How to invest my life savings of $250K?

[Mark L.]

OK, long story short... I bought a unit with 20% down about 5 years ago, fixed it up very nice, rented it out, paid off the mortgage note, sold it, saved up more $, and now I have just under $250,000 in my high yield money market savings account. In the midst of council there is wisdom, so how should I invest this chunk of change? I live in So Cal, I'm ambitious, I want to buy as many units with as little $ down as possible, I know of and greatly respect the 2% rule, I'm still alive; age 25, I'd like to buy and hold individual units as a landlord, I like the idea of my own LLC, I'm married with a daughter, just got a CA Real Estate Sales License, just signed with a broker who does real estate and loans, I love quality time with my family, just got out of the Navy, and I'm ready to consider all advice! What should I do? How can I maximize the # of units I can buy? Thanks for your :help: and please assume I know nothing except 3rd grade English.

[Vikram C.]

Mark, you have many choices:

1. If you limit yourself to SoCal, Will's idea of fix and flips is a good one. You can also lend money to others who do fix and flips in return for a share of the profits. I have not seen any great apartment deals in CA except perhaps in the central valley. The coast seems to have very low cap rates for some unknown reason, which means your ROI is going to be very low unless you assume high rent increases, which don't seem realistic.

2. If you go to the neighboring states of Nevada and Arizona, you have more options. Again, fix and flips and funding are good options. I have actually moved to Phoenix specifically to fund fix and flippers. I have also seen apartment complexes here that meet the 2% rule. But for me the 2% rule is not good enough - I also need good appreciation potential. That is, I need a mismanaged property with lower-than-market rents and/or higher than market vacancy so that I can improve the numbers and force the appreciation on it.

3. You may also wish to consider some other categories of investments. Lonnie deals, mobile home parks, small strip malls, etc. And if you decide to venture outside RE, you can consider stocks. Stocks are actually my favorite investment of them all but I must admit that they are not suitable for as many people as RE.

4. One other investment option would be buying notes. Read the posts by Marc Faulkner here on BP. I do not know much about notes but here's what I am thinking. Suppose there's a note on a home with LTV of 80% or less. And suppose you can buy that note for 25% below face value. You now have a note in which your investment is only 60% of the value of the home. Because you bought it at a discount, your yield should be pretty decent. And if the borrower defaults, you get the house for 60% of market value, which is better than most fix and flippers can do. (I must admit that these numbers are just speculation - I really do not know enough about the notes business to give advice.)

Good luck with your strategy and keep us posted about your decision and progress.