What to do with 100K in real estate at 20?

Question

Hi! I am currently 20 years old and have roughly 100k saved from a previous business. I want to get started with real estate but don't know which route or what kind of loans to do. I live in south Florida so real estate is pricy. I thought about out of state investing in section 8 since its scalable, maybe a BRRRR although I heard this takes longer than expected. I would love to invest my money in a way that I can make passive income instead of having it sitting in the bank. I am young and blessed to be where I am now I just don't want to make the wrong move and throw it all away.

Any suggestions?

Julien Jeannot · Answer

I'd house hack the biggest multifamily I could afford. A run down one with poor management in a nice location which has a track record of appreciation and healthy rent increase.

Cash out refi when the rates come down and repeat to build up a portfolio.

Doug Smith · Answer

HI @Daniella Rodriguez, I do wish I had $100K in liquidity when I was 20. You've got such a great start. I've found that there are three things that an investor needs to really be successful - capital, experience, and connections. You've got the capital covered, so my suggestion would be to find a partner with experience and connections, as in the connections to acquire property and contractors to improve it. When we're lending, one of the items we ask for is a list of deals that the person has done in the past to establish that they know enough to not lose our money. I had been lending for 20 years prior to starting to invest myself, but when I did, even with the experience financing deals, I made a ton of mistakes. With the capital you have, you should easily be able to find a great partner. They gain capital they need, you gain experience and a track record, and you both make money by complimenting each other. That would be my suggestion.

Jimmy Bostic · Answer

@Daniella Rodriguez I'd personally start off with a house hack. I think it provides a good entrance point to REI and a foundation for growth. At 20 having 100k liquid is quite impressive. I'd hack in a property that allows me to live below my means and can provide decent cash flow, then look into oos investing once you have a better footing in the game.

Caleb Brown · Answer

I would do a house hack. Whether that is a 3.5% down FHA loan on a multi family or a low money down conventional loan to do a live in flip or room by room strategy. Doing a BRRR out the gate is bold. Sure it can work if you have the right team in place but you are 20. You have plenty of time to learn and figure out what you want to invest in. Doing a house hack will use less of your $$ and give you time to figure out what is next. What business did you make 100K in? Can you replicate another business and do the same? If you did well in it why not scale that?

Sabrina Dagostino · Answer

@Daniella Rodriguez I'd love to connect with you! I'm a 24-year-old business owner in South Florida as well looking to purchase my first investment property.

Michael Smythe · Answer

@Daniella Rodriguez

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods:

https://www.biggerpockets.com/...

(BP search feature can be problematic, so we’ve also added links @ our website under View Cities & Neighborhoods We Service)

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Let us know if we can help in any other way.😊

Abbey Humphreys · Answer

Daniella- first of all, props to you. That's an impressive feat at any age, so much more so at only twenty! I think the first thing for you to do would be to sort out your exact goals. How passive are you looking to be in the process? Do you want to use that 100k capital towards one or multiple properties? Short or long term (or medium!)?

Are you interested in the hands-on aspect of the BRRRR method? As far as OOS investing- are you looking to bring in a PM?

BRRRR can be a bit slower to get started with at first, but it allows for exponentially more opportunities to scale and build your portfolio if that's something that you're interested in.

Lesa Simonyi · Answer

Hi, I don't know what a house hack is lol. But when I started out buying at age 21 I would buy one owner occupied .. live in for a little bit and always saving and  looking for a next house. Then I would rent it and buy my next one. Which afforded me to buy it with less down and better interest rates.  Then when I started paying cash for houses .. I became a loan officer and would refi it after I rehabbed it and rented it. Which cashed me out to buy my next one.  That's how I got to 32 rental properties.  Quit my full time job when I reached 10 because too hard to manage a full time job, a bunch of rentals and two kids a year apart. So bought up more to replace our salaries and do it full time.

Brad Hunton · Answer

If I had to start all over again and had that much capital I would buy a househack with first time home buyer programs that would allow you to get into a property with zero or close to zero out of pocket. Live in it for a year, rent it out and then buy one with 5% down every year for the next 10 years. After a few years of this start aggressively paying down the mortgages. Invest $30,000 in a brokerage account where gains are reinvested and never touch that money. You would be a multi millionaire with low risk investments at 40 years old. Not get rich quick by any means but would definitely build wealth. I'm sure this will be an unpopular opinion here on BP though. During all of this find gainful employment and truly act and spend like you are a broke 20 year old. Builds character and allows you to appreciate your wealth even that much more.

Cassi Justiz · Answer

Hey Daniella,

You are off to a great start! Out of state BRRRR is going to be one of the more difficult options to start with. There are a lot of moving pieces that could change and have hiccups. Obviously, tons of people have been super successful with that strategy and it has the potential to be great.

If I were in your position, I would try to find a cheap turn-key or light rehab property to establish your connections out of state. Find a great team, test them out on the first one and then you can start looking into the heavier rehab BRRRR deals. You want to make sure you have a great team in place before you try to tackle a heavy rehab. Best of luck on your investing journey!

What to do with 100K in real estate at 20?

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