What would an investing veteran do with $50k...

Question

$50K sounds like a great place to start, right? Well, my challenge is ever the same. I own my business and our revenue swings pretty insanely from year to year making conventional financing impossible. I was even denied a home equity loan recently with more cash on hand than the loan amount because of the lack of consistent income. So, my $50k and a high credit score are my only assets.

I've sent yellow letters and will continue to market seeking out seller financing opportunities. This is easily my best way forward. I am in the Tampa area, which is a top-ten market for flips, but also highly competitive. That makes it hard to find a seller who doesn't want to cash out when they know there's another investor right around the corner.

I am a good negotiator and can handle myself very well in meetings and presentations. I've considered going straight into commercial real estate because of this strength and my corporate background.

I am 100% committed but I am feeling discouraged about my decision to focus on flips. Please let me know your thoughts on the below questions:

1. How would you put your $50K to work within the next 30 days?

2. Knowing that I want to get to a point, eventually, of $10K a month in passive income, would you bother trying to build capital in flips or dive straight into rentals knowing that would likely require partners?

3. If you started with residential properties and had it to do all over again, would you have started with larger unit counts and commercial lending?

Thanks for any input from the BP network. I truly appreciate everyone's thoughts and feedback.

Matt Hawley · Answer

I would look for a quad to purchase and use for a rental.  Then if one unit is vacant, you are still 75% occupancy. Maybe find a partner and go in together. Or find a couple of partners and look for 8 - 10 units and just keep growing.  Tampa is a great area. I lived there for 2 years while in the Air Force.  I live in Brevard County, now and the market here is very competitive as well.  Thought about doing a flip with my son who is 18.  I think it would be a great father and son project for us.  Have a great day!

Andrew Hogan · Answer

10k per month means you'll need 1.2 Million in equity earning 10%. 50k is a good start but keep getting that income consistent to continue setting aside for investment allocation. I think your first step is to educate yourself thoroughly on different passive investments that produce consistent income. From there you'll need to learn how to evaluate managers/sponsors of those types of assets. Doing this will greatly reduce your risk of losing capital. Mitigation of that risk should be your chief aim!

Tchaka Owen · Answer

If you don't get conventional financing, go to a non-QM lender. There are a bunch of them. Your rate may be 6-7%, which while not 5% is better than 10%+. Note: BRRRR is always an option as long as you have sufficient equity and positive cash flow.

Robert Fielding · Answer

Thank you, Tchaka. Quick question about BRRRR: If you have challenges getting conventional financing, is BRRRR even a viable option until you get to two or three properties with positive cash flow for 12 or 24 months?

Josh Bakhshi · Answer

Robert,

I agree w/ you that Trust is earned and continued to be questioned.  One thing you can do and not cost you a penny is find 2-3 markets you like after some research.  It could be that schools are good, a factory plant opened up, or a flood happened 15 miles away and people need a place to move to, whatever... Then call 3-4 agents and 3-4 property managers and have honest conversations w/ them.  Tell them about your goals and plans.  Make sure to have you BS radar working.  Then it might be worth making a trip to visit them to see if they are for real.  It could also be in central FL or South GA to save you on travel.

Robert Fielding · Answer

Thanks for the advise, Matt. My son is 3 and I hope to work on investment projects with him as well. He seems to gravitate to tools already, so who knows, maybe he will be the contractor arm of our future business. Best of luck!!!

Tchaka Owen · Answer

@Robert Fielding - if you want to create long term positive cash flow, read up on BRRRR. The most straight-forward route seems to be to pick up a small multi-unit (ie, duplex, triplex or quad) that needs a little work. Buy it with hard money and use your cash for renovations. Rent the units and refinance out into a lower interest loan. Then you're right where you started but with a property that's being paid for by your tenants. Lots of articles on BP about BRRRR. Good luck!

Robert Fielding · Answer

Thanks, Josh. I do wish my primary business was easily "wrangled in". I send Americans to Cuba on legal trips that support Cuba's entrepreneurial sector. I deal with two governments who impose laws that substantially change my business, without my say or control. When it is good, it is very good and when it's bad, well it is like a desert for revenue.

My goal with real estate is to diversify and it must happen to attain financial freedom.

I am considering looking into other markets to find opportunities but a little leary without a good partner in the area overseeing the flips. Regrettably, I don't trust anyone until they've proven themselves.

Josh Bakhshi · Answer

Robert,

I have good news and bad news.  Good news- you live in a great place in our country.  Bad news - 50K probably wouldn't do much out there.  I don't want to discourage you, but you know the facts better than anyone else (especially me).  That being said, I like the fact that you have a goal (10k/month in passive income).  I can only give you two bits of advise...

1- Use that 50K on your current business and try to get your revenues higher and more steady.  That would help w/ your cash flow and borrowing potential.

2- Do flips in areas like the mid west or rural south.  If you do 2-3 of those a year, after a couple years you could have closer to 150K and that gives you more options for both residential and commercial in your backyard.

Good luck

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