What to do with 20,000 cash?

Knoxville, TN · Member since 2016 · 9 posts · 3 votes

I've recently came into a few dollars and I have been interested in multi family small apartments. Any suggestions would help,Such as a broker that specializes in the multi family arena. I reside in Knoxville TN. By the way if multifamily is not suggested, please tell me what is. I am willing to listen to all suggestions and ideas. Thank you in advance.

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Luka Milicevic

Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes

10y

Air ticket to Vegas and take your chances on the roulette wheels...

Just kidding! Please don't do that.

I actually asked an experienced investor the same question not too long ago. Pretty much exactly what you are asking and I found his answer interesting as it was not what I had expected.

I told him I was planning on putting a down payment on a primary residence and moving out of my existing one in order to rent it out. I also said if I find something that would rent well I would use that money for a downpayment.

He told me not to go that route.

He said to invest my money in direct mail marketing instead and find deals. He told me if I find deals, finding money would be easy. I have come to realize this to be 100% accurate. I haven't had any trouble finding money when a good deal is present.

I don't know about the Knoxville market, but in my market there is nothing on the MLS. Everything is direct mail. There are many ways to invest $20k. Explore your options and make a decision. Once you make a decision the rest is easy.

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Chris Eaker
Buy and Hold Investor · Knoxville, TN · Member since 2013 · 450 posts · 270 votes
10y
@Marcus Cox
If you want to get into multi-family, then you would have to bring in partners for more cash if all you have is $20k. I'm assuming you would buy with 20% down payment. There are several brokers who specialize in MF in Knoxville. Do a search on Loopnet to see who has properties listed.
1 Reply
Marcus Cox
OP
Knoxville, TN · Member since 2016 · 9 posts · 3 votes
10y
Thank you Chris
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
10y
$20k can get you into a a $100k property with 20% down. You'll be sitting on the sidelines again until you build-up the next $20k though. Need to think about your long-term goals and then look at the best options to take your $20k and leverage it to best achieve those goals.
For example, maybe you can buy two $10k trailers that will generate $400/month in positive cash flow vs $200/month in a duplex. VRBO is popular right now with the chance to earn large returns vs long-term rentals. It's more work sure but maybe it would open the opportunity for you to hustle yourself into another property pretty quickly. Or you could find someone who wants to rehab and has the knowledge to rehab but not the cash. Your 20k could provide the skin needed to get a HML the rehabbed doesn't have. You won't get a huge % unless you bring something else to the table but you can rinse and repeat, consistntly earning profits and growing your bankroll without doing the heavy lifting. Just a few ideas.
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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
10y
Air ticket to Vegas and take your chances on the roulette wheels...
Just kidding! Please don't do that.
I actually asked an experienced investor the same question not too long ago. Pretty much exactly what you are asking and I found his answer interesting as it was not what I had expected.
I told him I was planning on putting a down payment on a primary residence and moving out of my existing one in order to rent it out. I also said if I find something that would rent well I would use that money for a downpayment.
He told me not to go that route.
He said to invest my money in direct mail marketing instead and find deals. He told me if I find deals, finding money would be easy. I have come to realize this to be 100% accurate. I haven't had any trouble finding money when a good deal is present.
I don't know about the Knoxville market, but in my market there is nothing on the MLS. Everything is direct mail. There are many ways to invest $20k. Explore your options and make a decision. Once you make a decision the rest is easy.
5 Reply
Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Marcus Cox Buy a really cheap wholesale property with hard money, use the 20K for renovations, flip it and 1099 the gains into the next cheap wholesale property, use the same 20K for your next one, repeat until you have a little bit more built up. First you have to find a property wholesaler. I have no idea who does that in the Knoxville area but I have contacts for Atlanta and Orlando.
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
10y
@Erica Muller so you advise sending him into small houses which have less demand, in blue collar areas that are generally more difficult to sell in, and try to sell it to the lowest quality buyer pool in the market? Sounds like a recipe to knock someone out of the game rather quickly to me.
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Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Christopher B. Actually that's not even close to what I said, those are all your words on how you interpreted it. I have done exactly what I just advised him to do and so have many of my clients. Maybe you're confusing the word "wholesale" with slumlord or bottom feeder properties? Not sure but we're definitely not talking about the same thing. He has 20K, he can easily grow that. Obviously he can't start out at the top of the food chain like an investor who has 200 or 300K. His options are his options. I'm simply giving him one of them. I hope whatever he decides to do, he's successful.
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
10y
what else would a "really cheap wholesale" property be? Maybe it's just my experience but most of the dirt cheap houses for sale I've seen are a)in a bad area, b)need a boat load of work, c) both a and b. Maybe I just need to find better wholesalers though
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Niki M.
Alpharetta, GA · Member since 2016 · 27 posts · 5 votes
10y
Erica Muller can you please send me your wholesale contacts in the Atlanta area? Thanks!
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Walter PurdyPro Member
Real Estate Consultant · Las Vegas, NV · Member since 2016 · 51 posts · 19 votes
10y
@Marcus Cox @Chris Eaker @Luka Milicevic
Marcus i can make some suggestions , but you haven't really defined exactly what kind of multi family youre seeking. Technically a 4-plex is multi-family and you can purchase them as owner occupied with an FHA loan with as little as 3.5% down. You'll need atleast three months reserves that has to be verified as well (Banks will accept 60% of the value of a retirement accts, stock or bonds as sufficient reserves)
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
Originally posted by @Erica Muller:

