What to do with $20,000

Question

Hello BP world,

My name is James Matheny and I am currently living in New Albany, Indiana, directly across the river from Louisville, Kentucky. I am 29 years old and like most everyone on here it is time to stop reading and starting acting but I wanted to use BP's resources to get some input on the route I should take.

So here is my situation at the moment, I have a steady good paying job that allows me to only work four days a week, I do not currently have any property but I am sitting on $20,000 dollars and a great credit score and want to make it "work for me" (guess what I have read). The options I am looking at are to hack a multifamily using my VA or FHA and live in it for a year and then move on to my next or buy one of the many $30,000-$40,000 homes that needs some TLC in neighborhoods where comps are selling for $120,000+ all day and flip to get 25% down in order to buy a nice multi-plex. If the latter is the best choice should I cash-out refi or sell to recover my money for the next flip? My goal is like most everyones on BP which is to become financially independent. I am aiming to do this through buy and hold rental cash flow but if I need to sell a couple flips in order to get into a position to buy and hold I will.

So glad I made the step to post, really feels good.

Thanks BP community.

James

Michael Seeker · Answer

Hey James, welcome to BP!  As you've probably started to see, flipping houses and owning/managing rental properties are two very different approaches to investing in real estate.  Each has it's own learning curve and will take several deals to learn some of the ins and outs.  If your long-term goal is to get into buy-and-hold investments, I'd suggest starting there.  You already touched on the best way to get started in this arena which is buying a multifamily property and living in one of the units while renting the others.  You should easily be able to get a 5% down conventional loan on a property with up to 4 units.  This would max your budget out at $400K, but if you're planning to stay on the IN side of the river you ought to be able to find a good 4-plex in the $100K-200K range.  You'd then have a good chunk of money left over for any repairs and some initial reserves.  Then as you pointed out, in a year or two you can convert the 4-plex into strictly a rental property and move on to the next deal.

Rehabbing property is a lot of work.  It can be a nice boost to your investing when done right or it can set you back big time if done wrong.

Cindi Boyer · Answer

Kelly Bankes what is house hacking? Apparently I'm newer then you :)

Cindi Boyer · Answer

@James Matheny thank you, I will!

Derrick Craig · Answer

@James Matheny

I started off just like you... I had $10k line of credit on a Discover CC, and I borrowed $10k from my 401k plan. I used it to purchase a property in my own back yard and I used the $10k to rehab it then I went out and refinanced the property and it appraised for $64k I took out a $45k loan paid off my cc and 401k loan and then did it again an again and again until I could not do it anymore. That's when I switched to portfolio loans/blanket loans with local banks and business loans with Wells Fargo and several other local banks.

It was a buy and hold strategy back then now I have a buy and hold, turnkey and property management strategy. I think you can do it this in your hometown this will help you learn all the ins and outs with REI...

Good Luck and happy investing!!

James Matheny · Answer

@Clay SmithVery true, but I think I might work an area that I am very familiar with and can work some contacts where I grew up and with less competition but maybe in some time I will come play with the big boys. @Clay Smith

I agree Kelly, house hacking is going to be my best bet to leverage OPM and get the experience to better manage and vet tenants.

@Cindi Boyer if you haven't started yet Cindi you should start listening to the pod casts, it is explained very well along with many more techniques to get started. But in a nutshell house hacking is buying a multi family, living in one unit, and renting the rest in order to not pay rent or even cash flow.

Thanksfor the input @Kyle Penland

Kyle Penland · Answer

I began as a flipper and have turned to buy and hold...Careful with the flipping, it can get you into trouble QUICKLY!  If you find a property that is 35-40k as you said where comps are selling for 125+ something is MAJORLY wrong with that property...Good luck with your venture!  Being new to it, I would suggest buy and hold first...there is more of a margin of error in the buy and hold if you pay to much, its ok as long at it cash flows.  Well its not really ok, but you can still break even on the property versus if you are flipping, the roof collapses for example and your budget is now busted.  Run some deals out in the community and you will learn a lot!

Kelly Bankes · Answer

James, I too am a new investor and I chose to do the house hacking thing first.  Beyond the financial considerations, house hacking gives you a taste of what being a landlord is all about--it's joys and headaches.  And if your goal is buy and hold then it helps prepare you for that more than a flip would.

Clay Smith · Answer

I personally prefer the Louisville rent comps. Even section 8 pays better on this side of the bridge.

James Matheny · Answer

Hey @Michael Siekerka,

Thanks for the response, you are very correct, flipping and rentals are two different beasts and I should become an expert in one instead of just knowledgeable in many. I found a conventional loan that is only requiring 3% down and that is in underwriting at the moment, so fingers crossed. I see that you are in Louisville, do you recommend staying in Southern Indiana or should I focus more on somewhere like Highlands, Germantown, or St Matthews area?

What to do with $20,000

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