New Investor with $100k - Where would you start?

[Tanner Sortillo]

I work with investors in the Phoenix market and had a conversation with a new investor the other day. He has $100k liquid set aside for investing and asked my advice on where he should start. He's comfortable waiting until the new year (post-election) or move forward now for the right deal.

I thought it was a great question and worth opening a thread to get some other opinions and input. Knowing how the market is now and where it's trending;

Where would you start and what would your approach be if you were a new investor with $100k set aside for RE investing? 

[Garrett Brown]

Welcome to the forums, Tanner! What are his goals would be important to help give feedback. The beautiful thing about real estate investing is there are several avenues you can choose from depending on your end game. 

[Tanner Sortillo]

Quote from @Garrett Brown:

Welcome to the forums, Tanner! What are his goals would be important to help give feedback. The beautiful thing about real estate investing is there are several avenues you can choose from depending on your end game. 

 Hey Garrett, thanks for the response! I got to the bottom of his goals and what he was looking to do but I think the question I was posing is what would you personally do if you were in this situation?

[Melissa Nash]

What do they have time and money for? that is always the first questions- if they have more time than money, then a rehab project... if they have more money than time... then I would recommend a turnkey property and get them 2 nice properties out of state. 

[Eric Gerakos]

It depends on his goals, but if he's looking for cash flow I would buy a secured first trust deed. Currently paying around 9.5% interest. Hassle free passive income.

[Jackson Harris]

With $100k in this market there's multiple routes to go. For me I'd like cash flow so I'd buy a place to turn into an airBNB in an appreciating city here, and generate enough income to buy another in a year or so. Rinse and repeat!

[Jackson Harris]

Or get into flips, with $100k and hard money there's tons of properties here you could make some money on.

[Greg Kasmer]

@Tanner Sortillo - I think I would echo some other's comments as well. I would suggest they understand various strategies/methods to invest in real estate and then let that drive their next steps as opposed to the dollar amount they have to invest. So, first question is do they want to be active or passive? If he/she wants to be active, they you have short term, mid-term, and long-term rentals in addition to fix and flips, wholesaling, etc... My suggestion would be to read 1-2 books/articles in each space and then set up conversations with 1-2 investors in each space to truly understand what skill sets, etc... would be needed in each avenue. Good Luck!

[V.G Jason]

There's so much missing. What are they trying to accomplish?

[Denis Ponder]

If someone infused $100k into my bank account right now, I would do more BRRRR projects.

[Tanner Sortillo]

Quote from @Jackson Harris:

With $100k in this market there's multiple routes to go. For me I'd like cash flow so I'd buy a place to turn into an airBNB in an appreciating city here, and generate enough income to buy another in a year or so. Rinse and repeat!

Hey Jackson, this is basically what I told him as well! I didn't get too far into the investors personal goals since I was more curious what you/individual investors in the area would do themselves.

I think with the amount of cash he's got and the appreciation in the Phoenix market this is the route I would go myself. Appreciate your input!

[Tanner Sortillo]

Quote from @Denis Ponder:

If someone infused $100k into my bank account right now, I would do more BRRRR projects.

 Thanks for the input Denis, this is what I would personally do as well!

[Tanner Sortillo]

Quote from @Melissa Nash:

What do they have time and money for? that is always the first questions- if they have more time than money, then a rehab project... if they have more money than time... then I would recommend a turnkey property and get them 2 nice properties out of state. 

Hey Melissa, I suggested potential out of state options but they seem pretty set on purchasing int he Phoenix market. 

[Tanner Sortillo]

Quote from @Greg Kasmer:

@Tanner Sortillo - I think I would echo some other's comments as well. I would suggest they understand various strategies/methods to invest in real estate and then let that drive their next steps as opposed to the dollar amount they have to invest. So, first question is do they want to be active or passive? If he/she wants to be active, they you have short term, mid-term, and long-term rentals in addition to fix and flips, wholesaling, etc... My suggestion would be to read 1-2 books/articles in each space and then set up conversations with 1-2 investors in each space to truly understand what skill sets, etc... would be needed in each avenue. Good Luck!

Hey Greg, the investor I chatted with definitely had some more research to do. I gave them my opinion but was more so curious what you would do if somebody gave you $100k to invest right now? 

[Nicholas L.]

@Tanner Sortillo

it depends on their goals.  there is no quick return or 'cash flow' right now if you are a brand new investor.

if they can house hack, they should house hack.  if they can't, then i really have no idea without knowing more about them.  

flipping, STRs, etc. - all high risk right now if you don't know what you're doing.

[Evan Hopple]

@Tanner Sortillo

Where would you start and what would your approach be if you were a new investor with $100k set aside for RE investing? - Buy a cash-flowing, turnkey duplex in a C+ location in a growing city like C0lumbu5, 0H. No brainer.

