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Updated over 12 years ago,

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5
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Dr Democracy
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5
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How best to invest a lump sum of cash

Dr Democracy
Posted

I'm a young guy (25), and I'm about to sell an asset of mine that through a particular area of expertise I have (and a whole lot of luck) will net me around $60k after taxes. I live in California, and given the horrendous state of the CA real estate market, I'm considering investing in properties.

For the past few months I've been browsing through multiplexes on realtor.com, and have created a fairly extensive spreadsheet detailing numerous properties that look profitable. I'm a bit apprehensive of investing in a relatively poor area (like Merced), so all of the properties I'm looking at are either in Sacramento, the Bay Area (Oakland, Antioch, etc), San Bernardino, or Stockton. Los Angeles has a few good deals as well, but most seem to be in those areas.

I won't be ready to buy for a few months, so at the moment I have only pictures to verify that these properties are not in complete disrepair. However, I'm finding a number of properties that seem like they would net me so much more than the "$100 per unit" after the 50% rule that is so often discussed in these forums, that I can only assume I must be missing something.

For example, take this Sacramento Duplex:
Price: $50,000
Monthly Rent: $1,600
Expenses (assuming 50% rule): 800
Mortgage (assuming 20% down, 30yr @ 7%): $266
Profit: $534 (or 267/unit)

Or this San Bernardino 4-plex (each unit is 3/2):
Price: $100,000
Monthly Rent: $3200
Expenses: $1,600
Mortgage (same assumptions): $532
Profit: $1,068 ($534/unit)

Coincidentally, these properties give the exact same ROI.

Now, I'm certainly not suggesting these properties are everywhere, but I normally find a few new listings like this each month (most last about that long before they're taken down - I assume because someone snatched it up).

However, assuming I'm patient and assuming the properties I'm finding with comparable numbers pass inspection, with a 60k investment, I'd be looking at about $38,400 in profit per year, or a 64% pre-tax return on my investment.

Common sense tells me I must be missing something, but even with pessimistic projections I can't see what it is. Can the CA real estate market really be this bad?

60k at the age of 25 is a lot of money, and my hope is if I invest it wisely I can make something of myself (be it as a landlord, or another business). To those of you with experience, I would be very grateful for your thoughts.

Thanks,

Tom

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