Soon to inherit some money. Want to invest in real estate. Looking for some help in forming a plan!

21 Replies

Hi, BP community! I'm a recently married 33 year old living near Orlando, Florida. I'm going to be inheriting some money soon and want to use it wisely. Real estate investing is appealing to me. I'm trying to formulate my goals and get some advice on getting my plan started. I've been reading like crazy trying to get a grasp on the world of real estate investing. But I think its time I try and look to others for some advice and to improve my knowledge. I'm very cautious by nature and am scared to death of losing this money through poor investment decisions. At the same time I know some risk is inevitable. In short, I wanna be smart!

Currently, my plan is to try and retire in 10-12 years and hopefully be able to make 8-10K a month in cash flow to live off of. In the meantime, having a little extra cashflow a month through rentals would be great. Rental properties appeal to me more than fixing and flipping at this point. But that could change as I learn more.

Anyway I have too many questions I don't even know where to start. Any guidance and direction on taking my first steps is much appreciated!

@Niles Treber  

Welcome to BP!

Here are my Quick Tips (If you're listening to the Podcasts, you'll understand the reference. If not...see Tip #2!!!)

1. Get involved in the forums. Offer what you can and absorb what everyone else offers.

2. Listen to as many Podcasts as you can. I am listening to all of them, some of them more than once. There has not been a single broadcast that has not provided me value or that I felt was a waste of my time. Great content!!

3. Download and read the free How-to-Guides, starting with the Ultimate Beginner's Guide to Real Estate Investing. http://www.biggerpockets.com/real-estate-investing

You could pay thousands of dollars for this information BP offers free. (I almost did!)

4. Set up some keyword alerts. It will keep you engaged in valuable discussions, while you're getting plugged in.

5. Get involved with your local REIA's. Real Estate is, as I'm learning, all about relationships and networking. Make it work for you!

The BP community is awesome, and you've taken a great first step!

I can't say enough about the Beginners Guide.  The calculators are awesome as well...here's the link to the Rental calculator...

https://www.biggerpockets.com/buy-and-hold-calculator

Now...with all that said, be very cautious.  You said you are naturally cautious, but now be doubly so.  you just came into a land of people looking for money announcing you have or are about to have money!  As for practical advice directly relating to your situation...if you're planning to try to retire that quickly, you should consider rolling all the cash flow back into the properties to pay down the mortgage.  That will get you the most bang out of the fewest houses at retirement, unless you continue to acquire more properties.  It's 2 different schools of thought.

I live in Orlando and am involved in both "buy and hold" as well as flipping. 

I always involve others in the deals (syndication) so perhaps you would like to follow some of these projects with no need to invest anything -- just as a way to learn.

[email protected]

Niles,

Agree with @Hattie Dizmond  . Here are some more ideas:

1. Do not invest in a war zone. It's too much trouble even with the return you get. The way I classify areas are:

- A - you get more Appreciation but no or negative cashflow
- B - you get Both appreciation and cashflow
- C - you get Cashflow but no appreciation
- D - you get a lot of cashflow but with a lot of tenant Drama and property Depreciation
- F - Forget it (war zone)

As a beginner, only invest in A, B and C areas. Stay out of D and F.

2. Always consider the numbers when you invest. I would aim to make at least a 12% cash-on-cash return or better. That means per every $100 I invest, I get back $1 a month or $12/year. You can utilize a spreadsheet like below:

http://www.biggerpockets.com/files/user/Mister4clo...

Here's a screenshot:

3. Listen to my podcast. It will show you how I made a BIG mistake in investing in an apartment building and what I've learned. Learn from my mistakes. Life's too short and money is not infinite for you to make BIG mistakes. Here's the podcast link: http://Biggerpockets.com/show65

Welcome to Biggerpockets!

You are in an amazing place to learn about the different types of real estate and different strategies. The one thing that everyone on here agree with is their investment dorm is real estate beyond that everyone differs.

