125k to invest, where to start?

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125k to invest, where to start?

Brendan Bouffard
Traverse City, MI · Member since 2015 · 9 posts · 6 votes

Hi everyone. I'm generally new to this community but have read a few bigger pockets books and have been interested in REI for years. My wife and I are currently digital nomads and we have about 125k that we saved up and can invest. If you were me and just getting started, what would you do? We have transitioned from past careers and are in a place where we have the time to do this as an active investment. We don't need to be rich by any stretch, but it would be nice to eventually own enough rental properties to live off a modest passive income and start growing a decent portfolio. A few specific questions: is it even worth starting right now with the market so high and headed for a down cycle? How would I go about finding a way to get the most out of our cash and finance our first few deals without needing 20% (it took a long time to save that 125k and saving another batch isn't going to happen lol)? When average families can't even find a house to buy for themselves at a decent price, how on earth are people finding deals that are 20-30% under market value after rehab costs? And finally, a random one, we split our time between Puerto Rico and Michigan right now, how are those markets? I know this is a huge rambling question, but I just thought it would be nice to get some general responses about what other experienced investors would do if they were in my shoes! Thanks!

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Paul V.
Investor · Denver, CO · Member since 2016 · 42 posts · 29 votes
3y

Welcome @Brendan Bouffard!

A couple of initial thoughts from someone who takes a long term approach to wealth creation with RE.
What is your primary residence situation? Do you own? Rent?  If you have flexibility on your primary residence you might want to look into this strategy: 
1. Buy your primary residence as owner occupant with a low downpayment (5% down?)
2. 1 yr later purchase another home as your primary residence with a low downpayment (5% down).  Convert your home from #1 to a rental.
3. 1 yr later purchase another home as your primary residence........ You get the picture.

If you are buying in a healthy market, after a couple years, the first properties will have built up equity at which point in time you could do a cash out refi.  This would provide you with a return that should significantly outperform what you would get in the stock market.  When you have enough equity and need cash flow then you can sell these properties and 1031 them into income focused properties.

Hope this helps.

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  • Paul V.
    Investor · Denver, CO · Member since 2016 · 42 posts · 29 votes
    3y

    Welcome @Brendan Bouffard!

    A couple of initial thoughts from someone who takes a long term approach to wealth creation with RE.
    What is your primary residence situation? Do you own? Rent?  If you have flexibility on your primary residence you might want to look into this strategy: 
    1. Buy your primary residence as owner occupant with a low downpayment (5% down?)
    2. 1 yr later purchase another home as your primary residence with a low downpayment (5% down).  Convert your home from #1 to a rental.
    3. 1 yr later purchase another home as your primary residence........ You get the picture.

    If you are buying in a healthy market, after a couple years, the first properties will have built up equity at which point in time you could do a cash out refi.  This would provide you with a return that should significantly outperform what you would get in the stock market.  When you have enough equity and need cash flow then you can sell these properties and 1031 them into income focused properties.

    Hope this helps.

    7Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    Thanks so much! Yeah, right now we are living nomadically, so currently that's an Airbandb in Byron Bay Australia. Lol. But beginning at the end of the year we are going to find a more permanent spot. I have thought a lot about this strategy, specifically getting a multi family duplex or triplex and using it as a residence for a year or two before moving on. If we did that, we would still have enough cash for at least one more conventional down payment for a rental and try the BRRR with that one, that is, if it's still possible to find undervalued properties.

    3Reply
  • Paul V.
    Investor · Denver, CO · Member since 2016 · 42 posts · 29 votes
    3y
    Quote from @Brendan Bouffard:

    Thanks so much! Yeah, right now we are living nomadically, so currently that's an Airbandb in Byron Bay Australia. Lol. But beginning at the end of the year we are going to find a more permanent spot. I have thought a lot about this strategy, specifically getting a multi family duplex or triplex and using it as a residence for a year or two before moving on. If we did that, we would still have enough cash for at least one more conventional down payment for a rental and try the BRRR with that one, that is, if it's still possible to find undervalued properties.