[Taz Zettergren]

@Tanner Sortillo it depends on his current situation, what the goals are and how much time and effort he wants to spend in real estate. If he doesn't own a property I'd definitely recommend to house hack since this will teach you a ton about real estate investing in general with very little out of pocket. If that isn't feasible for his situation I'd recommend looking for rentals in the southern/middle part of the country where price points are much easier and the laws are landlord friendly. If he doesn't want to invest actively there are ways to passively invest in real estate with companies that are vertically integrated. Some are even offering interest rates as low at 4.9% on a 30 yr fixed loan.

Feel free to reach out if you have any questions, best of luck to you and your clients! 

[Wale Lawal]

@Tanner Sortillo

The Phoenix market offers various investment strategies based on risk tolerance, timeline, and goals. House hacking, BRRRR strategy, and single-family rentals are potential approaches. Waiting for market changes post-election can help find distressed properties, while short-term rentals like Airbnb can earn higher income. Partnering for larger deals can help buy larger properties. The best approach depends on the investor's risk tolerance, property management skills, and investment preferences.

Good luck!

[Zachary Yelder]

@Tanner Sortillo:

Where would you start and what would your approach be if you were a new investor with $100k set aside for RE investing? 

Good to see you a part of this group. If you have some investors you guys blast the stuff you get, I'm looking for some financial partners for a few projects here in the valley. Let's connect. 

[Drew Sygit]

@Tanner Sortillo 

Recommend they first figure out the property Class they want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

PM us if you’d like to discuss this logical approach in greater detail!

[Greg Kasmer]

Quote from @Tanner Sortillo:

Quote from @Greg Kasmer:

@Tanner Sortillo

Tanner - My current strategy is to buy small/mid-size multifamily, so I would use the additional $100k to supplement a purchase of a 5-20 unit property!

[Dave Skow]

@Tanner Sortillo- thanks - I would have the new investor get a solid idea of financing options and for them to get formally pre-approved for a hypothetical scenario.  Without the ability to obtain a loan / financing - the next steps will be harder to accomplish

[Scott Po]

Why does every question get "answered" with more questions around here haha. It's somewhat frustrating sometimes. This isn't hard to answer, most first time investors are looking for cashflow to make all future real estate investing ventures happen. Nobody is buying their first property for appreciation. 

That being said, if I had 100k I'd finance a below market triplex/quadplex in a cheap but good cashflowing market and renovate it using the 100k to get equity and cashflow. 

I would only do Airbnb if I were an established investor that could survive if it failed. The Airbnb market isn't what it used to be. So I wouldn't bank on it for my initial venture. If you fail, you're back at zero. Whereas if you get a nice cashflowing multifamily, you're safer and your initial investment is making you money to put towards other future ventures. 

[Tanner Sortillo]

Quote from @Scott Po:

Why does every question get "answered" with more questions around here haha. It's somewhat frustrating sometimes. This isn't hard to answer, most first time investors are looking for cashflow to make all future real estate investing ventures happen. Nobody is buying their first property for appreciation. 

That being said, if I had 100k I'd finance a below market triplex/quadplex in a cheap but good cashflowing market and renovate it using the 100k to get equity and cashflow. 

I would only do Airbnb if I were an established investor that could survive if it failed. The Airbnb market isn't what it used to be. So I wouldn't bank on it for my initial venture. If you fail, you're back at zero. Whereas if you get a nice cashflowing multifamily, you're safer and your initial investment is making you money to put towards other future ventures. 

Hey Scott, funny how that works on here haha. I'm sure I could have done a better job phrasing the question but I have appreciated all the comments and inputs regardless.

I do really like your approach to investing in a multifamily property. I live in Phoenix and a solid deal on distressed MF properties are seemingly harder to come than other large markets. Additionally, the Airbnb market is pretty oversaturated here and a lot of the HOA's are cracking down big time. I do think finding a property (whether MF or other) in an appreciating area to rent and get cash flow going would be the most viable option.

Thanks for your opinion and input, I just shot you a connection let's stay in touch!

[Henry Lazerow]

Look into a house hack. Its how I got started and allows you to buy low down 5-10% on a 2-4 unit. Great way to start! 

[Tanner Sortillo]

Quote from @Taz Zettergren:

@Tanner Sortillo it depends on his current situation, what the goals are and how much time and effort he wants to spend in real estate. If he doesn't own a property I'd definitely recommend to house hack since this will teach you a ton about real estate investing in general with very little out of pocket. If that isn't feasible for his situation I'd recommend looking for rentals in the southern/middle part of the country where price points are much easier and the laws are landlord friendly. If he doesn't want to invest actively there are ways to passively invest in real estate with companies that are vertically integrated. Some are even offering interest rates as low at 4.9% on a 30 yr fixed loan.

Feel free to reach out if you have any questions, best of luck to you and your clients! 

Hey Taz, thanks for the input. I think house hacking or rentals would both be feasible options. If you had an extra $100k specifically for investing is this the approach you would take?