What to do with 280k cash in Austin, TX?

Question

My mother just sold her house and has 280k in cash to invest back in real estate. I am fairly new to real estate investing and am not sure what is the best move. Here are my questions:

- Can she use it as a downpayment for 3 properties worth ~1M?

- How can I find a lender for such a deal?

- Do I look for commercial loans?

- What will such a lender require to close such a loan?

- Any better ideas of what she should do with all that cash?

Thanks, I look forward to reading your suggestions.

Tina Tsysh · Answer

Congratulations with getting your mom into the real estate game, that's really awesome! To answer your questions:

1. With that amount of cash, your mom has a few options, whether it would be buying a few SFRs or buying small multifamily properties - 4-plex, 8-plex etc. But before you decide which combination of properties to do, make sure to run the numbers to see which investment makes the most sense. However, besides having 280k in cash, your lender will also want to see your mom's or whoever is going to be on the loan income to make sure that the debt payments can be covered on a monthly basis. Don't forget to account for closing costs, rehab costs (if needed) and other 1 time expenses in your analysis.

2. You can find a lender on BP (at the end of the day it IS the biggest real estate investing website) or you can call 10-15 of your local lenders and request quotes / terms. Not all of them will get back to you, but at least you will have 2 or 3 options to compare. Remember that you have 45 days after the initial hard inquire to show for more loans without them having an impact on your credit report.

3. You would look for a commercial loan if you buying more than 4 units (a 5 unit apartment complex). If you are buying 2 separate 4-plexes, you will need a residential loan. Anything 4 units and under is considered to be residential.

4. The most important thing that the lender needs is your income verification. You will have to prove that you can cover all of the debt payments without defaulting.

5. With that much cash, I would probably buy a combination of 2+ units (duplexes, triplexes etc). That way you get more cash flow from each unit rather than from a SFR.

Hope everything works out for you!

Kris Wong · Answer

First question I would ask yourself (or your mother) is, what are your goals? Is it to supplement monthly income (cash flow), is it wealth accumulation, or a little of both? Austin is a market that is significantly skewed toward wealth accumulation. Second question is, do you want to be a landlord? With that type of cash you could easily invest passively in 2 - 3 deals with an experienced deal sponsor. As pointed out by @Tina Tsysh, 4-unit properties and under are residential, so your mother's DTI and such will need to checkout to get a mortgage. With $280K you would be looking at roughly 3 duplexes or 2 quads as far as Austin MSA goes. YMMV.

Account Closed · Answer

Thank you for the detailed response, Tina. This is very helpful.