New 150% bump in salary, so what should be my plan for building wealth?

Question

I am 36 years old, married with a 1 year old girl. I live in a Houston, Texas. My credit is pretty good - in the high 700's. I had a pretty decent salary before, but not enough with all of my expenses and dependents to really aggressively invest in property with the goal of building wealth. After a couple strokes of good luck, I suddenly have 20-25k a month to save and potentially invest with for at least the next 2-3 years after living expenses are all taken care of. I know I probably won't make this salary forever, so I would like to aggressively invest during this time period in my career.

I currently have about 110k equity in my ~350k primary home, and 50% ownership in another townhome. My partner wants to sell the property next month, and I should net at least 50k. I also own a 5% stake in a commercial lot which is currently for sale. Based on current selling price, I would net about $45k. My cash savings are meager at this point, about 50k.

I plan to purchase a 100-150k townhome in an up and coming area nearby for my parents, who currently rely on social security and my help to pay for rent and living expenses. I would like to do this in the next couple of months. The plan is to have them pay the mortgage, and officially showing them as renters of my investment property. Any ideas on how to best arrange this would be greatly appreciated. I would like to show a good cash on cash return, while still giving them cash on the side at the same time. I am not sure at this point how to accomplish this on paper.

I am aware I could purchase properties and renovate before renting pretty quickly, maybe as much as 3 - 4 homes this year if I can find good deals. Before planning this thing on my own, I'd like some input from our more seasoned users on the board. Retrospect is always 20/20 and you guys are smarter for it. I would really appreciate any sort advice or input you can provide to me before I embark on my journey.

Some questions I can think of off the top of my head:

Should I aim to go for more expensive properties because of my unique situation, or go for whatever makes sense by the numbers, whether the home be 50k or 250k?

Any input on the situation with buying my parents a place to live would be appreciated.

Is there a better way I can leverage my salary and savings to purchase properties?

Nathan Emmert · Answer

You didn't tell us what you were investing for... Cash flow... Tax savings (at your implied income of $300+K a year this won't matter)... appreciation... something else?

This is debated about as much as the 50% rule around here... so pick a team (vampire or werewolf!) and go from there.

I'm a cash flow investor... I buy off the rule of "buy the numbers today". I don't buy assuming rents next year will be 25% higher... I don't buy expecting the house to appreciate 5% a year with a 10 year exit strategy... I buy off today's interest rates and today's market rent rates for the shape the units are in (or will be in if I've figured in rehab costs).

From there the real question becomes are you better off buying ten $100,000 properties that each rent for $1,500 a month... or a single $1,000,000 property that rents for $15,000 a month. You can either diversify risk (10 properties)... or lessen headaches (1 property versus ten... 1 loan process versus 10). I can understand why some would want the discrete entities (could cash out just 1 property and keep $850k in property instead of having to cash out the entire $1,000,000)... but I think I'd go big personally.

Billy Cones · Answer

Welcome @Daniel O. to Bigger Pockets.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

And check podcast at http://www.biggerpockets.com/renewsblog/category/p...

Nathan Emmert · Answer

@Daniel O.

I'd go big to simplify my headaches. I don't want to have to know 10 areas... and analyze 10 deals... and deal with 10 times the headaches that go with all of that.

I'd rather find 1 deal.

Additionally I think you can leverage things better if everything is co-located in 1 spot. You can potentially get better lawn care rates, PM rates, maintenance, etc because of the efficiencies the density of your properties all in 1 spot allows.

I'm by no means a baller but you don't sound like someone who wants to dip a toe in... you're talking about dumping $300k a year into real estate... so if you're going that route, all in... go big or go home.

For most people I would say buy 1 property, wait 6 months to see what you missed in your first deal, and then move forward... but most people don't have $300k in liquid capital to dump... most tie up their entire life's worth in that first property. You're in a different position, I made a different recommendation.

For me... I'd rather buy a house when I have $25k then wait 4 times as long to buy a bigger place so I'm more in the range of buying 10 good deals instead of one big good deal... only cause I don't want to leave all that money lying around waiting for it's little friends to show up! But you're talking about generating monthly what I generate yearly in terms of capital to invest, different rules!

Daniel O. · Answer

I wish I could have them buy their own home, but unfortunately that won't work in my case. My parents had a failing business and relied on CCs to pay for debts. You can tell pretty easily where that led. Their credit is a mess and the only way they can live in a decent place, with a little yard, nice kitchen for mom, and a garage is buying a SF\TH or renting one. I hate the idea of renting any more, and their credit is poor, which is why I am forced to think about using my own name to purchase the home. Unless you have a better idea?

Why would you purchase 2 properties before using leverage, and not 1?

Daniel O. · Answer

I am investing for cash flow. I want to eventually (and hopefully soon) rely on my passive cash flow rather than my salary. In a few years I can see my salary easily shrink back to previous levels. Also, being in technology, there could be drastic changes leaving me with no salary at all. On that front, I am treating my job as something I cannot depend on. Appreciation, tax savings, etc are just icing on the cake in my eyes. I want to make 10-20% cash on cash from the get-go.

Can you expound on the reasons you'd go big personally? Are you thinking this because you're a baller already and have cash or other liquid assets on hand, or are you thinking of someone like me with limited assets?

Jesse T. · Answer

Gift your parents a down payment if you want to help them. That is separate from your investments.

If you can find A properties that provide a decent return on paying all cash, I would start there. At your income range you can't take a "paper loss", so leverage isn't quite as valuable. After buying a couple properties, you might want to look at some leverage to get a 3rd.

Jeremy Billauer · Answer

@Daniel O. Congrats on the raise!

New 150% bump in salary, so what should be my plan for building wealth?

New 150% bump in salary, so what should be my plan for building wealth?

Most Popular Reply

8 Replies