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Updated almost 8 years ago, 03/08/2017
I never purchased real estate and recently acquired $400,000
I am 28, I live/work back and forth between Phoenix, AZ. and Brooklyn, NY. I've never invested in real estate because I simply didn't have the money. Now I have $400,000 liquid to invest. How would you invest this money in real estate and where specifically.
Gosh lucky man. It depends on a 10000 things.like how much time you have, are you hands on handy man type, do you want to live in it ? What city do you see your self staying in ? I would by some student housing apartments in AZ . But you should really listen to lots of BP podcast and get the ideas going.
Wow, at 28 with $400K. that's impressive. wondering if you managed to save that much from a job, or did you inherit?
if from a job...I recommend, working your butt off for another 5-6 years to save over $1M. avoid debt and toys like the plague. then buy a small, cheap place in Arizona (fill in anywhere) for all cash (no mortgage) AND THEN...retire. go live life.
a lot of investors on here are after "freedom" from a job. once you have that, you can truly go do whatever it is you love.
BUT, if you are truly set on investing in RE. I would pick somewhere MID-West (Indiana, OH, etc) where prices are really cheap (I'm from Indiana). you can pick up decent rentals (3/1 SFH) in Indiana for $50-60K that rent for $750-$1000 (depending on a lot). pay all cash for them and live off the income. with 5 or 6, fully paid for properties...follow advice above...RETIRE, go live life.
my 1/2 cent advice!
Jack,
If you came upon 400k suddenly as you mentioned, I would strongly encourage you to not do anything for at least 6 months. Talk to professionals. Think about what your short and long term goals are, and do not do anything for 6 months so when you do move forward with an appropriate investment it will be well thought out. You will have lots of people who bring to your attention "amazing" opportunities and other tempting investments. I would keep your liquidity and money low key and talk to people with experience one off and you will be able to make better decisions next year when you're ready. It may also pay off to wait a little to see what happens with the market bubbles but either way I would strongly encourage you to hold off in order to avoid any impulse buying which would be a big mistake.
Jack, I could put you in touch with my investing mentor. He's very experienced and trustworthy. He can answer questions for you before you spend anything. Let me know if that would help.
@Jack K., I recommend viewing any potential investment as if you were relying mostly on BORROWED money to buy it. ie. Will it cash flow at a higher rate of return than the cost of borrowed money? And/or, could it be flipped for a profit because of its under-priced potential?
eg. if you want to buy a property for say $750k - is it ALREADY worth $950k+? If not, why buy it?
My point is: there ARE genuine bargains out there, but you won't find them if you're in a RUSH to spend up! Also, I don't recommend blurting all over the internet that you've received a windfall.
Take the TIME to educate yourself PROPERLY (by studying/attending REI meetings/webinars/blogs - NOT guru seminars/bootcamps). So, no need to mention your savings amount again in further posts - just stick with the basics of questioning specific DEAL/S - eg. will they work at 75% leverage?) Welcome to BP. All the best...
Jack Klauber cypress Hills if it was my money.
But it's not! You can probably find a fixer upper right now for a bit more than that but cash sometimes finds the best deal. I can't tell you how many times I've offered less cash and had the broker come back and say they want you to raise your offer blah blah blah. "Your too low but they like the cash offer" I will go up a bit...not much and I get the deal.
Also when I was the seller of course I went right for the cash price unless it was significantly less.
I think the guys that say take six months are right. So take six months to study and area of Brooklyn that is not too hot....like not bed stuy, bushwick fort green, Clinton hill and buy there.
I'd figure out first what general strategy I wanted to start with. Then find an area you are comfortable with and the numbers work and then start assembling your team before you start taking down deals. Those factors will determine how far your capital will go and what it will be able to do for you.
Welcome to BP @Jack K.!
All good points above. As you can see, taking it slow is very important here! For now, just leave it in the bank [ugh,shiver...] and sit on your hands until you have a solid plan. Don't be tempted to take down the first "deal" that you see or that is presented to you.
