300k cash, debt free...next step?

Question

Hey BP community!

I just met with a lender and I qualify for a 350k mortgage (currently dont own anything).  I also have 300k cash on hand and own a GC company so can have some work done at cost.

I live in Maine and would like to invest in my state.  What should next step be?  My annual income is currently 90k from my job.

1) house hack 1 large multi?

2) Brrrr the above multi

3) buy more than 1 property right away?

4) partner on a larger complex (I have a few potential partners lined up)

how would you guys best leverage my situation?

Thanks in advance,

Joe Villeneuve · Answer

Your first step is to develop a plan for investing.  Start with your financial goals, and work your way backwards (reverse engineer) until you are back to where you are now.  Then just follow the breadcrumbs.  Keep in mind that every step along the way, you must make decisions for entering every investment where the exit from that investment leads to the entrance of the next investment.  If you don't, you'll be spending a lot of time starting from scratch with every deal you want to do.

Dave W. · Answer

Congratulations Logan! You have a great set of options in front of you. If you are heads down in your GC job, then it is certainly easier to give (invest) your money to others to build for you (Passive investing, turnkey properties, etc.) and these are all fine ways to make money with real estate as the underlying asset class.

You can also buy a 2-4 family and owner occupy (best leverage/down payment and rates; learn to be a landlord, potentially live for free while others pay down your mortgage and you build equity)

However, given your background as a GC, perhaps there is an opportunity to build and hold multi-family assets nearby or partner with someone with experience as a Developer vs. a builder? For example - if you know you can build a 4, 6, 12+ unit building and that cost is considerably lower than the market value (end product you would sell it at) and once rented out at market rents it would cover your debt service plus profit, then you could do that as well and have a leg up on most retail buyers. Even better is if your cost to build vs. retail price is high enough and your rental rates high enough, you could refinance the debt from the construction and get most if not all your cash back to invest again without waiting too long.

I'm not close (Boston, MA) but happy to chat anytime if i can be helpful -- have a friend or two from Brunswick as well! Feel free to connect privately if interested. Best of luck and congrats on being in such an enviable position starting out!

Best Regards,

Dave

Darius Ogloza · Answer

Get your feet wet.  It sounds like you have never owned a home.  Buy a well-located house (or duplex) for yourself that you can live in for 1-3 years and then rent out.  Learn the business from "inside out."

Mike Roy · Answer

@Logan Jamieson - Very nice job putting yourself in a good starting position.  I own 20 units in Bath/Wiscasset and think Midcoast Maine is a great place to invest.  I do suggest caution and taking things very slowly right now.  I bought a fourplex in Bath off the MLS in 2015 for $180k, and a similar fourplex just closed up the street for $322,500.  Traditionally, the Midcoast offers very good cash flow from multifamily, but the last couple of years have been crazy and I personally don't think it's sustainable.

$300k invested at a 15% cash on cash return is $45,000 per year and conceivably enough to retire on.  I think those kinds returns will eventually cycle back to us, and I would be spending this time to educate yourself so that you recognize value when that time comes.

In the meantime, start networking with other experienced investors in the area.  @Dave Holman and @Bob Langworthy are experts in Brunswick that you should get to know.  Even in this market they are finding opportunity.

With $300k and experience as a GC, you have value to offer.  Perhaps consider partnering with an experienced, conservative investor with deal flow if you're looking to jump in now.

Henry Lazerow · Answer

Value add deals.

PS do not post you have $300k cash with your full name. There have been scammers on BP who sent fake wire info regarding a property a member posted about on here.

Jonathan Bombaci · Answer

@Logan Jamieson lots of great advice already but just to throw in my two cents in. I'd recommend trying to combine 2 strategies by Househacking a 3-4 Family with the intention to BRRRR.

Since it sounds like you're open to living there (at least for 1 year) you'd be able to take advantage of the low downpayment First Time Home Buyer options and would be able to leverage your differentiating skill as a GC to fix it up and increase the value of the property. Then refinance out of the FHA or 203k loan into a conventional loan after 1 year. If you do it right and have 20-25% equity in the property you can refinance it into a conventional loan or investment loan, take your deposit out, and eliminate the PMI. Then move onto the next property and since you financed out of your FHA loan you would be able to use it again on the next property or just look for a 5-10% down conventional loan since you're planning to live there. This will reduce your risk since the amount of money you're putting in any 1 project will be small, and allow you to keep you capital intact so if you see an opportunity on the market place you'd be able to make a move, while also aggressively growing your portfolio.  I know a few newbie investors that plan to do 5 properties in 5 years using this type of strategy and if done correctly you shouldn't have much money in each property.

Best of luck, real estate is a heck of a ride. Enjoy!Jon

Elbert D. · Answer

I'll say try and get to 500k.....do a fix a flip since you have a GC company. Aim for a C+ area. Ensure your profit is around 23-25% Take those funds and do it again, this time try and do two at a time. Then once those complete do it again but this time get a rental......good things happen to those who are patient and working diligently.

Cameron Tope · Answer

@Logan Jamieson I couldn't agree more with @Joe Villeneuve - start with your goals and work backwards.

I remember when I started I just wanted someone to tell me what to do to be successful but real estate has many different facets. Start with your goals, your competitive advantage and your situation then things will become more clear.

Best of luck!

Steve Vaughan · Answer

I'd do what I know and optimize my existing team and skill sets.

BRRR or flip most likely.  A GC with a team is huge.

Whether to househack or not would depend heavily on your family situation. Wife? Kids  in school, etc.

Don't forget about other asset classes like self storage, commercial, etc.  When everyone and their brother is a multifamily syndicator, may be smart to zag. I bet 90% of these operators were not operating during the recession and have only seen rising values and sunny skies.

Logan Jamieson · Answer

Thank you all for your thoughtful responses, this is why I love BP!  Currently working on writing up my goals.  Cheers

300k cash, debt free...next step?

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