What would you do with $100,000??

[John Stover]

Thanks to everyone in advance for your responses.

Here is my situation:

-I have approximately $100,000 to invest in real estate and I want to get as much cash flow as possible.

-My credit score is about 650

-I currently own 5 houses. 2 houses are on the West side of Cleveland "war zones" cash flows about $500 total), 2 are in nice neighborhoods in Maryland (1 generating $500 cash flow, the other, $0) and 1 is in West Virginia $400 cash flow).

-I'm trying to figure out where to invest and how to buy. Maryland is a really good market but the house prices are HIGH in good areas. Cleveland has decent cash flow but in a "war zone". West Virginia is no good..

-Would you buy a few "war zone" houses, try to get a loan for something in Maryland that has a chance of appreciation, duplex somewhere?

Not sure what I should do. This is an extraordinary amount of money to me and I need to invest it wisely.

Please help!

Thanks,

John

MODERATOR: THIS IS NOT A REQUEST FOR OFFERS TO SELL PROPERTIES. ANY POST OFFERING PROPERTIES OR "HELP" WILL BE REMOVED WITHOUT NOTICE. "BECAUSE I HAVE PROPERTIES FOR SALE" IS NOT A GOOD REASON TO RECOMMEND A LOCATION OR INVESTMENT STRATEGY.

[Brandon Hicks]

Put it in the bank and learn to buy creatively with no money down.

[Ryan Arth]

John, in my opinion, it depends on what you are trying to do. Are you looking for cashflow, ie return on that 100K, with the minimum involvement possible?

I am in Cleveland, so I know the area well. I would never invest in one of the war zones here, because I know how bad they are. But that doesn't mean many other suburbs don't cashflow well, without the risk and deterioration of property that comes with the warzones.

I have no experience with the other markets that you are interested in.

[Trenton Parks]

I would first figure out what your end goal is, maybe five years down the road or more. Figure out how much cashflow you would like and equity you want to build.

Once you have an answer to this it may become much easier to figure out if the plan of action for this money is going in the right direction.

Your answer may be something like what Brandon is suggesting, buying on CFD, Lease Options, no money down etc. Or maybe you want to buy one larger multi family for steady cash flow that reaches your goal and then something like location becomes much more important because in this long term plan you will hold this property for some time.

[John Stover]

Hi Brandon. I actually live in Indianapolis! I would love to not spend the money if I dont have to but my credit isn't very good (650 or so) and I have read a punch on creative financing but cant figure out how to do it.. Any advice?

Ryan. Yea, I'm very reluctant to purchase anything additional in Cleveland. I'm currently off of West 65. I have recently started to look in Cleveland Heights and Shaker Heights. What do you think of those areas? My aunt lives in Brunswick which doesnt seem bad either. Would you purchase cash, put money down, buy a single or mulit?

Thanks for everything!

John

[John Stover]

My goal is definitely long term. I would like to have good cash flow but I'm not sure where to buy a mutli-family.

[Ryan Arth]

I have only researched a 90 minute radius from Cleveland, so my answer would be localized, whereas you might be better suited with an opinion from someone who has looked at different states.

[Stephen Moore]

I'd put down on small Multi's

[Tom Goans]

@John Stover,

What great opportunities you have to consider.

My first thought, eliminate the word or even consideration of appreciation from your thoughts and vocabulary. Make each investment survive on its own without any possibility of the what ifs.

Published August 15, 2013:

States like Maryland, Oregon, and New Jersey, which maintained relatively stable markets after the housing bubble popped, saw new foreclosure filings climb by double- and triple-digit percentages in July, according to RealtyTrac.

Then, you may be in an excellent position to help others in the investment world. Be their finance and experienced partner. You fund the projects and they do the work. Your workload is reduced, your financial obligation is reduced, and you have more time to find other investments to increase your cash flow.

This is just a consideration. In reality, the possibilities are almost endless.

Have fun no matter what your decision.

[Brandon Turner]

Hey @John Stover - one word:

VEGAS! (with @Joshua Dorkin and me, of course! And maybe we'll bring along @Ben Leybovich as well)

But seriously - this is what I would do:
How to Make a Million Dollars from Real Estate: A Step By Step Path - just multiply the original amount times three. That strategy discusses starting with $20k - but if I had $100k - I would use $60k of it for 20% down payments on cash flow crazy properties and keep $40k in reserves.

Let me know what you think of the article!

