If you were a newbie and had $20k, how would you use it?!

20 Replies

I'm a newbie. I have $20k set aside.  My original plan was to use it to pay off debt.  Then I decided to get serious about real estate investing, found bigger pockets and learned a little about leveraging money.

So for you experienced folks, how would you use this money?!

(We are currently searching for another single family home to move into and rent our current place. I will be using a 2nd tier va loan with $0 down. I don't want to use any of the $20k for this deal.  I have $27k in equity in our current home.  If we manage it as a rental it will cash flow about $250 a month.)

I'd say this depends on what kind of debt you currently have. If you have ~20% credit card debt looming around around, I'd say pay that off first. If it's long term, low interest rate date, I would definitely invest those funds into some healthy real assets (real estate!).

@Jeremy Jackson We followed that path in the beginning, moved and rented it. As @Mehran K. said, what kind of debt are you looking at? 

Real estate can cost big chunks of money, out of nowhere.  But sometimes not. You need to be able to react to these things. 

If the debt is no big deal, start your education and start looking.

If you are headed into real estate, waiting six months and getting your affairs in order will not delay you much long term.

If you were ready (and to your question), with conventional financing that $20,000 isn't going to get you to a downpayment alone. You would need a partner, a seller to carry some of the downpayment, or to wait and save more money.

I have very little credit card debt.  3k that I'm paying off with my tax return.  The 20k was going to be used to pay off a 1.9% vehicle loan.  So not high interest at all. 

@Ryan Arth  

I'm in the exact scenario. Have 20k and own a 3b/1b. Gonna make  rental and purchase another house. Should my next purchase be a house for me or a rental then buy a third house for me?

As of right now We're sticking with plan A......pay off some debt while we're looking for our next live in flip.  

As Richard Branson said once, plan for the upside but always protect the downside. 

You seem to be in good shape. I will give you once piece of anecdotal advice. Wait for the right one. 

If you pull the trigger on a mediocre deal you may get tied up for quite some time before being able to act again. Time you cannot get back.

To your success.

@Ryan Arth   Perfect timing.....we've looked at so many houses and haven't found the right one!  Still searching.  

I can't see any reason to pay off a 1.9% loan...surely you'll make more investing that money?

Agree with John--don't wait--buy your first investment property. 

If you can tolerate living next to folks, consider a smaller multifamily. Find one that's undervalued and possibly has vacancies. If you can fix up 1 unit a year- being conservative- and start increasing rents your first year, you will be well on your way to a value added property that will provide equity for your next buy. Fannie Mae has some attractive programs for investors and owner occupied. Under 4 units still considered residential loans. Cash out refinance possible soon after closing. 

@Jeremy Jackson Have you considered buying multi-families and using an FHA loan? This could be a good route to go.

@Jeremy Jackson  

It would be insane to pay off 1.9% debt. That's cheap money and you can get a lot better return by investing it. I don't know your market but it looks to be a heavy energy and oil market. If so, I'd be real careful right now with oil prices below $50/barrel. It's great for us consumers but not so great for all those working in the energy related fields. Houston is seeing some big layoffs already. If you're thinking of buy and hold, I'd look toward the Midwest like Indianapolis and Kansas City.

Congrats on using the second part of your VA loan!

That is what we did! It worked out well. Depending on your debt and how it will after your debt to income ratio. WE took that 20k and bought a pure rental. It was a great way to extend our portfolio as far as possible. So again it really depends on your goals and financial system. 

1.9% cash is cheap, but what is your vehicle loan payment? If you have a $400/month car payment, you can pay that off and provide yourself an immediate upgrade to your own personal cash flow. This would also free up you DTI, allowing you to possibly avoid higher investment rates on an investment property purchase. So the question is, can you improve your cashflow substantially by paying off your personal debt, or can you give yourself more cashflow by buying an additional rental property?

If you are okay with house-hacking, I would work my way into a 2-, 3-, or 4-plex situation, and live in one unit. Since you have a VA loan, you wouldn't have to put any money down, someone else would be paying your mortgage, and you could still cashflow if you buy right. With $0 down and up to 3 additional units to fill, you could basically have tenants paying YOU to live in your own 4-plex.

Originally posted by @Jeremy Jackson :

I'm a newbie. I have $20k set aside.  My original plan was to use it to pay off debt.  Then I decided to get serious about real estate investing, found bigger pockets and learned a little about leveraging money.

