100k/y excess income - looking for RE strategy

Investor · PA · Member since 2013 · 1k+ posts · 602 votes

10y

it's definitely possible but maybe not so much in California. You will want a company that buys them, manages them and has people on their payroll to fix them if you intend to be mostly hands off. @James Wise comes to mind but there are surely others who may be able to help.

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Jo-Ann LapinPro Member

Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes

10y

Yes possible not in CA. You just need to go in with eyes wide open as a absentee owner.

[email protected]

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Krystle Padilla

Real Estate Agent · San Diego, CA · Member since 2016 · 46 posts · 41 votes

10y

The California market doesn't make sense if you're trying to follow the 1 or 2% rule, you'll have to go to the midweek to find houses cheap enough because the markets are more stable. In your case, Arizona and Nevada make more sense.

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Holly Williams

Rental Property Investor · New York City · Member since 2014 · 208 posts · 271 votes

10y

Disclosure, this is what I do part-time...put investors together. That said, you should look into real estate partnerships. You need to be an accredited investor though, which you may or may not be.

The second thing that I would look into are the crowdfunding sites where you can join others to lend money to finance other people's deals. However, you don't get the tax benefits of real estate.

Basically, I'm in the same boat as you, and I just don't have the time to spend dealing with the day to day. I'm happy to talk more. You are doing the right thing by exploring all options, and you've come to the right place to learn.

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Rick K.

OP

Rancho Santa Margarita, CA · Member since 2016 · 2 posts · 2 votes

10y

Thanks for the replies!

You've given me enough direction to continue research. I'll stay out of CA and try to focus on areas in AZ/NV which follow the 1-2% rule. I'm certain I've come to the right place!

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Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

10y

Hey Rick! Nope, you're not missing it. There's just no cash flow in SoCal :)

I live in Venice and have always invested out-of-state. The price-to-rent ratios (which is what you are talking about with the $50k property renting for $1000/month) in other markets are much more conducive.

I personally don't recommend $50k properties, in any market, because those won't get you the highest quality of tenants necessarily and bad tenants can cost a fortune. But, it doesn't take a huge leap in price to get you in a nicer property with a better chance for good tenants.

I know of quite a few properties that could get you $600-1100/month in net cash flow (after all expenses!) in various markets. None on the west coast, but for the most part price-to-rent ratios out this way don't work at all until you get closer to the Midwest.

There are definitely ways to do it hands-off! That's all I do and like. I don't want anything to do with my properties.

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Robert McDonnell

Real Estate Agent · Yuma, AZ · Member since 2015 · 56 posts · 16 votes

10y

if you're interested in being the money side of a joint ventureship I have been looking for a long term jv partner to fund my new deals. I am a local to the Yuma AZ area and am very involved in the local real estate and contractors networks. Please send me a message if you are interested in discussing this possibility. I have managed others properties as well if that's more your path.

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Ian IppolitoBusiness Member

Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes

10y

@Rick K., Nice to talk to a fellow software developer. You may want to strongly consider real estate crowdfunding, because it will give you that hands off investment you are looking for, plus several advantages that the residential properties will give you.

It does require that you be an accredited investor, but if you have $100K of extra income every year, I suspect you qualify. (Making $200,000 a year for two years qualifies you).

The advantage over purchasing your own residential properties is that you can more easily diversify across the entire nation. Also, some sites allow minimum investments as low as $5000, so you can diversify into many more investments than if you bought properties yourself. Plus, you can also access the entire spectrum of investments: debt/equity, commercial/residential, income generating/speculative. So you can balance out your portfolio much easier than just owning rental properties.

The downside is that you do have to vet the managers who are going to invest your money (or the borrower who is borrowing your money if you're doing hard money loans). But once you complete that, your job is done and then it's the responsibility of the manager/borrower to do the rest of the work.

Personally, I own residential properties and also do crowdfunding. I find this gives me the best balance.

