Have $40,000. Where would you put it for the best return??
Investor · Santa Cruz, CA · Member since 2017 · 61 posts · 50 votes
So, my wife and I have been have been saving for a while, which isn't really easy. (Two kids, tuition, CA prices..) But we do live a pretty thrifty lifestyle. 2001 ford truck for me and 2010 Pilot for the Mrs. All paid off and very little CC debt. Mortgage on our PR is $1500/mo.
That said, where would you park your $40k? Strongly feeling this bubble is near the popping point, and don't want to make the same mistake I've seen so many make. I'm really getting interested in MF syndication.
I'm not you so I'm answering this from my perspective. I had around $60,000 to invest.
I bought 3 cheap/low income houses paying cash. I'm bringing in $1,650/month and own the properties free and clear. Used that money and just put a 4th one under contract that will close those week which will bring my monthly income to $2,350/month. Once again I own everything free and clear. Already have my 5th one lined up as well. Just going to wait another month to save up another $2,000 that I can use towards repairs on the 5th house.
@Aaron Mazzrillo good points that lending to a local flipper would give you an education in the rehab and flipping business which you aren't going to get interesting out of state. How did your lenders usually find you early on? I've heard there are SEC rules against soliciting money and things like that , but maybe that is for different types of investments? I know there have been some changes recently with the JOBS ACT allowing one to raise funds from non accredited investors as well.
I'm not you so I'm answering this from my perspective. I had around $60,000 to invest.
I bought 3 cheap/low income houses paying cash. I'm bringing in $1,650/month and own the properties free and clear. Used that money and just put a 4th one under contract that will close those week which will bring my monthly income to $2,350/month. Once again I own everything free and clear. Already have my 5th one lined up as well. Just going to wait another month to save up another $2,000 that I can use towards repairs on the 5th house.
Hi Derek,
New to investing here and wanted to get some of your thought processing behind your deals. If looking for buy and hold properties and long-term cash flow, why not leverage some bank financing given that rates are so low right now? Use the cash for down payments on a greater number of properties and increase cash flow and build equity through tenants paying down loans over time?
Again, not questioning your decision, just asking for informational/educational purposes. Thanks in advance!
Hey Ben,
Unfortunately, most banks won't lend on purchases under $35k, a lot won't do a mortgage under $50k.
This is both good and bad I suppose. Because of this, sellers in my price range are limited to cash only buyers which truly limits the competition. This allows you to negotiate well below the asking price (which is already cheap.)
There are creative ways to get financing and I am going to look into some of those ways now that I own 4 homes free and clear.
I like the freedom and peace of mind knowing I don't have a loan payment I need to make.
I'm getting homes so cheap I'm most likely just going to get a $10,15,000 personal loan and use the combine rent to pay it off much quicker. I'm not sure if i will do it or not. Right now I can save rent money up for 3-6 months and pay cash for another one.
Ah. Great points. I guess I should've realized that given the number of homes you bought free and clear that they were on the very low end of purchase prices. That makes sense.
Hi @Robert DeForge and company,
I'm in Northeast Ohio, and was in Milwaukee. We can get into a rental hear, all in for 40K or so - move-in ready, and rent it out for $800/mo.
@Robert DeForge @Miguel De Dios @Craig J Chelette @Anthony Gayden @Gala Klein @Len Parks @Joseph M.
As a previous poster mentioned there are many cities where properties are under 70K. I've seen Duplexes for 70K and under. At 20% Down that means only having to put 14K Down.Yes you can get mortgages for under that with the local banks. Just so much more paper work as opposed to just saving it up and buying it myself.
@Aaron Mazzrillo good points that lending to a local flipper would give you an education in the rehab and flipping business which you aren't going to get interesting out of state. How did your lenders usually find you early on? I've heard there are SEC rules against soliciting money and things like that , but maybe that is for different types of investments? I know there have been some changes recently with the JOBS ACT allowing one to raise funds from non accredited investors as well.
I used to attend lots of monthly real estate clubs/meetings and talked to people. California has some great meetings. It also has some shark tanks, but those are pretty obvious to figure out.
I'm not you so I'm answering this from my perspective. I had around $60,000 to invest.