We are buy and hold investors. Our goal is to retire in 15 years on the cash flow from our houses and our a military pension (god/navy) willing.  We are big believers in leverage. As we both have full time jobs we leverage our w2 salaries so all of our properties are bought with as little down. In your case 20% down conventional investment loans. We buy class A properties because  we can self manage them creating no management fees, low to no vacancy and less turn over expense. We buy great houses that will produce the need cash flow in the long term by dividing our income over as many houses as possible. Part of the name of our game is having the tenants pay off the investment.

There are tons of methods. I definitely recommend you check out people's signatures who post you agree with. I started a website that discuss our strategy, self managing, class a properties, managing from afar, early retirement, etc

If I can help let me know! Good luck and you are in a great position!

Originally posted by @Hattie Dizmond :

@Niles Treber 

Welcome to BP!

Here are my Quick Tips (If you're listening to the Podcasts, you'll understand the reference. If not...see Tip #2!!!)

1. Get involved in the forums. Offer what you can and absorb what everyone else offers.

2. Listen to as many Podcasts as you can. I am listening to all of them, some of them more than once. There has not been a single broadcast that has not provided me value or that I felt was a waste of my time. Great content!!

3. Download and read the free How-to-Guides, starting with the Ultimate Beginner's Guide to Real Estate Investing. http://www.biggerpockets.com/real-estate-investing

You could pay thousands of dollars for this information BP offers free. (I almost did!)

4. Set up some keyword alerts. It will keep you engaged in valuable discussions, while you're getting plugged in.

5. Get involved with your local REIA's. Real Estate is, as I'm learning, all about relationships and networking. Make it work for you!

The BP community is awesome, and you've taken a great first step!

I can't say enough about the Beginners Guide.  The calculators are awesome as well...here's the link to the Rental calculator...

https://www.biggerpockets.com/buy-and-hold-calculator

Now...with all that said, be very cautious.  You said you are naturally cautious, but now be doubly so.  you just came into a land of people looking for money announcing you have or are about to have money!  As for practical advice directly relating to your situation...if you're planning to try to retire that quickly, you should consider rolling all the cash flow back into the properties to pay down the mortgage.  That will get you the most bang out of the fewest houses at retirement, unless you continue to acquire more properties.  It's 2 different schools of thought.

 Thanks Hattie :) Im trying to determine the best way to go about acquiring the properties with the cash. How much to put down? Pay cash for some and finance some? Finance all and hang to cash for repairs, etc... I understand that by putting the minimum down it leaves more money to be able to make down payments on other properties. But the less I put down, the less difference between the mortgage and what Im getting for rent. Which is a  scary thought. I think I have enough to acquire the amount of properties I want to start getting the cash flow I want once they're all paid. But am scared of stretching myself too thin financially in the meantime and losing a house. Im sure these questions have been asked and answered on here before, so any links to other forums would be great too :) Thanks!

Originally posted by Elizabeth Colegrove:

Welcome to Biggerpockets!

You are in an amazing place to learn about the different types of real estate and different strategies. The one thing that everyone on here agree with is their investment dorm is real estate beyond that everyone differs.

We are buy and hold investors. Our goal is to retire in 15 years on the cash flow from our houses and our a military pension (god/navy) willing.  We are big believers in leverage. As we both have full time jobs we leverage our w2 salaries so all of our properties are bought with as little down. In your case 20% down conventional investment loans. We buy class A properties because  we can self manage them creating no management fees, low to no vacancy and less turn over expense. We buy great houses that will produce the need cash flow in the long term by dividing our income over as many houses as possible. Part of the name of our game is having the tenants pay off the investment.

There are tons of methods. I definitely recommend you check out people's signatures who post you agree with. I started a website that discuss our strategy, self managing, class a properties, managing from afar, early retirement, etc

If I can help let me know! Good luck and you are in a great position!

 Thanks! Your goals and strategy sounds similar to what I have in mind. Me and my wife both work full time as well. My concern about putting %20 down is not making enough cash flow for expenses, repairs, etc. Is there a certain percentage of rent to profit ratio that is usually recommended?

