Where Should I Start With $50,000

Question

Hey Bigger Pockets community!  I am looking for some advice on where to start my real estate investing career.  My name is Nate Elting, I'm 27 years old and am currently a Construction Superintendent for a large General Contractor in St. Louis.  I have ran over 100 million dollars worth of healthcare construction projects, and the projects have ranged from small $20,000 renovations to the project I'm on right now, a 36 million dollar medical office building.  I feel like I have a pretty good understanding of the construction trades at this point, and would like to start using my skills for my own investment portfolio.

Where I am at right now is I have $50,000 saved up ready to invest.  I would like to stay in Central Illinois (Peoria, IL area or maybe Edwardsville, IL) and continue to be a Superintendent while I build up my portfolio.  Eventually I would love to be a full time investor.  My main question is, what direction would you go to start?

Option 1:  Invest all 50,000 in a brand new triplex that costs $250,000.  I would be my own general contractor on the project and self perform small portions of the work myself (like flooring, cabinets and trim).  My goal would be to cashflow on this, save up another $50,000 and repeat the same processing building another one.

Option 2 - Buy 3 single family homes at around 100,000 each.  I would try to identify 3 homes that need very little work, and start cash flowing on them almost immediately.

Option 3 - Perform a BRRRR method strategy.  - This option in my mind would take the longest to start cash flowing, but I'm definitely not opposed to doing it.  I would want to identify some ran down houses in the local area with some large upside, be my own general contractor,  renovate them, refinance after I get in rented, and repeat with the profit.  I wouldn't be throwing all my eggs in one basket with this option I feel, because I would one buy 1 house to start, and hold back some of my original $50,000 for future bigger opportunities.

Option 4 - Open to other suggestions!

Henry Clark · Answer

Step 1: determine your financing route.  This will determine your investment size. Try not to put all cash in.

$50,000 SBA 10% LTV equals $500,000 loan

$50,000 SBA 15%                     $333,000

$50,000  Traditional 25%         $200,000

so forth.

Step 2: don't go for the "best" investment.  Go for the one that works with your family and career timing.

Step 3: Google "Contractor Garage Kansas City" model.  Doesn't work with SBA loan.  Don't go this route now.  Build up some more equity, then look at this type of product.  Might fit your construction background, reduced customer interaction while on your career path, and Family mode, better long term.

Start small and Make your Big Mistakes Early.  Looks like your following that, which is great.

Chris Davis · Answer

@Nate Elting

With you experience, I would choose option 1 for a few reasons.

1) Owning a 4 plex myself, allows for multiple tenets paying instead of 1, allowing for vacancies and still being able to cash flow.

2) Once completed, you could house hack allowing you to live with a lower housing cost and too boot receive a lower interest rate due to owner occupied.

3) By you being the GC, and doing some of the work, you are saving money that I would have to pay, if I were to build either for the GC or completing the finishes yourself. Allowing more equity in the property once finished possibly allowing for you to get a HELOC on it.

Hope this helps.

Travis Frenchak · Answer

If you're looking for cash flow I would stay away from option 2 as I think you would regret it down the road. However, you would see better appreciation and it would be easier to sell if you decided to do that. Personally, I would never buy a SFH as an investment.

Logan Cannady · Answer

I'm thinking Option 1 (without diving into the numbers too much). This would get you 3 units in a brand new structure all under one roof which would decrease your maintenance costs. You could also house hack for a while and recoup some of your expenses. You'd instantly have a good amount of equity that you could then use as a HELOC for the next property.

In Option 2, 3 houses would stretch you too thin on $50k once you account for the down-payments, closing costs, & repairs. Two houses would be more feasible but you'd still be investing the same amount of money as Option 1 and you'd be getting two units instead of three. Plus you'd be buying worn down properties that would need repairs and maintenance.

Option 3 isn't bad either. If you'd do a cash back refinance after it was repaired then it would be similar to Option 1's HELOC where you would continue investing with the property's equity. As you mentioned, it could take longer to accumulate properties. It would take you theoretically three times as long to get three properties vs getting three at once in Option 1.

Louis Jeffries · Answer

@Henry Clark SBA does not fund residential real estate. SBA will fund the development of commercial real estate to house your business and real estate investing is not an acceptable business for SBA funding.

@Nate Elting How are you Nate. Good luck in your Real Estate investing career. By far the best option is the BRRR strategy especially if you are focused on 2-4 unit properties. You may even qualify for 100% financing if the project numbers are good otherwise you would need 15% to 20% down payment, plus reserves and funds to start the renovation. It is very important to get your numbers right and stick closely to the 70% rule. Purchase plus rehab costs should not exceed 70% of ARV. That is the max you should spend not the suggested amount.

By the way I graduated from Bradley!!!!

Where Should I Start With $50,000

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