Where would YOU start with 200k to invest?

[Ru Monsell]

I'm looking for advice on a first investment strategy. I can take the whole $200K I have in savings and buy a small waterfront cottage to rent for 8-10 weeks a year or divy the bundle up by attending a bunch of tax lien and tax deed sales; or try to figure out how to safely get into wholesaling in Maine, even though I have no mentor and have been advised by a RE attorney that this doesn't work here anymore. Or should I buy a high tech program to help me bring buyers and sellers together online by just being the finder. Help?

Ru (AKA At Sea in Maine)

[Amy A.]

Here is what my husband and I did with around $200,000 to invest in Maine. He works full time as an engineer, so most of the responsibility was mine.

In 2006, the first thing I did was purchase books - "Landlording" and a book about cash flow by Frank Gallinelli. Then I found a real estate agent who would send me every 4+ unit multifamily listing in the Lewiston and Auburn, Maine, areas. He sent me the income and expense information, if any. I designed a spreadsheet to analyze the data so I could tell what's typical for the area vs. what's BS. I purchased a 5 unit building with a cap rate of about 11% for cash and got a line of credit on it. I immediately had to evict a tenant and remodel his unit. I went to court, didn't hire a lawyer, and got him out. Felt really sorry for him but I couldn't spend my hard-earned money supporting a 50 year old drunk when I have children to raise. My husband and I did most of the work ourselves. I have never worked so hard in my life, except on the farm as a teenager.

Once that building was up to snuff, we bought a second 5 unit using the same analysis. We had a commercial loan at 7% interest. The day of closing I lost the best tenant who had gotten beat up by the druggies living across the street. Two of the other units were occupied by crazy women who were always fighting and had dogs. One of the units had been trashed and needed remodeling, which we did ourselves. More work and emotional torture by tenants. I became an adult.

After dealing with this for 2 years, I thought I was done with rentals. I started flipping properties using my line of credit and really liked that. However, I was too reliant on one contractor and he became slow and sloppy, costing me money. In Maine, we have a very short selling season and it's important to have houses ready for spring. It's very frustrating to have your money tied up when deals are passing you by.

While we were flipping houses, our tenant base improved and we started enjoying the cash flow. We remodeled every unit and attracted better tenants. I decided to let units sit empty rather than rent to people I felt were unqualified. We still had occasional problems, but hired out most of the remodeling work, which eased our stress. I even started small claims court proceedings against one destructo-tenant and recovered most of my loss from her! We realized that we like the relatively steady income from multi-units rather than the feast or famine of flips. Also, more flippers are entering the market, driving up prices of auction properties so there's not enough profit. We are now under contract to purchase 9 more units in Lewiston. My husband quit his job and started his own mechanical engineering company. The positive cash flow from these units will not make us rich, but we won't starve while my husband can pursue his goals.

The bottom line is that you have to be prepared to WORK. I do not have a 9 to 5 job, which helps us greatly in finding flip deals and showing properties to tenants. Keep enough money in savings for emergencies plus living expenses. Do the math on your investments, then do it again!

If you ever want to stop by and chat, I live pretty close to I95 Auburn exit and we could get coffee. Heck, maybe I'll find you a deal in your area.