What to do with my Cash?

Question

Hello BP,

I am in a quandary and would appreciate some input from the group. I have about $250k saved at the moment. My quandary is on how I should use my funds. Currently, I am renting a place from a very good friend at below market rent in a very small town. Unfortunately, there are no real population centers (over 100k people) within 2 hours of where I am.  Here are my options (as I see them): 1. Stay here and put my money into marketing the business hoping to find deals here or trying to do virtual deals (something I'm not a fan of, tbh) in areas with higher populations or 2. Move to an area with higher population (with hopefully more opportunities)  buy a house and start my business with say, $60k-$80k less.

A little more information: the area I am currently in, I cannot afford to buy a house here in this small town; way too expensive. I'm only here because of my friend's generosity. So the option to buy here in this small town is out. Also, I'm no kid so the idea of house hacking is out. Just not something I'm interested in doing.

I really appreciate any thoughtful insights here.

Thank you so much,

Curt

Raju Balakrishnan · Answer

Set your goal say 5, 10 and 20 years from now and work backwards from there to decide what to do with the money. It sounds like a long time, but RE is a long term game. Decide what you want to learn, and invest the money/part of it to find a good deal in that asset class. Think in long term, but act in short term (or soon).

Curt Dalton · Answer

I'm so sorry for my delay in replying to all these great posts. I was in the hospital for a time and am finally getting back on my feet. Thank you to each and everyone of you!

Jason Wray · Answer

Curt,

I live in Florida as well down by the Gulf Beaches in Saint Petersburg.  I am somewhat familiar with Niceville although it always reminds me of a title to a bad movie.  You are way up in the panhandle which is less Florida and more towards Alabama.  My advice would be to take a small portion of that $250K and use it as a down payment.  You can buy an investment property that offers a Carriage home, ADU or other and live in the smaller portion and rent out the large portion(s).

You have Counties like Citrus County, Pinellas County, Hillsborough County, Polk, and Pasco that all have a large population and a ton of opportunities for new business owners.  You can find a property in any of those Counties for under $300K and you only need 15% to 20% depending on what you purchase.  That leaves you with a good chunk of change to start the business and grow from that point with rental income/passive income coming in each month.

If you have any specific questions and want to talk about Pinellas, Citrus or Hillsborough reach out I always enjoy talkng REI.

Jaron Walling · Answer

Hopefully that $250k cash is sitting in a HY savings or CD generating a boring 5% return.

It's time to take control. Renting for cheap is great, you probably saved a lot money, but you're not moving the needle towards starting a business. I'd be shopping for RE like @Jason Wray mentioned and attempting to house-hack. Get connected with investors and agents in those markets and see how creative you can be cash offers. Maybe a STR makes sense because there's less competition. Try something. It's time to be an owner not a renter anymore.

Michael Smythe · Answer

@Curt Dalton what you want to be careful about is following the advice given in response to your post!

Some will be myopic with their advice, sharing what worked for them, without considering your unique challenges.

Others, have already responded and showed they didn't read/understand your post, so their advice is almost worthless:(

Another challenge will be making sure you expectations are realistic. ---We've seen so MANY investors do incorrect analysis, not understand the asset class they bought, etc. - then they lose thousands:(

Here's some useful food for thought (copy & paste):

.

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

What else can we assist you with?

Ricardo Hidalgo · Answer

Hi Curt, I am very familiar with the Niceville area and have done several builds. Have you thought about house hacking or buying something with cosmetics as a primary? You can easily increase the rent and equity by 20-30% more if done correctly. If you want more stability I would stay near the base and if you are wanting more risk I would aim for the beach since valuations can go up quickly if done the right way.

Travis Biziorek · Answer

Hey Curt, this is a very unique situation and it's really going to come down to your goals.

How OK are you moving? If you moved, what would the goal of doing so be? Are you wanting to own your own home somewhere else? If so, what kind of criteria do you have for your new location?

The list goes on and on. I really think you need to take some time to understand your own personal goals before making any moves (literally or figuratively).

I actually moved from the San Francisco Bay Area to Detroit and aggressively built a rental portfolio there. I lived there for 5 years before moving back to California.

If you have the flexibility, move to a market that aligns with your goals and do something similar.

Wale Lawal · Answer

@Curt Dalton

Before you think about moving your business to a big town or a small one, look at what chances you have in your area first. See if you can grow there. If your business needs to be in a certain place, try to reach out to more people in other towns or online in bigger places. Next, think about what you like and how you want to live. Moving to a place with more people might give you more chances to grow, but it could also mean higher costs and more traffic. Try to find a good mix between work and how you want to live. Last, think about what you see for your business and your life in the future. Talk to someone who knows a lot about money to help you decide.

Good luck!

Kyle Momany · Answer

There's deals to be had anywhere. There are also tons of different types. Hyperfocus on one and push forward with it! Are you looking for more flips/brrrr's? STR? LTR? There are tons of wholesalers in the area as well. Let me know if you have any questions or want me to push you any of the wholesalers info!  Side note: You've got an awesome friend!

Greg Parker · Answer

Stay where you are.

+Find a local Realtor that works with investors, or a wholesaler.

+Use the cash to buy something.

+Get it rent ready.

+Finance your cash back out and repeat.

What to do with my Cash?

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