I have cash but no job. What would you do?

Question

Hi, folks! My husband and I live pretty humbly so we have zero debt. We own our home, our cars, etc. My husband works part time for himself and I don’t work at all. Haven’t since 2017. We’re surviving and thriving just fine by keeping our life simple.

BUT THEN WHAT HAPPENED WAS…

I recently inherited $200k from my dear grandfather who was a mailman and worked for over half a century to save this money for me. Died at age 94! I want to honor his memory by doing the wisest thing possible with this money. Can you help me decide what to do with it?
I'm leaning towards having a tiny house built (on a foundation, not wheels) on a wooded lot overlooking a river near a state park. Already talked to an amazing realtor and builder who could do the job within my budget. I would use and hold it as a STR. If for whatever reason it fails, I have a unique home I could sell as a profit.

BUT THEN…

Someone suggested I only use part of the money as a dp for a larger home. More bedrooms, more profit. Then if it fails, not all my money is lost if I couldn’t sell for profit. However, I’m not sure how I would get a loan for the balance of a larger home if I don’t have a job. (It’ll be my house, in my name only)

AND NOW…

I’m confused as to what to do with the money and it’s stressing me out. Can you please help me by offering suggestions that both make sense for my situation as well as honor my grandpa for all he did for me?

Randall Alan · Answer

@Chelsea Price

I also received such a gift, and ended up here on bigger pockets 5 years ago. My feelings at the time centered around being a fiduciary to that money. That it was my responsibility to take care of it, make it grow, put it to good use.

Everyone’s situation is different… mine involves children’s futures, retirement thoughts (I’m over 50) and generally speaking, for the money to not ‘go away’.

I settled on rentals, myself.  At the time I could buy $100,000 rentals for $25,000 down each.  So I started buying.  We found that C class rentals yielded the best price to income ratio (let our money go the farthest).  We started out buying duplexes because of the safety of knowing if one side went vacant the other side could pay the mortgage… but eventually figured out that was less of a worry because they were easy to fill so vacancy didn’t impact is too much.

Our goal became “income”.  Many would call it passive income… but I feel that’s a bit of an over statement as being a landlord isn’t totally passive, but will give you it is really pretty easy.  You will have to figure out what your goal is.  Being that you are here, real estate in some form seems to be attracting you,

Personally I think the tiny house idea is a bit niche.  To that degree people who like it, will like it.  I myself would lean more traditional. Your lack of reportable income will likely make it difficult to finance properties, unfortunately.  Using financing would let you multiply your money’s effectiveness by a factor of 4.  I might suggest checking with a commercial lender and seeing if you could use what is called DSCR financing in your situation to stretch the power of your money by using financing.  Buy one rental financed, get it up and running, then buy another the same way.  If you use the same local lender I could see them getting on board with you even though you may have limited reportable income (as long as you don’t blow through  the money and show operational income from your rentals).

I would also suggest making your first purchase a good one in the sense of income.  So like a duplex / triplex.   That way if you only get one purchase it can yield better income for you.

5 years later we are at 25 properties with 37 doors and no longer working 8-5 full time jobs. I’m just coming off a 10 day trip taking my teenagers to see NYC and Washington DC for the first time. Life is good!

Congratulations, and hope it helps!

Randy

Bjorn Ahlblad · Answer

@Chelsea Price while you are thinking about this great dilemma. Be sure and deposit the money in a high yield savings account, you can get 5% without any strings. Depending on where you are going to be investing taking your time won't hurt.

Alecia Loveless · Answer

@Chelsea Price I’ve been buying 4-units with a 25% down payment of in the range between $65-80K down payment fully rented. These have been cash flowing $1000-1500/month after expenses which is good in the market they’re in. I’m sure if you can locate better deals in good markets you can get higher cash flows. But mine have been in the 1% rule range or slightly higher.

I like the 4 unit properties because they’re easier to get financing on than my properties with more units. I know others will disagree with me on this but my bank is a bit quirky. If one tenant moves out you still have three to cover your bills. Also you usually never have more than one unit to renovate at a time.

