Greater Seattle Investment Acquisition - $75k in capital

[Michael Smythies]

Hi all, 

Following a recent cash-out refi on my first investment project located in downtown Seattle (described at length in my profile), I am left with approximately $75k in capital. I intend on using most (if not all) of this capital to move forward with a second investment property.  As I am still a relatively new investor, I am currently weighing my options on how to best use this money to keep the ball rolling. My ultimate goal is own multiple cash flowing properties in the Seattle area that outperform my active income streams. 

Being in the Seattle area, real estate is expensive. However, as a real estate broker working and living in Seattle, I know this area well and would prefer to stay in this market. Perhaps also worth mentioning here, is that I do have a potential source of private funding. 

Having said that, my possible options are: 

1) Purchase a value-add primary residence with ADU/DADU potential with a 5% downpayment. Use the extra money to rehab the home and rent out the separate unit(s) to subsidize my mortgage. (Pros: ownership of property, low downpayment, subsidized mortgage, future positive cash flow potential Cons: I already have a primary residence and am happy where I am and my capital is tied up in property with few ways of getting it out to continue investing).

2) Keep the $75k as reserves, obtain a private loan to purchase a BRRRR.  (Pros: possibility of owning a BRRRR with equity and cash flow using non of my own money, Cons: difficult to find real estate at 70% of ARV minus rehab costs in Seattle making it more difficult to pay back lender through cash out refi).

3) Keep the $75k as reserves, obtain a private loan to purchase a fix & flip. Focus on building up a strong cash position to then be able to leverage my money better in the future. (Pros: easier to pay back lender and produce profit quicker, Cons: do not maintain ownership of property).

3) Go 50/50 on an equity deal with private lender as partner in 2nd lien position. Have them fund the downpayment and rehab costs. Focus on building up strong cash position for future acquisitions. 

4) Use private lender to purchase value add STR in Seattle area. Refinance, pay off private lender and have a cash flowing STR.

Any direction/advice is much appreciated. At the end of the day, my ultimate goal is to simply take ACTION and not be stuck in analysis paralysis. As everyone here is well aware of, there are MANY different ways of making money in real estate. It is very possible that all these options are more than viable. However, I'd like to gather as much information/advice with my goals and circumstances in mind so that I can make best decision and deploy this capital in the most effective/efficient way. 

Thank you!! 

[Eric Yu]

Happy to help! I guess to clarify, if you have a high enough down payment, you can always cash flow, but the ROI / CoC won't be that great. For some extra breakdown: we're usually between 35-40% of gross in total expenses on a month.Things include: Transient Occupancy Tax, utilities (electric, water, internet), cleaners, maintenance calls, lawn maintenance, supplies, & on occasion, replacing broken furnishings. NOTE: this is pre-property management and assuming you self manage. With property management, add in another 20-25%.

For example: let's say you're grossing ~$6k a month ($250/night with 80% occupancy):

- Mortgage: $3,522.56

- Transient Occupancy Tax (7-9%): $480

- Cleaning Costs: ~6 cleans a month at $150 per clean = $900

- Utilities: ~$500

- Supplies: ~$100

- Maintenance: ~$100

- Property Management if you get it: $1,200.  

Remaining = $398 w/out PM, -$802 with PM. 

$175k down, ~$15k closing costs, $15k furnishings = $205k invested, you'd see ~2% CoC ($398x12 / $205k) by self managing.

Note: these numbers vary, but for the most part, $6k/month isn't very conservative. This is more of an upside case, to be honest. I can help you analyze specific addresses if you have them. 

If you want a more in depth pro forma / breakdown, feel free to DM me!