What to do with my first REI with 50k

Question

Greetings BP Family,

I am new to REI.I am 29 years old, I will begin with that I am blessed to have a solid career earning 110k annually. I am not looking to change my career. I was also lucky enough to have bought my primary home in 2009 which eventually gained over 150k of equity over 5years. Last years I refinanced my home because my rate was a 5.2% I won't go into detail about how I was screwed with that but long story short I figured Ill refinance to a lower rate and when I was seen noticed I could take 50k out and still end paying less monthly on my mortgage I simply salivated at the idea.

So fast forward, I am currently sitting with 50k in which I am fortunate enough to use it all in REI. My risk factor I would say is, I guess, High! I know it may appear bad but this 50k I have totally in a separate account from all my savings etc I look at this 50k to be "House Money". So My wife and I have been doing research and research and developing a smart goal for our REI adventure and here it is

We currently live in Southern California- We are seeking to invest in Pittsburgh PA

Rationale for choosing out of region: California for us just seemed overwhelming and just well to damn expensive.Pittsburgh not only is more affordable with housing but My wife entire family lives out there, 2 trusted cousins are RE agents, and another cousin is a runs a contracting company. We have already discussed with all three about our potential investments.

Financing: We are really trying to find the best options. As of right now I have a california lender whose company has a license in Pittsburgh so we will be looking at a conventional loan. Well we are debating currently about my wife wants to find an ALL CASH property and I am for the conventional and use the rest of our cash for rehab etc. I have an additional 10k in my savings that I am willing to if needed to use. advice?

Manager of Property:Uncle

Strategy: Flipping

Goal: Is for each flip to net 20-25k , our goal is to flip 10 houses in next 5 years We will be reinvesting 100% returns until we reach our goal.

Thoughts?

Michelle Mapp · Answer

Amen,

Hi. Congrats on making the move into REI! Pittsburgh is a great city. I personally have not flipped in Pittsburgh, as I do buy and holds there. My only advice would be to be really aware of where you are flipping and the nature/desires/expectations of the buyers. As I read your post the first thing that came to mind is that a flip in Lawrenceville is going to be completely different than a flip in Bellevue. Or Edgewood and its immediate borders vs deeper into Wilkinsburg or Swissvale. I mean obviously that is a common challenge anywhere, but since you are remote, it might be more of a challenge to understand the nuances of the neighborhoods and buyers - tech crown vs. more traditional working crowd etc.

So, hopefully since you have good boots on the ground you will be in good shape. You might want to chat with your family and really research neighborhoods first and try to pick certain areas as key targets first.

Good luck!

Jeff Filali · Answer

@Amen R. You're in the same position I was about 12 months ago, except I only had $30K set aside to get started.  But I did the same approach, flipped it and rolled all profits back in.  I flipped it over and over and over again, one at a time at first, now I'm flipping 2-3 at a time. I was able to build up a lot more capital and equity in only 12 months.  Today I currently have 6 investment properties: 1 is sold and waiting to close, 2 are sold with seller financing, and 3 that I just recently purchased and got ready, so just started listing them for sale and already getting offers, should sell by the end of March.  I owe nothing on any of them, paid cash for all by flipping and rolling profits back in.  Only mortgage I have is primary residence.  This approach isn't what most people preach, but for me I'm focused on building capital now, and do not want any buy and holds.  Once I get my capital built up to $1M+, then I will probably start going after some large multi-units and may start leveraging with more credit.  Good luck!!

Austin Mudd · Answer

@Amen R. I am a San Diego native who lives here for work now, but be careful about where you put your money. Spend a few months networking with people and getting familiar with the neighborhoods here. Get a flight out here for a weekend, rent a car, and drive every single street in the neighborhoods you're looking at. You could be looking at a property for $50k while the ones across the street are selling at $120k and you would thing it's a deal, but in reality the $50k house is a dumper/is next to an industrial property/higher crime area/etc. In Southern Cal you can look zip code to zip code and put an average PSF $ on properties. Not in Pittsburgh. The values change block by block almost. With the age of the homes there's usually some sort of deferred maintenance that needs to be taken care of that would be harder to be aware of from the west coast.

Anthony Angotti · Answer

Hi @Amen R.

You should be able to find an all cash property for 50k, but you should definitely come to Pittsburgh to see them. You don't want to blow all of your money on the offer and then have nothing left over for repairs/upgrades.

There are rehab loans that are not hard money. I would suggest trying to get one of those. They will lend to LLCs. I can provide a contact if you need one, just send me a direct message. There are plenty out there though so definitely interview a few.

I like the BRRRR strategy more than straight flipping because you build some long term wealth as well. You'll definitely want to do some smaller projects with a GC before getting into a bigger one because you are remote and want to build some trust first.

Also if you want to talk about the area I can help where I can. Just send me a colleague request and we can link up. There are plenty of good areas in Pittsburgh where you can make do with that budget.

Arpan Patel · Answer

Those seem like good goals and it sounds like you have the start of a good team out there. I'd go with the mortgage because the class of property and areas will be better. Usually the areas you can get 50k property in is a bit more challenged then areas you can get 100k property or 150k property in. You may have less crime in those areas and that should be a factor in your decision as much as the numbers. Also, I agree with @Michelle Mapp that Pittsburg is a great buy and hold town. Maybe the BRRRR strategy but you should be good either way. Just make sure to look at the neighborhoods carefuly. Happy Hunting!

Amen R. · Answer

I want to thank everyone who have contributed to this post!  Im wondering if the team/family I have out there will really make this journey a success. I am also wondering the best way to obtain my first property. I was thinking of first attempt to get financed from a lender on a 100k property and putting down 25% and using the rest of my capital for insurance,rehab,utilities, etc. I don't know if this is wishful thinking though.

Amen R. · Answer

Yes! I will be reaching out to you shortly @Anthony Angotti I want to begin with 1 flip to build my confidence before the brrrr.

Michelle Mapp · Answer

That would definitely depend on your team and what they can do, how much you trust them, etc.  I have shied away from large rehab projects because I have not built a good contracting/rehab team in Pittsburgh.  If you have that then you have more options.

Amen R. · Answer

Another question for buy and hold? Would you recommend a TK or a Rehab property?

What to do with my first REI with 50k

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