Thanks!

Many investors here follow the 1%, 2% or 50% rule. While we certainly have very tight margins we have no desire to use the income now. The income is all reinvested into the houses. While putting 20% in the house you are having the tenants pay the maximum off them. If your interested in more info check out my website. I talk all about our strategy and our plans. I also have some free ebooks coming out on self managing, self-managing from a distance, etc. if your interested I would recommend signing up for the free news letter as it will keep you appraised of all the latest tools.

The key is to figure out your business model and strategy. Our has evolved over time due to business pressures.

Let me know if you have any questions or concerns!

@Niles Treber  

Ensuring you analyze the deals correctly is crucial to ensuring you have positive cash flow.  If you get into the properties at the right price, your cash flow should be secure.  Remember, you make or lose money, when you buy.  Never bank on appreciation and don't base your projections on assumptions about future rent increases.  Your deal needs to cash flow right now, at some level, or it isn't a deal.

@Hattie Dizmond

Thanks for the words of wisdom. Im getting started on the steps you gave me!

Originally posted by Account Closed:

Niles,

Agree with @Hattie Dizmond  . Here are some more ideas:

1. Do not invest in a war zone. It's too much trouble even with the return you get. The way I classify areas are:

- A - you get more Appreciation but no or negative cashflow
- B - you get Both appreciation and cashflow
- C - you get Cashflow but no appreciation
- D - you get a lot of cashflow but with a lot of tenant Drama and property Depreciation
- F - Forget it (war zone)

As a beginner, only invest in A, B and C areas. Stay out of D and F.

2. Always consider the numbers when you invest. I would aim to make at least a 12% cash-on-cash return or better. That means per every $100 I invest, I get back $1 a month or $12/year. You can utilize a spreadsheet like below:

http://www.biggerpockets.com/files/user/Mister4clo...

Here's a screenshot:

3. Listen to my podcast. It will show you how I made a BIG mistake in investing in an apartment building and what I've learned. Learn from my mistakes. Life's too short and money is not infinite for you to make BIG mistakes. Here's the podcast link: http://Biggerpockets.com/show65

 Thanks! Im just starting on the podcasts but ill skip ahead to your show and check it out. Thanks for the link to the spread sheet as well.

@Niles Treber  

Welcome. Time to build the foundation below first.

Check out the Start Here page http://www.biggerpockets.com/starthere

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.

Consider checking out HUD homes for small multi's owner occupied gets first crack.

You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good luck

Paul

Niles,

Let me start by saying that I think you're being very wise in asking for everyone's perspective/feedback, as clearly taking it slowly will be key to your success (given that you're new). I have been a passive cash flow investor for over 12 years (full-time since 2007, which is when I was able to leave the corporate world thanks to the passive cash flow) and I can tell you that cash flow in general can definitely change someone's life (it definitely did for me!). I regularly speak with investors in your situation and I have 2 suggestions that I usually pass along (please note that I am NOT a Financial Advisor - these represent my perspective as a fellow investor):

1) Take It Slow - Cash flow takes a while to build up. It took me over 5 years to rotate my savings from stocks/bond to cash flow (2002-2007) before I had enough cash flow for my living expenses. While I'm sure you're going to want to generate cash flow as quickly as possible, if you want to be careful and properly diversify then it takes time and patience. While it might be frustrating at times, trust me when I tell you that slow and steady wins the race when it comes to cash flow.

