What would you do with $50,000?

Question

Hi everyone,

Thanks to the help from everyone who has interacted with me on my posts I have made so far, my wife and I are about to realize a solid return on our modified house hack in LA. We bought a triplex two years ago for $658,000 ($35,000 down out of pocket). We borrowed about $50,000 to upgrade 2.5 of the 3 units, lived in it for 2 years and made more updates. We are about to close for $930,000 and once we have settled everything including taxes, we should have about $205,000 in cash. We are planning on taking this $ and allocating some to a new primary residence (her mom lives with us and we all need our own space), some for a renovation budget (all of the houses in the LA area in our budget will require some amount of updates), and some for investment purposes. At the moment we are thinking $100,000, $50,000, $50,000 as the split, so I am curious as to what the more experienced real estate investors here would do with $50,000? Our immediate goal is to gain as much cashflow as possible to offset our upcoming primary mortgage, thereby allowing us to save our w2 job salaries and continue to invest in more real estate. I know that if 10 people decide to respond to this I will probably get 10 different answers and that there's no 1 solution that works for everyone, but I am trying to gather as much information and perspective as possible to see if our ideas we are currently throwing around are on the right track. I am definitely still somewhat new and always trying to learn and talk with people who are more experienced than me so I can learn and grow. Thank you to anyone who sees this and replies, and have a great day!

Joe Hammel · Answer

@Cameron Mertens

With $50k I would buy 2 sfh rentals in Metro Detroit.

$80k buy

$1150 rent

$300/month cash flow

13% year 1 cocroi

I own a few with this same criteria and they’re great.

So those 2 would put you at $600/month cash flow which would be a pretty good start.

Lynne Hart · Answer

Hey there!  Could you use it all to buy a multifamily apartment building that you live in part of and rent out the other portion?  That's something alot of people do if it can work for them.   Other options are you could find some cheap single families 1-2 in the right market (C class neighborhood in St. Louis Missouri you might be able to do that) or use the remaining money on a 25% down for a multifamily unit up to 4 apartments.   Depending on where you buy these numbers could work.  I know they would work in my market (St. Louis)

Cameron Mertens · Answer

We had discussed a few options on trying to keep the triplex, but with the amount of $ we are going to realize from the sale compared to rates for cash out refi, heloc, just keeping and renting out the unit we were living in we wouldn't have had the cash and flexibility to move on a much more expensive new primary that fits our family needs much better than our current situation, so we ended up settling on the sale as the best way to be able to realize these goals. Whether or not we are right or not, we close within the next day or 2 and are moving forward with the cash in hand and looking to create a new action plan for what we want to do and everything! I have been looking at Michigan as one of my options, I have seen some multifamily options that seemed on paper like they might cashflow $1200-1500 after everything, but we would need to run the full numbers and everything if that's the actual direction we want to take. The midwest has definitely been toward the top of our potential investment list for sure.

Cameron Mertens · Answer

Hi Erik, thanks for the reply! My ultimate goal is to be making enough passive income from real estate that I can quit my current job and spend my time however I want, as quickly as possible. I haven't really determined an exact number I want to reach before I quit, because I have excellent benefits and perks and such, but $10k/month in passive income would definitely be enough for me to achieve this. My wife loves her job and doesn't anticipate quitting at all, but the ability for both of us to do this would ultimately be nice. Our biggest immediate goal we feel is to find as much cashflow as possible to lower our upcoming primary mortgage, which we anticipate will be $3500-4500 depending on what we can find in this area. If we could figure out something that brings us down $2000 or even more, we could then focus on applying all the $ we are saving not putting it into a big mortgage into growing our real estate portfolio, at least this idea works in my head. We are definitely willing to hear different perspectives, hearing that our idea isn't great and we should look at things differently, whatever. We are not tied to any one direction or idea at the moment besides the idea of financial freedom as quickly as possible.

Jeff Roth · Answer

Yes. Congratulations on your successful house hack.

Two things come to mind.

One, to answer your immediate question, you could easily invest $50,000 in a market like Michigan and generate a $700 a month positive cashflow after your mortgage including all expenses and a management company. If you bought well enough, you could refinance the $50,000 back out in a year or two and go buy another one.

Second, I wonder if you could have gotten a home equity line of credit to use for your primary residence purchase and held on to the triplex saving on taxes and transaction costs from the sale and maintaining two real estate assets. Generally better to hold on to property unless your money can work harder in something else and you can't refinance out the money you need to buy that next property from your existing properties.

Again, congratulations and happy to help!

Erik Browning · Answer

@Cameron Mertens to give a better answer, do you have a specific goal you are trying to achieve? I like this question because it forces you to come up with a rough figure.

Do you want $10k/month in rental income? Do you want to graduate to apartment building syndication? Do you want to maximize depreciation to offset your normal income? Do you want to quit your job - if so how much per month do you need?

I'd first start there, which will set up the answer for the steps to get there.

Caleb Bolen · Answer

Hi Cameron,

Great job making your primary residence work for you!  Are you still considering a multi-family dwelling for your next purchase? As you mentioned there are probably a lot of different options that could come up, out of state, invest in a syndication, continue with the house-hacking... I like to consider markets that have solid historic appreciation, which may not cashflow as well initially but have less risk of losing the hard earned money you have made.  Have you established a longer term plan to give you some strategies for how you analyze deals?  Feel free to connect with me our team does a lot of investments in the Long Beach and surrounding areas.

Caleb