Strategy for lump sum of money

24 Replies

Good Day BP,

As a newbie just starting out, my first goal I set is get to 2500-3000 a month net income.  I have a lump some of money approx 2-300k to work with and want to come up with a solid low risk plan.  Below are some of the thoughts i am having,  I am just to green to understand the best strategy to reach this goal or if it is possible.  Any feed back would be much appreciated.

1. Purchase single family or multi-family. 

2. Buy fix sell first or buy and hold.

3. Use the money for down payments and finance as many properties as possible or pay cash for a couple of properties.

4. Down payment on a large apartment complex or cash for a smaller apartment complex

Have a great day...

@John Chapman Go slow.  And assume everyone is trying to take advantage of you.  You need to educate yourself and become comfortable with one strategy.

Your goal is pretty modest.  Basically a minimum of a 12% return on investment.  You can achieve that with any of those strategies, but you may find you don't like being a single family investment property owner for any number of reasons.  (Don't trust property management, too modest and investment, don't like being worrying about it, etc.)  The same goes for your other ideas.

I will say that you can do much better than 12% if you leverage (use the funds as down payment and buy more or bigger), but you may find you don't like it.

You really need to educate yourself.  Read a bunch on BP.  Talk to local investors.  Read books.  You'll find that what interests you the most comes into better focus as you learn more.

Finance and use the leverage but proceed slowly and with caution. I deal in single   residences and try to do simple math with each deal. I bought 10 homes in 2008 when foreclosures were around every corner, most of them could not be financed due to stripped out wires and other code violations, therefore were the best deals since competition was not as fierce, in that case cash is King , for others financing is best option. And absolutely believe everyone is trying to take advantage of you, as is always the case when you are on one side of the dollar and someone is on the other. Best of luck

@Larry T

Thanks for the encouragement and warning.  I have been reading and studying for about 3 months now, just tying to find the best strategy so I can focus my learning.   

Originally posted by @Gail Shoults :

Finance and use the leverage but proceed slowly and with caution. I deal in single   residences and try to do simple math with each deal. I bought 10 homes in 2008 when foreclosures were around every corner, most of them could not be financed due to stripped out wires and other code violations, therefore were the best deals since competition was not as fierce, in that case cash is King , for others financing is best option. And absolutely believe everyone is trying to take advantage of you, as is always the case when you are on one side of the dollar and someone is on the other. Best of luck

 Thanks for the reply,  did you pay cash for the 10 homes or finance them?  

Some of it's going to depend on your goals ($2K-$3K/mo NOI) and how much time you can commit to the business. Fixing up beaters, even if your intent is to hold, isn't your typical "passive" investment. If you've got the time to commit to it and it's something you like to do than it can certainly help drive up your ROI. But it is a commitment...

All the best!

Medium honoluahomesd22ar04dp02zl pierce4dTravis Hamilton, Honolua Homes | [email protected] | (844) 466‑6582 | http://honoluahomes.com

Originally posted by @Travis Hamilton :

Some of it's going to depend on your goals ($2K-$3K/mo NOI) and how much time you can commit to the business. Fixing up beaters, even if your intent is to hold, isn't your typical "passive" investment. If you've got the time to commit to it and it's something you like to do than it can certainly help drive up your ROI. But it is a commitment...

All the best!

 Thank Travis,

I appreciate the feed reply,  I do have a bit of time to commit to the process.  just trying to determine the best strategy to maximize the resources i have at the monument.

Have a good one 

Hi @John 

@John Nicholas ! Welcome to BP! Wishing you continous success on real estate investing! All the best!

I have always bought cash distressed SFHs in my town and seller financed them. 10 cap minimum and I don't repair houses anymore. I used to rehab but no more. All of my homes in my portfolio are tended by the end buyers. Its the best passive REI you can have, in my estimation. That's what I would do with that sum.

Originally posted by Account Closed:

I have always bought cash distressed SFHs in my town and seller financed them. 10 cap minimum and I don't repair houses anymore. I used to rehab but no more. All of my homes in my portfolio are tended by the end buyers. Its the best passive REI you can have, in my estimation. That's what I would do with that sum.

John, what NOI are you buying at a 10 cap and what is the market cap? You say you buy cash distressed SFHs. Do you mean cash distressed owners?

Originally posted by Account Closed:

I have always bought cash distressed SFHs in my town and seller financed them. 10 cap minimum and I don't repair houses anymore. I used to rehab but no more. All of my homes in my portfolio are tended by the end buyers. Its the best passive REI you can have, in my estimation. That's what I would do with that sum.