    My pleasure Brendan.  Having flexibility in your primary residence is a huge opportunity for you to execute on this strategy.  Best wishes!  You can do this!
    0Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    Once we pick a market to start in, what advice would you have to find mentors and begin networking? Are there usually local groups or do most people rely on places like this forum or other online communities?

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Brendan Bouffard My closest networking event is 2 hours away so I’m excited because someone is actually hosting one 10 minutes away for the first time ever! Depending on where you are there might be local networking events closer to you or maybe since you’re nomads you could stay overnight in an area that’s having a meetup.

    I haven’t been able to take advantage of any of the low down payment options because my partner insists on having our primary home paid off which she was able to accomplish while I fund my way through deal after deal!

    I’m at the point now that due to a low income job and several mortgages and having used much of my reserves on needed renovations that I’ve had to bring in a partner for my next deal. We’re currently applying for the mortgage on the new property, it’s a 5 unit so shouldn’t be relying on our personal finances but the bank I’m using is conservative and is apparently looking at them.

    As you start networking you might look into bringing a partner into a deal either as a private lender where they just bring in the cash or part of the cash or as a more active investor. But if you have an active investor make sure to have a partnership agreement with an exit strategy. I speak from experience, this could save you tens of thousands of dollars and a potential court case if things go badly. It’s just smart planning for if you want out, partner buys you out, or the building sells, or whatever.

    Last, I'd recommend signing up for the BP pro membership if you're going to start analyzing a lot of properties because it's really important to know the numbers work and you'll be making a good CoC return and good cash flow with your properties. If you decide to go with buying a primary residence and then down the road turning it into a rental you should still run it as a rental before you buy it because if it's not going to cash flow once it's not your primary then it doesn't help much long term towards your goal of passive income.

    2Reply
  • Bradley Bladon
    Member since 2023 · 1 post · 1 vote
    3y

    Great advice but for the fact that after 1 year, and 5% down, you will still have no equity and the max LTV on c/o refi is 80%.

    He would need to score a turnkey house at 50-60% LTV to even be remotely worth doing g a refi after 1 year. Don't forget the closing costs wrapped in the loan.

    After CC on the initial purchase, he’ll be roughy8% in the deal from day 1.  You would need double digit appreciation to even off set that after a refi. 

    He needn’t go any further than running an amortization schedule to see his loan won’t move in year 1 to amount to anything. He would need 25%+ appreciation and a very aggressive principal reduction plan to accomplish even a refi of the original loan amount. 

    A VA Loan would be the only exception to my scenario …or holding the property long term and refi further down the road .

    That is not a plausible realistic game plan. 

    1Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    I guess this is the issue with getting started. It’s hard to know what is realistic and what isn’t. Like said above, it seems like every strategy depends on finding a deal that is already 20-30% under market (after repairs or a way to raise rents), such that you are able to appreciate above the 80%ltv after a year or two. But how to find those deals? 

    0Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    @Alecia Loveless how did you get started finding partners and private money lenders when you didn’t have any connections? Were you able to make those connections through local networking groups like the ones you mentioned ? 

    0Reply
  • Paul V.
    Investor · Denver, CO · Member since 2016 · 42 posts · 29 votes
    3y
    Quote from @Bradley Bladon:

    Great advice but for the fact that after 1 year, and 5% down, you will still have no equity and the max LTV on c/o refi is 80%.

    He would need to score a turnkey house at 50-60% LTV to even be remotely worth doing g a refi after 1 year. Don't forget the closing costs wrapped in the loan.

    After CC on the initial purchase, he’ll be roughy8% in the deal from day 1.  You would need double digit appreciation to even off set that after a refi. 

    He needn’t go any further than running an amortization schedule to see his loan won’t move in year 1 to amount to anything. He would need 25%+ appreciation and a very aggressive principal reduction plan to accomplish even a refi of the original loan amount. 

    A VA Loan would be the only exception to my scenario …or holding the property long term and refi further down the road .

