Recommendations for newbie with some cash to invest

Petie Ehm · 2016-04-05T10:38:20-07:00

Hello BP Community,I'm planning to move to and invest in the Denver area (long story). Anyway, unlike some, I have some cash to invest - coming from a small inheritance and also from the sale of my current home. Essentially, this will represent most of the cash we have accumulated (outside of retirement plans) during our adult lives. So, yes, probably risky to toss it all into the REI wind. But, we're game.Since considering this direction, we have come to realize that some start out with little cash and make it. Without defining the amount of cash we have, exactly (let's say it is less than $400K, more than $150K), but with defining our current goal as to supplement upcoming retirement income (somewhere in the meager to modest range) what do folks recommend as a good financial strategy to pursue? Larger downpayment on fewer properties or smaller down payments with greater financing on many more properties? I'd say we'd be hoping to gain from our efforts in the 10-15 year range. Granted there are plenty of other decisions to be made - buy and hold multi-family, single family?, flip? house hacking? etc., etc. Thanks for any feedback.

Travis Sperr

Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes

10y

@Petie Ehm you ask some great questions, ultimately these are questions you have to answer for yourself - most of which is based on - risk tolerance, availability of capital, ability to obtain financing and how hard you want to work.

Most people will share how difficult the market is in the Denver metro - if you are truly investing for cash flow, you can make it work in this market. Flipping is challenging to buy, easy to sell. House hacking completely depends on your willingness to live with your tenants. In any case as you hit town there will be a learning curve for which ever strategies you pursue.

Best of luck!

1 Reply

Adam Kroll

Real Estate Agent · Boulder, CO · Member since 2014 · 87 posts · 24 votes

10y

@Travis Sperr hit it on the head. To really nail down a strategy, you need to understand what you want out of your investment. What is more important to you: appreciation over this span or cashflow? How much time are you willing to invest into this endeavor? I would suggest that you familiarize yourself with the area so you can make better assumptions of what you want. I'd be happy to help in any way I can (also from the East Coast originally).

1 Reply

Paul Timmins

Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes

10y

@Petie Ehm

Welcome. You have received some excellent advice. Fill in the foundation below.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having over 100 past ones to catch up on.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). You can Google to locate them and go to meetup.com Here you may find someone that you could fund their deal.

Two Great reads, I bought both J. Scott The Book on Flipping Houses, The Book on Estimating ReHab Costs http://www.biggerpockets.com/flippingbook

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good Luck

Paul

0 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

Thank you @Travis Sperr and @Adam Kroll. I'd like to pick your brains further if you don't mind. Regarding risk tolerance... would you say there is greater risk purchasing fewer properties with more money down (less to finance) rather than with minimal down payments? Let's say this would apply to either rental property or flipping. Of course with more money down, fewer properties can be bought. This doesn't seem to make sense with buy and hold as it ties up a lot of money for a long period of time with fewer properties to be obtained, even if the cash flow would be enhanced. After having mortgages on 6 houses for nearly 40 years (we moved a lot) and always dreaming of the day that one would be paid off, it is mind boggling to imagine holding 5 or 10 mortgages (or more) that won't be paid off for another 30 years as we are nearing retirement! I imagine that younger folks don't suffer as much from this anxiety. But I'm willing to do this if the numbers show that this DOES make sense. That being said, a little cash flow would be nice especially in about 5 years when we would consider retirement from 9-5 employment. Another means to that end might be light flips and then hold if the right property becomes available?

Another question - are people having success with short term rentals? VRBO? (I'm guessing most VRBOs are in the mountains). Traveling nurses, etc.

It's good to know that cash flow is workable in the Denver area. I do see, however, that good deals on properties aren't plentiful across the region according to the MLS. The art of finding the deal will need to be developed to improve outcomes.

As far as willingness to work - I am by nature a workaholic. Currently I devote many hours a day to researching, analyzing, and listening to BP podcasts. I find it kind of fun and interesting. I intend for this to be my "full-time job" (at least by REI standards), with my secondary job being an artist which pays next to nothing. Meanwhile, my spouse is hanging onto a full-time job so we can afford to take some chances with this endeavor.

