Recently received an inheritance and working on a strategy.

49 Replies

I recently received about $300,000 in inheritance money and am looking to start buying rental properties. Homes are pretty cheap in my area (Spartanburg, SC), most decent homes are going for around $80,000. My question is, I currently do not own a home myself, so I was thinking about paying cash for a home for myself, and then use the rest of the money for down payments on loans for rental properties. I'm currently working a $40,000 a year job and I would love to own my home outright and put what I was paying in rent into a savings account for more investment. If I get a loan for my home, I feel it also would effect me getting investment loans.

What do you all think? Am I on the right track or do I have this all wrong?

Thanks!

James, I know you are probably looking for more expert advise but as I read your post I thought I would come on and say you can probably get some insight on what you want to by listening to a few podcasts. The reason I say this is because each person who shares has a unique way they got started and it might help you in making your decision. 

Hope this helps, I think it is awesome you have decided to start an investing career with your money. I think it is the best decision anyone in your situation could have made. 

Why not buy a 4 plex and go FHA with 3.5% down??

Live in one and rent out the three.

The positive is you have 300k to grow into something special over time. The negative is your job has low income at 40k a year.

So you really have to depend on turning this 300k into millions over time along with passive cash flow. The 40k job adjusted for promotions and increases even with inflation will not allow you to save much at all.

You could also go into business for yourself and get an SBA loan putting 10% down. Take half of the building and then rent the other half. SBA generally makes you occupy 50% of your total property.

@James Bynum The first thing I would do is pay off debt. Making $40K a year without debt makes a huge difference in financial freedom. Then I would find a knowledgeable realtor in your area that has experience in Single Family & income property. I solid way to do both initially is to find a triplex or quadruplex that has a standalone home in the front and the rentals in the back or on a separate parcel. This way you can accomplish both while qualifying for an Owner Occupied loan. Once you surpass 4 units you enter the commercial property arena.

I agree with above post but in addition a route you may want to consider is purchasing MFR with cash, renting them out for a few years or until your lender will qualify them for income then refi out some of the equity. You can owner occupy, live rent free, save your money from your current job, pay off debt, and practice being a landlord.

Thanks for all of the advice, I really appreciate it and am greatful for this website! My only issue is, I've been doing a lot of research on this over the last 6 months and have thought about going the quad plex route but the only quads Iand tris i've seen available over this time are in really horrible neighborhoods, and the one that I found that isn't is a four home rental property that wants close to $400,000 for it. I'm even having trouble trying to find duplexes and single families that would turn even a modest profit if rented out, the ones I've seen other investors selling want $100,000 for a duplex where the rent is only $400 - $500 or so a month. That would barely cover my mortgage let alone generate even enough for upkeep and repairs.

I am planning on looking for an agent soon, so maybe they can help me solve these problems.

I was even looking at doing flip and sells, but a house I was looking at is only going for $20,000 but I'd probably need to throw $50,000 at it to bring it back to livable, but the comps are only at around $80,000 so at most is be looking at a $10,000 not inlcuding closing costs. What is wrong with this town?!?!

congrats on your windfall!!

My biggest piece of advise is to take it show and do Babysteps!! Don't let the money burn a hole in your pocket! Which I know is easier said than done! You have so many possibilities.  In my personal experience I experience a strong learning curve . I know have 7 houses but I acquired them over 3 years! 

First, congratulations!  All of the contributors suggestions are good, but I also agree with Yasmine and Elizabeth . . . Listen to podcast on an ongoing basis and take  baby steps.  Ref properties, I can tell you from my own experience duplexes are not a particularly good investment in Upstate SC.  We have one that cash flows nicely, but after 14 years has appreciated very little.  4 plexes, on the other hand, are viewed more favorably in our area and something I would consider myself.  Keep the following phrase foremost in your mind -- "location, location, location."  Questions:  do you have any construction, home repair knowledge/experience?  If not, do you have someone in your circle who does?  What is your knowledge about the various communities in the Upstate, i.e., rental rates, demographics, etc?  all of which make the difference in the real value of a potential rental property.  The Upstate is ripe with opportunity.  If I were in your position, i would buy a home for myself using minimum down payment, live in it a short time  and begin looking for  my next personal residence.  Again, Purchase with minimum down payment, rent the first--thus leveraging owner occupied mortgage interest rates.

