What's the best way to invest $140,000 cash in real estate?

Question

We were contacted by a Realtor that has a buyer for a lot we own.  We will net $140K using a 1031 exchange.  The big question is, where would you invest that money for the biggest ROI?  I have identified a vacation rental that will bring positive cash flow and also allow us to use when not rented.  The onsite rental program takes 20% if we rent it, and 30% if they do.  I may self manage it down the road since I don't work and we live 15 min. away.

I like this because it has high reviews on trip advisor, we can use occasionally, and it is a nice property.  Is there a better place to roll money into since I don't have experience in any type of real estate investment ventures?  This place is located on the intercoastal and is across the street from the beach and has boat slips available.  1/1 sleeps 4, 735 sq ft.  with kitchen, dining room, sunroom, and  fenced patio.  I have also identified a unit on the beach that is a studio 350 sq ft.  higher taxes and hoa.  We can make the studio look great but the building is older and looks tired.  It's reviews aren't as good.

Thank you!

Dana

P.S.  I am a newbie, so any advice is welcomed!

Antoine Martel · Answer

Dana.

Welcome to BP.

I would take the $140k and buy a bunch of rental properties in the mid west. They would take $10-15k down payment for each rental property. You'd be able to buy about 11 rental properties. Each would cash flow around $200/mo, so you would make around $2200/mo. That is fantastic and now you have tenants who are going to pay for your mortgages which slowly will be paid down over time and you can own these properties for all cash in 15-20 or so years.

Dave Foster · Answer

@Matt Katsaris, It's a moot point given that @Dana Richardson is wanting to stay in her back yard.  But I want to correct one thing on your scenario for the 1031 identification.

You're absolutely right that if you name 3 or fewer properties on your list it doesn't matter what their value is.

It's also true that if you want to name 4 or more properties on your list (Account Closeds suggestion) that their total value can't be more than 200% of the value of what they sold. But.... if they meet that rule of 200% then they do not have to close on all of the properties.

If they name more than 3 properties and if the total value of the list is more than 200% of the value of what they sold they can still have a valid exchange if they close and take title to at least 95% of the value of the list.  (in practical terms this usually means all of the properties when you get to that point but we have many clients naming 4,5, 6 or more potential properties and they close on only a few because if the total value of their list is less than 200% of what they sold, they're good either way.

Dana, I was just discussing this exact dilemma with a client yesterday.  I had waterfront vacation Rentals in Cape Coral/Fort Myers a number of years ago.  They can be very lucrative and I don't see a slackening  in demand for the good ones - especially in the Clearwater market.

The issue that you have to consider is that it is very easy to end up with a place that your net profit each year is a free vacation.  Our counselors said it would be a 3 year process and it was.  One year of loss, one year break even, and then profit.  And it was.  That is of course if you're developing the property from scratch.  I think that your idea of looking at existing rentals is brilliant.  Lot's of tired vacation land lords out there.  And an existing rental let's you bypass years one and two maybe!!

Tell you what - it's our 29th wedding anniversary next weekend.  PM me the address and we'll do a secret shopper for you.  It sounds lovely :)

Matt K. · Answer

You wouldn't be able to do that  with a 1031....

Dana Richardson · Answer

Thank you to everyone that replied to my post to help me out.  We ended up doing a 1031 exchange to buy a vacation rental locally to us.  I am happy with our decision and thank all of you here on Bigger Pockets to help me to decide how to reinvest our money.  Thank you Dave Foster for making the 1031 Exchange so easy to do!

Jared Bouzek · Answer

@Dana Richardson It helps to start be defining what your goals are with real estate investing. Different strategies will accomplish different things. Even implementing the same strategy in different locations will produce entirely different results. Are you looking for immediate cash flow? Are you trying to build a portfolio for long-term wealth? Once you have your goals nailed down, it's easier to put together a game plan on how to get there. Start with the end in mind.

Corey Clarkston · Answer

@Dana Richardson, there is a lot of ways you can invest your cash in the real estate arena. Feel free to connect and reach out if you are interested in investing in rental properties.

Thanks!

Bill Exeter · Answer

HI @Matt Katsaris,

There are two issues here. The first issue is the identification rule to be used. You can use either (1) the three property rule; (2) the 200% of fair market value rule; or (3) the 95% exception. The investor must comply one and only above identification rules by the end of the 45 calendar day identification period. This does not mean that they have to acquire all of the identified properties. They are merely limitations on the number of properties that can be identified.

The second issue is the amount that must be acquired in order to satisfy the reinvestment requirements, which would be met as long as they buy one or more properties that were identified with a total purchase price that is equal to or greater than the net sale price of their relinquished property and all of their cash proceeds/equity from the sale of the relinquished property are reinvested.

Matt K. · Answer

Dont they have to close on the total in the comonation?

Basically they have 3 choices ea being a different combo, of the combo they chose they have to close on all property making up that combo?

Dana Richardson · Answer

Thank you for your replies, as a newbie, I don't think I feel comfortable in out of state rentals.  I prefer local.  I am looking for immediate cash flow that we could use then to perhaps purchase another property.  I love the beach, so I guess I would lean towards becoming the VR Queen.  LOL  My end goal would be to own enough rental properties to sustain us through retirement days.  My husband can fix anything but is very busy, so I would have to manage and hire out for everything.  On the conservative side, I should gross 28K as the VR has a 70% occupancy rate.  Our monthly costs will be around $1000 for Mort/HOA/Taxes.  Electric bill would be extra.

My thoughts are doing something local with VR on intercoastal or beach, mulit-family unit, or ?

Thanks again!

Dana

Matt K. · Answer

You get 3 choices, unlimted value if its A,B,C Pick oneOr it can be a combo like A) 1,2,3

B) 4,5,6C) 7,8,9,10,11 whatever you'd like.... but it can only be up to 200% of the of 1031 amount. AND you have to close on all the properties in the combination.You can also do multiple house on one close that counts as one property, not sure exactly how you do it but I've heard it can be done. It'd be hard to do though unless you were working with the same owner(s).

Or you can do all your cash into something (say 140 down on a 240k house) then you could do a cash out refi.

What's the best way to invest $140,000 cash in real estate?

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