Regarding the ability to obtain financing - time will tell, of course, so I can't speculate on our ability there. This will be a massive research project in itself.

Finally, goals are dual - a bit of cash flow but with the aim of holding on for appreciation until a time when either the market says "Sell now" or retirement accounts begin to dwindle. Alternatively, we pass the properties on to our 2 grown children.

Thanks again for your time and input.

0 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

Thanks, @Paul Timmins. Great ideas - will do!

0 Reply

Travis Sperr

Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes

10y

@Petie Ehm - this is really personal preference - when I started buying rentals I was buying with as little down as possible on 30 year loans. After acquiring 8 rentals that were cash flowing well, I shifted to larger down payments on 15 year notes on rentals 9-12. I am in a good LTV across the board (the market has helped, but I bought them all below market). You mention younger folks, I am 31, I just looked at my portfolio and decided I would like to have the cash flow sooner than later. I am rolling rents into principal reduction now on an 10 year schedule.

The fact is that rental cash flow isn't strong enough off the bat to live on unless you buy for cash, very large down payments or have a lot of units. I paid taxes on about $40k from 12 properties last year. Next year should be better as I had some expenses I shouldn't have again.

I have never taken income out of my portfolio, I have only used it to buy additional properties or pay down existing debt.

Without knowing what your income requirements are, you may want to really focus on what you should expect to net on your property and see how many properties it takes to get there, with varying down payments and such.

Flipping can create an income, but I have never known of someone retiring with passive income from flipping.

1 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

Thanks @Travis Sperr. That was a lot of great information and it gives me the sense that, in fact, larger down payments with shorter term loans are worth investigating. We have some excel spreadsheets to play with (as well as the BP calculators) and can pull some properties from the MLS as test cases. Maybe SFH rentals (which cost more but which might have more long-term, consistent renters) are the way to go. I have seen some possibilities in Thornton, Westminster, and north Denver areas that could work. Would even consider the south and east of Boulder market (very south/east as it is crazy expensive, in my opinion).

As far as expectations for income - that is an interesting question because until a short time ago it never occurred to us that REI was something we could or would want to do. Still, having a target can help guide the process. Otherwise it is like spinning around with your eyes closed.

Also, regarding flipping... since we have to live somewhere, renovating a residence while living in it and then holding it as a rental is what I was thinking. I think I referred to it with the wrong language, as a flip is not something that is held once flipped, correct?

Thanks, again.

0 Reply

Frank Houpt

Carbondale, CO · Member since 2016 · 19 posts · 4 votes

10y

Hey Pete, Welcome to BP. I am in a similar place that you are. Having some start up capital is great, but I am trying to be as thorough as I can with my research. In my opinion, the worst thing to do would be to jump in without a detailed plan and lose my nest egg. I currently live about 3 hours west of Denver, near Glenwood Springs. I'm struggling with some of the same questions you are. There are so many areas to get into. The best advice I've gotten lately, is to decide on a niche and become a pro. I think it's good to learn a little about different strategies, like buy and hold, flipping, or wholesaling, but I've found it to be overwhelming trying to dig too deep into all of them. So I guess my suggestion would be to try not to focus on too many different strategies, but decide on one that you think will fit your lifestyle and get you closer to your end goals. Good luck and congratulations on moving to an incredible state.

2 Reply

Travis Sperr

Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes

10y

@Petie Ehm to the "live in flip" up to you, my wife doesn't go for live in investments any more. If you can find a place that you are willing to live in, at a discount, that will cash flow upon moving on, I would say go for it. Too happily married to live in a construction project again :)

1 Reply

Frank Trigoso

Investor · Miami, FL · Member since 2016 · 75 posts · 23 votes

10y

I will purchase many properties but one at a time. Then you could be sophiscated and use the HELOC instead of your own money (leverage) However, I do strongly recommend focus on the monthly cash flow more than on the appreciation. Rentals are stable; whereas, appreciation you have no control of. Purchase properties below fair market value (FMV) so on day one of the purchase you already made an immense of profit on just the equity. Also, please, please.... crunch your numbers before you purchase a property. Don't just take the realtor word you going to obtain a positive cash flow. Find out exactly what's going to be your annual cash-on-cash return. I recommend your cash-on-cash to be more above 14%. Many are happy with 10%. Good luck

0 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

Thank you to @Frank Houpt and @Frank Trigoso.

