What would you go with $150k?

[djs13]

My friend is a professional poker player and by December he wants to invest $150k which is a portion of his savings. He's at a different period in his life than me, as I am pretty much broke and bootstrapping everything I have to get my internet start-up going but he also works long days at poker tournaments which I don't envy.

He's approached me to help him but since I've never been in this position to even have $10k in startup money I'm kind of confused about where we should go from here. Although he's more poker than business minded, he's got the fastlane mentality where he doesn't want to put this savings into a CD or anything slowlane. I'm twenty and he's twenty-one and we want to be well off by our mid-twenties.

I've highly considered doing commercial/apartment real estate. I used to read books like "How to Buy and Sell Apartment Buildings" thinking I could never do what the book teaches until the future but now with my friends investment I could certainly dive into this field. I think the methods that fastlaners like SteveO used are pretty risk friendly while still being lucrative. Would a bank take two twenty year olds serious to purchase a good sized apartment building? We don't really have any assets but $150k is pretty serious cash.

What do you think my friend should invest in? Should we go the commercial real estate/apartment route with me behind the wheel guiding it?

 

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[ChrisRempel]

150K is certainly not chump-change, but when you start talking about commercial RE, you'll be limited to smaller-scale rev properties.

Not sure how it is in the US, but in Canada normally a lender wants about 30% down (sometimes more) on larger commercial buildings. Where the "zero-down" element comes in is with VTB's (seller financing) and creative deal-structure.... but that usually means less equity, and your exit plan usually depends on effective market timing and skillfully renovating (or re-positioning) the property to raise market value.

So with 150K you are looking at properties in the range of 400 - 600K. Where I live that buys you a starter home, but perhaps it's a vastly different situation where you are.

It's certainly something you can get into, but I wouldn't do it lightly.

Also, one thing to think about is intrinsic knowledge.

What do you both TRULY understand?

Are there opportunities within the poker industry that you and your friend could tap into - from a business standpoint?

I'm not talking about just playing more poker - I mean looking at online opportunities that can be integrated with existing forces in the industry that your friend may know personally?

That's where I'd start.

Often the gold is a lot closer to home...

-Chris

 

[oddball]

If he likes poker, tell hit to hit the roulette tables and put it all on black, quick double up. haha, jk.

I've briefly looked at apartment sales lately. One day I'd like to get into it so now I am researching. From what I have seen, and its from quick searching, you can fall into a small complex of only 4-6 units for around half a million. Now if what chris said is true, needing 30% down, you could probably afford something small. Again, thats just what i've seen from quick search, I could be wrong so don't quote me.

 

[DeletedUser394]

Are there opportunities within the poker industry that you and your friend could tap into - from a business standpoint?

Exactly what I was thinking.

Why doesn't he start staking and recruit a bunch of horses?

That's what I'll be doing soon.

Or even buy a skin on an up and coming network. (Merge is the fastest growing).

If he's good, he can make $1,000/day coaching. If he's smart, he can create a coaching website and bring in x that amount per day.

 

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[djs13]

150K is certainly not chump-change, but when you start talking about commercial RE, you'll be limited to smaller-scale rev properties.

I'm certainly not an expert on apartment/commercial real estate, but guys on this forum like SteveO who used Eugene Volucci's strategies started with alot less money than what we have and made it very fastlane. I'm not saying we're not going to be able to start big right away, but starting small in apartments and working up is not necessarily a bad idea just because we have to start small.

If he's good, he can make $1,000/day coaching.

My poker friend didn't come to me to find a job or become self employed. He wants to invest the excess capital he has that he doesn't need to live off of in order to make more money.

I'm not talking about just playing more poker - I mean looking at online opportunities that can be integrated with existing forces in the industry that your friend may know personally?

This is good advice and I'm going to throw it by him.

 

[Graves]

If he likes poker, tell hit to hit the roulette tables and put it all on black, quick double up.

I understand it was a joke but I hate the fact everyone views poker players like that.

Anyway, isn't tournament staking highly profitable ? The markup is usually very low (sometimes almost no markup) so it's a high-risk high-reward investment.

 

[JEdwards]

Not to be negative... but you will most likely lose the money.

You really need to figure it out, cause it does not seem like you have any idea.

I know you and your friend want to make money, i just think you are not thinking it through.

150k is nothing.

 

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[Rickson9]

Not to be negative... but you will most likely lose the money.

You really need to figure it out, cause it does not seem like you have any idea.

I know you and your friend want to make money, i just think you are not thinking it through.

