Which Route Should I take to Start Investing in Rental Property?

[Jessica Avila]

I live in my 3bd 2ba home in Clayton, NC. I've recently subdivided a .25ac lot beside my home. I bought the land for $10k and the market value is @ about $60k. I sell building materials for a living and could get lumber, windows, trim, doors, drywall at cost. I have three questions. 

-Should I sell the lot? 

If I sell the lot, I could either get out of bad debt completely (~$45k) or use the money to try to Brrrr a home/duplex. 

-Or should I build a home to live in on the lot and rent out my current residence? How could I go about using the lot as a down payment to start the construction loan? Would it be best to pull out the equity in my current home (~$118k) to build the house? 

-Is there any advice on a better way to use the equity in my home or the land to start my real estate investing dream?

[Mike Smith]

@Jessica Avila Congratulations on the equity in the lot and also your personal home.  I'll try to help you with some decision making.

1.  You have 50k in equity in the lot.  Pretend you already have the money in your pocket.  Would you go purchase the lot for 60k and build a home on it?  My guess is the answer is probably not..

2.  I know many BP readers are fans of debt, however, I know how risky debt is, especially if you purchase investment property and something goes wrong.  If you want to get into real estate investing, my advice would be:

A.  Sell the lot for 60k and pay off your debt.  Sounds like you will have 5k left over.

B.  Sell your primary residence and gain the 118k of equity.  Live in a rental or as a roommate, or whatever it takes temporarily.

C.  Use your 123k in capital to purchase the best real estate investment you can find.  Spend a lot of time analyzing many potential deals, because this first deal could set you on the path to financial freedom.  Because you have access to building materials at cost, a fix and flip is probably the best route for you.  However, don't rule out any great real estate investment.

Be prepared to make sacrifices for a while.  You will live in less than desirable conditions and probably work a full time job while also working on the flip house nights and weekends.  It's well worth it in the long run.  The harder you work and more sacrifices you make, the quicker you will get to a much more comfortable place.