I bought 3 cheap/low income houses paying cash. I'm bringing in $1,650/month and own the properties free and clear. Used that money and just put a 4th one under contract that will close those week which will bring my monthly income to $2,350/month. Once again I own everything free and clear. Already have my 5th one lined up as well. Just going to wait another month to save up another $2,000 that I can use towards repairs on the 5th house.
Hi Derek,
New to investing here and wanted to get some of your thought processing behind your deals. If looking for buy and hold properties and long-term cash flow, why not leverage some bank financing given that rates are so low right now? Use the cash for down payments on a greater number of properties and increase cash flow and build equity through tenants paying down loans over time?
Again, not questioning your decision, just asking for informational/educational purposes. Thanks in advance!
Hey Ben,
Unfortunately, most banks won't lend on purchases under $35k, a lot won't do a mortgage under $50k.
This is both good and bad I suppose. Because of this, sellers in my price range are limited to cash only buyers which truly limits the competition. This allows you to negotiate well below the asking price (which is already cheap.)
There are creative ways to get financing and I am going to look into some of those ways now that I own 4 homes free and clear.
I like the freedom and peace of mind knowing I don't have a loan payment I need to make.
I'm getting homes so cheap I'm most likely just going to get a $10,15,000 personal loan and use the combine rent to pay it off much quicker. I'm not sure if i will do it or not. Right now I can save rent money up for 3-6 months and pay cash for another one.
Ah. Great points. I guess I should've realized that given the number of homes you bought free and clear that they were on the very low end of purchase prices. That makes sense.
Ben,
My current rule is under $15,000 and must rent for at least $600/month.
I prefer corner lots if possible, decent (clean/up kept) street, or connecting/across the street from a business/commercial lot.
Appreciation for me would just be extra, but I do try and keep it in mind when looking at potential deals. I'm 32 and my wife is 27. We don't plan to sell our properties for 25-30 years if ever. So who knows how much some of the land value could increase over that time.
Is $40k like a large part of your world? Already cashed out Roth contributions, borrowed from the 401k, searched couches?
Or is it truly 'available'? Over and above a rainy day fund?
What do you want to do? What is your tax position? I wouldn't touch lending or flipping because I don't like paying high tax rates. Do you have room with your current income to receive interest?
Personally I am paying down high hassle and higher interest RE debt because opportunities are less available in my area.
With so little info, we're all barking at the wind. GIGO. Explain a little more about what this $40k represents, where you're at and where you want to go @Robert DeForge. I will say this though - if $40k was a big deal to me, I wouldn't put it in some syndication where I had no say.
Thanks for the reply Steve.
The $40,000 is not my life savings, it's just liquid cash that I've sitting in the bank drawing a measly -0.001% interest. A total waste in my opinion. It's just some cash that I have set aside that I would like to get into another property and start getting some monthly cash flow and slowly expand my holdings. It's not enough to throw at any of my current mortgages to where it would make any real difference.
I agree that investing in flips or lending probably isn't the best choice right now with that small amount of money because I need the write-offs from Real Estate and not just the income from interest.
But as I said above, the $40-50k that I can pull together right now won't even buy a beat down mobile home in my area. That's why I'm looking for a better return out of state even if I have to hold it 10 years or more.
I know the deals are out there in the Midwest, I just don't have the ability to fly around state-to-state looking for them. That's why I jumped onto BP hoping that someone had some leads in an area where I can develop a team and start my 00S adventure.
I'm 46 and have nine years until I "retire" from my full time gig. I'm trying to Buy and Hold right now to get some capital going. Once I have that my strategy may change to other creative deals. But for now just looking to start my empire and I'm really thankful for all the great ideas and advice I'm getting here on BP. It all adds to my arsenal of weapons (knowledge) to meet the goals for my family. :)
Thanks for the extra info, Robert. Glad the $40k isn't everything you have!
I am your age and started in '02 with mobile homes in family parks. I would buy for cash, fix up a little and sell on like 7-yr notes. Not sure if that's feasible?
There are definitely more owner-occ, seller carry rules now, but I think you'd be ok if you run them through an RMLO and do 3 or less per year. Great returns on small money.
Just another idea. Good luck!
@Paul B. is speaking my language!
I have formed a relationship with and now work for a sponsor who does deals that I love. Let me list why I love syndication, because I think this conversation and dialogue is awesome and I want it to continue. Please, feel free to give feedback or question my assumptions/experiences. That is why I love these forums!