So for you experienced folks, how would you use this money?!

(We are currently searching for another single family home to move into and rent our current place. I will be using a 2nd tier va loan with $0 down. I don't want to use any of the $20k for this deal.  I have $27k in equity in our current home.  If we manage it as a rental it will cash flow about $250 a month.)

 Hi Jeremy,

I would save the money and keep adding to the pile.

I believe that once you hit around the $50k in savings, then you can start looking at what options are available.

IMO, there is not much one can do with $20k

Please keep in mind that my perception is based on flipping and not any other RE strategy.

Thanks and have a great day.

@Kyle H.  The interest is low but it would free up $400 a month personal cash flow.  I'd have a hard time finding a turn key rental that would have that kind of cash flow. 

I would love to find a duplex or multi family that we could live in comfortably for a year or two, but I'm not having any luck.  If I could find suitable for my family, I would consider it. 

Originally posted by @Jeremy Jackson :

@Kyle H. The interest is low but it would free up $400 a month personal cash flow.  I'd have a hard time finding a turn key rental that would have that kind of cash flow. 

I would love to find a duplex or multi family that we could live in comfortably for a year or two, but I'm not having any luck.  If I could find suitable for my family, I would consider it. 

To me, it's not worth buying a property to get $400 in cash flow, when you are forking up $400 out the door every month for a car payment...this is a net $0.  What happens if your property needs a $6000 hvac unit because it breaks down.  Then you lose your cash flow for the year, and this doesn't include other maintenance issues, either.  On top of that, you would still have to put $400 on your car loan.  That's a negative hit to your monthly bills.  Instead of netting $0 monthly, you are now -$400 ($0 cashflow, $400 car payment).  This example is assuming you can find a nice cashflow of $400 per month on a property.  If you get less than that, you could put yourself in a very tight situation. 

Yes, this is all speculation, but you have to prepare yourself for the worst, especially with a family involved.  If you didn't have a family, my advice would be different, and I would say to take on a bit more risk.  However, I am sure that they come first.  As a result, my whole point to this post is to say that consumer debt SUCKS THE LIFE OUT OF MOST AMERICANS.  When else will you get the chance to guarantee an additional $400/month in cashflow?  Even though the rate is low, my advice is to pay the car off.  It puts you and your family in a better situation moving forward, and helps to prevent you from undergoing some of life's uncertainties.  And besides, with an extra $400/month, you can save up REALLY quickly for a new property, especially since you only have to put $0 down :).

Originally posted by @Kyle H. :
Yes, this is all speculation, but you have to prepare yourself for the worst, especially with a family involved.  It puts you and your family in a better situation moving forward, and helps to prevent you from undergoing some of life's uncertainties.  And besides, with an extra $400/month, you can save up REALLY quickly for a new property, especially since you only have to put $0 down :).

Respectfully, I disagree with you here. As they say, a bird in the hand is worth two in the bush. Contributing that extra $400 a month to savings it'd take him over 4 years to build back up to $20k. Also when planning for life's uncertainties, an immediate and liquid lump sum is much more useful than extra cash flow.

Originally posted by @Brendan Morin :
Originally posted by @Kyle H.:
Yes, this is all speculation, but you have to prepare yourself for the worst, especially with a family involved.  It puts you and your family in a better situation moving forward, and helps to prevent you from undergoing some of life's uncertainties.  And besides, with an extra $400/month, you can save up REALLY quickly for a new property, especially since you only have to put $0 down :).

Respectfully, I disagree with you here. As they say, a bird in the hand is worth two in the bush. Contributing that extra $400 a month to savings it'd take him over 4 years to build back up to $20k. Also when planning for life's uncertainties, an immediate and liquid lump sum is much more useful than extra cash flow.

True, but it sounds like he already has monthly income going into savings, which is why he already has 20k saved up.  If he is putting away $500/month now, he could add $400 more to it, thus recouping his money in about 22 months.  Not sure what he is saving, but he can create a decent cash buffer in just a few months with no debt.  Also - I am not sure that this 20k is even his emergency fund...this could be extra disposable cash.  But, I do agree that cash is king, even when it comes to life's uncertainties. 

I would get the E-book by George Antone "the bankers code" read it, follow it, and live it.

I just finished reading it and I can tell you "WOW" I had no idea!!!

BTW I am in no way affiliated with Mpactwealth! I am a newbie and came across this book and I can say that it has cleared up so many questions. i highly recommend the read!

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