[Chris Bounds]

@John Stover

Adding to what @Trenton Parks said, a clearly written business business plan with 1, 3, and 5 year goals should be defined before jumping in. First though, determine your end goal (E-Myth Revisited, highly recommended book). It seems to be cash flow related, but I'd put specifics to it.

With those things being defined and written then you can focus on strategy and production. Putting down 20-25% and using conventional financing is one way to do it, but its the biggest draw on your cash. If it were me, I'd go the creative route. You can do a lot more deals with creative financing than using your hard cash.

There are a lot of articles on creative financing on BP, but one easy way is to find a private or reputable hard money lender. Many will loan 100% of the purchase price up to 70% ARV minus repairs. If you buy your property 70% minus repairs (or cheaper!) then your out of pocket expenses are very minimal. Your cash can stay in the bank as reserves just in case things don't go as planned.

[Tim G.]

Cool discussion, its funny how once you know what the target is you are aiming for you suddenly hit it quicker than you will ever expect.

I am a huge fan of taking a personal inventory of what you have to use at your disposal that would be to your advantage. Since we all have different situations, goals, lifestyles etc... Then once you have that list, sit and mastermind on what would work best to allow you to leverage it as best towards your goals.

For example, I had about the same amount of cash saved great credit and no homes. I knew leveraging an FHA loan for a multi unit would be best, and then use the remaining of my financing available to buy a house in an area where I wanted to eventually live and saw insane appreciation approaching. Once I decided that it was like the deals just appeared before me and it happened faster than I expected.

My situation is unique to me just as yours is to you, but think hard about your advantages that you have and use them to your advantage. Sorry I didn't tell you what to do, I never listen when people tell me what to do so I try not to tell others. I think being here is great and asking questions is the right thing to do. I'm sure you will find what you are looking for soon, can't wait to hear an update.

[Jake Kellerhals]

Without going too deep here, if I had that money there is no way I'd pay cash for anything! Use the power of leverage to turn your $100k into $300-$400k worth of real estate that your tenants will pay for! The absolute hardest thing about growing in real estate is getting the cash for your acquisition cost. Once you acquire a property (the hardest part), you can wait 6 months and refinance it to get your cash out or use your cash flow to make extra payments and get it paid off quickly. Put the least amount of cash down that you possibly can and still have decent margins with your cash flow.

You said you wanted to as much cash flow as possible, so to get that you need as many units as possible. I'd stick to multi-unit buildings (typically more income than a single family home will rent for) and get as many as you can. How you manage your cash flow from that point on will ultimatly determine how successful you are.

[John Stover]

Wow! Thanks for everyone's advice. I have written out what I thought was a pretty detailed business plan (until now). Here is a little bit of it so maybe you could let me know if I'm on the right track. I still have no idea where to buy the multifamily house. I have a couple of states in mind but not sure..

Objective – Long Term

Increase my CASHFLOW and have enough real estate investments to earn over $10,000 a month in passive income in 10 years, over $120,000 a year, and to have over a $1,000,000 net worth

Objective – Short Term

Acquire 1 “multifamily” Income producing property and 1 primary residence. Increase net worth by $60,000 and monthly net income by $800-$1000!

Mission Statement

My mission is to be incredibly successful.I will accomplish this by dedicating 10 hours a day (7-5pm) to my success formula, 6 days a week.100% of my time will be given to help myself achieve my goals to have a happy, secure, fun and healthy life.My plan of action will include time at the gym, 1 hour dedicated to study, the completion of 6 daily work goals I create nightly, 30 minutes dedicated to meditation and self-awareness and fun time with the family.When I’m at home I will dedicate my time to my kids and will have no thoughts of work.My goal is to be successful, stress free and happy......

Some of it's a little corny, I know...

Thanks again,

John

[Chris Bounds]

@John Stover

That's a good start! I'd expand on it, but good start. E-Myth Revisited helped me tremendously on how to think about business planning. I can't recommend it enough.

I offer some caution on MF properties though, at least 5+ unit buildings. I bought my first one in April. They are appealing, but if you're trying to rehab a distressed MF property it will require a lot more precision. Your experience, team, and systems are vital with MF to take on the additional risks that accompany the potentially huge equity & cash flow returns. There was a big learning curve coming from SF home investing. Don't let this scare you though. It's just something to consider. Of course, buying a preforming property with a good management team in place is another option. It will cost more and usually have a lower yield, but the risks should be lower too.