 Hi Joe!!! Your writing style is distinctive, as is your confusion about what it means to have a portfolio and your inability to comprehend what a cap rate is and is not.

@Bob Bowling

  John Is the guy Joe pickett was marketing for and made all that fuss here on BP with his mischaracterizations of the transactions and which led to a 285 post debate over on the market place

what John is alluding to.. .is his company buys cheap run down houses... and then according to Joe they flip them to CA investors or other out of state investors and make a nice profit on the flip.. then they sell them for the CA investor ( and I assume JOhn has many in his personal portfolio)  to primarily according to Joe Pickett Hispanic blue collar workers there in San Antonio as fixer uppers.. and major ones at that.. According to Joe they sell them with 5k down and long term owner finance with the CA investor holding the paper... So there is no cap rate.. and this is something that was pointed out to Joe many times it is simply interest income.. and since these CA investors sell the home for a farily hefty margin for what they paid for them they are making a greater return than the coupon interest rate.. so the investors are making interest income not Cap rate because they are note holders not owners.

Now were the debate came in what form others on the forum pointing out that much of this is probably predatory lending and there are dodd frank and safe act issues. Dion Dipoli our resident note expert went to great lengths explaining the short comings of this model and the risk it poss's to the CA investors who unwittingly get caught up in this scheme.

But the short name for this is simply sweat equity owner carrys my vendors in Detroit were doing this way back in 2001  but dodd frank really put the breaks on this model if your going to do it according to the new lending rules for owner occs.

there are exclusions and exceptions but when Joe explained it.. he says the Hispanics are all cash and have no credit thereby they will pay much more for a home than they should. Well as a NMLS mortgage banker like I am.. I am fairly certain you cannot qualify these buyers for owner occ under the new laws.. So the risk to the Note holder is having to give back all monies received and depending on the state there could be treble damages.

Along with the fact they are taking a house they bough that is a wreck  they paid 20k for it in the example Joe gave on line here.. then sold it to some unsuspecting CA person for 50k or so according to Joe.. then sold it on contract without ever touching it ( according to Joe ) to the Hispanic buyer borrower for 79k.. .its one thing to buy low and sell retial once your rehab but to sell a 20k house as is for 79k and never touch it that is were it gets a little dicy according to many who posted.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Account Closed :

I have always bought cash distressed SFHs in my town and seller financed them. 10 cap minimum and I don't repair houses anymore. I used to rehab but no more. All of my homes in my portfolio are tended by the end buyers. Its the best passive REI you can have, in my estimation. That's what I would do with that sum.

Stop bragging about being a scumbag.  You will gets yours.  I hope you go to jail for taking advantage of those people.

LOL talking like a bigshot all the while he's a scammer

Originally posted by @Marlon Wilson :

Hi @John 

@John Nicholas ! Welcome to BP! Wishing you continous success on real estate investing! All the best!

 Thank you Marlon,  

@John Nicholas

 I am in a similar situation. I would say learn all you can about the strategies and see which one you are most comfortable with. Like any investment its your comfort that matters first and foremost. for instance, in buy and hold will you be ok when your tenant stops paying rent and you need 2 or 3 months to evict and find a new one or when you need to fix something you did not know about and it kills cash flow for a few months? Do you want cash flow or appreciation? If the latter will you be ok waiting many years to sell while getting little income? 

On large mutlis are you going to be able to dedicate the time and energy to go through a very tough DD process (tons of things to review as you are basically buying a business)?

@John Nicholas

There are a couple of things that I like to plan for.  The biggest factor is with "value add".  The second is some sort of tracking of future market dynamics.

Single family houses don't track along with apartments or other commercial properties for the most part.  I don't track the single family and know very little about that market.

I do track the dynamics for apartments though.  There are so many pieces to this but there are a couple of key factors.  Ideally, you would want to buy during a weak market and sell when there is strength.  This would mean that it is better to buy when there are less buyers and more vacancy.  This is usually the result of overbuilding.  The cautions with this process is that the future holds job gains and population growth to help fill these vacancies.

The other part is this is the "value add" component.  I like to look for mismanaged properties that are in good locations.  Perhaps the property needs a facelift or even a full overhaul. 

If you can buy a million dollar apartment property that is underperforming on income, fix the issues for a hundred K or so, then sell at 1.6M, a tidy profit can be made.  This process takes a bit of time.  If you are in an improving market, you may benefit even more.

The key part of this is that you can repeat this process a few times and end up with a 10M property. 

