$10k to invest. What should I do? Househack? Out of State? Wait?

Question

Hi everyone, I wanted to pose a question. My main goal is to get into my first deal so I can start building cashflow and get started on the path to financial freedom.
But basically I have about $10k saved up for real estate. I'm not sure what to do it with.

My options are

1.Invest in a Duplex in out of state using a Hard Money Loan and BRRR it. (Worst scenario would be no BRRR and just do a rental, but I prefer to BRRR it) the property would be around $50k-75k in value. I would be putting in 10% of the purchase price. The property would probably cash flow around $400-600 per month. I would be trying to purchase before the end of the year. Mortgage after refinancing is usually around $350-550 per month. HML to cover construction.

or

2.Save up for a House Hack out here in the Valley around $500-550k. It would take me another 6-7 months to be able to afford the downpayment + some change. The ideal house hack would cashflow $500-1000 depending if I find the right house that could command justify the rents.

or

3.Something else you recommend? I'm open to other strategies too. Maybe buy the house in Milwaukee let it cashflow for 6 months, sell it when I'm ready for the househack, wait for the downturn, etc.

Let me know your thoughts and what you think I should do.

Brock Mogensen · Answer

If you are going to invest in Milwaukee and implement a BRRR strategy make sure to have all systems and contractors in place before buying.  Although Milwaukee is a good market you can get crushed without the right systems, especially in C class.

Kenneth Mooney · Answer

@CJ Berina definitely not the second option. You’d be buying in CA at the peak of the market. Haven’t checked on the CA market in a few months but I’m sure it’s hot as ever.

Honestly don’t know that I’d do anything with 10k. What if you invest the $10k, do a poor renovation, contractor skips out, etc? You’re out $10k and in a bad spot. I’d continue saving and continue learning.

Are you based out of CA? Start learning some other markets that you could invest in with $20-$25k.

They are out there!

Matt Maurice · Answer

$10k just isn't enough to deploy either of your strategies.  Cash reserves are necessary with either option, and you will be far too leveraged which can be disastrous.

Option 1) There are no reasonable deals that you could purchase out of state, with hard money, that will cash flow $400-$600 per month.  You'd be better off putting the $10k into penny stocks, or potentially even watching it swirl down the toilet as the entertainment factor will last longer.  We like to coin these types of properties as fools gold... the look good on paper, and never ever ever ever play out the way you want.

Option 2) If the money was burning a hole in your pocket and you had to spend it, I like this option better.  But to the other points of folks here, might be stretching yourself think still.

I think the best option is to wait, continue to save and evaluate deals as they come across your desk.  Be ready to buy when the time is right with a great understanding of what is, and isn't, a good deal.

Ryan Blake · Answer

@CJ Berina I am going to try and answer your questions as best as I can with the experience that I have.

1) I don't know any hard money lender that requires less than $15k in cash reserves. You would need to partner to build more capital to invest even using that route. Also, you will need to search for a good deal and a lender that will do 100% initial funding. Most lenders right now are only doing 85% or 90% which basically means you need either 15% or 10% down. Just about all lenders will cover 100% or the rehab costs but those are distributed on draws which normally means the work must be completed before the money will be released. You would need capital to start and run the project between the draw on escrow funds.

2) Buying in CA may also be difficult. Using an FHA loan you would still need 3.5% of the down payment. With $500k purchase prices you would need $17,500 just for your down payment. If you have access to a VA loan with 0% down, you would be more likely able to do this but even then, they will have cash reserve requirements that you may not meet yet unless you have other cash available to you as well.

3) I suggest going to local meet ups and REIAs where you can network and find someone to invest in or invest with. Caution! A lot of these groups will have gurus selling coaching or classes. You don't need to be spending what little capital you have doing that yet. Meet people you can team up with that have a little more experience. That will teach you and cost you less. There is value in what those gurus will offer but not equal to the price tag they will put on it.