What to do in Real Estate Investing with a Few Thousand Bucks?

Question

Ok Guys - 
I've got a hypothetical for you -- I want ALL ideas on the table.

A guy has a few thousand bucks in the stock market -- say less than $5k -- and wants to put it into real estate investing.

What should he do?

Lets see what you've got . . .

John Jackson · Answer

I guess it depends on your knowledge of real estate, but all things being equal, I'd say MARKETING!!  THE number 1 thing is you need the phone to RING!
Also, pretend you don't have $5k, because I can assure you that you will spend all of that $5k very quickly. 
One of my mistakes was having money and buying marketing that was overpriced and wouldn't work anyway. 
Creativity beats money every time!! I still have to remind myself of that..

I'd order a couple hundred coro's and stakes and get up bandit signs. 
$600
(I don't do this for my LO biz, but I would for wholesaling and to get calls)
Get signed up with listsource for out of area home owners. 
$250 or so depending on the #'s. 
Get the letters ordered. 
Buy a url. $25 for 2 years. 
Get a quick website set up that has an area for sellers to fill in basic info about their houses. 
Although I use my personal cell #, you can get a google # or a freedom voice # ($10 a month)
Then go to all REAI meetings you can to network. 
You need a solid title person, solid agent, and buyers. 
The intent is to focus on lease options and wholesaling, so you can offer the SELLERS 2 options, and you have 2 sets of BUYERS. 
Cash buyers, or lease option buyers.

Dawn Anastasi · Answer

Here is a scenario I would use in Milwaukee (and there are MANY assumptions going into this scenario including buyer's credit, properties available, market rents, etc. but it's a feasible scenario).

Use the $3,000 to put as 10% down on a Fannie Mae HomePath property at $30,000 and the other $2,000 for closing costs and for some repairs to get it rentable.  Rent it out for $875/month.  The P&I is about $129 on a 4% loan.  Assume property taxes at about $1800/year and insurance at $500/year, and water/sewer at $60/month, this is a total payment of about $381/month.

Net would be $494/month (before regular repairs).  If you had no repairs (or minor ones), in less than a year you'd have another $5000 saved up to do it all again.

Account Closed · Answer

TAX DEED SALES:  I bought my first property in 1999, a vacant lot sold at tax sale, for $5K.  I didn't have $5K.  I used the balance on not one, not two, but three different credit cards. I sold it to the owner of the neighboring lot a few weeks later for $10K.

NON PERFORMING NOTES.  Fast forward a few years to when I did have $5K cash.  I bought a non-performing note with a face value of $48K for $5K.  Property had been been abandoned by the owners and no payment had made in over 7 years.  The property was tax defaulted to the tune of $17K and was going to tax sale in 4 months.  Four months was just enough time to buy the note, and get the property to trustee's sale one week before the tax sale.  I really didn't want the property back at sale (and didn't want to front the $17K), so I reduced the min. bid to $33K. It sold at the steps for $35K.  Called the new buyer two days before the tax sale to make sure he paid off the taxes.  He thanked me because although he knew the tax default amount, he didn't know the sale was scheduled for the following Monday and said he had lost other properties that way.  He was and is a volume buyer in my farm.  I sold him my next four houses.

OWNER HUNTING:  I wanted to buy a large vacant lot that was getting near tax sale, but my letters to the owners per the tax records kept coming back as undeliverable.  The property was owned by a church.  I hunted down the pastor and his wife and they said they had deeded it back to the donor years ago.  Indeed they had.  This was before I knew not to trust the tax collector records.  The true owner had a very common name but I found him in Nor. Cal and wrote to him.  He called me and said he was in his late 80s, had done well for himself in RE and that he was happy to let me figure out how to make money on that lot.  He said I could have it and perhaps throw him some chicken feed if I made any money on it.  Seriously, that is what he said.  I decided to buy it and I gave him $2500 for the deed, knowing that there was about $7500 due in taxes.  I sold it for $55K before the tax sale.

ASSIGNMENT OF CONTRACT:  I found a cute tiny vacant house and figured out that the owner had died a few years ago.  From researching the obits and then the courts, I found the law firm in San Francisco that had handled the probate.  I called and left a message for the attorney, who then gave my email to the daughter.  She emailed me and she agreed to sell it for $11K.  I sent her a contract and $100 earnest money and she put it into escrow.  I found a buyer who wanted it for $16K.  The buyer gave me a $5K cashier's check and I assigned the contract to her.  She closed on the original contract a few weeks later.  I never once spoke with the daughter or the attorney.  I had made one call to the escrow officer to let her know I had assigned the contract.  Turning $100 into $5K was pretty exciting. I had no marketing budget back then.  I thought I had made money out of nothing.  :)

There are all kinds of ways to make a return on $5K in RE.

Sam W. · Answer

A couple of ideas off the top of my head:

- Use it as a "grub stake" with a partner who is willing to take me on as an apprentice to learn the ropes in REI.

- Lease a vacant "unloved" property for 3 years with permission to sub-let it.

- Buy and then resell a vacant lot at the county delinquent tax sale.

- Buy supplies and equipment - start a venture to provide clean-out of severly distressed (trashed) properties.

Michael Galloway · Answer

Three weeks ago i bought a house in Pittsburg CA for $5000. Owner wanted $3000 and wholesaler wanted $2000,

I bought a  pre foreclose house in Oakley Ca last week that cost me $9000 to bring the loan current. Both are SUB2 transactions.

I say get a deal in contract with lots of exits in the disposition.

Jay T. · Answer

I'm very interested to hear some creative responses to this hypo.

I have zero experience in REI, but I would try to use an FHA 203k to finance a multifamily rehab (ideally 3-4 units). Finding the right place for under a $100k would be a big challenge, but I'm sure it's out there somewhere.

Thoughts?

Baltazar Camacho · Answer

You can get into a property with that buying for example a HUD home with 3.5% down on an FHA owner occupant loan (say 80-100K house).  Live in it for one year and then at the end of the year rent it out, then repeat every year.  I think that would be a good start, that was my start....actually had like 6K I think when I did that HUD covered most of the closing costs if I remember correctly.  Not fancy but simple and effective.

Joshua Dorkin · Answer

Great ideas everyone . . . keep 'em coming!

Ryan M. · Answer

Beats running a very high risk of being BK in a short amount of time. If that 5K was all that was available.

I have 5K+ problems pop up a few times every year.

Jerry Puckett · Answer

Well, it just so happens that that is the exact amount of money I started my business with a few years back. I did pretty well, but if I had it to do over again.......

I could jump start a wholesaling business with a larger initial marketing campaign. Lot's of direct mail, a simple website, some pay per click. 5k is enough to pull in multiple deals, and plenty enough referral money to perpetuate the marketing machine.

Then with the evidence of my success in a few deals, I should be able to pull in plenty of private money. For me, that would mean a switch to wholetaling rather than rehabbing.

Of course, it takes a bit more than money to make all that happen. You have to have knowledge and the right skill set also. I think it worth noting that I picked up both of those right here on BiggerPockets over the course of time for free....

What to do in Real Estate Investing with a Few Thousand Bucks?

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