I have 100k. What should I do?

[Jacob Prelle]

After a year of vague forum posts, let's get personal.

My wife and I have 100K. No debt. 

We rent a townhouse, at $1,700 a month in Orange County, California. Currently we make a combined $160k.

Our end goal is to have relatively passive income of ~$10k a month. (if possible)

We have thrown around the idea of buying a house in Cali (~400 to 450k), and (if possible) simultaneously a tri or quad in another state. Our target price for the income property is ~250k which would make our down payment about 65k.

If we go FHA on our home back in Cali, we could be looking at a down payment of around 15k. Taxes, closing costs on both properties might wipe out our 100k.

I'm tired of speculating and guessing in my own head. What do you all think? What steps should we take? Should we scrap the buy and hold ideology?

[Michael Jones]

Find a duplex, triples or fourplex in the town where you live and purchase it now before you change careers. Purchase it through an FHA loan with 3.5% down.

Live in one unit and rent the other/others.

You should be able to live in the building and pay all mortgage, insurance, upkeep, repairs etc....out of the income that you generate from the other units if you self manage. 

That eliminates the $1,700 per month you are currently throwing to another landlord each month.

Then once you are settled and comfortable go purchase another four plex with the $100,000 to cover the down payment.

Each month bank the $1,700 you saved from your former rent payment along with profit from the four plex (lets say that amount is $1,400 which is $3,100 a month)

That is $37,500 per year going back into the bank. Every couple of years you will have enough cash built up to buy another four plex. That adds another $16,000 per year to your profit.

So in ten years that will be five buildings added to these original two. That is a grand total of $117,500 in profit. 

Here are the keys:

1. It is a retirement fund that you have to work. It is not a vacation fund or to help nephew Johnny cover the cost of rehab. Treat it just like a 401k and nothing can come out of the account except to cover the cost of managing the rental units.

2. Rents must be raised so you can capture the market value while your mortgages are fixed. This allows the spread on profit to become larger as the years go by.

3. Don't be afraid. there are thousands of people that will tell you not to do it because they have fears that drive their decision. Renters are not jerks that are going to destroy your investment and the person that tells you they are is the actual jerk.

There is nothing that can happen that hasn't happened to every other landlord somewhere and they survived. 

You will have to deal with a case of bedbugs, a tenant will overdose on heroine, a tenant will not pay and you'll have to evict, you will get a call that they have found mold, you will (insert what ever nightmare that person tells you about that drove them out of the rental business).

You know what, it is nothing you can not handle and each experience that you go through will teach you that as a landlord and investor you have the skills and mindset to be very successful and all of your fears and anxiety were just in the way.