Where to invest $70,000 in buy and hold
Let's say I have $70,000 to invest. I have a chance to get a 5.2% return outside of real estate. As a buy and hold investor, if I can get more than this return, where should I invest/what is the best strategy in order to maximize cash flow?
The Boston market is extremely expensive; if I am willing to invest out-of-state (which will require my finding a great management team), should I use this as cash for a single property, use it as a down payment for one property, or for multiple simultaneously? How should I identify potential markets? The number cruncher in me would like to obtain national zip code data on rental prices and median purchase prices to calculate where I can the best deal, but I don't want to pay for such data and go through the calculations if it won't be remotely feasible or if there are obvious markets I should be looking at.
There are many markets where you can probably buy 4-5 properties. I have typically put down about 15K per property (including closing costs) for properties around $50K each. I put all the cash return back into the principal and can pay off the properties in 10 years. Lets say you buy 4 properties for $60K, in 10 years that would be worth $200K with no appreciation assumed. That is a CAGR of almost 13% per year. Even if you get half that return you still beat the 5.2%. But its not really passive. It takes a lot of work, especially in the beginning. And there are ups and downs and maintenance issues and bad tenants etc etc. But as a portfolio it seems to be working for me. BTW, my investments are in Indy. But you can probably do similar in many markets.
@Donald M. Welcome.
We're showing higher value Condos in Roslindale and JP but there's always something if you look hard enough!
@Donald M. You can definitely get better than 5% returns if you find a good deal. In Indianapolis I can generally find properties that will net around 20% returns after all expenses. I don't know you're market, but there are markets out there where higher returns are possible/likely if you are comfortable investing in a different area. But if you decide to do that, I'd strongly advise checking out that area in person to know exactly what you are getting into. Good luck!
I'm looking at 20% Cash on Cash return in my primary market in Vermont.
Indy has several investors on BP with good looking rentals. I haven't verified them but the numbers are good.
In the Boston area I'd look at Everett for flipping 3 families in to Condos in front of the casino. Go quick on that one.
Just outside of Boston:
Lawrence/Lowell - Rough areas, solid rents, good returns
Worcester - College rentals abound
I wouldn't grab too much data like the set you are talking about. Find yourself a zip code that meets your criteria and become the expert. I'd recommend something within reasonable(whatever that means to you) driving distance but that doesn't mean you can't be wildly successful on the other side of the continent.
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Real Estate Agent Massachusetts (#009532321)
- M and A Investing
When investing out-of-area (500+ miles), I also factor in the travel cost that I incur so that I can more accurately calculate my ROI. For example, cost of airfare, hotel (overnight stay), rental car, meals, etc.
I didn't do this earlier in my career and had to learn it the hard way!
How much work do you need to do to achieve 5% and at what risk level is it? How much work are you willing to do to beat that in real estate? You understand the risk is higher I'm assuming? I'd look to finance some turn key properties with a PM already in place... Accept the 8% or so returns and go on your way.
Beating that requires turning REI into a second job.
@Nathan Emmert You don't need to do any work to get 5% returns. You can buy turn key properties in Midwest markets like Indianapolis and Kansas City that will give you far more than 5%. We sell turn key properties in those area with 9-10% returns on cash purchases and over 20% on financed. These properties are in good working class neighborhoods, not war zones. Feel free to give me a call if I can help.
I am from NYC and more or less in the same situation as Donald's. Currently have 2 rental properties in Queens and closing another one in 2 weeks. After than I'm definitely going out of NYC. Glad to see there are quite some attractive options out there. Can't wait to venture out there!
Originally posted by @Mike D'Arrigo:
@Nathan Emmert You don't need to do any work to get 5% returns. You can buy turn key properties in Midwest markets like Indianapolis and Kansas City that will give you far more than 5%. We sell turn key properties in those area with 9-10% returns on cash purchases and over 20% on financed. These properties are in good working class neighborhoods, not war zones. Feel free to give me a call if I can help.
Sorry, I'm not sure you understood my comment?? He said he could get a 5.2% return outside of real estate... I was inquiring how much work he had to do in order to get that return. Most turn key properties are in the 8% range from what I have seen and that's about the easiest buy and hold solution there is in real estate investing. If he wants to aim higher he goes from investing in real estate passively to being an active real estate investor from what I have seen.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Mike D'Arrigo:
@Nathan Emmert You don't need to do any work to get 5% returns. You can buy turn key properties in Midwest markets like Indianapolis and Kansas City that will give you far more than 5%. We sell turn key properties in those area with 9-10% returns on cash purchases and over 20% on financed. These properties are in good working class neighborhoods, not war zones. Feel free to give me a call if I can help.