@MaryAnn Morelli , thanks for the reply. Unfortunately I don't really have any knowledge other than what I've learned so far listening to podcasts, blogs and forums here on this site. I'm just looking for a future with more income opportunities. 

I'm a TV Cameraman and companies are paying significantly less than they were paying even 10 years ago, so this is just not sustainable for much longer, and this is about the only other career option I can think that I would be able to do to make a decent income.

I also don't have a circle yet, but I am looking for REI Groups that I can get involved in and I'd like to find a mentor. Along with rental properties, I'd also like to get into flipping since I already have a decent amount off cash on hand I feel like I should seriously consider doing this.

Rent here in my area if REALLY low, so finding an income property has been really challenging, the average rent in Spartanburg is around $600 a month for a 2 bedroom. The only places that seem to rent for over $1,000 are high rises and converted old mills that have been converted to big lofts, both of which are pretty unattainable. 

How long do you need to live in a place before renting it out to get the benefits of owner occupied.

Thanks again for your help!

Have you considered going out a little further to see if the income potential is there?

If the Multifamily are expensive you may want to stick with single family homes.  Keep an eye out for foreclosures and short sales.  Also with that much cash you could even do a city courthouse auction.  But do learn everything you can before you start.

Most importantly is to make sure it cash flows and have an exit strategy.  I see so many stories of people purchasing a property to flip and then they can't sell it.   Do have at least 2 backup plans in case that original doesn't work out.  Take your time and really get to know your target area.

There are sfh in the Moore, Duncan and Boiling Springs areas that rent for $1000 to $1300.  Greenville also has good cash flow.  Look beyond Spartanburg and you will find good opportunities.

Ref -- How long do you need to live in a place before renting it out to get the benefits of owner occupied "mortgage rates" . -- sign the papers, move in and start looking for your next home -:).   Rent the 1st and if you've done your homework and have a property that rents for a reasonable rate -- which is the goal -- then that income strengthens your financial position for your next 'owner occupied' purchase.  

Originally posted by @Brent Paul :

Have you considered going out a little further to see if the income potential is there?

If the Multifamily are expensive you may want to stick with single family homes.  Keep an eye out for foreclosures and short sales.  Also with that much cash you could even do a city courthouse auction.  But do learn everything you can before you start.

Most importantly is to make sure it cash flows and have an exit strategy.  I see so many stories of people purchasing a property to flip and then they can't sell it.   Do have at least 2 backup plans in case that original doesn't work out.  Take your time and really get to know your target area.

 Thanks for the tips, I haven't really thought about the courthouse thing, but I'll start researching it to see what thats all about.

I have looked in surrounding areas, and right now the best place to invest would be Greenville, which is really starting to grow substantially. But as far as buying a property to live in part of it, or to live in a place short term to get a good owner occupied loan would not work for me as my job requires me to live in Spartanburg. What are some potential backup plans? Turning it into a rental and doing a refi to get my money back out of it??

I'd say take your time doing more research on strategies(flipping), deals etc.As Shawn M. said a MFR would get you a place,then save on rent,prepare to refinance etc

I know this is an older post but I wanted to give everyone an update. So after doing tons of research on this site I think I have finally formed a business plan so to speak, and I just wanted to run it by everyone to see if I am now on the right track. I love doing research and am still having trouble finding deals, but I think if I start going to some REI groups (which I plan on doing this month) I can hopefully find a good mentor, and maybe even an investment partner and hammer out some remaining questions specific to the local market.