@John Nicholas

The nice part about having that large lump sum is your options. You can try a few things and figure out what you really want to do in the REI world.

At the end of the day you may end up swinging a hammer because demolition and bathrooms are your thing.  On the other end of the sweat spectrum you might go in on notes or hard money lending.

BP is a great place to brush up on just about anything.  Enjoy the options you have and I hope you find something awesome.

To answer your original question:

I would leverage 150k to get to your 3000k/month income.  I would use the remaining money to flip houses as a business.

Originally posted by @Jay Hinrichs :

@Bob Bowling

  John Is the guy Joe pickett was marketing for and made all that fuss here on BP with his mischaracterizations of the transactions and which led to a 285 post debate over on the market place

what John is alluding to.. .is his company buys cheap run down houses... and then according to Joe they flip them to CA investors or other out of state investors and make a nice profit on the flip.. then they sell them for the CA investor ( and I assume JOhn has many in his personal portfolio)  to primarily according to Joe Pickett Hispanic blue collar workers there in San Antonio as fixer uppers.. and major ones at that.. According to Joe they sell them with 5k down and long term owner finance with the CA investor holding the paper... So there is no cap rate.. and this is something that was pointed out to Joe many times it is simply interest income.. and since these CA investors sell the home for a farily hefty margin for what they paid for them they are making a greater return than the coupon interest rate.. so the investors are making interest income not Cap rate because they are note holders not owners.

Now were the debate came in what form others on the forum pointing out that much of this is probably predatory lending and there are dodd frank and safe act issues. Dion Dipoli our resident note expert went to great lengths explaining the short comings of this model and the risk it poss's to the CA investors who unwittingly get caught up in this scheme.

But the short name for this is simply sweat equity owner carrys my vendors in Detroit were doing this way back in 2001  but dodd frank really put the breaks on this model if your going to do it according to the new lending rules for owner occs.

there are exclusions and exceptions but when Joe explained it.. he says the Hispanics are all cash and have no credit thereby they will pay much more for a home than they should. Well as a NMLS mortgage banker like I am.. I am fairly certain you cannot qualify these buyers for owner occ under the new laws.. So the risk to the Note holder is having to give back all monies received and depending on the state there could be treble damages.

Along with the fact they are taking a house they bough that is a wreck  they paid 20k for it in the example Joe gave on line here.. then sold it to some unsuspecting CA person for 50k or so according to Joe.. then sold it on contract without ever touching it ( according to Joe ) to the Hispanic buyer borrower for 79k.. .its one thing to buy low and sell retial once your rehab but to sell a 20k house as is for 79k and never touch it that is were it gets a little dicy according to many who posted.

 Bummers  @Jay Hinrichs. But then John is the guy on the $28,000 Hawaiian vacation! John, when you gonna post some pics?

Originally posted by @Aaron Montague :

@John Nicholas

The nice part about having that large lump sum is your options. You can try a few things and figure out what you really want to do in the REI world.

At the end of the day you may end up swinging a hammer because demolition and bathrooms are your thing.  On the other end of the sweat spectrum you might go in on notes or hard money lending.

BP is a great place to brush up on just about anything.  Enjoy the options you have and I hope you find something awesome.

To answer your original question:

I would leverage 150k to get to your 3000k/month income.  I would use the remaining money to flip houses as a business.

 Thanks for the input Aaron,

it is much appreciated.

Thanks to all on the reply's and warnings.  It was a bit hard to follow with the hijackings of the thread.

I paid cash for them all, there is a program for self directed IRAS that let you get a custodian (I used Guidant Services) and invest any way you please. I chose real estate.

Every home I bought was non-financiable bank owned properties. There was never a bank that would loan anything on them , but with about 10 grand in each they were back in shape and I leased them out to hold until the market was much better and it is according to the property taxes LOL. We have income going directly into our IRA , but still cannot finance since it is prohibited for you to take a loan out in your name personally for an IRA that has been set up as an LLC. So on to other investments such as stocks etc. I looked for those homes that are hopeless to the buyer who needs to finance and picked up a home I rent for $1350 that I only paid 65000 for and then put around 10,000.

Yes renting can have headaches but I find they are really manageable, you sure find out quickly if there are any  problems with the house that you never detected, that is for sure.

Also the home I am referring to is appraised at 140,000 by the tax office, tried to contest but no go. I have owned that one since late 2011

Also I am now wanting to see about financing for some and see what I can find. I always finance for 15 years and make sure the rent covers a mortgage, the taxes etc, possible repairs and leaves ideally about $400 left over. That is my criteria, everyone else's is probably different.

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