What would you do with the money??

I am a 22 year old from West Virginia. I just purchased my first house last year to live in, and I am getting back the tax credit for purchasing the house. I will have about 15,000 to invest, should I start out flipping properties or buy a rental? Real estate is not extremely expensive in WV like it is in other states. I could buy a nice small house for 40,000, pay 15,000 down and rent it for around $500 a month. What would you do?

Edited: 06/26/2010 at 11:29AM

Anthony Larson

Real Estate Investor · Las Vegas, Nevada

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Feb 03 '10, 03:50 PM

I would never put 35% down on a house. I would try to buy two houses, 6k down a peice and have 3k left over for reserves. put the numbers on here to get analysed before buying to make sure they will cash flow

Edited: 06/26/2010 at 11:29AM

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
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Feb 03 '10, 05:37 PM

I agree with Anthony, you can buy 2 houses with this money with owner financing.

-Uwe

Edited: 06/26/2010 at 11:29AM

Bill Gulley

Real Estate Investor · Springfield, Missouri

5,642 posts
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Feb 03 '10, 08:47 PM

Hi, I'd go for three with $12,000 and keep 3k as a reserve or closing costs! Good Luck, Bill

Edited: 06/26/2010 at 11:29AM

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
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Feb 03 '10, 09:44 PM

Bill,

Find three is is a little harder than two ;).

-Uwe

Edited: 06/26/2010 at 11:29AM

Nick G

Real Estate Investor · Detroit, Michigan

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Feb 03 '10, 09:55 PM

A $40,000 home renting for $500 a month does not sound too appealing to me.

Are all the rents in your area this low?

Edited: 06/26/2010 at 11:29AM

Shanti S.

· Western, Massachusetts

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Feb 03 '10, 10:08 PM

Congrats on your early start, Brian. I second and third the need to have reserves - if something gives out on your rentals, your own property, or even your car dies or something you need to not be sweating your mortgage payments and risking your credit.

That does seem like really low rent for a house - not something that would cash flow. Couldn't you rent a trailer for about that, at much less acquisition cost?

Edited: 06/26/2010 at 11:29AM

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
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Feb 03 '10, 10:12 PM

2 bedrooms rent in Cleveland $375 and the house is allways full.
-Uwe

Edited: 06/26/2010 at 11:29AM by Uwe S.

Robert Mack

Real Estate Investor · Bergen County, New Jersey

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Feb 03 '10, 10:48 PM

Originally posted by Brian King

I will have about 15,000 to invest, should I start out flipping properties or buy a rental?

I think this depends on what YOUR plan is? If you don't have one that take some time to write out at least a simple business plan and figure out where you want to be in 1,5, 10 years from now. Do you want to be a landlord? Do you want to do rehabs and flips? You need to answer that question.
Also, if you have any debt besides your mortgage, put a portion of the money to pay that down, if you are debt free then congrats.

Originally posted by Brian King

I could buy a nice small house for 40,000, pay 15,000 down and rent it for around $500 a month. What would you do?

Is $40k the retail price of the property? If it is, then network with some people from your area, go to the REIA meetings and find that $40k property for $20k.

Also agree with everyone, have some reserves. If you have reserves you'll be able to survive the many rainy days.

Edited: 06/26/2010 at 11:29AM

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

Moderator Pro

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Feb 03 '10, 11:57 PM

$40k is too much to pay for $500 in rent. About $25k max. No more than about 70% of what others are paying for similar houses. If you can't do that, don't buy anything. The goal here is to make money. Rentals are a means to that end.

Edited: 06/26/2010 at 11:29AM

Jon Holdman, Flying Phoenix LLC

Brian Haskins

Real Estate Coach · St. Louis, Missouri

421 posts
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Feb 04 '10, 11:12 PM

I would suggest to start wholesaling and build up more cash. If you put all your money down on one house then you can't make any more money than just your small cashfllow.

Brian Haskins

Edited: 06/26/2010 at 11:31AM

Chris T.

Wholesaler · Amarillo, Texas

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Feb 04 '10, 11:20 PM

You could find a good wholesale property that needs a little work and rehab, then resell. Then do it again, and again....

Edited: 06/26/2010 at 11:31AM

Ali Samana

Real Estate Investor · Corpus Christi, Texas

389 posts
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Feb 05 '10, 12:09 AM

Hi Brian,

I agree with everyone up top about having reserves. There will always be unforseen expenses. I also agree that you sould almost never pay full price on a home. Especially in this market, there is alot of bargain out there.

I was in the same boat you are not too long ago, I decided on flipping, but I would stress having an exit strategy in place before you buy. Many people buy and pray, people on this forum will tell you that is a recipe for disaster. I am now seriously looking for rentals for long term growth, and tax depriciation.

Bottom line, invest in education (books, CDs etc), you can get them fairly cheap on ebay, half priced books etc. Then start building your RE team and then dive in with both feet.

Good luck and keep us posted.

-Ali

Edited: 06/26/2010 at 11:31AM

Dennis Aennis

Real Estate Investor · Select a State

6 posts
50 influence

Feb 05 '10, 12:34 AM

Hi there.

congratulations on a great decision to advance and build for an awesome future.

Since you're new, whether you had $15k like you do or $150k I would strongly recommend that you go in with very little of your money at risk, while you learn and gain experience.

Believe me, I"ve been doing this for 25 years

the best way to do this is through wholesaling. Basically assigning or selling a property that is under contract to buy.

If you think about it, you'll gain all the experience from identifying what a good deal is, marketing, negotiation, contract writing, problem solving and going to closing.

Here you only limit yourself risk wise to what you put down in earnest money or option fee- which for most of my deals is $10-$50.

Imagine how many of these deals you can lock up with your $15k.
Just kidding-. I would definitely not put all your capital in one basket like a rental right now.

Learn and earn, and you'll be in this game for the long run.

Let me know if I can do anything for you

Dennis

Edited: 06/26/2010 at 11:31AM