I want to buy and flip homes to start out. Obviously start with a smaller safer deal so that I can really just learn how to flip, even if I'm not really making a ton of money on them, I'm hoping just to not lose money on them. Since I'll have the cash I figure I'd make a better profit margin in the beginning (no interest loans or down payments) and selling the homes I'll get all my capital and then some back for the next deal. I plan on doing flips and saving any profits from it until I have enough for a down payment on a rental property without having to dip into my current funds for the deals, that way I can keep reusing the capital and not having to go to an investor right off the bat to fund flips. Any extra money from the flips will go back into the flipping account so I can grow the flip side too, so that I can start buying more and more properties to flip as I learn more. So pretty much for the first couple of years I won't be touching the profits from the flips and just live off my current job income and whatever cash flow that comes from the rental properties. I figure in my first year I'll probably be able to do at least 3 flips, and then grow from there. Even if I only made $10,000 per flip which I think is a pretty conservative estimate, after 4 flips it would be enough for another down payment on a rental property.

Please let me know if you think this would be a wise and solid strategy or if I'm just plum out of my mind lol.

@James Bynum here is the best advice you probably gotten thus far. Don't use any of your money or your credit to buy property. You need to build your skill. You should learn how to buy properties without using money or credit and get good at it..This is time where you need to be discipline. For those people who don't have money it is easier because they don't have to worry about loosing the money because they don't have it to loose. Since you have cash, I recommend you finding a mentor and learn how to buy and sell properties without using your cash or credit

@Armond W.

@James Bynum

I have to agree with Armond. 

Take the money and don't touch it for at least a minimum of 6 months.  If you can do this then it will say a lot about you.  Check out what the Stanford Marshmallow Test is all about.  It was mentioned by @Brandon Turner on one of the podcasts and deals with immediate as opposed to delayed gratification.

Take those 6 months and learn EVERYTHING you can about your REI plans. Armond is absolutely correct about not using your money to finance a deal. Read Brandon Turner's ebook. Click on the Learn tab above and you will see it on the right.

Is your job stagnant?  Can you move to a city that may have better investing opportunities?

Having a business plan or step by step guide to what it is you are going to do is something that you either have or don't have.  By have, I mean a type written or hand written plan that outlines exactly what it is you are going to do.  It sounds like you have some ideas bouncing around but nothing on paper.  Putting it on paper forces you to think about what you know, don't know, and what you need to research more.  This plan/guide will show you how you get to where you want to go.

Keep us updated on what you do with the 300K.  I would be extremely proud to see that you accomplished your goals without touching it.  Believe me, it is VERY possible to do it.  You have great resources here on Bigger Pockets to learn how.

Thanks for the added advice @Armond W.and @David W. I really do appreciate the help and guidance and am taking everything into consideration, but as I've stated I have no experience in this industry and have a full time job, so from everything I've looked into I just don't see how I'm going to get someone to loan me money to do my first, second or third flip until I can actually prove the concept that I can successfully do so. 

I'm definitely taking my time with this and am not just trying to rush into something. It HAS to be a smart investment for me or else I just won't do it. This money is VERY precious to me and I want to make my Grandpa proud with the way that I use it. 

I'm going to take baby steps with this until I feel more comfortable. But from everything I've been reading on this site, having the cash is an advantage for me rather than a disadvantage because once I find a GREAT deal I can buy it without any strings attached, and maybe even take a little longer at the beginning without worrying as much about holding costs. Obviously holding costs are always there, but a high interest loan would definitely be a much bigger cost to me starting off.

I 100% agree that not using your own money is the best way to do things long term, and I would never use my own money to buy a rental property outright as I see much more value in getting a loan and letting your tenants pay the tab.

Also @David W. I work in TV news and can and have been able to move to a lot of places and have the flexibility to move around if I need to. My only issue right now is I just got stuck in a 15 month lease at my current apartment that would cost me well over $2,000 to get out of. They threw that crap at me at the last second when I had no choice but to sign. (Sneaky punks)

Originally posted by @James Bynum :

Thanks for all of the advice, I really appreciate it and am greatful for this website! My only issue is, I've been doing a lot of research on this over the last 6 months and have thought about going the quad plex route but the only quads Iand tris i've seen available over this time are in really horrible neighborhoods, and the one that I found that isn't is a four home rental property that wants close to $400,000 for it. I'm even having trouble trying to find duplexes and single families that would turn even a modest profit if rented out, the ones I've seen other investors selling want $100,000 for a duplex where the rent is only $400 - $500 or so a month. That would barely cover my mortgage let alone generate even enough for upkeep and repairs.