Don't forget: "The Deal of the Century Happens EVERY Week"!
I love the mid-west to invest in. One can enjoy solid returns without the worry of wild swings in values.
Another thing you should consider is taking a portion of the funds and becoming a lender. It's not hard to turn a strong double digit return doing this. Of course, like everything else, this can and is risky. Be sure to do LOTS of due diligence before doing anything - IMHO.
Don't hesitate to post more questions and ideas - we all love to help out when we can here on BP!
- it's always good to see another investor utilizing this great site!
Of course, you need to read The Ultimate Beginners Guide to REI here on BP
If you haven’t already, please read/listen to these books ASAP!
Flip2freedom episode 77http://www.flip2freedom.com/a-3-step-formula-to-a-successful-balanced-and-insanely-profitable-2012/ - LISTEN TO THIS TODAY!
Rich Dads Increase your financial IQ
BiggerPocketsPodCast -I hear #136 is exceptional!
Wholesaling101 You Tube Channel
Kent Clothier – You Tube Memphs Invest channel
Phoenix is like Vegas flooded with empty or spec homes. When the economy is good so is real estate. Brooklyn you can get more appreciation and local population can justify a steady income.
Want something more liquid try REIT.... Return is good too.
Jack, Welcome to BP! This community is a phenomenal resource and guide. Make sure to calculate, calculate, calculate! I would recommend finding investor that emulates who you want to be in 1 year, buy him lunch and then set some ambitious goals for a successful trajectory! In terms of specifics, if there is a local market (say 1-2 hour drive) close to you with a market similar to the Midwest (ample low-priced SFH(single family homes), steady values, $1000 rent, start there, build your cash flow using a hard money lender(painful, but you'll learn faster) and buy the first one from a wholesaler(just a good starting point).
You're on the right track, keep it steady!
I definitely agree with previous replies, Educate Yourself!
Like any investment endeavor, you don't want to jump into turbulent waters w/o knowing how to swim, having good reliable tools/gears and training/education and a good network.
You don't want to be left with only the experience, with all your $400k gone.
- mindset wise, I assume you've read Rich Dad Poor Dad?
To start with, listen to this podcast:
- BiggerPockets Podcast : Real Estate Investing and Wealth Building to Help You Get Bigger Pockets: 200: A Step-by-Step Guide to Buying Your First Real Estate Investment
https://www.biggerpockets.com/renewsblog/bp-podcast-200step-step-guide-buying-real-estate-investment/
Check out:
- https://www.biggerpockets.com/renewsblog/bp-podcast-200step-step-guide-buying-real-estate-investment/ptp
Originally posted by @Jack K.:
I am 28, I live/work back and forth between Phoenix, AZ. and Brooklyn, NY. I've never invested in real estate because I simply didn't have the money. Now I have $400,000 liquid to invest. How would you invest this money in real estate and where specifically.
You can get multiple, ready to go, Turnkey homes in Cleveland and the Midwest with that kind of investment! Great place to be. If you go with turnkey you will not need to spend extra money on repairs. Hopefully.
Jack Klauber I don't if anyone else would advise this but the first decision I'd make is apartments vs. SFR. With $400K (even as 20% down) that's probably a couple of SFRs in Brooklyn or apartments in Phoenix. Simply making that decision will really help to narrow your focus.
The other thing that I would do is talk to a banker about what you would qualify for when it comes to a mortgage. Just because you have $400K doesn't mean using it as 20% down for a $2MM purchase is assured. You'll need reserves, need to have an adequate debt-to-income ratio, etc. It doesn't do you any good to vet $2MM properties if you'll only be able to qualify to buy a $1MM property.
I would start off with this simple question first: "What is your goal?" Once this is properly defined, you can evaluate the resources available to you and come up with a step by step plan to achieve those goals. There are ton of ways to invest in real estate and BP is a great resource to learn all the different approaches and their pros and cons. But before all this, step one: Define your goals.
I would follow @William Wright advice. Take your time to find out your preferred strategy and go for it.
