Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Where would you put 100k for best cash flow?

ryanlake

0
Registered
Joined
Jan 14, 2011
Messages
97
Just trying to bounce ideas off some brainy heads. I plan on selling my 2 single families in Regina next year. Im banking on a modest 100k returned to me. My original thought was to turn that into a 4-plex in Edmonton for 650k with 135k down (ill save up for the rest or use RRSPs). I figure i could get around $1200 cash flow if i self manage.

Then i was looking at the private loans i have been doing that offer 18%+ROI, effectively giving $1500/m with no management issues with 100k. My plan is to simply have $3500 in cash flow so i can take a gap year and motorcycle to Argentina and back, so i like the idea of great passive cash flow.

Wondering what others would do given my current goal.



Sent from my SM-G930W8 using myREINspace mobile app
 

alaas1977

Frequent Forum Member
Registered
Joined
Apr 24, 2011
Messages
312
Hey Ryan

If you wont be near the property for active management you may be better off doing the loans as it would be a lot less work and from what it sounds like, you would have $1500 cashflow. Edmonton the vacancy rate is up and if you have a tenant leave who would show your suites or overlook repairs etc? Unless you have someone on the ground, it would be hard to manage while motorcycling on the way to Argentina.

I sell manage my properties, but I have a full-time office staff with my plumbing company and they fill in when we travel. Without them it would be very hard to do from afar

Lisa
 

Matt Crowley

0
REIN Member
Joined
Dec 14, 2013
Messages
980
@ryanlake there are opportunities in Western Canada for strong balance sheets or value add but difficult for high LTV in the short term.

Who is offering 18%? A good article on MIC's (and how to lose money investing in them): https://www.theglobeandmail.com/rep...rporation-canada-real-estate/article34526694/

I would be interested to see how much of their return is coming from leverage. They must be taking 2nd and 3rd position on pretty junk/speculative borrowers. There is no way any company can pay 18% monthly. No way. It takes time to place capital to a reputable vendor so you are basically getting a return of capital for the first few months. Add in the up-front commissions it costs to invest and the company's overhead (and profit) and they would need to be making 25%+ per year. It makes zero economic sense.

I much more realistic range of returns for a direct investment in 2017 is 10 - 12%, where leverage is kept 65% - 70%.

If you are sold on MIC's and I have no issue with investing in debt right now, there is an argument for it, this would be my criteria:
- first position only
- borrower LTV maximum under 60%
- minimum $250 mm AUM (assets under management)
- solid, experienced management team, with no losses
- I would be satisfied in the 10 - 12% range because I like getting my money back :)

If you are sold on real estate as an investment medium and want to go higher yield, no management, I would start by taking a look at Fairway America as an information source to get a sense of what a reputable company in private equity looks like (https://www.fairwayamerica.com/). They aren't all reputable, but a number have good sized funds and a good strategy. Also can show realistic actual returns, not just pro forma numbers.

If going ultra-high risk with a small investor like $1mm - $3mm under management, then risk-adjusted returns should be 18%+. But that cannot realistically be achieved right now in my best estimates anyway.
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
An 18% yield comes with high risk. What kind of capital loss are you willing to tolerate ? Look first at the return OF your capital then a return ON your capital.

Do you want cash-flow or a high ROI ? More on that here: http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/

There are are many publicly traded MIcs or REITs that offer returns in the 5-8% range. Get more with asset owned by yourself if selected well and managed impeccably.
 

ryanlake

0
Registered
Joined
Jan 14, 2011
Messages
97
These are private mortgages, hence no overhead to answer your question Matt Crowley. I have invested in MICs as well and would be happy with 9%. Although the last MIC went 15% in year one due to an anomaly in fort mac transaction then 7.8%.

Thomas i love your wisdom and also invested my LIRA in your company. Looking forward to the long term yeilds, hence the LIRA.

Overall i am not interested in giving a large company my money to manage due to overhead and lower yeilds. I understand the private sector can be "risky"...my take here,
http://www.ryanlakerealestate.ca/assessing-risk-part-1/

thats why the SEC is there to protect the layman. The way i look at it, if i have 100k and invest in 4 small 25k private deals with 18%, and one fails out of four, am i better off opting for a single 8% yeild? Losing 25k would make an 18% ROI on only 75k giving $13,500. 8% on 100k is $8000. To me, its a no brainer. If they all win its $18,000. Worst case scenario they default and i get my money back regardless to reinvest if there is enough LTV.

That aside, i was wondering if there was a way im missing to utilize the money that im not currently thinking about.




Sent from my SM-G930W8 using myREINspace mobile app
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
Short term high risk second or third mortgages with high LTVs are a good idea ... until they aren't.

Also referred to as loan to own.

You must be VERY comfortable owning the asset and going through the court process if you lend money to such risky assets as that is what will happen if you invest in 15%+ mortgages .. sooner or later.

Now some do this loan-to-own lending because they do not mind buying distressed assets at a discount when the payments stop coming. Under the right circumstances that can work out well.
 
Last edited:

Matt Crowley

0
REIN Member
Joined
Dec 14, 2013
Messages
980
The SEC is there to make sure the paperwork is filled out. You are responsible for protecting yourself. Lots of companies disappear off SEDAR. Walton anyone?

Default means you lose the principal... so if you lose one of your traunches, you lost $11,500 even if the others make 18% return. I stand by initial comment, debt won't yield 18%. What is the underlying asset? Maybe on a speculative build for a beginning builder? There is cheaper capital available than that right now. The underlying asset would need a 25%+ return for this to make sense for the borrower, or it is a loan to own configuration.
 
Top Bottom