2) Decide Whether You Want To Be Active or Passive - This is a VERY important point that I can't stress enough. Everyone has their own definition of "Active" and "Passive" but I can tell you that I believe Active = Someone who holds direct title to a property and has control over a property (ie. Single Family Investors) while Passive = Someone who gives up control to a more experienced Manager and who doesn't have control over a property (ie. Syndications or pooled investor scenarios that are managed by someone else). I personally chose the Passive route when I first started and I haven't looked back. Many people, especially on BP, prefer the Active route because they want control. I personally love the fact that I'm much more diversified than most Active investors but it comes at a cost - lack of control. So often people make this decision based on whether they want/need control based on their personality. The Passive route allows me to invest in large Commercial Real Estate Opportunities (ie. 100+ unit apartment complexes, office, retail, mobile home parks, self-storage, etc) and I essentially trade control for diversification as a result. But what's most important to understand is that, due to the illiquid nature of real estate (even if you're Active it can take a while to sell a property and the market timing might not be right for you to want to do so), once you go down either path (Active or Passive) it's hard to unwind from either position if you decide, in retrospect, that it was the wrong path for you. That's why I'm suggesting that you should take some time to decide whether you want to be Active or Passive before you go down either road.

There are MANY great people on BP who can help you with either route. I am always happy to help any way that I can (clearly my knowledge is on the Passive side) so feel free to send me a message if there's any way I can help.

Good luck. Just be sure to take it slow!

Jeremy Roll

President, Roll Investment Group

Co-Founder, For Investors By Investors (FIBI)

Advisor, Realty Mogul

@Jeremy Roll

Thanks for taking the time to give me some advice Jeremy! My goal is hopefully to retire in 10-15 years and be able to live off the cash flow Ive created. Itd be great to create some now, but it seems the more I take now, the less greater benefits Ill have in the future from my investments. Maybe in the meantime acquiring enough for a few (modest) toys I can enjoy while Im still young will satiate me. haha

Im wondering how many properties Ill need to get an 8-10K a month cashflow once theyre paid off. Figure Ill start small on a SFR as close to home as possible. I wanna use the money to meet my cash flow goal at retirement and hopefully do it without too much risk. With the money Ill be getting I think I can do that. (300K) But Im still working out a strategy on the best way how.

So far I imagine myself taking the more "active" approach you mentioned. Although thats just because thats what Im more comfortable with having such limited knowledge of other avenues.

Thanks again for the wisdom. And anytime you wanna offer more, Im all ears! :)

Niles

Account Closed 

Thanks! My instinct is telling me to just start with a small SFR and then go from there. Multi-family seems like such a good idea but even that makes me worried Ill be a little in over my head. HUD homes and foreclosures are something else that sound very appealing but to be honest at this point it sounds intimidating. I wish I had a background in real estate since it would probably alleviate some of my fears. I work full time and im learning everything I can through books, podcasts, and forums here on BP.

Thanks for the advice to attend some REIA meetings. I think Ill do that!

Niles

@Niles Treber Since you haven't been investing in real estate, it pays to explore a bit become familiar with the many strategies that are available. Most people start with SFR and then move up from there. That is not a bad strategy, since it is fairly safe and your exit strategy can always be to sell the property retail to a homeowner. However, SFR may not meet your objectives if cash on cash return is your primary objective. All the advice given to you here is solid advice and comes with much experience behind those replies. Take you time and explore the risks, returns, and rewards of SFR and apartments and one of them will grab your heart. That is the one I would suggest you invest in. Always good to love what you are investing in.

Shine on,

Jack

@Wendell De Guzman, love your property rating system! It's not just for beginners either-

1. Do not invest in a war zone. It's too much trouble even with the return you get. The way I classify areas are:

- A - you get more Appreciation but no or negative cashflow
- B - you get Both appreciation and cashflow
- C - you get Cashflow but no appreciation
- D - you get a lot of cashflow but with a lot of tenant Drama and property Depreciation
- F - Forget it (war zone)

As a beginner, only invest in A, B and C areas. Stay out of D and F.


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We have a site called RapidTrusteeSale.com which provides all the information for scheduled properties at the Trustee Sale Auction. Investors are picking up properties for around 80% below market value. Check out the site and if you have any questions, feel free to contact me.

Welcome to BP @Niles Treber !! I don't know how much money you're coming into but if you have enough you should invest it into self storage. They're probably the safest of all real estate investments but I would make sure you have someone who knows what they're doing help you do the research and acquire one. I'm saving up to buy two of them right now and then I'm retiring and traveling the world. 

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