What is the best strategy to invest my money?

Question

Hi everyone,

I am new to real estate investing and I am unsure what is the best strategy to start investing my money. I am recently unemployed but I do have about 100k saved. I was thinking about purchasing a property out-of-state in full (like 60k) as a rental property. Then refinancing it and buying a second property. Another option I am considering is taking out a mortgage and using my money for the down payment. I could potentially do this 4-5 times to different properties if their price is right. What you guys think? What's the best strategy for someone who is new to all this.

Kenneth Garrett · Answer

@Michael Duran

You could become a private lender.  No landlord duties or repairs.  If you charge 10% plus 2 points that’s a great return and in one year 12%.   if you could use the money twice in one year that’s still 10K in interest but $4k in points that’s a 14% return.  Just another way to invest.

Randall Alan · Answer

A couple of other thoughts... don't quit your (currently non-existent) day job. You likely wont be able to get financing without regular income.  So you should plan to pull double duty in the beginning.

Also know that there are limits on loans you can have.. which ranges from 7-10 Fannie Mae loans in your own name... so if married, only put one persons name on each house.  You can switch to commercial loans which have fewer limits, but higher interest rates.

Duplexes offer a little more safety starting out, so if one side moves out, the other continues to pay your rent.  Once you have more units this becomes less critical.

When looking for your first few units, really shop to try and find ones that have good roofs and ACs.  Most all other run of the mill repairs are manageable... but an AC is going to run you $2700-3500, and a roof $9,000-12,000.  You really don't want those expenses starting out!

We use Rentec Direct to collect rent and fill our units.  It's really cheap and does a great job.

You can find deals in lots of places... we have bought more than one unit off Craigslist! Closing at a regular title company!!)  Off a referral from a hairdresser! Off snipe signs on the side of the road, etc.  Some of your best deals will not be from the MLS Listings.

Network with people to get on their email / text lists when they have properties to sell.

All the best!

Randall Alan · Answer

So funny thing, your story had not popped in when I replied to you... just the title.  With more details I would say this:

Leveraging your money will get you better returns than a straight (cash) purchase.  Just run the numbers!  What we have found in our area is that there will be a target property that optimizes money invested versus rent received.  For us this is $75k property returning $1,000 in rent.  We will usually net $500 a month after taxes, insurance, and reserves putting 25% down.  If we find them cheaper or better rent, great!  But do the math for your area and figure out what works.

As for out of town rentals, we self manage our own units and REALLY like them close by.  If you have to drive 45 minutes each way to check on something that's 2-3 hours of your day gone.

As for property management, if you are in the real estate game to maximize profits, you will probably want to self manage.  A 10% PM fee equals about 20-25% of your profit on a leveraged purchase.  As previously mentioned, we manage 40 pretty easily.  Plus, you will pay extra for all the services they provide.  On a free and clear property PM starts to at least not kill the budget.  Our plan is to self manage for 10 years or so and then when ready to "really" retire, sell down to just cash properties and let PM run the show.

Michael Duran · Answer

Hi Randall,

Thanks for your input. I was full-time, but I am now unemployed. I have 100k I am willing to invest with. I am not against flipping, I like the idea, but I want something with a cash flow and something more manageable as I am new to all this. Do you think I should buy a property in full with the money I have to invest or should I take on a mortgage to buy a property and use my money for the down payment?

Randall Alan · Answer

We really need more details to provide you a good answer...

Do you work a full time job?  Do you have the time to flip houses?  How much do you have to invest?

Without that, I would say that rentals will provide you ongoing cash flow, and let you eventually quit your day job.  I quit my corporate bank job when I had enough cash flow to replace my income, plus health insurance, plus a cushion.  My wife quit hers two months later and we are now 18 months further down the road and loving it.  We bought 12 rentals in  year 1, 9 in year 2, and 3 so far this year.

Flipping houses gives you quick hits of money, but you have to keep doing it to stay afloat and there are a lot more moving parts with flips... did you miss something, how long will it take to renovate, will you get the price you need.  We have flipped one property as well... netted about $50k.  You might say, that will work... but keep in mind there are pretty serious taxes that go along with flipping... if held for under a year the income is taxed as regular income... so 20-24% of your profit can go to Uncle Sam.

Our game is rentals for the consistent cash flow and simplicity of the model.  We manage 40 units ourselves with ease!  We're our own boss, work (mostly) when we want, get up when we want, go on vacation when we want, etc.