So much love here at BiggerPockets! Thank you everyone for such great advice.
@Jeff Sprunger @Scott F. was a lot of hard work and luck. In just over 3 years working in Advertising Technology – you know those video ads you have to watch before you watch the actual video you clicked on? You're welcome ;) and using AirBNB to live rent free and some left over - you can make/save a lot of money.
I'm not set on investing in Phoenix or NYC so your advice on investing in the midwest is appreciated. I hear it's important to invest in your market (1-2 hours away), but I'm also very interested in other markets. I'm going to create a list of all the places people recommend and then do my due diligence. If anyone has suggestions to specific cities and neighborhoods that I should research with a 1.4% or higher rent:purchaseprice ratio I'd love to hear about them. Thank you for your suggestion on Cleveland. Anywhere specific?
@William Wright Thank you! I really need to think things over!
@Jolene P. Neal Thank you for the offer, I would be happy to speak with your mentor, especially about Cypress Hill
@John Hickey Thankfully I would qualify for $1M based on some simple calculations online, but I still need to understand the balance of borrowing versus putting down the cash to make the most money but still grow my assets by having money to buy more and more later on.
@leo (not letting me tag you) I am in the process of doing this. Thank you for your answer!
In conclusion: I need to read and listen as much as possible, make one purchase to go through the process, and have money/buying power left over to do it again in a very short amount of time if I enjoy the experience. If anyone has anymore suggestions on specific cities and neighborhoods to research with a 1.4%+ rent:purchaseprice I'd love to hear them!
Thanks again for the help everyone! You all are such a great network of people to learn and grow from!
Originally posted by @Jack K.:
So much love here at BiggerPockets! Thank you everyone for such great advice.
@Jeff Sprunger @Scott F. was a lot of hard work and luck. In just over 3 years working in Advertising Technology – you know those video ads you have to watch before you watch the actual video you clicked on? You're welcome ;) and using AirBNB to live rent free and some left over - you can make/save a lot of money.
I'm not set on investing in Phoenix or NYC so your advice on investing in the midwest is appreciated. I hear it's important to invest in your market (1-2 hours away), but I'm also very interested in other markets. I'm going to create a list of all the places people recommend and then do my due diligence. If anyone has suggestions to specific cities and neighborhoods that I should research with a 1.4% or higher rent:purchaseprice ratio I'd love to hear about them. Thank you for your suggestion on Cleveland. Anywhere specific?
@William Wright Thank you! I really need to think things over!
@Jolene P. Neal Thank you for the offer, I would be happy to speak with your mentor, especially about Cypress Hill
@John Hickey Thankfully I would qualify for $1M based on some simple calculations online, but I still need to understand the balance of borrowing versus putting down the cash to make the most money but still grow my assets by having money to buy more and more later on.
@leo (not letting me tag you) I am in the process of doing this. Thank you for your answer!
In conclusion: I need to read and listen as much as possible, make one purchase to go through the process, and have money/buying power left over to do it again in a very short amount of time if I enjoy the experience. If anyone has anymore suggestions on specific cities and neighborhoods to research with a 1.4%+ rent:purchaseprice I'd love to hear them!
Thanks again for the help everyone! You all are such a great network of people to learn and grow from!
That is true! King James can be an economic indicator!! :) Also, there has been some new industry popping up here, especially in medical/bio-medical.
Best of luck with this. I completely agree with@William Wright. Only part I would ad is if you should decide to invest some of it. I would do in very small portions to find out what you like and dislike. This will help you grow and weather any storms. Mentors are wonderful, just be careful there is a lot of sharks.
Investors understand that Money/Assets (Capital) should not be treated like a consumable. When you consume the $400k it is gone forever. Put the money to work and consume the rewards of the investment without reducing the principal. Talk to investment professional but don't give them your money to invest for you unless their fees are less than 2%. Maybe put 10% into Gold bullion (not stocks) and 70% into Real estate and keep 20% as cash on hand. However you decide to use it, be careful of new found friends wanting to "help" you.