I am planning on looking for an agent soon, so maybe they can help me solve these problems.

I was even looking at doing flip and sells, but a house I was looking at is only going for $20,000 but I'd probably need to throw $50,000 at it to bring it back to livable, but the comps are only at around $80,000 so at most is be looking at a $10,000 not inlcuding closing costs. What is wrong with this town?!?!

 Don't start off with flips. Way too many ways to lose money if you're not familiar with real estate. Why not build your own multifamily? I'd assume land and construction costs are pretty low in your area? 

If you do start with flips, I noticed you said "them". Just do one to start and see how it goes, make your mistakes, learn your lessons, then do another. Don't go on a buying spree, you're likely to buy a bunch of bad decisions. After your first one, you'll likely wonder WTF was I thinking buying that one and you'll have a better idea of what you should be looking for. 

Originally posted by @Troy S. :
Originally posted by @James Bynum:

Thanks for all of the advice, I really appreciate it and am greatful for this website! My only issue is, I've been doing a lot of research on this over the last 6 months and have thought about going the quad plex route but the only quads Iand tris i've seen available over this time are in really horrible neighborhoods, and the one that I found that isn't is a four home rental property that wants close to $400,000 for it. I'm even having trouble trying to find duplexes and single families that would turn even a modest profit if rented out, the ones I've seen other investors selling want $100,000 for a duplex where the rent is only $400 - $500 or so a month. That would barely cover my mortgage let alone generate even enough for upkeep and repairs.

I am planning on looking for an agent soon, so maybe they can help me solve these problems.

I was even looking at doing flip and sells, but a house I was looking at is only going for $20,000 but I'd probably need to throw $50,000 at it to bring it back to livable, but the comps are only at around $80,000 so at most is be looking at a $10,000 not inlcuding closing costs. What is wrong with this town?!?!

 Don't start off with flips. Way too many ways to lose money if you're not familiar with real estate. Why not build your own multifamily? I'd assume land and construction costs are pretty low in your area? 

If you do start with flips, I noticed you said "them". Just do one to start and see how it goes, make your mistakes, learn your lessons, then do another. Don't go on a buying spree, you're likely to buy a bunch of bad decisions. After your first one, you'll likely wonder WTF was I thinking buying that one and you'll have a better idea of what you should be looking for. 

 The only real reason I want to get into flipping is that I feel I could build faster with the extra cash coming in. I feel like if I just limit myself to one avenue I'm not going to maximize my potential income. And I will only do 1 at a time starting off, not looking to lose everything all at once lol. I also am really looking for a mentor to team up with out of the gate. I'm not going to get into this by myself with no help, it just doesn't make sense and will be WAY too easy to make major mistakes, even with the greatest resource ever that is BiggerPockets.com :)

Also, what do you think the approx. cost to build a quad would be? I can't imagine it would be very cheap, although I will say land is fairly cheap around here.

@James Bynum

You can buy property with no loans

You don't have to use your money

You have to acquire the skill. I recommend 

Starting this way

This post has been removed.

Originally posted by @James Bynum :
Originally posted by @Troy S.:
Originally posted by @James Bynum:

Thanks for all of the advice, I really appreciate it and am greatful for this website! My only issue is, I've been doing a lot of research on this over the last 6 months and have thought about going the quad plex route but the only quads Iand tris i've seen available over this time are in really horrible neighborhoods, and the one that I found that isn't is a four home rental property that wants close to $400,000 for it. I'm even having trouble trying to find duplexes and single families that would turn even a modest profit if rented out, the ones I've seen other investors selling want $100,000 for a duplex where the rent is only $400 - $500 or so a month. That would barely cover my mortgage let alone generate even enough for upkeep and repairs.

I am planning on looking for an agent soon, so maybe they can help me solve these problems.

I was even looking at doing flip and sells, but a house I was looking at is only going for $20,000 but I'd probably need to throw $50,000 at it to bring it back to livable, but the comps are only at around $80,000 so at most is be looking at a $10,000 not inlcuding closing costs. What is wrong with this town?!?!