@Marcus Cox Buy a really cheap wholesale property with hard money, use the 20K for renovations, flip it and 1099 the gains into the next cheap wholesale property, use the same 20K for your next one, repeat until you have a little bit more built up. First you have to find a property wholesaler. I have no idea who does that in the Knoxville area but I have contacts for Atlanta and Orlando.
Can't 1031 exchange short-term flips. It will be ordinary income at your tax rate.
Can't '1099' anything.
Depending on how much high interest consumer debt or car payments I was carrying, I would consider retiring that or keeping this as an emergency fund. Be surprised how quickly one can save even more when they put their mind to it! Good luck!
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Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Steve Vaughan I meant 1031!!! Thanks for pointing that out lol. Not sure where my head was at.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
Originally posted by @Erica Muller:
@Steve Vaughan I meant 1031!!! Thanks for pointing that out lol. Not sure where my head was at.
No worries, Erica. Sorry if I sounded mean. Didn't 'mean' to!
@Dave Foster can confirm or deny if a short-term flip can be 1031 exchanged much better than I, but I don't think so. Thanks, Dave!
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
10y
@Erica Muller, yep, @Steve Vaughan's dead on the money. 1031 is available for those properties that it is your intent to hold for productive use. Flipping implies that your primary intent is to resell. That makes those properties classified as inventory and places you into a whole nuther tax situation.
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Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Dave Foster Can I PM you? I've always been able to do a 1031 so I have a few questions as to how and why if that's the case. I don't want to be doing anything I shouldn't be. Are you a CPA?
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
10y
Just sent you a connection request :)
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Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y
@Erica Muller I can confirm @Dave Foster and @Steve Vaughan thoughts on the 1031. If you are a regular flipper/wholesaler, you absolutely cannot utilize a 1031 exchange. Flippers hold inventory, not capital assets, and inventory cannot be 1031'd. Wholesalers hold paper. Paper cannot be 1031'd unless you are 1031'ing partnership interests which is an entirely different ball game. I highly, highly recommend you do some damage control before the IRS does.
@Marcus Cox did you come into the $20k by means of inheritance? If so, double check with a CPA to make sure the $20k is tax free or you may be in for a rude awakening.
How good are you with money? If you are 40 and only have this $20k, then I'd highly recommend doing absolutely NOTHING and instead investing a few hundred in personal finance books. You most certainly do not want to blow the $20k.
If you have a solid grasp on your finances, then the fastest way to grow the $20k will be starting a business. Whether it's flipping, wholesaling, investing in mailers, or something completely unrelated to real estate. But starting a business takes a crap ton of time and can be very stressful, but also rewarding.
If you are already a busy guy and just want another income stream, then buy rentals, notes, or partnership interests and sit back and watch the cash roll in.
But - be absolutely honest with yourself. If $20k is a windfall for you (meaning it's like winning the lottery for you), I highly recommend self-educating via books, finance podcasts, etc prior to deciding which route to take. Please don't blow it.
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Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Brandon Hall I can't respond in detail right now because I'm headed into a meeting but I will PM you. . . I'm not a wholesaler however, I have purchased from them in the past. I also obtain my own inventory that I put renters in and hold before immediately flipping. I don't think what I'm doing falls under the things you mentioned above, I also use a CPA that handles everything for me, I don't deal with it myself, but I am going to speak to dave as well as my CPA to find out how it's all structured just to confirm. Thanks for your input!! I am a bit far removed from everything after I acquire the property. I'm pretty sure if what I was doing was illegal my CPA wouldn't still be in business but God forbid, I've heard horror stories. I'd hate to become one! Thanks for the words of caution!
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
@Brandon Hall I agree.
@Marcus Cox It's good you're on BP, but hopefully you're also reading some decent real estate investment books to educate yourself. Don't do anything until you've developed a good understanding of real estate investing, the risks/return potential with the different types of investments, and have developed a networking of contacts you know well and trust to support you and give you honest advice.
