What's Your Strategy for a Passive Investor with $X to Invest

[Joshua Dorkin]

I've been thinking that it would be good to get a thread going where we explore some of the best ways for a passive investor to make some money in real estate. By passive, I'm talking about someone who doesn't want to actively run a property (would rather hire management) or who has no interest in managing rehabs (though would consider investing in them).

Lets assume that these investors are likely not sophisticated to start with, but over time, will get there.

With that in mind, lets look at the following cash scenarios and see what kinds of ideas we can come up with. How would you recommend they start out, and perhaps, what kind of ramp up would you recommend for their money over time?

0) Investor with $1,000 cash in the bank
1) Investor with $10,000 cash in the bank.
2) Investor with $25,000 cash in the bank
3) Investor with $50,000 cash in the bank
4) Investor with $100,000 cash in the bank
5) Investor with $500,000 cash in the bank

What would you recommend for each of these people?

[Dale Osborn]

O = Investor with $1K:
Invest in 2 MHs at $500 each. Resell as-is at $2K each & carry back a note. If you do not want the 12% interest - discount to a note buyer then look for some more MHs to work with. Perhaps a little educational reading of "Deals on Wheels" by Lonnie Scruggs first.

1 = Investor with $10K:
Make rehab loans to MH rehabbers. Look for better quality MHs to buy and resell carrying back paper.

2 = Investor with $25K:
Buy MH notes at a discount from those actively buying and selling or rehabbing MHs. Provide lower discount to home owner to pay off loan early to get cash back. Look for another note to discount.

3 = Investor with $50K:
Partner with rehabber on a REO 4-plex. Have rehabber fix it up, get tenants in place with security deposits. Sell as a turnkey investment to other investor.

4 = Investor with $100K:
Joint venture with individuals looking to invest in SFRs. Spread it out in $10K increments. Perhaps up to $30K or $40K could be put into a 4-plex.

5 = Investor with $500K:
Look for a single family residence around $150K to buy as their own home - "never buy a home until you have the passive income to pay for it or pay cash for it". With the remaining $350K look for a distressed MHP to purchase for your retirement income. Clean up the mess left by the mismanagement company: Evict druggies & prostitutes, Clean up trash in the MHP, Trim all trees and bushes, move out junkers or get a MH rehabber or Lonnie Dealer to fix them up and resell them. Bring in repo homes and fill up all vacant lots. If the passive income is not enough to fund your lifestyle in retirement - once things are running smooth and all lots are filled - sell the property and do a 1031 exchange into a larger MHP! Train kids to manage it for you so you have plenty of free time to travel!