    That is not a plausible realistic game plan. 

    @Bradley Bladon I'm not sure if you are referring to my advice or someone elses.  I'm not sure I understand your comments.  I didn't mention him doing a cash out refi in 1 year.  

    Breaking it down a little further... @Brendan Bouffard has $125k to invest.  He could put $35k down on his first primary res property year 1, another $35k down on a different primary res property in yr 2, another $35k down on another property year 3.  It would be 4 years out until that $125k was fully deployed.   If he can buy them at 5% down, then that would be a purchase price of $700k per property.  After 3 years he would own $2.1m worth of property. Assuming a health local market, rental income, appreciation and pay down will come down the road.  I'm not advocating for a short term plan, but a long term plan.  

    Many people don't have the flexibility to house hack like this and move every year (No chance my wife would let me do this now), but if you are at a window in your time of life, it presents a great opportunity.  

    1Reply
  • Irving Casas
    Member since 2020 · 66 posts · 43 votes
    3y
    Quote from @Brendan Bouffard:

    Hi everyone. I'm generally new to this community but have read a few bigger pockets books and have been interested in REI for years. My wife and I are currently digital nomads and we have about 125k that we saved up and can invest. If you were me and just getting started, what would you do? We have transitioned from past careers and are in a place where we have the time to do this as an active investment. We don't need to be rich by any stretch, but it would be nice to eventually own enough rental properties to live off a modest passive income and start growing a decent portfolio. A few specific questions: is it even worth starting right now with the market so high and headed for a down cycle? How would I go about finding a way to get the most out of our cash and finance our first few deals without needing 20% (it took a long time to save that 125k and saving another batch isn't going to happen lol)? When average families can't even find a house to buy for themselves at a decent price, how on earth are people finding deals that are 20-30% under market value after rehab costs? And finally, a random one, we split our time between Puerto Rico and Michigan right now, how are those markets? I know this is a huge rambling question, but I just thought it would be nice to get some general responses about what other experienced investors would do if they were in my shoes! Thanks!


    One way to find deals below market value is to look on the listing websites for homes that have been on market longer than 30 days. These sellers will be more inclined to lower the price or provide seller concessions such as closing cost. Another way is to focus on a certain area of Michigan or Puerto Rico you would like to live in and buy a home that needs rehab work directly from a seller. You can find a seller who is interested in selling off market using strategies such as driving for dollars or subject to deals. Best of luck!

    0Reply
  • Account Closed
    Columbus, OH · Member since 2023 · 427 posts · 254 votes
    3y

    Hey Brendan, welcome to the forums! Being a digital nomad gives you a lot of investment potential, in theory you could pick any market and go invest, though life is rarely so simple... If you aren't a homeowner, house hacking a small multifamily is always a great place to start! With an FHA loan, you can get a really low down payment and a great rate locked in, I would talk to a lender to see what kind of programs they offer. As digital nomads, you could do this every year, as a house hack must be owner occupied for a year. But the rental income from remaining units will help cover your mortgage, and then in year 2 you can fully rent out and see cashflow coming in. The biggest turn off in today's market is the interest rates, and an FHA loan helps ease that.

    0Reply
  • John Mausteller
    Real Estate Agent · Outer Banks, NC · Member since 2019 · 168 posts · 116 votes
    3y

    Sounds like a nice life - we initially started investing with 'lifestyle assets' - finding a rental property in an area we like to visit and that would rent well - and buying it. We now have rentals in the Western NC mountains, the outer banks off the coast of NC, and Costa Rica - and split our time traveling to all three - and our primary home has an ADU that covers all expenses and mortgage. I would look both in Puerto Rico (lots of surf and adventure tourism there and it is easy to get to from most of the eastern US) and in Michigan (I know the great lakes attract a rather large tourism crowd in the summer months).

    Good luck! Excited to see where it takes you! Also - in both places it would be icing on the cake if you found some sort of duplex or house with an ADU , so that you could be either place, and still be bringing in money from the neighboring unit.