 Don't start off with flips. Way too many ways to lose money if you're not familiar with real estate. Why not build your own multifamily? I'd assume land and construction costs are pretty low in your area? 

If you do start with flips, I noticed you said "them". Just do one to start and see how it goes, make your mistakes, learn your lessons, then do another. Don't go on a buying spree, you're likely to buy a bunch of bad decisions. After your first one, you'll likely wonder WTF was I thinking buying that one and you'll have a better idea of what you should be looking for. 

 The only real reason I want to get into flipping is that I feel I could build faster with the extra cash coming in. I feel like if I just limit myself to one avenue I'm not going to maximize my potential income. And I will only do 1 at a time starting off, not looking to lose everything all at once lol. I also am really looking for a mentor to team up with out of the gate. I'm not going to get into this by myself with no help, it just doesn't make sense and will be WAY too easy to make major mistakes, even with the greatest resource ever that is BiggerPockets.com :)

Also, what do you think the approx. cost to build a quad would be? I can't imagine it would be very cheap, although I will say land is fairly cheap around here.

Don't pay for a mentor (not saying you are, just saying don't). REIA's are great, you could also start/host a BP meetup in your area. That's a great way to meet people, network and learn.

No idea what building costs are in your area, reach out to a contractor/local builder and ask. They'll be able to give you a range of $/sq ft for new construction. I'm sure someone on BP can give you a range as well. 

@Brandon Turner mentions in the podcasts that when you have a large amount of cash and you're just starting out, it's like you're going out with a loaded shotgun and no idea of how to use it or have no training. It's a great analogy and I think very true. I know when I had less money/cash to work with I'd agonize over a deal scrutinizing it. If I'd had money to burn I'd probably have jumped at the first thing that came along. The best advice I can give you is to take your time. This inheritance is a great thing but don't be too anxious to start spending it. Learn, learn, learn. Analyze a bunch of deals. Go to open houses that are flips, look at finishes, look up public records or on RE websites like Zillow to see how much they paid and what they're selling for. 

Take your time and ask lots of questions. You're in a great spot, don't rush it. 

@Troy S. I'm ABSOLUTELY not looking to pay for a mentor like someone is silently advertising on this thread lol. I'm looking for someone in the local market in an REI group of some sort, there are a couple here, but don't seem to be very active so I may create my own meetup group. I'm still not fully convinced though that this is a good investing market. I've been analyzing deals (The best way I know how) left and right for over 3 months now and just haven't found anything solid. My next step along with connecting with other investors is getting a great investor friendly agent that can help me look for that hidden deal. Although I've also though about just biting the bullet and getting my own real estate license.

I've listened to that podcast and have taken it to heart, which is why I'm on here constantly asking stupid questions, and I appreciate the patience from everyone. I'm not looking for a place to blow the money. I'm trying to make well thought out decisions to invest a little here, a little there, not trying to start off too big, and just spend more as I grow.

@James Bynum  Don't do anything until you have learned enough to understand the options available to you, and can make an informed decision. Put your money aside, and forget you have it.  

In the meantime, start getting to KNOW your local market, the neighborhoods, etc. Learn how to compare properties (types of properties, size of lots, age of house, what types of finishes each has inside, etc.) You always want to be sure you are comparing apples to apples. 

When you find someone you think you want to work with, check their references, licenses bonds, etc. 

Look and see if there are any meetups of BP members in your area. Do a search of the forum Happenings and Events, and also do a post such as "Any Meetups in name of the city?" If so, go and get to know other investors. However; just because they are at a meetup doesn't mean they know what they are doing, are trustworthy, etc., so network, and get to KNOW people, exchange information, ideas, etc.

Aside from investing in a house or houses, there's options such as investing in loans, etc. (again, doing your due diligence is critical) or you might do a combination of things. 

@Jay Hinrichs may know something about that market, maybe he will chime in, or know someone else in that area. 

Once you are comfortable enough with your local market, decided on what type of property you want to buy, etc. you'll know when it's time to move into action. Good luck! 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.