150k is nothing.

I would have to agree. Your experience (or lack thereof) with allocating excess capital unfortunately comes through very well.

Park the money. Start the education.

Best regards.

 

[Russ H]

I would have to agree.

Park the money. Start the education.

Best regards.

Great advice.

Or, talk to Snowbank (a fellow fastlaner).

He owns bluefirepoker.com

Jason Steinhorn used to be a regular here, too (aka "JScott"), but he's not around much since he became a dad.

-Russ H.

 

[Mark Ramsey]

If he's a professional poker player and consistently profitable then he's in the same boat as a successful stock trader. Stock traders will use a % of their net worth in the positions they open - e.g. 0.75% per trade. The higher their net-worth goes the larger the amounts they can trade with and as long as they are consistently profitable over a period of time (e.g. annually) their revenues increase year on year - the money tree.

I'm guessing he has a similar money management strategy as a professional poker player. Why not invest it in himself and up his ante? If he's simply looking to park his excess cash while factoring in his overall net worth inclusive of assets then real estate may not be a good option as he may need to access the money fast.

 

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[Graves]

My guess is he doesn't feel confident yet in playing higher stakes (difficulty level is higher)/wants something that has less variance

Or, talk to Snowbank (a fellow fastlaner).

He owns bluefirepoker.com

Oh wow. Didn't know that

 

[WestCoast]

Put it in the bank and start learning new tricks.
It's not fastlane this year, but there is nothing like learning how the game is played, and when you finally find a solid investment, having the cash to put in.

Investigate - but pass up - some business deals now. Talk to friends, ask (politely and concisely) for a few tips from some successful people you look up to. It's ok if it sits in a bank for a year earning nothing on interest. You guys are young and will need it when the time comes to jump.

When I had my first bit of cash, I invested in the first business that was offered to me. I felt like such a big shot. Buying businesses, growing my pile... etc! But, I didn't do the digging I needed to, I didn't pay attention.... just thought it was automatic at that point.

Well, 18months later I cashed out for pennies on the dollar. 2 years later the place was BK.

I am doing DD now on a smaller business to acquire and yet I'm spending lots more time on it. I've learned and still have lots to learn.

--
Excess cash is a gift! But it must be used strategically. Talk to friends (never give away how much money you have to invest, I never talk dollars, just percentages and generalities if someone presses me on amounts). Start networking and paying attention. Collect your ideas in a box and review them every few weeks.

My guess is the HOT NEW IDEA of today, in a week, looks like dog meat as you both grow and continue to hone your business skills.

Use the money carefully. I'm not suggesting anything other than 'fast lane' ideas, but you don't have to move lightning fast right now. Plan ahead, have him park some money for a rainy day and get the word out that you guys are hungry to earn your keep and get in the game.

Have fun, some of the most exciting moments in your business life are about to begin.

 

[oddball]

I understand it was a joke but I hate the fact everyone views poker players like that.

View poker players like what? I play poker all the time, small cash games or tournaments. It was just a joke, nothing meant by it. "Put it on black" is a saying always used, in movies, songs, people...meant nothing by it.

 

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[NHS]

Not to be negative... but you will most likely lose the money.

You really need to figure it out, cause it does not seem like you have any idea.

I know you and your friend want to make money, i just think you are not thinking it through.

150k is nothing.

I agree. Thats enough money to really F*ck you up if you don't have a solid plan. 2012 I will be going into a project with that kind of money.

In the mean time it's all about experimenting for me and trying smaller scale ideas, building knowledge and having a good solid base to build on.

 

[oddball]

I agree. Thats enough money to really F*ck you up if you don't have a solid plan. 2012 I will be going into a project with that kind of money.

In the mean time it's all about experimenting for me and trying smaller scale ideas, building knowledge and having a good solid base to build on.

Without solid research and knowledge going into something is destine to failure. Whether is $150k or $150million. If you know everything about everything for what you are doing, you will have a much better chance of success.

 

[hatterasguy]

$150k in real estate really isn't that much, its enough to get going though. Chances of a bank lending to you guys is pretty small so you will probably be stuck with that. Also your not going to turn $150k into a few mill overnight in real estate unless you get stupid lucky which does happen but you can't plan a business on luck. A good goal would be to turn it into $500k in 4-5 years.

First put it in a bank for 1 year, than figure out what you want to invest in. Real estate is a massive field so you need to focus and learn everything there is to know about one small niche so you can turn a good profit on that $150k.

 

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[djs13]

It's ok if it sits in a bank for a year earning nothing on interest.

