Career change. Cash to invest. Which route to go?

Question

I've been taking steps over the last few months to actively pursue career change in real estate.  I have some experience with buy and hold but I'm trying to figure out the best route to go.  It is likely that I will walk away from the sale of my current business with 200-300k to invest.  I'm not certain which route to go.  Buy and Hold?  Fix N flip?

I've been doing a lot of reading on here lately and I'm still somewhat up in the air.  I've read J Scot's books and like the idea of not dealing with renters but I'm also looking for consistent cash flow and I'm not certain I will come across enough deals to make that happen.  I don't have any interest in actively seeking deals through marketing and mailers and would likely get most of my deals from the MLS, foreclosure.com, and/or wholesalers themselves. (this may be naïve of me but I'm just being honest as I have NO interested in all the letters and marketing etc.)

I'm not looking for answers.... just input from experienced investors.

Any ideas?  Thoughts? Suggestions?

I appreciate it!

Ryan- West Michigan

Rafael Norat · Answer

Great answer Nathan..

I would add surround yourself with experience in the areas you lack whichever way you decide. Find the local knowledge in your area through network groups.

Nathan Emmert · Answer

Even if you can get a 20% CoC return on your investment, you'd only be looking at $60,000 a year in passive income... is that enough for you?

In my mind, you're still operating with numbers that require you to work for a living... and working in real estate can take a number of forms... but buy and hold isn't working (it's having your money work for you though!).

Then the question becomes, is that the best return on your skills?  If I can make $130,000 a year in my career... or I could make $30,000 a flip and do 1 flip each quarter... which way am I better off going?  If I get equal enjoyment from either opportunity, the $130,000 a year day job gives me more cash, better benefits, and is likely safer.  Now if you're career pays $50,000 a year the math is far different!

My thoughts would be to keep enough cash to flip houses and invest the rest (leveraged) into buy and holds.  Use the cash you kept to flip to fund your living costs and try to flip every 3rd house to yourself to grow your portfolio of holds until your passive income gets to where you want it.  If you start now while still making a living, you might even be able to flip a couple to yourself immediately to up the return on your investment.

Brandon Krieg · Answer

Hi @Ryan Brunworth ,

I think a hybrid approach might work well for you.  If you are able to put enough time into it, you can buy some good rentals AND do some flips.

If your bank will approve it (assuming a 25% down payment), you could likely get 4rentals using about $100k in cash (say, $15k-$20k down, with money left over for cash reserves).  Then, you could use the remaining $100k to start doing smaller flips.  This way, you have some positive cashflow, but still have your profits from flips.

This would very likely require you to have a good team of real estate agents, contractors, property managers, and wholesalers working with you, but is feasible.

As other posters said, just make sure you are watching and understanding your numbers.

Good luck!

Ryan Brunworth · Answer

All-

Thank you for the input.  The advice is much appreciated.  I will still have the ability to do my "Day job", just not in the same location as once I sell I'm sure the new owner will want me out of there after a while.  Would I love to do REI full time?  Yes.  But I'm realistic as well.  I like the idea of the passive income with buy and hold so now I'm realizing maybe I don't have to make a decision of which route to go and keep an open mind.  If the deal makes sense... go for it.

Ryan

Mike Cowper · Answer

If you go the wholesaler route - make sure you know and understand how to run the numbers. Check the comps, estimate your own rehab, and see what it can sell or rent for before pulling the trigger; trust but verify. There may be a tendency to bump some numbers if the wholesaler got into a bad deal and they may try to unload that on you. Now on the other hand, wholesalers can be great and help you identify a good deal at a discount and there is nothing wrong with their cut for doing the leg work.

Bill Jacobsen · Answer

I budget 20% profit for each flip.  I also budget 6 months from when my money is need until my money is back in the bank.  I use a partner or general contractor to do the work.  My job is to find deals. Most are brought to me by realtors.

I also do buy and holds.  I expect a cap rate of at least 8%.  Although I have 20+ rentals and 6 to 10 flips per year this is not a full time job.

It is my advice to not quit your job until your real estate income equals you income from the job.  For instance, if you have a job that pays $50,000 per year and you earn an 8%cap on your rentals you need assets of $625,000.

Just my opinion.  Good Luck.

Bill

Career change. Cash to invest. Which route to go?

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