[Wendell De Guzman]

There are 3 possibilities:

1. You can invest in turnkey SFR properties. I know a guy in Cincinnati OH who has houses you can buy for $30K each that can be rented out for $600-700/month. You can get 3 properties for $90K and get $1800 to $2100 a month cashflow. Using the 50% rule, you will NET about $1,000 a month. That's a 12% Cash-on-cash return.

2. You can also invest in tax lien certificates in Illinois. My partner's return is about 20% per year. Redemption period is 2 years. You don't necessarily get properties but the cashflow is awesome.

3. You can invest in apartment buildings and get 12% CCR and about 20% ROI.

[Jacob A.]

100k on black and let it ride!!!!! No, but seriously you have tons of good advice here. It all comes down to what you feel most comfortable with and what your market allows. Best of luck and if you put 100k on black, make sure you youtube it!

[Account Closed]

The absolute best investment anyone can make is education. I am not saying "college" type stuff here, because I feel that college overall is a poor investment. But more invest in your own personal knowledge and financial education. If you take 5-10K and invest in that, it will return way more than any one RE deal, be it flips, rentals or liens.

[Marco Santarelli]

Hi @John Stover,

Welcome to BiggerPockets!

You have a very good "problem" to solve there. (BTW - you shouldn't post how much cash you have to invest in the forums. Could be a bad move.)

Anyway, to address your questions and concerns above:

• I completely agree with you that you need to invest it wisely.
• I don't think buying more properties in Cleveland is a good idea, especially if you're looking at "war zones". Stick to solid areas for long term stability.
• Your credit score is on the "low" side so I don't think you'll have too many options for financing, thereby forcing you to possibly buy using all cash. You can probably do a cash-out refinance once your credit has improved.
• Don't limit your prospective markets. There are great opportunities if you know where to look.
• If you live in Indianapolis, why not buy a duplex there? We've been selling duplexes with good double-digit cap rates for over a year in Indy.
• If you're considering other markets, then take a look at our "2013 Housing Market Forecast" for some ideas. This is not an exclusive list of market options, but it can stimulate some new ideas.
• Find markets that have good rent-to-value rations (i.e. 1.0% or more).
• Last but not least, if you primary goal is cash-flow but you'd like some appreciation potential, then focus on growth or emerging markets.
• Again, I will stress to avoid "war zones".

Feel free to post any other questions.

Continued success!

[Ali Boone]

I'm never a fan of war zones just because the numbers often don't hold up and I hate headaches. There are a lot of markets though where you can get middle of the road- not full out war zones but still with decent cash flow. There is really a variation of every sort- all cash flow, no appreciation potential, war zone -or- really nice area, appreciation potential, minimal cash flow -or- middle areas, middle cash flow, middle appreciation potential -or- every combination in between. Just depends on which combo you like best!

[Adrian Mata]

I would try to get into apartments and multi-family homes. I'm trying to get into them now actually. I'm in Indianapolis too.

[Jerry W.]

@John Stover you already have some great advice, but let me add my 2 cents. If you currently live in Indianapolis, that is a great market, you might consider investing there it will be the cheapest to learn and network in. Next do NOT build your life plan around the $100,000, build your life plan then see how you can use the money to help you reach your goals. You must have some source of income now, and you clearly have some assets, include doing things to fix your credit score, paying off credit cards, old bills etc. from your current income streams. You may want to consider acquiring an income property before a primary residence to help avoid overspending on your residence. You might consider having your new house be a flip or future rental that you can work on to improve as a new income stream. If you hold it long enough (and they dont change the tax code) you might get all of the profit tax free as the sale of your primary home. You can use that to gradually get a better and better home. The money wont change who you are it just gives a new tool to fulfill your life sooner than you originally planned.

[Jack Bobeck]

Great advice and great topic. I was faced with a similar question and I ended up using some of the money for real estate, some for myself and some for my wife. I did all this before I knew the power of OPM and buying using OPM to where I get paid when I buy and when I sell. I'd leave your 100k in the bank or loan it out on other properties to other people as a hard money lender, imagine earning 12-14% on your money and 3-4 points for short term money, tied to a hard asset?

Cleveland has great locations, great houses in some areas. Look at the stats of the local MLS and find out where homes are selling and see if you can use OPM to buy a home there and either flip it for more cash or hold onto it. I like to keep my money close to me, unless there are no other deals in my area or I am the only money source (haha - good luck with that one). When you are seperated from your money and property, well, its harder to see where and how it is being used.

