How would you invest 100K?

Question

Hi! I'm completely new when it comes to real estate investing. My goal is to build wealth and generate income through buy and hold rental properties. I live in NYC, so cash-flowing deals aren't in my local area, and would be out of my price range in any case. The best idea for me seems to be turnkey properties out of state. It you had 100K to work with, what would your strategy be? Would you take out loans and invest in several small, lower-priced properties? Would you buy one or two properties with cash? How much would you keep in reserve for things vacancies, unexpected repairs and expenses? With that amount of money for my initial investments, would hoping to generate 30-40K a year within five to seven years be a reasonable goal? I have no idea what my expectations should be, I keep seeing that you should aim for $100 a month per door. If that is correct, I would need to acquire at least 30 properties within five to seven years, is that doable, or am I getting way ahead of myself? Any feedback or ideas would be great, thanks!

Ka Ha · Answer

I've owned small, mostly multi family properties in upstate New York State, Georgia and Michigan for several years now. Currently I'm selling what I have to start over again, and do it smarter this time. Overall I've broken even or lost a little money, depending on the market, with no mortgages at all---just my cash invested through my own LLC. I am New York City based too.

What I'd like to do is take the proceeds and buy one small apartment house that is professionally managed by a good manager.

My losses have been caused by (in no particular order) 1. Unexpectedly sharp property tax increases; 2. the Great Recession driving down rents; 3. mismanagement by professional property managers. For example, a manager let a tenant move in without first collecting a full month's rent, and it took a couple months to evict her, with legal fees; 4. My learning curve.

That said I did a lot of things right. I did not get any mortgages. I bought properties in good neighborhoods and I am finding them easy to sell. I learned about the law and real estate so I could better manage the professionals I hired. Also--never fall in love with the bricks, and I didn't.

Rather than look for property, I say look for a great property manager. I know one in Atlanta and that's how I'm buying my next property.

Everyone asks for rent rolls, but hardly anyone looks hard enough at maintenance reports. Instead of rent rolls ask to see the monthly statements by the property manager for the past 12 months. If the seller won't do that, walk. If the seller is managing, you want to see receipts as back-up.

If you're investing $100,000, you need another $10,000 in cash as a cushion, as an absolute minimum; I prefer double that. There's something called a "cap rate" that you can calculate that will allow you to compare investments intelligently. That's worth understanding.

If I were you, at your level of experience, I would buy a condo or two in a strong rental market, rather than a free standing house or duplex-to-quad. There are areas of suburban Detroit that are very investor friendly right now--high rents, low carrying costs. Atlanta is also good.

To find a good property manager......that is tough. References aren't reliable. I would go slow, very slow. Have several meetings. Take forever to decide on a property, don't let anyone rush you. Look hardest at their accounting reports--they should not be months behind. Have a friend call about renting an available apartment, and see how they are treated. Be sure to check with the licensing authority (DOS in New York) and investigate all court cases that involve the property manager and the principal broker. You can learn to do this.

In some markets the best property managers only want to deal with investors that have at least 10 properties. But somebody like that might know who else is good.

Aaron Yates · Answer

I could buy 3 to 4 rentals in my market with 100K. My ROI would be between 20% to 25%. My cash flow after expenses and reserves would be $500 per property.

Wanna loan me that $100K??  LOL.

Dawn Anastasi · Answer

You may want to check out these other threads:

If you had $100 a month

If you had $8k

If you had $10k

If you had $15k

If you had $20k

If you had $30k

If you had $40k

If you had $65k

If you had $100k

If you had $160k

If you had $400k

If you had $1million

If you had $10million

So no matter how much you have, there is a thread for you!

Jay Hinrichs · Answer

@Amy Meza

@Erik Hitzelberger

Amy the example that Erik states in My personal opinion is far to risky.. any turn key property that only cash flow 100 a month.. will NO DOUBT at some point be NEGATIVE CASH flow of 100 a month or more.

In my day when I was funding TK operators companies this pitch that Erik gave was exactly what they turn key guys did 5 to 7 years ago.. And so many of my borrowers got into really bad financial positions based on this.

If you have 100k to invest you need to keep at least 25% as reserves.  then see how it goes and ease into it would be what I would do.

Take any TK proforma and add 20 to 30% to the expense colum if it still works then great..

Christian Lincoln · Answer

I don't see the point of 100 bucks per door.  That doesn't get me excited in the least bit.   The idea of 40 doors, even with a management company gives me a  migraine.  I own a place out west that I bought when I had money (smaller mortgage) that is the equivalent of 20 Doors I guess. I'm a newbie too Amy, but I'll tell you, I get almost no calls on one nice property.

Christian Lincoln · Answer

to @the group. I'm in same position as the rest of you. And in nyc. Shall we all get coffee and brainstorm?

Christian

Paul Timmins · Answer

@Amy Meza

Your best bet is to fund several deals, earn while you learn. Its not the short term rather the long term.

A buddy is an REO broker in NYC he tells me he sees properties you can get for 100 put 50 in and sell quickly for just under 300.

Another buddy does 90 day funding investor gets 8% annualized investors wrap it 4 times in the year money doubles in a little over 2 yrs.

Max returns can be had in Self Storage, Mobile Home Parks and Niche or Specialized Housing where rents can be 2-4 times more income.

Good luck.

Paul

Rick Baggenstoss · Answer

@Amy Heza - Your questions are great and they are critical to model out when you start.  I doubt many people take the time to figure out what happens if I do invest one way vs. another.

How are you at Excel?  I went thru a similar exercise.   Create a calculator for yourself looking at what each house can cost/benefit you?

What you'll find it investing the first few years is pretty lean and unexciting.  You put a bunch of money in with little income/gains back.  However, after 5 years, you've built some equity paying down your loans and more than likely your houses have appreciated.

The key is to invest early in your life for gains and later for income.  As Warren Buffet says, "the worlds greatest invention is compounding interest (gains)."

Pick a few investments that excites you, makes good financial sense to you and others you trust, and don't look back.

Rick

Jay Hinrichs · Answer

@Dawn Anastasi

there is no $10.00  a month thread  were is that one.. :)

Amy Meza · Answer

Hi everyone, thanks so much for sharing your ideas! It's great to have the perspective of experienced investors. Sorry for the delay in my reply, I've been away from my laptop. I think the idea of a NYC meetup and brainstorming session is a great one. Let's do it!

How would you invest 100K?

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