How to spread out $100k?

Question

I am new to investing in RE. I have 100K cash that I made doing some high risk investing in the stock market and am trying to spread out my risk. So I started to look into RE.

I have read up on the 2% rule and the 50% rule. I am currently writing a business plan and have really just started my research and have two questions as this point.

1. How much of that 100K can I spend and not over extend myself? How much do I need to hold back for emergencies?

2. I have a current job that does not allow for very much time off. So I am planning on hiring a property manager. I believe that I can purchase 3 different 4 unit apartment complexes for 150K each. At 20% down that makes my initial investment 90K. Those units are currently renting for 450 a month which makes 21600 gross profit per complex. I want passive income and to be very hands off. Does this sound reasonable and should I be able to pay all expenses to include the mortgage and still make 100 per door per month?

Like I said, I am into my research early so any advice would be greatly appreciated. My biggest criteria that I am trying to stick to is maximizing profit and keeping it passive because I have very little time. I am interested in building wealth and hopefully one day be able to live completely off of my RE investments. I would like to make this my full time job within 5 years.

Thanks in advance. Adam

Uwe S. · Answer

Welcome Adam to BP,

First of all, dont tell anybody how much cash money you have for any invest! You will fall on sympathetic ears for some scams with bad luck.

To answer your question, if you buy 3 four unit complexes you need also closing fees, real estate transfer fees etc., so you dont have any money left. Buy 2 and work with rest of money at maintenance or so. Better way I guess.

If you want to maximize your profit, so is an PM not the best idea, here you will pay more fees. An 8 unit is not that much work for manage by yourself expect properties are far away from your home.

A gross income of $21,600 is not a good deal at $150k purchase price, better is $108k (at 10% CAP) if you can negotiate this but that is another story.

-Uwe

Adam Draper · Answer

Thankyou for all of the replies. When I first started to do research on this type of investing I think I was looking too big and in danger of over leveraging. But these forums have given me a chance to learn from others. My father is a property manager and might match my investment. So I was thinking of possibly buying the first home with cash. And then leveraging 2 or 3 other properties with what I have left making sure that I keep a little on the side for unexpected expenses.

Champak Shah · Answer

Hello and welcome Adam --  Depending on wehre you live and what is your gaol-- everything depneds on you and your motivation - go  slow and steady -- first expereicne is very critical in real estate investment. If you succeed you will like it and stay in for long term -- Some comments by Laura are good.
I am engineer - and had four ( 4) rental homes --for over 18 years while still working full time --Consider as Busienss not just investment --this is not stock which you can buy and sell at any time  --yes-some times confusing, frustrating and time consuming --

My best suggestion is buy a single family home -- best time to buy now --bank foreclosures-- if you have a college or hospital near by -- buy a 3 or 4 bedroom house and rent to three  --students or female nurses ( single) -- find local students or young kids to cut grass and have a lawn service to spray checmicals --get an older retiree for minor repairs and maintenance --and dont be greedy --keep tenants happy -- 
buy hosue --around $50,000 cash --which should be $80,000  to
$100,000 current retail value - do some homework on pricing -
Refinance the hosue after 12 months --get cash back and buy another -- if you buy one house every year or every two years 
and let tenants pay for mortgage --you ahev five hosues in ten
years and get paid in next ten years --you will have over $1 million net worth--all paid for Free and Clear Five hosues-- for  retiring in 20 years or early --you do not need cash flow now --keep the job if you like the job -- good luck

Robert Burns · Answer

I also am in the process of using $100K to setup my REI program.  I am buying and renting mobile homes totally rehabbed with tenants with 1 year leases in the same managed MHP for $15,000 each.  All utilities paid by tenant. $600/mo rent & $195 lot rent.  $405-$30(insurance)= $375/mo net. My plan is to continue to work with this MHP and have 6 mobile homes by the end of the year.  I am using a self directed IRA to fund these deals.

I may convert some of the rentals to owner financed purchases as conditions permit.

Bill Vaughan · Answer

These properties, are they all bills paid?  Most commentors on BiggerPockets pref not to do all bills paid units.

Personally our property manager has more than paid for themselves, on insurance( I receive a 27% discount for using our PM) the initial redo(we got 3 initial bids ranging from 5-6 grand and the PM's was 2500)

I do agree with Laura's comments about wholesaling.  You will gain experience and hopefully make some money

Laura Alamery · Answer

Adam, based on what you are saying I have a few recommendations:

1. Start with one property and manage it yourself. You have to know what to expect from a property manager before hiring one and you can only know by being one yourself for a while. That will give you a chance to organize the business and set some ground rules that you can work with.

2. $100k is a fairly good amount, but not too big in real estate. Use some of that money to wholesale/flip some properties "as is" (without doing any repairs.) Once you build another $30-$50k cash reserve, buy another property/multi-family to buy and hold.

3. Once you are ready to hire a property manager, find someone to work only for you (not one of these large property management companies) - that way you can control costs, management policies and you will profit more.

How to spread out $100k?

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