How to spend our money

Question

My two partners and I are just starting out in this real estate adventure. We have not made any purchases/investment yet.  We have secured a private investor wiling to front us $250,000.00 at 6% interest rate.  My questions is this, which of the following options is something that will give us the best start to allow us to be in a position to quit our full time jobs in 6 years?

Option 1:do we take that initial investment and purchase a couple of properties out right and rent them out and make a little money and use the proof of income and property as collateral to purchase more properties via traditional financing methods i.e. banks.

Option 2: Do we use the $250,000 as 20% down payment on a number of properties while securing traditional financing for the 80%.

Option 3: Do we take the $250,000 and by a couple of foreclosures and flip them?

Option 4:...?

Chase Keller · Answer

@Michael Shires  Knowing the Waterloo market and that you're in experienced in remodeling, I would say a good investment may be buying, renovating several properties, flipping some and holding some.  If you have a full time job, it may be tough to be focused on large renovations, or if you'll be hiring some of the work out and managing the contractors.

I don't know anything about your temperament or your interest in the lower income side of town, but there is a lot more cashflow on the east side than in CF, for example.

Michael Shires · Answer

Thank you  @Tim Puffer and @Joe Fairless, for taking the time out of your day to provide a little insight.

Here is a little more about my partners and I.

One of my partners is the financially smart (our yes/no guy) one that keeps the other two in check.

The other partner and myself both have experience in remodeling homes, and doing home repairs.  So we are leaning more towards landlord/fix and flip idea.  I think the most challenging aspect of our company is that we each live a different part of Iowa.  And each area has its own niche`.

Joe Fairless · Answer

@Michael Shiresthere are countless ways to do it. It really depends on you and your partners's interests. What area of real estate do you enjoy most and is there an opportunity in your area to make money doing that right now?

You can do fix and flip, wholesale, multifamily, single family, storage units, note buying, office, retail, industrial, etc. But all roads lead back to what you enjoy, if there's an opportunity in your market and the amount of time you want to spend doing it (ex. fix and flip has a different type of involvement than wholesale).

Tim Puffer · Answer

@Michael Shires

If you want to quit your job in 6 years you will want passive income coming in. So buy and hold would be the best option. With getting loaned money from a private investor they are not going to want to wait too long to get their return back. If you buy a small apartment building you would want to look for something that has some expandability going into the deal i.e. Has room for you to increase rents to market, or forced appreciation via upgrading the building in some way. This way you can look to re-finance the building and pay your investor back and the cost for upgrading the building.