    1Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    I would use that 125K to get me into some subject to deals.....

    0Reply
  • Dustin Lauer
    Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes
    3y

    @Brendan Bouffard. I lend in PR actually! Very cool lifestyle you guys chose. I know Michigan pretty well also and splitting time between the two sounds awesome. I’d go with something passive in a couple of funds if you can. Trust Deed and Mortgage investing can be intimidating but there’s a lot of good resources and companies like paperstac that make it easier. (Actually bank nearby you in MI is a real pro at it = FNBA). Would be good to connect and learn about your time in PR! I go back there in a week or so to meet with clients.

    0Reply
  • Angel Sustache
    Real Estate Broker · Puerto Rico · Member since 2020 · 21 posts · 5 votes
    3y

    I'm a RE broker in PR and 125,000 is not what it used to be. However, you can still find multi fam in that price around the island and could potentially do an FHA if you're able to provide evidence that your employer lets you work remotely. The main issue will be location and the condition of the property. The further you go outside SJ the more house you can get. Do know that most likely the house will still need some repairs.

    1Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    @Paul V. Thanks for the clarification. I think this strategy makes the most sense, especially if i can find an additional small multi family to invest in with a traditional down payment. I could theoretically get two properties the first year. 

    0Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    @Angel Sustache thanks for the advice. It's awesome that you work in Puerto Rico. When you say 125k is not what it used to be, you mean for total price? I wasn't assuming there was any possibility of finding something that low! The hope would be finding a livable multi family place for us to house hack, and one other as a first true managed rental, within a price range that I can use 125k for down payments. (One with an fha and another with some sort of other financing). At least that would be the initial plan. I am really new to this, so outside my technical lawyering experience, I am still learning a lot so obviously I might have a bunch of false assumptions. We move to the island in November and i plan on joining the local REI group. Maybe we can connect when we arrive?

    0Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    @John Mausteller that is a great set up you have. Yes part of getting into real estate for us is being able to split our time between the places we love. Puerto Rico and Michigan are great fits for us. I know everything there is to know about Michigan lol, and absolutely nothing about PR haha. But we are moving there soon so I should know quite a bit more here shorty.

    0Reply
  • Kathryn Morea
    Developer · Member since 2010 · 188 posts · 104 votes
    3y

     Hi Brendan,

    I moved to Puerto Rico 2.5 years ago and started an REI group. 125K down should get you far if you can qualify for traditional financing (you have a job and good credit). "Subject to" isn't really a thing here. There's a few exceptions but the way deeds and mortgages are recorded in the registry make it nearly impossible. Use a lease option as a workaround. Or private money. There are lots of deals to be had here if you understand that Puerto Rico is based on Spanish law and has many differences from investing in the mainland. Good luck!

    0Reply
  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    OK...I'm jealous! Being a nomad rocks! Good for you. Now to your question, I would seriously considering finding a partner that is "rooted" and has experience in real estate investing...perhaps flipping. Use a portion of the $125K as the downstroke on a deal where you partner with someone that has a strong track record and the resources (contractors, deal flow, etc) to do some deals. My wife runs our real estate investment side. She had the formal degree in architectural interior design and had several flips under her belt when an acquaintence with a lot of capital but no experience approached her. They set up an LLC. He funded the deals and she ran the show. I think they are over 30 deals in now together. If you're just starting out and prone to wonderlust, then perhaps finding someone in a specific area you like that really knows their stuff from a construction standpoint might be a match made in Heaven. Good luck!

    0Reply
  • Brendan Bouffard
    OP
    Traverse City, MI · Member since 2015 · 9 posts · 6 votes
    3y

    @Kathryn Morea 

    Thanks so much for the advice! We should be able to qualify for traditional financing. Let’s connect when we move to PR in November! 

    0Reply
  • Kathryn Morea
    Developer · Member since 2010 · 188 posts · 104 votes
    3y

    Sure thing, and you can find our meetings and stay in touch on social media in the meantime.  See you soon.

