600k to invest any suggestions on the best strategy for leveraging?

Question

My second question is if we have 600k to invest in rental properties and a credit score in the 700s what are some of the best investment strategies?  We heard that you can buy up to 10 properties with loans from the bank as long as you put 20-25% down. (we heard that banks just started doing this about a month ago, why would they change their policy all of a sudden?)

We were sort of looking to buy SFRs in Phoenix or Las Vegas since it is not too far away from CA and you can find properties that are close to the 2% rule.  We are a little hesitant about multi unit apartment buildings because I think you would really have to make sure it was an excellent deal before you put all your assets into one deal like that.

Our main goal is maximum cash flow.
Is it better to use leverage and get loans for 10 houses worth 50k each that rent out for close to 1k a month even though the neighborhood might be kind of bad?  With ten 25% down payments that would take up 125k of the 600k so we would still have 475k to invest.

Or would it be a better use of leverage to get loans for 10 houses worth 100k each or more in better neighborhoods that might not rent out for 2k a month (maybe 1500)? I guess the advantage here is that you would have more valuable properties (using mostly the banks money) in your portfolio but your cash on cash return would be lower.  If we got 10 loans for ten 100k properties with 25% down payments we would have spent 250k of the 600k and be left with 350k.

With the remaining money should we try to find other lenders for more sfrs?  Invest in a multi unit? or buy some sfrs all cash at auction and rent them out?

Any suggestions on these topics?
Thank you in advance.

Nathan Emmert · Answer

Tyler, there is no "best", only a "best" for your goals.

Warzones typically give the "best" returns on cash.  But they also typically require the most management (time & energy) and will see little to no appreciation long term.

High end areas typically have no cash flow or are even negative cash flow.  The returns in those areas are on tax savings (depreciation) and long term appreciation and sale.

Single family homes typically do not cash flow as well as Multifamily homes.  But you have fewer tenants, less management, longer times between vacancies, and more appreciation.

Multifamily homes typically cash flow better than single family homes but loans are harder to obtain, you have more tenants and vacancies simply as a result of having more "doors", your turn over is often a bit higher, and the places don't appreciate faster.  You also have a smaller market to potentially sell to in the future.

Investing close to home is easier.  Whether you manage the properties directly or manage the Property manager, closer is easier to keep an eye on.

Remote investing gives you opportunities to buy into better situations.  Maybe it's the high cash flow of the Rust Belt.  Maybe it's the severely depressed areas like Florida, Vegas, or Phoenix that have long term appreciation plays.

You can also look at becoming a hard money lender.  Less management required on your part.

You can buy in cash and have nice returns (8 - 10%) with very little risk.

You can leverage (75% LTV) and get 15 - 20% returns.

You can go all in and use all $600k as 25% down on a nice $2+M apartment complex for easier management.

You can buy 10 $240k multifamily places in one area to diversify a little.

You can buy 10 $240k multifamily places around the state or country to diversify more.

You could buy 300 $2,000 Mobile homes and rent them out.

You can buy vacant lots.  You can go commercial.  You could get into development.

There's a LOT you can do.  People are doing all of these things because it fits what they want, for them, it's the best.  What's the best for me may not be for you.

Tell us your goals.  Tell us your risk tolerance.  Tell us your time frame.  Tell us how actively involved you want to be.

Chris Clothier · Answer

Mike - How many properties do you have mortgages on?  If you still qualify for FNMA financing, I'd be happy to tell you two banks that are writing fixed 30yr loans at very low rates for investors.  If you do not qualify for FNMA loans, then I would suggest going to local and regional banks to find the funding.  They will want accounts or deposits in return, but smaller banks (on a city by city basis) are begging for loans to good investors.

Nathan Emmert · Answer

If you have 600k cash lying around, you've probably done pretty well for yourself.  If you've done pretty well for yourself, you're probably of at least average intelligence.  That said, you can serve yourself well by educating yourself with these boards.  Asking us how to invest $600k in real estate is like asking a community which stock to buy.  There are a million ways to be in real estate and, with the right approach, you can probably make money in every single one of them.

YOU need to decide your goals and outline them.

YOU need to decide how much work you want to do.

YOU need to decide the level of risk you're comfortable with.

Based on those answers, YOU will need to decide how you want to invest in real estate.  Once you have decided that, you can probably ask some better questions.

Jeff N. · Answer

I will never recommend how someone should use their cash, but it sounds like RE investment is a new idea for you. If this is true, I would be careful starting out as aggressive as you mentioned in your scenarios. Actually, if you are getting conventional mortgages, you are going to be limited to the seasoning time anyway.

