Hi @Ivan Castanon. A lot of people are giving you advice without enough context as to what you would like to do other than get a higher than 3% cash on cash return and other than only putting down 20% - 30% as a down payment.
Something that is important to know to give proper suggestions is what you want the investment to do for you and how active you want to be in the investment.
In general, the more active you are, the higher your return, the less active you are, the lower the return because you pay for others to do that work for you. Information like: Do you want to manage the property yourself, or do you want to pay a property management company to do that for you, is important to know because it will start to narrow your options.
If you want to be more of an active investor, finding the deal yourself direct from a seller, doing some of the work yourself to fix it up, and then representing yourself to sell it on your own is probably the most active you can be and will give you the highest return in the shortest amount of time. Also, co-living situations or top performing short-term rentals can produce a pretty high cash on cash return but again they are pretty active with a high turnover of tenants and guests unless you find someone else to manage them and then you are usually paying a good portion of the profits to the manager.
But let's say that you have a job and are not interested in fixing and flipping or a high turnover type of investment and you would rather be a more passive investor. If that is the case, here are some more passive, yet higher return options.
1. As@Chris Seveney suggested, being a private money lender can be pretty passive once you find the operator and asset you feel comfortable with. You can get between a 12% and 15% cash on cash return each year pretty passively. But what is really important is that you understand the terms of the loan, including the length of time and when you can expect to get the money back, how it is secured, and the process of getting it back if things don't go as planned with the investment. Vetting the operator or borrower is very important. Make sure that that person has a lot of experience, and make sure that there is at least 20% - 25% equity over and above the amount that you have lent and in your agreement it states that they can have no other liens or loans on top of yours. Also, make sure that they have money in their accounts in case things don't go as planned. You don't want to get a call 3 months into a project where you have lent money and hear the operator say that they ran out of money and need more money from you to finish the project or you will lose your investment. But if you can find a good operator and feel good about the asset, then private money lending can be an excellent way to invest passively. I have done this probably over 100 times as the borrower and it has worked out well for me and my private money lenders in that everyone has gotten paid back along with the agreed upon interest.
2. Putting your money into a fund or syndication. This is similar to being a private money lender. You need to vet the investment and the operator. In some syndications, returns may be higher than 15%, but it can be more risky in that there are usually many people involved and if the operator doesn't perform as originally explained then the process of getting your money back can be a little more tricky. I haven't personally done a syndication so I can't comment much more from experience.
3. As @Dennis McNeely stated you could partner up with someone else on a deal or deals. For example, a buddy of mine called me the other day and told me that his accounted told him that he should buy some real estate to offset some of his taxes. I gave him some ideas of what he could do depending on if he wanted to be more passive or more active. After explaining a couple of options he told me he would rather just partner up with me and be the money partner and I would be the operating partner. So we opened up an LLC and he funded it with $100,000. I then found 3 properties from wholesalers in areas that I invest in regularly and purchased the properties with a hard money loan. We used his money as the down payment and to fix up the properties. We have stabilized 2 properties so far and we are in the middle of the refinance on the second. We will finish with the rehab on the third in about a month or 2 and then we will refinance that one as well. The cash flow won't be that high on these properties initially, but we are not planning on keeping them long term. We have placed tenant buyers in the property on lease options so we get a little higher rents and the tenant buyers take care of the property repairs. The option period is for 3 years. We set the purchase price at about 10% higher than todays value and we don't have to pay for realtor fees or closing costs when we go to sell the property. We also connect them with loan officers to help get the tenant buyers ready to purchase the property within the option time frame. Each of the properties have an estimated profit of around $70,000. So the total estimated profit is $210,000 in 3 years. So a profit of around $105,000 each in 3 years. So about a 35% cash on cash return for my buddy each year on his $100,000. Now I realize that not all situations will go exactly as planned but it is important to have a realistic plan from the beginning based on past results.
Ivan, Hopefully this post was helpful to you in that it helped you consider different options based on your personal situation and real estate investing goals. Let me know if I can be of help to you on your journey.