0 Reply

Adam Kroll

Real Estate Agent · Boulder, CO · Member since 2014 · 87 posts · 24 votes

10y

Hey @Petie Ehm, I have the opposite approach to @Travis Sperr, not to say either is right. I'm not sure my strategy is in line with your goals. I prefer to be as leveraged as possible to have the cash on hand to purchase more properties. As my properties appreciated, I refinanced to pull out cash to purchase more. As long as I am cashflow neutral on the original property, I still enjoy cashflow from my newer properties and have an expanded cashflow footprint.

As far as financing, if you find a deal - you can find the financing. This could be through partnerships or private lending. I'm finding there is a lot more cash than deals right now. Also, I'm not sure if this has been mentioned already, but you could get the most favorable financing terms for a primary. If you're looking for a future buy/hold, you could move into it for a year as a primary and then turn it into a rental. Hope this helps along your journey

1 Reply

Jean BolgerPro Member

Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes

10y

Hi @Petie Ehm. I would agree that it sounds like with your timeframe might do well to do some calculations based on a 15 yr mortgage. You also would have the option of getting a 30 yr mortgage and accelerating your principal payments to a 15 yr plan. That takes some discipline and planning, but it sounds like you've got those skills. The advantage of that is that if an unforeseen financial setback sneaks up on you, you would have the option of making the lower required payments for a while.

In general, your idea of buying SFRs rather than small multis or condos is sound, but at this particular moment the market for lower priced SFRs is kind of... horrible. There are so many owner occupants who are desperate to find something in the lower price range- it's made that particular sector extremely competitive and it's difficult for an investor to find one that makes financial sense. You don't say what your timeline for moving to Denver is; maybe all that will have changed by the time you get here, who knows. If you were buying in the next few months, I would suggest looking at condos, I think there are still some decent cash flow options there.

Also, there are some decent duplexes in the Denver area that can feel more like living in a SFR. If your wife is up for it, you could buy something like that using a low downpayment owner occupant loan. You could fix it up over the course of a few years while also bringing in income, and then rent both sides after you move out- on to the next similar project or just into a home that you want to stay in long term.

1 Reply

Jessica Bonelli

Denver, CO · Member since 2015 · 16 posts · 3 votes

10y

@Travis Sperr, where are you finding duplexes in the Denver area?

0 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

I am floored by all the helpful advice here! What an amazing group of people. What I'm learning is that finding the properties is going to be the tricky part. Initially, we thought Denver was a hot market. We now realize that we are a few years after that b/c now it is saturated with investors, perhaps! But with a daughter in the area (with a new license) we are game to jump into the fray.

@Adam Kroll since we are bringing cash to the table (it will be from the sale of our current home + a small inheritance) it makes sense to keep that strategy going - use cash, then leverage, then use more cash. The primary piece makes total sense because we are willing to live in temporary homes and then rent them out, possibly. That way, we have time to find out exactly where in CO would be the ideal "permanent" home (relative term) and possibly have a little cash flow once that first property is turned over as a rental. I would want to have at least one additional property going simultaneously, maybe 2, with some cash flow although those would have to be financed pretty heavily as there isn't a ton of cash to invest in all 3 (unless we intend to live in some rough areas).

@Jean Bolger My timeline is... visit CO at the end of this month to get a feel for the various areas (I've been here before so it isn't all new) and buy a property as soon as the right one comes along. Meanwhile, our current residence in the east goes on the market mid-May. As soon as it sells, I move to the new property just purchased - hopefully one that needs a bit of fixing before turning it over for rental as soon as it is ready. At least, that is today's plan.

BTW... I am "Petie" not Pete. Apparently there was an autocorrect happening when I was registering for the account and my name became Pete. I have tried to contact someone to fix it but have not gotten a response. Anyway, as for our plans, I am handling the REI investigating, the husband is bringing home the bacon with his current job!

