I have access to $500k cash, should I put $50k down on 10 SFRs?
Rental Property Investor · Los Angeles, CA · Member since 2019 · 8 posts · 11 votes
I have access to $500k cash, should I put $50k down on 10 SFRs?
Most Popular Reply
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7yWell, you’re not going to get 90% mtgs on investment properties, more like 75%. Assuming you’re paying interest on the $500k you will not be cash flowing at those prices and rents.....not likely to cash flow even if there is no interest on the down payments.
97 Replies
- Rental Property Investor · Auckland, New Zealand · Member since 2019 · 31 posts · 21 votes7y
Hi Evan -- I'm a new investor in a roughly similar position. I'm inclined to start with all cash on my first purchase for two reasons:
1) minimize risk (if rehab takes longer than expected, or getting tenant takes longer than expected, I'm not paying the mortgage)
2) move quicker on a deal, without having to wait for financing
The good news is you can still refi your cash purchase and pull all/most of the money out (if the deal is right), so you can then scale quicker if you're ready.
One I have built the confidence with my first cash purchase, I intend to scale quickly doing more of the approach you mentioned of spreading your cash across several down payments.
I recommend checking out David Greene's book on the BRRRR method if you haven't already, as it's helped me think through how to get started.
Good luck!
- Rental Property Investor · Los Angeles, CA · Member since 2019 · 8 posts · 11 votes7y
@Diogo Alves Thanks, yeah that's why I ended up here. I just started David's book, and it's changing what I thought my strategy should be. I'm still "reading" (audible) it. Thank you for your feedback. It helps a lot to have this community. I hope others will give me some feedback as well.
- 7yMatt CrusinberryPro MemberHollidaysburg, PA · Member since 2015 · 327 posts · 350 votes
@Evan Evans, I too am a big fan of the BRRRR method and use it as much as I can. Also, as previously stated, you can give yourself that warm and fuzzy feeling and be able to sleep at night knowing that you just have taxes and insurance (plus utilities as things progress). Your ability to scale is definitely going to be easier with this method. I wish you the best of luck!
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
You were right the first time with your initial option...$50k each on 10 properties.
Mortgages on properties puts the risk on the lender...not the borrower. When you buy all cash, you are 100% at risk. What is at risk in both cases is the cash.
The BRRRR method, although popular, has a number of problems with it. For one thing, it's very slow. It will take you at least 5 years to get to the 10 properties you can have cash flowing right now. Plus, if you plan is to take the cash flow from the 10 properties and invest in the next property, how long will it take (years) to get enough money to get that next property at a time? How long will it take (months) to get enough money to get that next property if you're working with the cash flow from 10 properties at once? Then, 11 properties at once, then 12,...13...etc?
- 7yShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes7y
Well, you’re not going to get 90% mtgs on investment properties, more like 75%. Assuming you’re paying interest on the $500k you will not be cash flowing at those prices and rents.....not likely to cash flow even if there is no interest on the down payments.
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes7y
I would do 1 off-market, non-bankable fixer upper at a time that I could BRRR. Equity capture is huge on those, especially at higher price points.
10 mortgages with 10% down cashflowing 500-1k per month each? Is that what new people are thinking is realistic? So $500k and you're set for life with $5-10k per month in passive income at $500k each house?
Glad I'm more of a seller than buyer if that's the case. What are the terms of your $500k seed capital? A personal friend/family or institutional money? Sounds to me like crash and burn revisited, but I am a realist and a pessimist at heart.
- 7yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
You are probably going to need a larger down payment and you'd need to see if the bank would loan you that much money.
Why not look for a multifamily or a lower price point? Even with $3200/month, you are unlikely to cover all of your costs.
If it was me and I wanted single family, I'd look at some in the starter home price range and get one or two to start and then go from there.
- 7yDaniel DietzPro MemberRental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
I would second what @Joe Villeneuve & @Shiloh Lundahl are leaning towards. The BRRRRs are great for those with not much funds but time on their hands to do the work IMHO.
We have a few dozen rentals and are tapped out of our own cash (a lot of them are in SDIRAs and SOLO401Ks so we cant use cash flow yet) and are starting to invest with 'Private Money Partners', not lenders. Our basic set up is that they provide the 20-25% down payments, we do all the work from finding to managing rehab and finding and managing tenants. We are only a couple years into this but it should conservatively return 10-12% on the original investment for EACH of us. Not 'home runs' but nice steady returns for them at low risk and a return for us of 5-8 times what we would make if we were 'just the PM company'. We share both cash flow and equity growth.
Our issue right now is finding enough properties to purchase for the number of people of want to do this with us! :-) Word spreads fast.
Dan Dietz
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Steve Vaughan:
I would do 1 off-market, non-bankable fixer upper at a time that I could BRRR. Equity capture is huge on those, especially at higher price points.
10 mortgages with 10% down cashflowing 500-1k per month each? Is that what new people are thinking is realistic? So $500k and you're set for life with $5-10k per month in passive income at $500k each house?
Glad I'm more of a seller than buyer if that's the case. What are the terms of your $500k seed capital? A personal friend/family or institutional money? Sounds to me like crash and burn revisited, but I am a realist and a pessimist at heart.
YUP leverage to the hilt low end rentals skinny cash flow on assets that are not the source of predicable rent.. leads to dumpster fire and the loss of a relationship and loss of capital..
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Daniel Dietz:
I would second what @Joe Villeneuve & @Shiloh Lundahl are leaning towards. The BRRRRs are great for those with not much funds but time on their hands to do the work IMHO.
