish I had this problem!", "replies": [], "depth": 1}, {"id": "hsp20o1", "text": "Buy multi family property. Let someone else manage it. You can easily buy $50M worth and it will cash flow", "replies": [], "depth": 1}, {"id": "hspejzb", "text": "Just keep it for rent I say\u2026if you have to Refi though, get more real estate on higher ground. Like an apartment building or a couple single family homes. I say this because waters rising and that area is really low ground which connects to my next point. We have 360 year trusts in Florida set up this rental income to be paid out from the trust and don\u2019t let any of the beneficiaries tap into it to sell or refi except when certain conditions that you and an estate planner setup. Your family could be set forever because of your actions.  Take the rest and do charity.", "replies": [], "depth": 1}, {"id": "ih67rjc", "text": "*\"There's an opportunity for me to put that equity to work and build the portfolio and cut myself in. What do you suggest I do?\"*\n\nNever go in to the real estate business, get a job at Wendy's, save 15% of every dollar you earn, put it in a savings account, and pray your step dad lives forever.", "replies": [], "depth": 1}]