A Bigger Pockets member located in Austin, Texas reached out to me in the DM’s earlier this week with a well thought out question that I think a lot of people could also benefit from hearing about. I’ll do my best to summarize the question and my answer with context below, but in short, he’s feeling stuck because it's hard to figure out which route to take in real estate. Even if you know the strategy, it's STILL tough to figure out what the “best” play might be sometimes.

99% of the time, at least SOME resources are limited for all of us, whether it's time, money, people, skillset, etc. When I got started 5.5 years ago, it was pretty much everything but time, haha! Wholesaling was something I found that I thought I could at least start with little to no money, and something I could tackle by myself.

This guy is in a much different situation. He owns a primary residence that has about $325k in equity if he were to sell it today, he wants to downsize, AND he has more available cash in addition to the equity from the sale. He presented 3 scenarios that he had thought of:

1. Keep the house and rent it. It would rent for $3000 per month and his payment is $2300 per month. Then he would go put 15% down on a smaller new construction home as his primary worth $375k.

2. Sell the house and go pay cash for the smaller new construction home worth $375k, and also purchase a rental property in a different market with a loan, but the rental won't cashflow until rates come down.

3. Same as number two, but put 40% down on each the primary and the rental. The rental pretty much is a break even when looking at cashflow.

He was MUCH more detailed than that, gave me pros and cons of each scenario, etc (which I really appreciated. Often I get “what do I do?” questions with 0 context and it's impossible to even begin to answer). So I also gave him a very detailed response, but the root of it was my favorite response… ‘IT DEPENDS.’

Whether brand new with NO resources or experienced WITH resources available, I think we all get caught up in scenarios like this more than we’d like to admit. I know I do.

My advice to him began with ‘IT DEPENDS!’ haha, jk.. I had to type out the response, then go back and put in a note about ‘STARTING WITH THE END IN MIND.’

One thing I didn’t know from his well thought out message was what he actually wants (besides downsizing his primary and using the change as an opportunity to invest) out of this play. What’s the end goal?

I went into a pretty detailed response that I thought a version of option 3 would be the best, mostly because option 1 and 2 seemed like a horrible return on his $325k of equity to me - Keep the house as a pretty ****** rental in terms of cashflow OR go pay cash for a smaller house and buy another ****** rental. Either way, all that equity is locked up in a house short of using a product like a HELOC to access it.

My version of option 3 was to put 20% or less down on his new smaller primary and use the remaining $250k+ to go buy rentals that actually cashflow.

The more I typed out my response, the more “OH BUT WAIT…” nuances started coming out.

I began with suggesting finding good distressed deals in a cashflow heavy market so he could have a shot at doing some full BRRRs and buy as many as he wanted. I'm a flipper and wholesaler… finding those deals is what we do! OH BUT WAIT… does he have time to find his own deals? Has he ever rehabbed before? Is he actually comfortable with investing in a non-local market?

Well… maybe a better model for him would be paying cash for a couple turnkey SFRs and then leveraging to get at least MOST of the cash out so he could buy several of them. OH BUT WAIT… does he even want to leverage? Maybe he’d rather have less of them and have them free and clear for more cashflow and less risk. Does he even care about being in a cashflow market? Does he care about appreciation more?

Well… maybe a better play for him would be using the $250k+ as a down payment for a single, bigger opportunity to force much more appreciation than he’s going to get in a 3% annual appreciation rental market. OH BUT WAIT… does he feel comfortable or have the skill set to go bigger on his first deal? Back to the time thing, does he have enough to operate a deal like that? Would he be able to find a partner if not? Would he even want to partner with someone? Wait, what’s his time horizon on this deal anyway? Is this a 5 year timeline or a 30 year timeline? Back to square one…

You get the idea! It's impossible to answer these questions for ourselves or others unless we are super clear on what our restrictions, resources, and end goals are.

Of course the decisions are important, but it's my opinion that making the decision and going after it is FAR more important than making the PERFECT decision. And that’s what's hard about real estate at any level… IT ALL WORKS.

I've done flipping, wholesaling, BRRR's, long term rentals, short term rentals, ground up construction, single family, multifamily, land, seller finance, etc. Have I bought some bad deals? Yep. Have I bought some good deals? Yep ( luckily more than the bad ones). But I say this because I never would have got to do any of it if I didn't make the decision to JUST wholesale first. I picked that, learned that, then did the rest later. There are pros and cons to everything and there's always trade offs too.

So even within the same strategy, with the same resources, and in the same asset class, there are STILL a ton of ways to skin the cat. As long as you’re not totally going in blind and being completely reckless, start skinning! You can always switch it up later. Hope this helps.

Alex Ficco

Reno, Nevada

2 Votes