$175,000 settlement.... now what?

Question

I'm new here and this is my first post, so I'm sure I'm asking something that has been covered over and over, but here goes. Long story short I just reached a settlement agreement with the VA and I'd like to invest some portion of this into owning rental property. I have a general idea of what I'd like to do, but I'm not willing to press on until I understand all the various aspects and have some insight from others with experience.

My long term goal is to buy and hold rental property to create additional sources of income. I'd like to steadily increase the number of properties I own, but I do not have a defined pace at which I'd like to proceed.

I live in Louisville, KY and my idea is to purchase 2-3 homes, each around the 35k-40k range and in need of no more than 15k in repairs/improvements per property. I would like to make the homes approved for section 8, largely because reliability the gov portion of the rent being paid on time and the high demand of programs such as these. I estimate that I could net $900 per property per month.

My thoughts were to finance 70% on each home for 15 year fixed. I'm not sure if it's better to buy the houses with cash and finance them after the repairs or the other way around or even where/how to go about finding these specific types of properties in general. Any insight, ideas, and/or guidance would be appreciated.

Jason James · Answer

@Adam E. Congrats on the jump start! I will say SFR's are great but with cash and a little digging you may be able to put together a good multifamily deal. I am working a couple now and feel this is a better way to build wealth. In short find an underperforming multi, turn it around to create a cash machine and wealth. Plus in my opinion they are easier to maintain. That said finding multi "deals" is a little harder in the Louisville area and takes a little more time/effort.Also I feel that Louisville is small enough that you really don’t have to focus on one area unless you just love a particular area. I have properties all over the area and they all perform very well. Can you buy more $30k properties than $60k properties? Sure! But what if that $60k property is worth $120k and the $30k property is worth $50k? Which one would you rather have? Think leverage... That $60k property leveraged correctly will allow you to buy more properties. Not to say the $30k properties aren’t great. I have properties in good areas that I only paid $15k for! Love it! Just have to be patient and find deals! Most of the time you make money in this game when you buy the property. Good luck.

Sean Williams · Answer

@Adam E. Congrats on getting started with your investing and I think your plan is a great one, especially since this is what I am doing myself!I am currently purchasing properties around the UofL/Churchill Downs/Taylor Blvd area for $30-50k, fixing them up ($3-15k) and renting them for $700-950/mo just depending on the property. I really like this area because properties are pretty cheap, there is a high rental demand especially for section 8 and the spread between the mortgage and rent is fantastic. However, I will say if you're counting on appreciation don't plan on it...it would just be icing on the cake.Personally, since I do not currently have the cash to pay for the repairs I'll do a 20% down loan with a local bank that will finance the home AND repairs then once the repairs are complete I would refinance the home (knowing from the start that if I work my numbers correctly when I refi my 20% down payment will come from the forced equity or sweat equity from the After Repair Value)...this is a great way to own a home without really coming out of pocket when its all said and done. Obviously your situation is even sweeter with the VA loan. I also will use a 10% down commercial loan as well if there property doesn't need much repair.My advice would be to purchase the home via CASH as you'll likely get a better price, repair as needed then refinance (cash-out) and repeat the process. Commercial loans are great for this and you can blanket loan on multiple properties.Feel free to contact me if you have any additional questions or if you'd like to discuss over a cup of coffee. I am a local investor and real estate broker. Thanks! 502-727-9784

Jon A. · Answer

Be very careful here. Read every post from every responder here before reaching out or responding to private messages. We have some wolves.

Matt Devincenzo · Answer

So I'll try to keep it brief since I've realized I tend to get long winded on explaining this, and if you need a more in depth answer just say so and I'll explain with some example numbers :)I'd buy cash and refi. Reason being the properties you can "force" equity into will need repairs to be financeable. The ones that are financeable, you'll probably find that you won't be able to refi out enough in 6 months to get your down payment back out. Not that it couldn't be done, it's just not likely since they won't be trading at enough of a discount with the initial purchase price due to the repairs not being extensive enough to keep other financed buyers at bay.

Kelly R. · Answer

Check out this thread:http://www.biggerpockets.com/forums/88/topics/176523-if-you-were-just-starting-out-and-had-150-000-to-invest-in-real-estate-where-would-you-begin

Jon A. · Answer

Derrick Craig · Answer

Adam E. Buy and Hold in your own city learn the ups and downs of real estate investing and land lording. Especially if you can find deals like that Wow!!Good Luck

Jeff McCaskey · Answer

Adam E. First of all, thanks for your service! Your plan sounds like you've put some thought into it so that's a really good thing to have behind you so to speak. I don't know very much about the section 8 programs or others like it, I've stayed away from the federal government as much as possible in business.If you need an help or want some suggestions feel free to email me any time. I have property that is a lot the same as what your targeting.Best of luck to you Adam!

Andrew Fingado · Answer

So wait a second, you can get houses worth around 50K and they will NET 900 per month? Are these places renting for $1,500 per month or something?Overall I like your plan. As to buy them cash or finance from the get go is really a personal choice. Buying cash frees you up to get fixers and better deals. If I were in your position i'd probably finance all of them though.

Adam E. · Answer

Thank you for that. However I'm not worried, I'm not giving a dime to anyone plus not telling anyone either. The people on here are the only ones I've said anything to, hell my family doesn't even know, lol.