Why I love it:
What I give up:
Fascinating thread. I have ~$40k in IRA money earning nothing because I think Wall Street is a crooked casino, and poised to crash again. As I understand it to invest it in a property it needs to be wholly purchased and maintained by the IRA. No leverage and no comingling with my other RE interests. A cheap property in WV or PA within a 4-7 hr drive would be interesting.
@Paul B. is speaking my language!
I have formed a relationship with and now work for a sponsor who does deals that I love. Let me list why I love syndication, because I think this conversation and dialogue is awesome and I want it to continue. Please, feel free to give feedback or question my assumptions/experiences. That is why I love these forums!
Why I love it:
What I give up:
Are you investing in projects in Missouri or out-of-state? You have me interested.
@Johann Jells IRA's can co-mingle with other funds if you use a custodian that is setup for that purpose. I am in the process of setting this up for my wife and I to invest with qualified funds in the future.
@Robert DeForge pm me and we can talk some more. Short answer is yes. The group I invest with and work for does both Missouri and Kansas City. Commercial and Multi-family investments.
@Jared K. Hello there,
When you invest in multifamily as you are, what do you make once they sell the property? Do you just get your normal return, get your return back plus a percentage of the overall profit from the sale or some other compensation?
@Derrick E. Sounds like you got a great deal!! I am curious as to what your experience has been with tenants? Are you on the very low end of the market in your area?
@Shawn C. Assuming the deal works, I get my principal back, plus my prorata share of any principal reduction, plus my prorata share of any appreciation of the asset.
A point I should have made above is that entity is still borrowing 65-80% of the purchase price (another bullet for the love list. I am not the one guaranteeing that debt!).
I would invest in Detroit, Mi. There's lot of potential there! You just have to pick an Investment property in the right area.
Looks like you're from Detroit. Do you want to give me the good and the bad streets / neighborhoods to invest in? :)
Fascinating thread. I have ~$40k in IRA money earning nothing because I think Wall Street is a crooked casino, and poised to crash again. As I understand it to invest it in a property it needs to be wholly purchased and maintained by the IRA. No leverage and no comingling with my other RE interests. A cheap property in WV or PA within a 4-7 hr drive would be interesting.
Check out the area area around Wheeling, WV/ St. Clairsville, OH.
Lots of cheap houses still available, and the place is booming whether it is showing up on paper yet or not. The natural gas boom in the area has brought a ton of out of town workers who need a place to rent.
@Robert DeForge I was just in a similar situation. My work moved to an insurance company 401k that is a complete scam. I didn't want to invest there, and since this was now all after tax income I had very few tax advantaged options. The write-off for depreciation in my case was very important so I invested in Indianapolis Indiana. So far I found 1 duplex for 80k that I was able to put just 25% down on having it take 24k with all costs out of pocket. I know it probably could have been lower if I shopped it around but I'm very busy with my day job so I was happy with the process.
I just did some research on areas in the midwest and then the top PMs that are being recommended. Reached out, talked to them, found the one I liked most and then contacted a realtor in that area to start looking. I didn't want to go turnkey because none of the deals that were being sent made sense, but that is what a PM is for. The 2 best pieces I could give you would be always get the detailed inspection and do your own numbers and homework.
Best of luck.
@Derrick E. Sounds like you got a great deal!! I am curious as to what your experience has been with tenants? Are you on the very low end of the market in your area?
I'm surprisingly not. The low end tenants in my area are paying around $450/month rent.
One of my tenants is a teachers aide at the school down the street and has been working there for 11 years. My other tenants work blue collar jobs at the steel mill or similar type of job in the area. Most make good money and are either young, divorced, or single woman who doesnt want to deal with the maintenance of a house.
There is also a nearby University that helps drive the price of the average rent up a bit. With the economy the way it has been, a lot of blue collar workers in my area are afraid to purchase a home as they are afraid of being laid off a few months later. Those are the types of tenants I have ran into so far.
Now I do get some doozies who show up wanting to rent the place, but I never allow them. If I'm only getting responses from trashy people then I will lower the rent. I've only had to do it once so far, but it worked.
@Jared K. Thank you for the response. I also want to get into multi-family investing and I have been told the best way to see if it is for a person is to find someone you can build trust with and start at the syndication route.