1 Reply

Matt M.

Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes

10y

Originally posted by @Jessica Bonelli:

@Travis Sperr, where are you finding duplexes in the Denver area?

You really have to get them before they go to market. Work your network and check craigslist, etc for FSBOs.

0 Reply

Jessica Bonelli

Denver, CO · Member since 2015 · 16 posts · 3 votes

10y

Thanks!

0 Reply

Travis Sperr

Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes

10y

@Jessica Bonelli I am not currently seeking duplexes. If I was I would be heavily direct mailing owners out of state and knocking on the door of in state owners. Like @Matt M. said, off market is where the true deals are trading.

0 Reply

Travis Sperr

Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes

10y

Originally posted by @Jean Bolger:

Hi @Petie Ehm. I would agree that it sounds like with your timeframe might do well to do some calculations based on a 15 yr mortgage. You also would have the option of getting a 30 yr mortgage and accelerating your principal payments to a 15 yr plan. That takes some discipline and planning, but it sounds like you've got those skills. The advantage of that is that if an unforeseen financial setback sneaks up on you, you would have the option of making the lower required payments for a while.

In general, your idea of buying SFRs rather than small multis or condos is sound, but at this particular moment the market for lower priced SFRs is kind of... horrible. There are so many owner occupants who are desperate to find something in the lower price range- it's made that particular sector extremely competitive and it's difficult for an investor to find one that makes financial sense. You don't say what your timeline for moving to Denver is; maybe all that will have changed by the time you get here, who knows. If you were buying in the next few months, I would suggest looking at condos, I think there are still some decent cash flow options there.

Also, there are some decent duplexes in the Denver area that can feel more like living in a SFR. If your wife is up for it, you could buy something like that using a low downpayment owner occupant loan. You could fix it up over the course of a few years while also bringing in income, and then rent both sides after you move out- on to the next similar project or just into a home that you want to stay in long term.

I love this post. It just goes to show everyone has different strategies, tollerances and expectations. No one is right or wrong, which is exactly why new investors have to find what woks best for them.

0 Reply

Bill S.Pro Member

Moderator

Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes

10y

@Petie Ehm should be able to help you get your name fixed.

Petie - the only thing I would add to what has been stated above is the 10 year horizon is a bit scary for me. In 10 years we could be in the trough of a new RE cycle and there really isn't enough time between now and then to have the appreciation still leave you in comfortable territory. RE is a long game. You can definitely pick a 10 yr time frame where you would be left with just about zero appreciation (when considering holding costs and transaction costs). Most of us here don't really care because our horizon is longer than 10 years but if you are thinking I want my money out in anything less than 15 years, I think there is the added risk of the RE cycle. To be sure, you can also pick 10 years that the values have doubled here but I'm just saying, it's not a given so don't plan on that. If 10 years is a fuzz number and you don't think it would be a problem to stretch it to 15 years then by all means buy and hold. Certainly all of this is offset when you buy with equity.

0 Reply

Petie Ehm

OP

Branford, CT · Member since 2016 · 15 posts · 1 vote

10y

@Bill S. Good point to consider. One of the podcasts I listened to recently made that very point but also said that sometimes you go with market changes, i.e. if there is a sudden upswing and you can realize some real profits, then sell and reinvest. We could hold properties for 20+ years as long as the passive cash flow from all the properties justifies doing so (and as long as we are still living!). It also depends on how long the retirement funds hold out. I would say at this point that cash flow would be the overall goal once we get established and get things going, considering that as we age we might be less interested in active involvement in the REI processes. This would also help us to drain the retirement funds less quickly, I think. (Assuming we don't go into lifestyle overdrive).

0 Reply

Bhekizwe M.

Bulawayo, Zimbabwe · Member since 2015 · 1k+ posts · 253 votes

10y

Interesting topic(risk tolerance, time frame, willingness to work hard). As investors we all have to consider where we are.

All the best

0 Reply

Recommendations for newbie with some cash to invest

Recommendations for newbie with some cash to invest

Most Popular Reply

22 Replies