Anyway, if you have any questions, just let me know.

The Real Estate Crowdfunding Review

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Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

10y

Originally posted by @Rick K.:

Hi all,

I'm a 28 y/o software developer & entrepreneur. After taxes/mortgage/life/etc., I have about 100k excess every 12 months. I don't think this income will last forever, so I intend to invest all of it into long-term cash generators.

Here's two criteria I prefer not to adjust without strong reason:

1) No loans at first. I want to pay cash for my properties. This is to avoid the possibility of the investment becoming a cost through vanancy/repair/etc...

2) I'll be using a property management company. I need to stay focused on building/selling software without becoming a career RE investor (for now).

My strategy is for RE to become a "dump" of my excess money. I understand I can't be entirely hands-off, but I'm willing to pay a little more to be as hands-off as possible. I hope the fact I've succeeded as an entrepreneur shows you I'm not afraid of hard work, so to be clear - I'm looking to stay focused on software while using the profits to create more permanent income through RE.

Here's the question:

People say I should be able to spend 50k on a property and rent it for 1k. My NOI should be about $500/month, which I think is great! But how the heck are you guys finding these places? Are they foreclosures? Am I looking in the wrong areas? I've looked all over Southern California and after reading some answers here, I think it's not viable.

So I've shifted my searches into the desert (Arizona, Nevada) and found properties closer to the mark.... Two houses side-by-side: 1 sells for 50k, 1 rents for $500 - but this still seems far off from the mark. I think I'm missing something and hoping someone more experienced can shed some light.

Rick, welcome to BP! This is the absolute correct place to define structured answers for your RE challenges.

You are kicking off in the right direction using your excess funds to "dump" into RE, is absolutely fantastic, best long term wealth building you can ask for.

1) I know you mentioned no loans at first: consider your leveraged buy position, for $100k leveraged, you can have about $400k in assets, assuming (4-5) homes @ $80-90K/ea with $1,000-$1,200/mo per asset in gross income.
HYPOTHETICAL: Purchase $400k in assets, assume a 15yr or 30yr. amortization below 5%, assuming 60% monthly expenses = $1,200-$1,500/mo. cash flow + pay down of principal & interest + depreciation = 400%+ Return over 15/30 yr
*I know this involves financing, if you consider getting turnkey, completely passive investment, you can make up to 20-40% more than expected on your $100k with better assets than you will get at $50k/pc. @$500/mo = low quality home/low quality tenant
2) Already considering PM, why not get it all under one solution. This is a white box solution, you do not have to leave your core competency to do this the right way. Keep it simple, streamline your efficiency and enhance your economies of scale through someones established expertise, keep working to keep producing funds to dump into RE. A turnkey solution, will advance your portfolio though simple means of risk diversification, uniform/standardized materials, ease of maintaining, most important accountability.

Lastly, you can be completely hands off, well like 95% hands off, you still will have some minor role, reconciling your direct deposit, completing your annual taxes, otherwise you can be totally hands off with assets in better areas, you will defiantly not be hands off with any asset that cost $50K and gets $500/mo. plan on not being hands off in this case. Keep it simple, keep it turnkey, just think about it....... Not saying this is be all end all, just saying that $50k buys you some trouble, take the next step establish a sophisticated and reduced risk, less resistant path.

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Sarah Ziehr

Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes

10y

Hi Rick,

As long as interest rates are as low as they are, it makes sense to use your cash for a down payment and finance the rest. You will run into vacancy and repairs regardless of if you pay cash or get a mortgage.

Even if you pay cash for $50k, there is still taxes to be paid. You don't want to tie up all your money into equity as long as you can easily secure a mortgage for 3-3.5 percent.

You have to find the right market for a $50k sale that brings in $1k rent monies. There are a few I know of in the Chicago area but they are few and far between.

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100k/y excess income - looking for RE strategy

100k/y excess income - looking for RE strategy

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