I had multifamily once, and only once. I did not like the tenant issue, but I did have a partner which helped minimize the issues. I've heard the horror stories of finding skate boards in 6" pipes, sweatshirts stuffed down the pipes, it is not for me. I like Buy/Flip, it is what I do and what I know, I also like Lease Option with 20% down and cash out in 12 months. I know these by my gut, so work with what you know by your gut too. You will sleep better at night!

Jack

[Henry M.]

Originally posted by John Stover:

-I'm trying to figure out where to invest and how to buy. Maryland is a really good market but the house prices are HIGH in good areas. Cleveland has decent cash flow but in a "war zone". West Virginia is no good..

-Would you buy a few "war zone" houses, try to get a loan for something in Maryland that has a chance of appreciation, duplex somewhere?

Not sure what I should do. This is an extraordinary amount of money to me and I need to invest it wisely.

===================================
John,

Congrats on your $100K windfall.

There is some very good advice on these responses to your post... With that said, I'll keep it long and sweet.

Location, Location, Location

If you want your money to work for you, then buying in a "War-zone" area is not ideal. Even if you were to have the local Housing Authority and their tenants possibly paying higher than the general public at those types of locations... The fact that the property will not appreciate as you would like will hinder your resale or future rents.

If I had a 100K to invest, I would gun for distressed or pre-foreclosed properties in your ideal zip codes... Then either buy the home out right (of course, assuming seller wants out of property) or have them quit claim deed or owner finance the balance to you. This way you negotiate all previous liens (if any) and pay what is in arrears (taxes, insurance, payments, etc.) - In other words, you can use the existing financing which may have decent terms as compared to HML (note to those are hear screaming - Due On Sales Clause - be forewarned but not likely).

Let's say you have five (5) homes at $100K each which owe $50K in existing financing and they have similar terms... Let's assume they each need an average of $15K per home to bring each note and condition up to par.

$500K (5 Homes ARV)

$250K (5 Homes w/Existing Financing)

$250K (Sweat Equity)

$75K (5 Homes @ $15K each - Out of Pocket Investment)

$175K (Gain)

$233.33% (Gain)

With $25K (Still in your pocket)

Not to mention rental income and/or in conjunction with refinance (cash out) or another exit (refinanced or not) Sell Above Retail, with an increase of 20% (for future market appreciation - may vary location to location) proving a purchase price of $120K with a balloon in three to five years (with average of 20% down from potential buyer) - Which could place back in your pocket an immediate $120K for investing in additional real estate while still earning profit per month on notes you hold on all five (5) properties up to three to five years.

Of course if you do a Rent-to-Own, Rent w/ Contract for Deed, or Lease w/Option to Buy (Check State), then a portion of their payment will go towards the purchase price. Also note it will pay down your mortgage balance every month until the date of purchase or just rent and hold.

I hope this was not too much gibberish. This really is incomplete but in a nutshell you have plenty of options but location is key. Otherwise, if in poor area aka "War-Zone", then options will be very limited.

Or like others have mentioned, leverage your money with other options or use OPM (however lose on profit & time of hold) for purchase of real estate.

I hope this kind of helps.

BIG HENRY

[Ben Hughes]

My best advice. Join in a partnership with me here in Houston. I will do all the work and we split the profits 60/40.

Seriously though, either get some 4 plex's or 3-4 SFH to rehab and lease back out. You could also probably get a small apartment complex as well. A bunch of great advice on here to use.

[Ziv Magen]

Great answers all - personally, I think one factor that you left out of the equation, and nobody else seems to have addressed as well, is how hands-on do you want to be? You mention you want to work 10 hour days, but doing what? Sitting in an office? Doing drive-bys and suburb scans? Jetsetting to check out new markets? Attending conferences and networking to find the next business partner/deal maker?

For me, the choice is always first and foremost the lifestyle I want to lead. Personally, at this stage of my life, I choose to work from home, travel a lot with the family when I can, and leave the on-site micro-management of properties to others (so that I can be free to "chase the next deal" online from wherever I may roam - which leads me to invest in condos (essentially hassle-surprise-free), setup online infrastructures for management (managing teams via emails and telephone as opposed to managing properties hands-on), and aim for a multitude of "spreadsheet" properties as opposed to two or three "big money making" ones, which would necessitate personal attention in most cases.

What's your chosen lifestyle for the next 2-5 years? That should dictate a great deal your strategy, in my opinion, as well as the markets you'll choose to operate in. If you're hands-on, invest close to home. If you're remote, "the word's your oyster" essentially.