Before you even ask that question, I recommend building your personal Net Worth Statement. That way you know what your current financial situation is. It could be that you are better off using your $20,000 to pay off high interest credit cards or loans.
Assuming you've already done that and are still convinced investing is what you should use the money for...The best way to answer your question, would be for you to spend time thinking about your investment goals. What are you trying to achieve? How much risk are you comfortable with? Can you afford to lose this money? How much time can you spare to manage this investment? Can you tolerate being woken up in the middle of the night with calls from your tenants? What is your current occupation and how can you apply that when investing in real estate?
Once you decide that, then re-post here and we can give you recommendations on what type of investment may meet your needs and how much work would be required (real estate is not a passive investment). Once you decide what to invest in, then you need to do market research to decide what location would be best to invest in to meet your needs (markets are not equal; cash flow and/or appreciation can be generate in certain markets easier than others). Then you have to decide when is the best time to invest. Markets move through real estate cycles (looks like a sideways S) and investing at the wrong time can have grave consequences for your financial future and net worth.
Since it appears that you're just getting started, here are a few bullets of advice from one of my recent blog posts. If you'd like more info, please see my Linkedin profile for a link to the full blog post:
1. Your Money Should Work For You, Not You For Your Money.
2. Small Savings Grow Into Large Fortunes.
3. Use Leverage to Your Benefit.
4. Exercise patience.
5. Do not waste time nor money.
6. Beware of expenses.
7. Beware of Easy Returns.
8. Quality First, Quantity Second.
9. Trust, but Verify…everything.
10. Learn from Your Mistakes.
1 Reply
Erica Muller
Real Estate Agent · Orlando, FL · Member since 2016 · 139 posts · 80 votes
10y
@Brandon Hall I spoke to my CPA, everything is I'm doing is legal. I'll PM you. . . you had me really freaked out lol.
0 Reply
Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
@Marcus Cox
A few books:
I suggest reading these in order...
1. "The Richest Man in Babylon" by George Clason
2. "Think and Grow Rich" by Napoleon Hill
3. "How I Turned $1,000 into $5 Million In Real Estate In My Spare Time" by William Nickerson
4. "The Unofficial Guide to Real Estate Investing" by Martin Stone
5. "Emerging Markets Real Estate" by David Lindahl
6. "What Every Investor Needs to Know About Cash Flow" by Frank Gallinelli
7. "Timing the Real Estate Market" by Craig Hall
8. "Confessions of a Real Estate Entrepreneur" by James Randall
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
@Marcus Cox
Take a look at Dr. Glenn Mueller's "Market Cycle Monitor" report to develop a good understanding of real estate market cycles. Also, read everything you can get your hands on that is written by Dr. Peter Linneman (head of real estate @ Wharton). These guys are experts in their specific niches.
0 Reply
Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
Here's a recent market cycle report for apartments:
0 Reply
Kenneth Reimer
Rental Property Investor · Sacramento, CA · Member since 2016 · 267 posts · 214 votes
10y
@Marcus Cox I think the BP community needs a few more details to really dig deep and help you out. For example, I think it's important to know what your goals are. Do you plan on house hacking, managing yourself, syndicating? The answers to these questions will guide the members' answers different ways. The books that were recommended by @Jon Q. are great guides to understanding the foundation of real estate as well as changing perspectives on money.
Lastly, I hope you decide to dive into multifamily real estate, it truly is a cash creation machine if done the right way.
Hope this helps!
Kenneth R. Reimer
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Christopher B. I found it strange that you are putting down the concept of buying small houses in working class neighborhoods, yet you suggest buying $10K trailer houses? Trailers are a horrible investment because they go down in value and you don't own the land they sit on. Often they are just abandoned at the trailer park. The type of person living in a $10K trailer would be much worse than someone in a blue collar neighborhood. @Erica Muller defended her statement very well when she explained that she is actually suggesting wholesaling. In that case you can buy and resell for a profit. @Marcus Cox buying trailers is not a good long-term wealth strategy. Wholesaling or buying entry level homes are both better options.
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