Add Michigan to the mix. 5% returns in Michigan is child's play.
I'm an out-of-state investor as well. As far as how to use the money, I'm a huge fan of leveraging. I would buy two properties with your $70k as the down payments/closing costs to cover both of them (I assume you qualify for a mortgage). Depending on where you buy, you could even buy more than two with $70k as down payments.
One of the fastest ways to find markets is to just ask on here and see where other out-of-staters are buying. My favorites right now are Philly, Trenton, Dallas, and Houston. Some Chicago, some Indy. Philly and Trenton would be closest to you, and the entry prices there are lower so you could definitely buy more than one property if you wanted to.
@Jeff Chi Be sure to look at Indianapolis and Kansas City when you venture outside of NYC
@Nathan Emmert You're right. I misunderstood your post. Sorry about that.
@Mike D'Arrigo Thanks Mike, I certainly will be contacting you for advice!
Originally posted by @Donald M.:
Let's say I have $70,000 to invest. I have a chance to get a 5.2% return outside of real estate. As a buy and hold investor, if I can get more than this return, where should I invest/what is the best strategy in order to maximize cash flow?
You could easily get more than 5.2% being a private lender as well. So there are more than one option to consider. Investing means assessing your risk tolerance and how "hands on" you want to be.
Boston is tough to get cash flow like LA and the rest. Not impossible but seems like it.
Perhaps look at 100k+ price points. If you buy right you should create something with decent cash flow and equity. You don't want to start with two or more lessor rentals that could likely go south on you. I am a fan of Colorado, NV, AZ for this type of cash flow and equity hold. Texas and Florida if your local but otherwise taxes and insurance eat up cash flow vs the other Southwestern options.
There are many other growing areas you could check out. I am partial to low taxes and warmer areas. Generally, I would stay away from any C or D class areas or getting caught in cash flow traps...no real equity gains and why own a depreciating investment?
Zip codes are most helpful starting points so you could start there for the general landscape of the tenants, values, appreciation, rent to price ratios...etc. Websites like bp, areavibes, citydata can help to get the flavor of the location too. There are more sophisticated sources once you narrow the search.
If you are going the team in place first approach that will help you decide the where as well. If you had your team in place what areas do you like?
Thanks, Matt
#4 All Forums Contributor
- Plymouth, MI
What would be interesting is this. A comparison of numbers for an actual property in all the areas where posters have suggested as good placed to put the 70k.
To keep everything consistent, everyone would need to be comparing the same property. So, to that end, I suggest a typical 3/1, 1000 sf, garage, basement (some areas don't have basements...I know, so leave that off), in at least a B grade area.
Indianapolis does have great ROI and you can find properties very affordable. We at Elden Investments have a one-stop shop experience. We also have a great property management company in house as well as a great preferred company outside if you don't want to have PM with us. It's all up to you.
Either way the states/cities like Michigan, Indianapolis, and Kansas City all sound good and can offer a lot of return on your investment.
Thanks for all the terrific suggestions. I have some research to do looking into these markets and have reached out to some people, apologize if I haven't responded to one of your messages, will try to get to it this week.
I am a passive real estate investor and have 1 rental, do not have experience in flipping. The 5.2% I mentioned requires no work and is low risk. I realize that I will need to take more risk to get more returns and am very tolerant of risk.
@Joe Villeneuve, I think that is a very interesting idea and I am going to aim to obtain data on various zip codes, it might be a bit difficult to make sure it is comparable but should provide a starting point.
@James Reynante, that is a great point about factoring in travel costs and something I did not think of but very important to do.
Why doesn't the @ symbol work in my posts, am I not doing it correctly or maybe my computer cannot recognize it?
@Donald M. To make the @ work you need to type "@" and then start typing out that person's name. When you do, a pop up box will appear below the "Post a Reply" box. You can then click on that person's name and they will be tagged and will received a notification saying as much.
@Donald M. I've bought rentals through turnkey provider/property manager based in Indianapolis and learned many lessons. After a year and half later, I'm no longer working with them. I'd strongly recommend to listen to Engelo's podcast (#89) especially on how to find right vendor to work with if you haven't already listened. Market is definitely important but I learned property manager is the most important piece in out-of-state investing. I'd be more than happy to share my experience in the market and vendors so feel free to message me.
@Donald M. I work for a tunkey provider in Indy called FS Houses and would love to share some information about our city and our company with you if you'd like! We have a really sweet little operation here and think it might work really well with what you are looking for. PM me if you'd like to talk more : )
