Starting out with 25k - Best Passive Options Outside of house hacking?

Question

Hi Everyone!

A little about myself - I've been looking into RE investing for a little over a year now while saving up capital and paying off high-interest student loans as fast as possible. I am now in a position to begin investing and have roughly 25k to work with (just in time for >7% rates). I initially centered a lot of my research around house hacking, but quickly came to the realization that multi-family is out of budget in my current location (downtown Chicago, IL). Since I was already approved for FHA, I pivoted to wanting to buy a condo that I would live in for a year, then rent out after that. However, I came to learn that most rentals in downtown Chicago are actually cash flow negative due to extremely high taxes and current interest rates. I am not in a position to hold an investment for long-term equity while eating negative flow each month.

So, my current situation is working a demanding consulting job with unfriendly hours that also requires me to live in downtown Chicago. My question is - what would you recommend to someone who is chomping at the bit to get going, but also needs the first few investments to be on the passive side? Is it working to find a turnkey with private, low-down payment lending and minimal maintenance? Is it crowdfunding? Airbnb?

I am open to investing in other markets outside of IL, but am nervous about my ability to stay on top of that sort of investment, especially without knowing the market...

I realize there is no right answer, but I really enjoy reading through the blogs here with advice from all of you impressive and talented individuals, so thought I'd throw it out there and see if there is anyone else who started in a similar spot!

Henry Lazerow · Answer

You can house hack with $25k just need buy fha or 5 down conventional. I have had clients buy condos also where rent out a bedroom and then eventually move out and rent the whole place. Lots of cheap sub $300k condos that work for rentals in chicago. We could squeeze a 2 unit purchase forsure but id recommend have more reserves.

Crystal Smith · Answer

1. Joint Venture- On this forum alone there are dozens of posters in the same situation as you. They have a little bit saved, chopping at the bit, not enough time.... I recommend allocating some time to meet those folks via meetups or forums like this and maybe create a Joint Venture that could either loan or invest in a deal on its own or in someone else's deal. You could be the passive person in the deal while one of the other partners is active.

2. Become a private lender- $25K isn't much but once you become active in the market you may find opportunities where you can lend $25K at a ridiculous rate. You'll need to do your homework on how to protect your investment if you go this route. But it's passive.

3. There are opportunities to invest in deals if you're accredited, either individually or as part of a fund. There are some opportunities where you do not have to be accredited. Again- Passive.

House hacking is the tip of the iceberg for getting into Real Estate.

Jonathan Klemm · Answer

Hi @Michael T Walsh - Welcome to BiggerPockets and congrats on hopping into the forums right away. You'll find a ton of great Chicago investors here.

I personally believe that you could make a house hack work....even with only $25k you could still get a 2 unit for $500 k ish in some of the neighborhoods outside of downtown like Avondale, Hermosa, Belmont Cragin, etc. The best way to get a head is to do your own deal - my opinion, but don't buy anything turnkey or do crowdsourcing.

If you aren't working with an investor-focused agent like @Brie Schmidt, @Eudith Vacio, or @Tom Shallcross you are selling yourself short.

John Warren · Answer

@Michael T Walsh you are part of a large group of buyers, and this group is very frustrated right now by the combination of elevated prices and high rates. Although the grass may look greener in a different state, and I can tell you that the investors I know in surrounding states are finding inventory to be just as challenging as in Chicago. I would recommend saving aggressively and continuing to network and learn here in Chicago.

Are you attending local meetups? Are you looking at any alternative neighborhoods in the city? Depending on your tolerance, you can still find cash flow as long as you are ok looking in less trendy areas. This doesn't mean it is easy by any means, but I really believe this year things will level out.

Jay Thomas · Answer

Given your demanding consulting job and downtown Chicago residency, opting for passive investments with minimal hands-on involvement is logical. Consider turnkey properties with private lending for a hands-off approach, though securing low-down-payment financing may involve thorough networking. Crowdfunding offers real estate investment without direct property management, aiding portfolio diversification. Real Estate Investment Trusts (REITs) provide exposure to real estate markets without ownership hassles. Airbnb arbitrage, capitalizing on undervalued properties for higher Airbnb rents, is profitable but demands meticulous local analysis and property management considerations. Exploring investments outside your local market for better cash flow is viable, but remote management necessitates robust planning and reliable property management partners.

Chris Seveney · Answer

@Michael T Walsh

Lots of funds you could invest in. Reg a+ allows accredited and non accredited with many having mins as low as $5k or less

Starting out with 25k - Best Passive Options Outside of house hacking?

Starting out with 25k - Best Passive Options Outside of house hacking?

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