My original post states we're not looking at anything earlier than December.

You really need to figure it out, cause it does not seem like you have any idea.

I would have to agree. Your experience (or lack thereof) with allocating excess capital unfortunately comes through very well.

I could be wrong so don't quote me.

Having been one of the earlier fastlane members, joining in 2007, I have to say this thread was probably the most unpleasant thing I've read here and I kind of regret posting it. I remember in the beginning of this community, guys like Peter2, SteveO, dkt91, michael, etc. were some of the smartest people I've come into contact with. Each having a keen knowledge in their own expertise and when one inquired to pick their brain they could point an absolute newbie in the right direction to get started.

I started this thread to ask if apartment investing was a smart move for two young entrepreneurs and if we would be taken seriously by lenders. I'm not new to business. I'm not even new to real estate. But I've never been involved in apartment/commercial real estate and this is what I've been considering for this venture since my investment capital has raised significantly.

Other than Hatterasguy I never really got an answer from anybody. I've just been told what I cannot do. And this comes mostly from people who aren't involved in real estate. I don't comment on threads and give advice unless I know what I'm talking about and can give advice from personal experience - especially when it comes to talking someone out of action.

 

[Rickson9]

Just because you don't like to hear it doesn't make it useless, or wrong.

Best regards.

 

[oddball]

My original post states we're not looking at anything earlier than December.








Having been one of the earlier fastlane members, joining in 2007, I have to say this thread was probably the most unpleasant thing I've read here and I kind of regret posting it. I remember in the beginning of this community, guys like Peter2, SteveO, dkt91, michael, etc. were some of the smartest people I've come into contact with. Each having a keen knowledge in their own expertise and when one inquired to pick their brain they could point an absolute newbie in the right direction to get started.

I started this thread to ask if apartment investing was a smart move for two young entrepreneurs and if we would be taken seriously by lenders. I'm not new to business. I'm not even new to real estate. But I've never been involved in apartment/commercial real estate and this is what I've been considering for this venture since my investment capital has raised significantly.

Other than Hatterasguy I never really got an answer from anybody. I've just been told what I cannot do. And this comes mostly from people who aren't involved in real estate. I don't comment on threads and give advice unless I know what I'm talking about and can give advice from personal experience - especially when it comes to talking someone out of action.

I was trying to help because I am researching apartment real estate right now. It is something I think I could do well and actually enjoy. I said I could be wrong because I don't know everything so I might have misinterpreted something. If you don't like something someone says, don't listen. Don't expect everything is this world to be sugarcoated all nice to accommodated you, its not going to happen. And if everyone is jumping at the same conclusion maybe you should have worded your original post better to avoid that.

 

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[djs13]

Just because you don't like to hear it doesn't make it useless, or wrong.

That's not at all what I'm saying. In fact hatterasguy's advice wasn't nearly what I was expecting, but it was constructive and had facts. And in the end it was helpful. And I know he speaks from personal experience in that industry.

I'm just pointing out how I've been away from this community for a few months because of school and how it has changed.

 

[DeletedUser394]

For what it's worth, Rickson is very successful (been featured in dozens of magazines, etc, etc)

I find his advice to be a bit harsh and to the point, but if you look past that it ends up being extremely valuable.

In fact most of the newer people giving you advice in this thread are quite successful in the real world.

As for your comment about being one of the first on the forums, then you should be aware that almost every time someone has started a thread that is essentially saying: 'I have $150k to spend. What should I do?' you won't get the nicest answers.

Your question wasn't worded great either. You made no mention that you have any previous real estate experience. How would we know, when you never told us?

All of the answers you received were a result of your first post which could be summed up;

"Hi, my friend has $150K from playing poker. He's more of a poker player than a business person, so he asked me for help. I read a book about real estate and I think I can do it."

Now, imagine that I (You have no knowledge of me other than what was written in the post) was the one who said the above line, and you were the one answering. What would you say?

Odds are, you'd say exactly what everyone else said.

 

[Rickson9]

I need to work on my delivery. It sucks.

 

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[darkjediii]

Personally, I would invest the $150k in myself and implement another income generating system that I have experience setting up. (retail fast-food store)

 

[phlgirl]

A few options:

Assuming your friend is only playing poker for income and therefore not likely 'bankable', in the traditional sense, you could invest in property with a larger down payment. Smaller multi units - duplex, triplex, etc. may be a good place to start, depending where you are located. Stated (no proof of income required) loans are available but they require 40-50% down. You need to calculate the return and see if it is worthwhile.

