What would you do with 20K?

Question

I recently refinanced a home that I have been rehabbing for a year. I am currently living in the home rent free due to my roommate who covers almost my entire mortgage payment. Through my refinance I was able to draw out a little over $20,000 and so I am now ready to move on to my next endeavor. I have some student loans from college that could definitely use a $20,000 reduction, however, what I would really like to do is reinvest this money into another property and start my path into investing in real estate full time.

I would love to start accumulating some buy and hold properties so that I can begin generating a passive income down the road but I can also see the value in looking for another flip.

So my real question is... What would you do if you were starting out with $20,000?

Any advice is appreciate. Thank you in advance.

I would love to start  accumulating some buy and hold properties so that I can begin generating a passive income down the road but I can also see the value in looking for another flip.

So my real question is... What would you do if you were starting out with $20,000?

Any advice is appreciate. Thank you in advance.

Laura Williams · Answer

If your student debt is a low interest rate I probably wouldn't pay it off. The first thing that comes to my mind would be if you could buy a little investment rental in a decent area with a good return and good tenants for around 50k. Put 10k down or 20% and save the other 10k for emergencies etc (as there always can be in real estate). If you're handy I would buy somewhere that needs minor cosmetic updating (or worse if you can do the work) and fix it up to force appreciation. Once your cashflowing and your savings are back up to 20k I would then get another investment property and keep repeating the process. For most banks you have to own one year to cash out refinance for the appraisal value (not what you paid for it). So after some equity is built up with a few places then refinance the properties to buy more with a portfolio loan.

The key is to buy well and undervalued and cashflowing and try to avoid places that have serious deferred maintenance issues or bad neighborhoods where high chance of tenant or theft problems as that could take you off course from your goal. I'm not much of a fan of flipping as I feel that's a lot riskier although some people have done well with that.

Anyway that's my 2 cents :) good luck :)

The key is to buy well and undervalued and cashflowing and  try to avoid places that have serious deferred maintenance issues or bad neighborhoods where high chance of tenant or theft problems as that could take you off course from your goal. I'm not much of a fan of flipping as I feel that's a lot riskier although some people have done well with that.

Anyway that's my 2 cents :) good luck :)

Ndy Onyido · Answer

Does this apply to Texas too?

@Jordan Decuir

I see you are located in Texas. Can one get a 20k property with decent cash flow in Harris County in Houston Texas?. I am also starting out and wondering of this scenario can play out in Houston Tx.

Thank you.

Chris Campbell · Answer

Elizabeth  Colegrove

My goal is to develop a portfolio of rental properties to produce enough passive income to leave my 9-5 and do REI full time. It is going to take some patience and smart deals but I know that this is the time to start.

I feel like your website article "Building Equity Through Roommates" was written for me. That is exactly what I am doing right now and it has allowed me to live almost rent free for the entirety of my time as a homeowner.

When you talk about buying another house as a personal property are you buying it as a second home or are you moving into each new residence that you purchase? I definitely don't want to get caught up in any legal discussions by telling the bank I am buying it as my personal residence and then only using it as a rental.

I appreciate your thoughts and advice!

Wilson Churchill · Answer

I would pay "cash" for a cheaper house in a decent (low income) neighborhood, then refi to get the cash back. The key is to buy at a significant discount. Paying cash should help command a discount. A 20K property financed 100% should still cashflow nicely.

Elizabeth Colegrove · Answer

@Chris Campbell

If you have lived in the house for more than one year you can usually buy another house. The key is you have to "live" in the house. So moving is a pay. On the other hand a conventional 5% mortgage is alot cheaper than an investment 20% or when you reach 4+ 25% with my broker in California. My husband has a transient career so personal has been a huge part of our "strategy". The navy's transient career has been a good thing in one way lol. Feel free to pm me if you have specific questions. If you loved the article and would share or like me on Facebook that would be amazing.

Michael Herr · Answer

One thing I have done to move up to nicer properties and repeat quicker without a bunch of cash is run my buy and hold rehabs like a flip.

Buy distressed property with cash or hard money (in my case a family loan for a year), make smart equity boosting repairs.

6 months later,  refinance and pull out enough equity to pay back myself and the loan 100% or even mor and repeat.

In your case, you can use 10k as reserve,  10k down, get a lowes credit card, do a quick rehab.

Refinance after 6months, pull more than 20k out and repeat.

Of course this strategy carries more risk than some of the other suggestions.

All depends on your goals/timeframe, and ability to earn.

Chris Campbell · Answer

Thanks @Jordan Decuir I think you are exactly right. Full time REI is definitely my ultimate goal and this is a great opportunity to start!

Chris Campbell · Answer

Great point @Jon Huber no one  wants a Landlord like that!

Thanks for the advice.

Elizabeth Colegrove · Answer

What are your goals? How long have you lived in your house? Can you buy another house?

Since you ask what I would do! I would use the money to buy another personal property slow hold. I would either leave my roommates at my old place and fill my room or I will fill my new house with roommates. Now I just bought a second house as a personal property with 0-5% down depending on how I invest. Hopefully if I did it correctly it is another house that I am not paying for. So now I have two houses that are growing equity with someone else's money.

A huge portion of our investing style has been using personals as they have low interest rates and little down. It has been a great benefit. My website discuss our strategy and investment style.

Kirk R. · Answer

i have always wanted a European 14 day cruise.

What would you do with 20K?

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