How should a person invest in real estate as a beginner?

[Nick Tarantino]

I know a person who has about 140k to invest. This person has an interest in rental properties and flipping houses. If they want to make a living off passive income from real estate, how do you think they should get started? The person lives in New York City, but since NYC real estate is so expensive, he's considering moving to a place less expensive such as Austin, Texas. Thanks so much!

[Jay Hinrichs]

@Clayton Mobley  I have not run the math so going to wing it right now.

lets say you have 150k to invest.  and of course you have reserves this does not include your MUST HAVE reserves.

you use 100k for down payments.. 

lets say you buy 3 100k props for 25k down each..  lets say in this market your actual cash on cash with quality assets is about 5 to 7% return I think that's pretty fair in todays market on 100k rentals.. 

so lets say 7%  of 25k.. give you 1700 a year in cash flow net.

now lets say you bought a quality performing note secured on the exact same collateral.. only instead of investing 100% of value your the bank at 65%  so you loan 65k  your spent 75k on your down payments to generate 3X 1700 a year.

and your performing NOTE on the exact same assets  at 65k is making 9%  which is quite doable.. so roughly 5900 a year in come on your note.. and you have ZERO cost to your note.. its just pays every month.. into your account.. 

so take your 5900  and 3X 1700 5100  that's 11k a year .. pay down one 75k note you will pay this off in about 7 years .

your note at 65% LTV being interest only is still worth 65k.. its just a cash flow machine..

and now your free and clear asset just dropped a 500 a month payment ( just spit balling.. ) 

now you have another 16k a year to pay down your next note which has been paid down to say 65k with normal payments so in 5 years that's paid for then you do the next one and its paid for in 4 year lets say.. so in about 16 years 

you now have 3 paid for houses and your 65k note as its still an interest only note.. and its all equity.

you income on those three homes and your note.. brings you up to about 3k a month or so.. and its all paid for. 

not a bad use of 150k to start with.. and pretty manageable for home.

Or you could just buy 3 notes to start with making 14k a year in income and save it for 5 to 6 years and pay cash for homes going forward.. few ways to work it.. 

Just a Saturday morning Musing on what to do with 150k..