Your friend could also become a hard money lender. It s advisable to have a fair amount of RE knowledge before engaging in such activity but the returns can be pretty nice. Average of 3-4 points (3-4% of total loan amount) plus 10-15+% interest for the term. Of course, you would need to find an experienced investor with a solid track record. This type of investment would likely be available for both commercial or residential property.

 

[andviv]

Right before I started having problems with my properties and business, we took our excess of cash and invested in partnerships to buy big apartment buildings. We are simply cash investors, the operations are run by experts on the field.

Knowing what I know today, I don't want to deal with small properties, few units. I want to deal with real properties with professional management in place and cashflow that makes them run efficiently.

Depending on location and many other factors, consider this:

When you buy a 4-plex, you may be paying $50,000 per unit.
When you buy 300 units, you may be paying $20,000 per unit.

The 4-plex will probably get $500/mo in rent.
The apartment building will probably get $450 to $600.

For the 4-plex you will be be the property manager (takes time and what a headache it was for me) or will have to hire one (guess who is making money? hint: it is not you, you get paid last)
For the apartment complex, there are employees, paid by the rents, who take care of everything.

Again, in my case, I am part of an investment group (limited partnership) and my role is limited partner. I get monthly reports and a check when the cash flow is positive.

So, when I get excess cash again, I will invest in more properties this same way.

 

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[Kak]

Well we are in a slow upswing. Pull 50k for play in the market and invest 100k in the S&P. Unless you seriously know what you are doing 150k investment has pretty much failure written all over it.

Ideally you start with an amount that you are willing and ABLE to risk and work it up and learn while doing it. I am willing and ABLE to play with about 20k right now. The rest will be in the S&P screw an account manager they take commissions and usually don't do anything spectacular. 10-12% give me a break. I get that in a good month.

 

[djs13]

Great feedback thank you guys. Andviv, that's a very interesting investment group. Is this group something similar to a private REIT?

How did you find this investment group? Other than monthly cashflow checks from rent, does the group have a plan to sell their properties or are they going down the long-term, buy and hold road?

 

[Rickson9]

Having set up and run an investment partnership I would be wary of being anything but the general partner. It's a personality flaw that I need control in real estate. Make sure you read the limited partnership agreement, offering memorandum, and subscription form and POA carefully. The general partner could be making mint off the limited partners or taking more control than one would assume.

Although the cost per door is less when you are involved with more doors, it is also true that most of the U.S. is ripe for the picking and 20% gross margins in good areas are not as uncommon as they used to be.

Best regards.

 

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[andviv]

Great feedback thank you guys. Andviv, that's a very interesting investment group. Is this group something similar to a private REIT?

How did you find this investment group? Other than monthly cashflow checks from rent, does the group have a plan to sell their properties or are they going down the long-term, buy and hold road?

Not like a private REIT as how I invest only covers one property per LP (limited partnership). [funny you mention it, running a REIT is one of my dreams]

I found this group through networking. It is a lot of -who-you-know and who-knows-about-you type of thing.

In my particular case, the plan is similar to Vollucci's. If you haven't already, read his book, it will give you a great understanding of investment groups like this.

I would be wary of being anything but the general partner. It's a personality flaw that I need control in real estate.

Correct, you do need control in RE.

Make sure you read the limited partnership agreement, offering memorandum, and subscription form and POA carefully. The general partner could be making mint off the limited partners or taking more control than one would assume.

This is critical. I spent hours reading and understanding each agreement, what were the limitations, who had what type of control, how we could fire the general manager if the investment were not producing; Also, we had clear goals about when to sell (after hitting some % in gains); Understanding how the property manager and general partner would make money (only if the property was cash flow positive); making sure the general manager only makes money when selling AFTER the limited partners (the ones with the money in the investment) would get their money back, etc, etc, etc...

Vollucci's book provides examples of how they do it, although I do want to mention I am NOT investing as part of his groups.

Although the cost per door is less when you are involved with more doors, it is also true that most of the U.S. is ripe for the picking and 20% gross margins in good areas are not as uncommon as they used to be.

Correct. And Incorrect.

As a personal preference, I rather deal with bigger units and sacrifice some % in exchange for a passive approach, rather than dealing with multiple property managers and separate units.

Also, I am seeing big discounts in multis these days.

But again, this is a personal preference based on my years of experience with both SFHs and Multis. I know your plan is way different than mine, so I understand your point of view.

 

[Rickson9]

Fair enough. Good post!