If you only have 25k and are set on investing out of state, what’s your strategy?

Question

If you start today with 25k, what market are you picking, and are you buying multi family or single family?

Travis Biziorek · Answer

Here's what I'd do...

I would get more access to capital ASAP. Assuming you have a decent job and credit, this can be done extremely easily with a lender like LightStream. I used them in 2019 and from application to money in the bank it took 48 hours. And I never had to talk with anyone.

Back then they were only doing max of $50k loans. It's now $100k.

OK, so you've secured $100k more in capital. You have $125k total. Now I'm going and buying off-market deals in a high cash flowing market (my pick is Detroit because I know it extremely well).

I'd want something that needs some cosmetic updating so I can hopefully force some equity. A purchase price in the $60-$70k range and needing $15k-$20k of work would be perfect. The hope is it appraises for about $100k when done.

So you but a $70k property and put $15k into it. It appraises for $100k and you pull out $75k on a refi. Now you only have $10k left in the deal. And you're now sitting on $115k cash and have a property generating $200-$300 in net cash flow per month.

Time to do it again, and again, and again.

This is exactly what I did and built 12-doors this way. I also had a 401k loan out and HELOC. Eventually the cash flow snowballs and you're able to take your foot off the gas on new acquisitions and pay down the HELOC, LightStream loan, etc.

It's not for everyone, but if you can service the debt comfortably with your W2 it can work extremely well.

One more plug for Detroit... I have a super strong team on the ground that I plug people into all the time. I have off-market deals, contractors, and an internal PM. So all the pieces are there. Happy to discuss more about the general strategy and/or Detroit.

Cassi Justiz · Answer

Honestly with 25k, I wouldn't recommend buying an investment property. Even with 100k property, that will barely cover your down payment and closing costs.The best use of those funds would probably be to use it as a down payment on a house you can live in for a few years, and then rent out.

If purchasing a home to live in is not possible in your market. Then you may need to re-evaluate your strategy to acquire more capital or partner with others that are already operating in the market and have access to more capital.

Julien Jeannot · Answer

$25k is though. C&D areas seem attractive until you realize what it takes to succeed. In my experience, that means large portfolios to weather high vacancies and pricey turn overs. Appreciation tends to flat as well.

I'd find a deal and a money partner.

Travis Biziorek · Answer

Few things here.

First, I haven't stopped. I have a full gut duplex I'm currently finishing up. Hopefully that will be done in the coming months. I have about $150k stuck in it right now.

Second, I hit my goal so I've taken my foot off the gas a lot. Our goal was to generate $15k/mo in gross rents so we could move back to California. We made it happen in 2.5 years and made the move back about a year ago.

Third, my goals have now changed. We're building an ADU here at our primary in CA. Once done, our real estate income will put us in financial independence territory. As a result, cash flow is less a priority as it was to me 4 years ago.

Once the ADU is done we'll likely continue doing a mix of cash flow stuff (aka Detroit) and other stuff.

But yes, I'm extremely hyped about Detroit. Everything I've purchased there has increased 2-3x in value since 2019-2021 and the cash flow is insane. The city is on a huge upswing and most folks haven't a clue yet.

Brian Wilson · Answer

Undercapitalization is more risky than not buying any deal. Ask me how I know. I had a 35k education on my first property about being undercapitalized. The absolutely most important factor is to have a strategy you believe in. Then you can start looking at markets. It goes investment strategy, then market selection, then submarket selection.

If you don't want to take on outside capital or loans, I would save up some money or do a live in flip or house hack. Better to wait a year or 2 and be ready than to rush into a large financial commitment un-prepared.

As for markets I like, I like the midwest a lot. Missouri, Kansas, Nebraska, etc.

Michael Smythe · Answer

@Adam Gusky $25k only gets you to a $100k purchase price with 20% down and having $5k for closing costs.

Hopefully, you have credit cards to cover any surprise repairs, but that still doesn't leave you the recommended 4-6 months of payment reserves.

You could buy a $75k Class C SFR in Detroit and use only $15k for your 20% down - which would leave you with reserves. You'd just have to make sure you buy a property that doesn't need repairs.

There are many scammers in the Class C markets around the country, so you have to do your due diligence and find a team you can trust - one that supplies pics & videos and is pretty transparent with what they do.

Otherwise, you risk being sold a property that is actually Class D, that had slapstick repairs done to it and a crappy tenant placed - which will result in you losing most of your $25k within 6-12 months.

Joe S. · Answer

Seems like you’re pretty excited about Detroit. Why did you stop at 12 doors?

Eliott Elias · Answer

25K is not going to get you very far in any major market, unless you have partners. You could get into those smaller markets, with C/D class neighborhoods. Those tend to have a much lower entry fee.

Greta Clav · Answer

A local market. An area that you are familiar with, that you can monitor for changes, and that you can easily, quickly and economically work on. You can work with a realtor to find an investment out of state but you will have to rely heavily on the realtor's experience and commitment to finding you a good property. Also, managing and maintaining an investment property outside out of your area can end up costing more than if you are there to assess and/or take care of the situation yourself.

If you only have 25k and are set on investing out of state, what’s your strategy?

Most Popular Reply