What would you do next? Strategy or Purchase?

Question

Hello,  appreciate any input on my current situation...

The Goal:  To build a income in RE as a supplement to my day job.  Can be passive or active strategy but my current job requires 50-70 hours a week so can't be something that is overly time consuming.  Also, I live in NYC so am precluded from investing in most local areas due to high costs.  Willing to take a moderate amount of risk.

Situation:

26 years old.  Rough Net worth breakdown:

40% in cash duplex purchase in Florida operated by a PM
23% in cash
12% in 401k
12% in mutual funds with expected return of 4%
12% in tax deed purchase that is expected to be sold shortly
1% in tax liens from Nebraska purchased at online auction

The question is, I expect to sell my tax deed purchase shortly (at cost- was not a good overall experience).  What should I do next?  Am I too heavily levered to RE at this point in my life?

What strategy would you next pursue?

Jeff S. · Answer

Not understanding 40% cash duplex and the question "am I too levered in RE?

Time is on your side. If you borrow enough money to get started toward a reasonable goal, say in 20 years, you will be in great shape. In 20 yrs you will be young and have assets that are well on their way to being paid off.

Personally wouldn't try to have RE supplement your day job for quite a while. It is hard to grow assets when you keep pulling money out for living expenses.

Bill Gulley · Answer

I'd say find a different day job as there are only so many hours in the day. Or, stay there and get with a good mortgage broker who buys and sells notes and invest in notes, buy at a discount collect a few payments and get them refinanced to cash out. That takes less time than anything I have done that is real estate related and is the most profitable for use of cash and holding time. You need to enjoy life as you go there young man, smell the roses!

Don Konipol · Answer

I've got to second Loc R., I too invest heavily in high yield trust deeds and about 65% as much in income producing real estate (inflation hedge).

Loc R. · Answer

If I knew then what I know now...

I would "snowball" my money, just like I wrote in this article:

http://www.biggerpockets.com/blogs/519/blog_posts/12767-snowballing-your-money

The best part is that you can buy 1 good note, and really not have to worry for a while, until you had enough to buy your next note.

I'm 35, and I "wasted" about 5 years of my investing life doing the mutual fund thing / asset allocation / re-balancing crap / stock-picking crap.

In another 15 years, I will probably own 1-2 more LOCAL rental properties, a lot more paper, and I will probably have a bigger % of my portfolio in hard-money loans.

Kyle K. · Answer

Having a huge portion of your net worth in real estate isn't a problem in and of itself. If you aren't using leverage prudently and keeping adequate cash reserves, then the real estate in your portfolio could be problematic.

Might I make one suggestion:

You noted that you have money in mutual funds, which I assume is in a regular individual account versus a tax-advantaged account like an IRA. If this is money that you would utilize to purchase real estate or other investments, I would probably advise against it. There are so many ups and downs in the market that it doesn't make sense to use them to hold cash that you might use in the short term (0-4 years). Stocks and mutual funds should really only be held long term, unless you are well-versed in speculative stock trading.
Tip

James H. · Answer

Only you know what you can handle time wise. I work 50 hours/week regularly and have taken 1 to 2 engineering graduate classes for the last 3.5 years. I self manage one rental and feel pretty confident I could do at least 2 more. Of course, I anticipate graduating in December so I know there is some end in site for my school obligation.

Depending on what kind of work you do, you can usually maximize your time to get out of there a little earlier...usually. I don't chat too much with coworkers, write lists, knock stuff out, etc. But I do waste time on BP when I could be getting other stuff done. BP is for me very much like FB is for normies.

Managing rentals doesn't appear to take much time in general. You do have to be prepared for big time eaters like acquisition and rehab and trouble tenants. But if you have enough cash, you can always hire stuff out you don't have time for if something occurs at a time when you can't free yourself from work. I would think about buying properties that are at least within a hour of you if that is possible. then you can still get out there if you REALLY need to without booking a flight.

I believe the nature of RE ownership is such that you just won't be able to avoid being highly concentrated, in terms of net worth, toward your RE assetts. They just cost too much. And if you are trying to supplement your income with rental property, its gonna take a few units to make much difference.

What would you do next? Strategy or Purchase?

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