The RE investment market is full of unscrupulous people/companies that will be more than happy to help you "invest" these funds, especially in the turn-key market. I would recommend you find what you feel is a good deal on one investment property and post the details on BP and let us analyze it so that you can gain some understanding on how to predict cashflow and analyze a deal.

Ed L. · Answer

I would personally steer clear of having 10-20 sfr homes...

I would lean more towards finding a  commercial property that is 30-40% under market value due to cosmetic deficiency, and poor management.

My budget would be $500,000 purchase price, $50,000 renovations, & $50,000 Rainy day fund.

Property would need to gross $110,00 per year x 50%= $55,000 annual profit or %10 of original investment.

I would also use the property as collateral for a secured LOC..  That way you have immediate access to your original $550,000 if needed...

Just my advice... It's probably worth what you paid lol....

Nick J. · Answer

So true! Tyler, I can help you understand Phoenix a little more no problem. I've stated before that I'm not sure anyone loves my Phoenix more than I do and I always don't mind answering questions or giving some direction when it comes to Phoenix.

If I was as good as 'Searching Steve' I would find some old threads where I give out some detailed info on great areas, others to avoid etc...

Chris L. · Answer

Tyler,
After reading your last post stating that you are retired and on a fixed income, I would encourage you to be extremely cautious.

This money sounds like it is your primary retirement nest egg.

Whenever I meet with someone in your situation, I always tell them that it is far better to say: "I missed that one as opposed to I am really sorry that I bought this nightmare." 
 
There are plenty of great opportunities so do not take a leap too quickly thinking the market is going to pass you by.

IMHO, This is a case of measure 3 times and cut once.  A mistake with this money could be devastating for you.

Several questions for you:
1.  Does the $1500 per month cover your monthly expenses?
2.  Are you living where you want to remain based upon location, family considerations, etc?

The answers to these questions should also factor into how you will invest this money.
Good Luck to you.
Chris

Ryan Wright · Answer

Tyler

Without knowing your experience as a landlord I would say take it slow. Many people are not cut out to be landlords and fmany property manager just don't have the skills to do the job you may be looking for.

I have alot of rentals and I can tell you it is better for nicer areas. I don't like to be in slum lord neighborhoods, I really like blue color neighborhoods and I hate higher ends neighborhoods.

I n my markets I like 4 beds two baths wi garage, purchase and rehab for around 100k to 120k and rent between 1000 and 1200.

Nathan Emmert · Answer

McKellar makes a very good point at the end of her post (not to say the rest is fluff, simply focusing on that last point).

With the cash you're talking about, you can get in REALLY REALLY far over your head.  Going from never having been in real estate before to putting 25% down on a 100 unit $2.5M apartment complex is a Neil Armstrong type leap.  Even running out and buying 10 or 12 properties in cash.

#1, decide on your investment strategy.
#2, find a way to ease into that.  Don't rush to be fully invested.  There are way too many expensive mistakes to be made in this game.  Learn them once, not 10 times at once.

McKellar Newsom · Answer

Since you asked for suggestions, I'll tell you what I would do. Ultimately, however, you have to develop a strategy that works for you.

First, I would steer clear of states like California that have more liability issues for landlords.  I wouldn't invest in California, New York or Alabama because of liability issues. I have never researched liability issues in Arizona but you should before you invest there.

Check out bestplaces.net.  If you are in the market for a city to invest, consider population, median income, median home price, current job growth and future job growth.

I like cities over 100,000 people in the market area. You want a 3-5 ratio of median home price to median household income.  Phoenix has a 176k median home price and 48K median household income (ratio of 3.6).  Las Vegas is 270K to 56K (ratio of 3.7). I tend to think 270 is a high median home price though.

I'm in Tennessee not California so 270K might seem like a deal to you.  For example, my hometown of Chattanooga has a median home price of 127K.

Phoenix has .28% current jobs growth and 30% predicted.  Las Vegas is at a negative 2.46% and 21% future growth.

I really like some areas in the southeast right now because home prices are low and predicted job growth is high.

As for leveraging or not, you mentioned 50K properties but most banks will only lend you a minimum of 50K and you need 20%+ down. I'd start by looking at a 80-100K property to invest in cash.  Get the one property rehabbed and rented.  Wait 6 months, then refi. .  Take it one property at a time. Good luck. McKellar

600k to invest any suggestions on the best strategy for leveraging?

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