We have a few dozen rentals and are tapped out of our own cash (a lot of them are in SDIRAs and SOLO401Ks so we cant use cash flow yet) and are starting to invest with 'Private Money Partners', not lenders. Our basic set up is that they provide the 20-25% down payments, we do all the work from finding to managing rehab and finding and managing tenants. We are only a couple years into this but it should conservatively return 10-12% on the original investment for EACH of us. Not 'home runs' but nice steady returns for them at low risk and a return for us of 5-8 times what we would make if we were 'just the PM company'. We share both cash flow and equity growth.
Our issue right now is finding enough properties to purchase for the number of people of want to do this with us! :-) Word spreads fast.
Dan Dietz
This is what I do as well. Works great for all involved.
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
Is a $550k house considered a low rental?
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
Is a $550k house considered a low rental?
I guess I missed something the OP said 10 50k houses.. and yes in SF bay area that would be unheard of and in a rough to rougher neighborhood.. so its all relative.. to location..
- Real Estate Broker · Fort Lauderdale, FL · Member since 2018 · 196 posts · 191 votes7y
@Evan Evans I’d focus on getting the most doors. I’d go multi family if the goal is monthly income. They are specifically designed and built for that purpose.
- Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes7y
Suggest you talk to a lender on investor loan. Your past default record may still haunt your ability to get decent rates or loan amount. It creates risk on the lenders. Having ten separate loans and able to pay them mostly from the rent received on time can be a challenge even when the economy is great.
Good luck.
- Member since 2019 · 24 posts · 12 votes7y
@Wayne Brooks I get 15% mortgages with PMI finances up front so there is not monthly PMI costs; which can limit cash flow. Rates are a little higher at 5.75% but my numbers end up working out great
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
Is a $550k house considered a low rental?
I guess I missed something the OP said 10 50k houses.. and yes in SF bay area that would be unheard of and in a rough to rougher neighborhood.. so its all relative.. to location..
No...he said 1 - $500k house all cash and do a BRRRR, or $50k DP on 10 - $500k properties,
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
Is a $550k house considered a low rental?
I guess I missed something the OP said 10 50k houses.. and yes in SF bay area that would be unheard of and in a rough to rougher neighborhood.. so its all relative.. to location..
No...he said 1 - $500k house all cash and do a BRRRR, or $50k DP on 10 - $500k properties,
ya I re read that.. my bad.. although like others mentioned 90% financing is not out there for rentals.. seems like a better play is one building for 1.5 to 1.8.
- 7yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:
Originally posted by @Shiloh Lundahl:
I agree with @Joe Villeneuve with regards to the benefit of leverage and spreading out the risk, however, the rent to cost ratios and the division of the profits with your money partner may not net you as much as you hope for with buying properties at that price point. You may consider buying properties at the 150k -250k price range where the rent to cost ratio is better for rentals.
Would you mind sharing the numbers with us on one of the deals you are thinking of doing.
That's what I was figuring too. He would need to get the high end ($3200/m) to make it work. Glad you caught the preferred $150-250k price range too. I got into the comparison of "all for one , or one for all", that I forgot to mention his $550k price range, even with the $3200/month rent, is a weak cash flow...especially with a partner. We need more numbers to really see if either works.
why anyone would take 500k and invest in low end rentals is a mystery to me.. I guess did not read the Morris invest threads.. and BRRR for someone who is not in market is a HUGE risk HUGE.. you cant read a book and then become a rehabber from 2k miles away in low end rentals.. the amount of risk of theft and loss far mitigates any potential equity.
and one last thought Joe when you say the risk is the banks I get that In theory.. but if you default on a bunch of bank loans your toast for the future.. And depending on the state the banks will sue you for deficiencies.. don't need Personal guarantees its allow under the mortgage or deed of trust terms.. So never quite understood that philosophy .. I have heard it from a few gurus as well..
Is a $550k house considered a low rental?
I guess I missed something the OP said 10 50k houses.. and yes in SF bay area that would be unheard of and in a rough to rougher neighborhood.. so its all relative.. to location..
No...he said 1 - $500k house all cash and do a BRRRR, or $50k DP on 10 - $500k properties,
ya I re read that.. my bad.. although like others mentioned 90% financing is not out there for rentals.. seems like a better play is one building for 1.5 to 1.8.
That's what I would say too...but that wasn't one of the options given.
Actually, based on his numbers, I don't think any of the 20% down properties would cash flow more than a couple hundred dollars per month...less than $3k per year. This he would need to share with the partner supplying the original $500k. When you add all the repairs, etc....this drops it down even more.
Me. I'm using it as a DP on a NNN. Even an 8 CAP should get the partnership at least $50k/year...without the repairs,...etc...
- 7yMark RechkemmerPro MemberFlipper/Rehabber · Cary, NC · Member since 2019 · 29 posts · 13 votes
You may wish to consider purchasing a 4-plex (home owner occupied loan) and living in it for a year and then buy another a year later. After 4 years, you could have 16 units.
- Rental Property Investor · Tempe, AZ · Member since 2018 · 22 posts · 6 votes7y
If you want to scale up fast, then do $50k down on 10.
If you want to find really great deals, buy with cash. I was able to use to cash to bargain for $60k cheaper on some $300k multi-family rentals listed on MLS as the sellers were in some desperate situations.
My first 3 deals were with cash as it gave me really great deals. Then as I have bigger income from these initial rentals, I was able to get mortgages with lower rates.
- Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes7y
@Diogo Alves
I’d do the reverse of what you intend to do. I bought my first house all cash out of pocket and then I realized I could’ve just used 20%. Leverage is your best friend...most of the time.
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