What is the best option for me

Question

Hello!!

I am new to this forum and would like some feedback on a scenario I am facing. This is a good scenario. I purchased my home in 2011 in west midtown atlanta ga and it was a short sales, so I received a really good deal on it. Now the market has changed and the home value and recent home sales in my townhome community are almost 100k more than what I owe. If I put my home up for sale I could receive anywhere between 80k-95k in profit. I would rent after I sell it . My question is what should I do with that money? I am really interested in real estate and have viewed several properties in the atlanta area . I would like to see if purchasing a rental unit to generate income is smart or purchasing a rather inexpensive home in a upcoming area and flipping it for higher profit. I would like to be able to not put all the money in one or another but do several things with it. I welcome any suggestions, mentor opportunities, network opportunities .

Damir Kamber · Answer

Hello @Mildred R.

Welcome to BP and congrats on your first successful REI ! Atlanta is a great RE market to start investing.

Everyone has great points and speaks from their own experience. We all do what best works for us and you should do the same. I agree with @Crystal Smith the most. Education is the key to your success, especially financial education. Spend few months educating yourself about RE, as it can be very rewarding but painful at the same time.

The most important question to ask yourself is, "Why do I want to invest in Real Estate." You are starting a business and the same principles apply. Who is your target audience? What is your niche? Do you have a business plan? Goals? R&D.

After you answer all those questions, create a team of people smarter than yourself that will help you move forward. Attorney, agent, accountant, etc.

Good luck and let me know if you have any further questions.

Damir Kamber

Crystal Smith · Answer

Join a couple of local REI groups to learn your market, build your network; get an education; then decide on your strategy.  That strategy may include keeping your current property and leveraging a HELOC to support a purchase of a property for flip or selling & using the cash.  If your credit is good you can combine leveraging OPM w/ your cash & purchase properties to flip, flip again; then use the cash from the flips to buy & hold.   There's naturally a ton of other details, such as setting up the property company structure to protect yourself and minimize taxes.  Hence why the 1st recommendation is learn, learn, learn.

Bill Exeter · Answer

I think if it were me, I would look for a duplex or triplex that I could buy, live in one of the units and then rent the other one or two out.

DJ Hite · Answer

I think it depends on your goals. Are you looking to buy and hold properties and build a portfolio of rentals and increase your net worth? If so, then I would not recommend selling your existing property. If you want to build your net worth and build passive income, then accumulating properties that positive cash flow should be your goal. Fixing and flipping is another way to make money in real estate but it is a much different game than buy and holds. The guide is a great tool to help understand the different nuances of real estate investing.

DJ Hite · Answer

Welcome to the forum! That's a good dilemma you have there! What is your current mortgage payment vs. rent you would be paying? What about pulling out some of your equity through a cash out refinance of your existing residence? Take that equity to purchase your new rental property all while keeping your existing property. This scenario is the quickest way to increasing overall net worth but make sure you put pen to paper and make sure the numbers justify it.

Bill Exeter · Answer

Hi Mildred,

First, congratulations!  I think this house is your primary residence and not a rental property, correct?  If so, it would not qualify for 1031 Exchange treatment.  It would qualify for a tax free gain of up to $250,000 (if you are single) and $500,000 (if you are married) since it is your primary residence.

So, your gain would not be taxable because you have owned and lived in the house as your primary residence for at least 24 months out of the last 60 months (2 out of the last 5 years).   You can sell the house, have no tax liability to worry about on the gain, and then take all the time you need to decide what your next step should be.

David T. · Answer

Use the money to find yourself a good mentor/partner. Do that by funding a flip. This is where it gets relatively tricky. However, if you trained yourself to find a really good deal and put one together with the funding, you could offer it on your terms to someone who you think is a professional and honest player and that means your very own completely independent diligence from the get go.

There are plenty of good contractors out there who would like a J.V. deal, just make sure you have it all signed off with the correct paperwork.

Good luck to you.

Sean Monahan · Answer

@Mildred R. What an envious position to be in, while I am certainly not as educated as others here I agree with those that say educate yourself until you feel comfortable with it. The worst thing in my opinion to do is rush into something. I am in a similar place, attempting to educate myself and devise a plan.

Whatever you choose, best of luck.

Mildred R. · Answer

Thanks everyone for all of the suggestions. My main goal right now is to LEARN more about Real Estate Investing, and come up with a 1 year plan on how I become a great Investor.

Azeez K. · Answer

@Mildred R. Congratulations!

Everyone has made some valid points. I agree with @Damir Kamber suggestion. You have several options at your disposal so choose wisely and don't rush into any decisions. Educate yourself think about your 1,3, 5 year plans. Think in terms of Net Worth, Cash on Cash Return, ROI  and Big Picture

Here are some options that others mentioned as well

1031 Exchange: http://www.biggerpockets.com/rei/guide-1031-exchan...

Cash Out Refinancing: http://www.biggerpockets.com/forums/12/topics/8339...

Commercial Bldg: Get a Quadplex - Sixplex or an Apartment building and make sure the numbers make sense. At the end of the day its a numbers game so educate yourself, network with as many RE people as you can and make sure the property meets the financial criteria you specify.

Good Luck and wish you continued success

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