    0Reply
  • Meir Preis
    Rental Property Investor · Baltimore · Member since 2023 · 16 posts · 4 votes
    3y
    Quote from @Paul V.:
    Quote from @Bradley Bladon:

    Great advice but for the fact that after 1 year, and 5% down, you will still have no equity and the max LTV on c/o refi is 80%.

    He would need to score a turnkey house at 50-60% LTV to even be remotely worth doing g a refi after 1 year. Don't forget the closing costs wrapped in the loan.

    After CC on the initial purchase, he’ll be roughy8% in the deal from day 1.  You would need double digit appreciation to even off set that after a refi. 

    He needn’t go any further than running an amortization schedule to see his loan won’t move in year 1 to amount to anything. He would need 25%+ appreciation and a very aggressive principal reduction plan to accomplish even a refi of the original loan amount. 

    A VA Loan would be the only exception to my scenario …or holding the property long term and refi further down the road .

    That is not a plausible realistic game plan. 

    @Bradley Bladon I'm not sure if you are referring to my advice or someone elses.  I'm not sure I understand your comments.  I didn't mention him doing a cash out refi in 1 year.  

    Breaking it down a little further... @Brendan Bouffard has $125k to invest.  He could put $35k down on his first primary res property year 1, another $35k down on a different primary res property in yr 2, another $35k down on another property year 3.  It would be 4 years out until that $125k was fully deployed.   If he can buy them at 5% down, then that would be a purchase price of $700k per property.  After 3 years he would own $2.1m worth of property. Assuming a health local market, rental income, appreciation and pay down will come down the road.  I'm not advocating for a short term plan, but a long term plan.  

    Many people don't have the flexibility to house hack like this and move every year (No chance my wife would let me do this now), but if you are at a window in your time of life, it presents a great opportunity.  



    @Paul V. Could this plan theoretically be executed without moving residences every year or is it contingent on moving into the newly purchased house a factor with obtaining convectional financing? 

     
    0Reply
  • JooYung Choi
    Realtor · NJ · Member since 2023 · 215 posts · 99 votes
    3y

    Lots of good ideas here. 

    I always wondered if it would be a good idea to buy a primary in a vacation rental market. Using a low down payment to leverage into a massive STR if your DTI allows it.

    You would just have to figure out a way to help pay the mortgage for that year. Probably by airbnbing your spare bedrooms.

    0Reply
  • Rose JonesPro Member
    Member since 2019 · 57 posts · 18 votes
    3y
    Quote from @Alecia Loveless:

    @Brendan Bouffard My closest networking event is 2 hours away so I’m excited because someone is actually hosting one 10 minutes away for the first time ever! Depending on where you are there might be local networking events closer to you or maybe since you’re nomads you could stay overnight in an area that’s having a meetup.

    I haven’t been able to take advantage of any of the low down payment options because my partner insists on having our primary home paid off which she was able to accomplish while I fund my way through deal after deal!

    I’m at the point now that due to a low income job and several mortgages and having used much of my reserves on needed renovations that I’ve had to bring in a partner for my next deal. We’re currently applying for the mortgage on the new property, it’s a 5 unit so shouldn’t be relying on our personal finances but the bank I’m using is conservative and is apparently looking at them.

    As you start networking you might look into bringing a partner into a deal either as a private lender where they just bring in the cash or part of the cash or as a more active investor. But if you have an active investor make sure to have a partnership agreement with an exit strategy. I speak from experience, this could save you tens of thousands of dollars and a potential court case if things go badly. It’s just smart planning for if you want out, partner buys you out, or the building sells, or whatever.

    Last, I'd recommend signing up for the BP pro membership if you're going to start analyzing a lot of properties because it's really important to know the numbers work and you'll be making a good CoC return and good cash flow with your properties. If you decide to go with buying a primary residence and then down the road turning it into a rental you should still run it as a rental before you buy it because if it's not going to cash flow once it's not your primary then it doesn't help much long term towards your goal of passive income.


     Couldn't agree more on the Pro Membership! My present to myself. 

    0Reply
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