With the units rented the bank will count 75% of the income towards your DTI on a conventional mortgage and I believe they use the whole financial picture of the property for a DSCR loan which I’ve never done one of before.

Conventional wisdom says there are less buyers for multi families making it a bit harder to sell them when you’re ready to exit the market but at least where I am as long as they’re appropriately priced and properly maintained the multi families sell as quickly if not more quickly than the SFHs making it just as desirable of an investment often with higher appreciation and better tax benefits.

Marian Huish · Answer

How refreshing to read your post @Chelsea Price!   Congrats on living such a modest, debt-free life and for wanting to honor your grandfather by caring for your inheritance. …and how well written!  Perhaps you should be a writer!?  😉. Do you perhaps have a family member or close friend that you can partner with to help you qualify for a loan?  I.e,., someone with a good job and good credit!?   $200K is a substantial down payment that most new investors don’t have.  I would look for a turnkey rental… many condos are sitting longer on the market and there are motivated sellers out there!  While condos have monthly condo fees, those are a write-off and you’ll spend little to no money rehabbing or maintaining the property!  (Speaking from experience!). Im also in the DMV and am happy to chat and/or help you along as you seem like an admirable person!  Wishing you continued success!

Doug Smith · Answer

I know tiny houses are all the rage, but if you want to be safer with the money, I would stick to the tried-and-true single-family home. It doesn't have to be huge...just something that you can easily rent. With no job, provided your credit score is good (you can go lower than 680, but it's a good floor), if you're putting 20%-25% down, and the property can cash flow on it's own (the rents are equal to or better than your mortgage, taxes, insurance, and HOA payments, you can still get financed. I wouldn't bite off more than you can chew and I would slowly build up to more complex deals as you gain experience. If you ever want to pick my brain a bit, PM me. I'm happy to chat. Good luck to you!

Benjamin Aaker · Answer

Without steady income, you'll have a difficult time finding conventional financing. If you have some rental experience you could get a DSCR loan, where the bank looks at the potential income of the property. These are not easy to find if you don't have that experience. This leaves you paying cash. You shouldn't worry about losing it all on a bad deal. Make sure it's insured and do the market research first. You can still lose some if you have to sell, but unlikely all of it. Making a sensible investment, even one that isn't a home run, would probably honor your grandfather as well. You might consider investing in someone else's project. Congrats on being financially-secure, by the way.

Susan V. · Answer

I recently asked that question on one of my Facebook pages.  And I thought transactional funding and be a private lender and make it easy!

The reason I asked this question was because I was looking for a loan and I got "preapproved" for $265K which seemed too good to be true -- why was that?  Because they were not charging insane points to originate. But not everything has to be about charging a lot of points if you look at the long-term returns on the loan.

Maybe lend some of that money out and make some interest income from it.

If you do want to lend some of that money, will you consider lending to me?  I've had a hard time finding a lender because of low credit score and minimal equity in our properties.

I was looking for $265K to cash out refi or as a personal loan to pay for repairs made to 3 properties in Illinois and to continue repairs to get units rent ready. When all units are rented, the income is $3,420.

There is minimal equity because we had a refi cash out in 2022 and rehabs funds have been exhausted.  Then, storms and tenants caused damage to the property.  We have no more cash to do additional repairs.  We still owe the contractors who made the repairs and one of our property managers is holding the income and applying everything to monthly expenses.  So, ideally $265K to get repairs done and mortgages paid.  We have balloons due in December 2023 and January 2024.

Chelsea Price · Answer

Thank you!! I sent you a PM.

Bud Gaffney · Answer

@Chelsea Price ask for owner financing

Chelsea Price · Answer

Thank you @Randall Alan for sharing your experience. It was very insightful and gave me much to consider! My expenses will need to include any repairs to get an existing home to turnkey status as well as furnishing it, etc. that’s why I thought just building a small/tiny home would be cheaper for me in the long run.

Hope you enjoyed D.C.! I live 24 minutes from the White House. Crazy city. Lol

I have cash but no job. What would you do?

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