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.
You've got so many options and good on you for saving some skrill! Maybe not in California - but elsewhere, you can get a SFH and wait / let it appreciate, buy and hold. Or....grab a partner and get a Multi-family home to get a cash flow going, BRRR it and see how you like being a landlord. Run the numbers, look for deals and do your research. Have fun!
@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.
Doesn't that put you at a distance from your investment and losing control? Perhaps I don't understand, can you explain?
What I'd really like is to use the money as a downpayment to gain the power of leverage, but as I understand it I can't, and I can't loan it to my LLC.
I would find a market where my $40k would be enough to get me into the game. Once you find a market, you can either use the capital as a down payment or do a value-play (something like a BRRRR) so that you could get your capital back after a couple months and add another investment to your new portfolio.
I'm just going to leave one final post on this as my strategy is under attack @Aaron Mazzrillo. Granted Aaron is a pro, I've listened to his podcast even before he chimed in here and I give respect where respect is due, the guy deserves respect. I think he has an amazing strategy. Robert asked what I would do with 40k. I think a buy and hold strategy with his all cash investment is an excellent way to invest his 40k. Personally, I think he should park his money there-permanently. Let's just do some fun math. On my deal I get $675 a month in rent. If I never raise the rent $675 X 50 years is $405,000- minus expenses. Let's say I picked a real loser and only rented it six months a year, that is $202,500. Personally, I don't see the point in selling it, I'll have my investment back in a handful of years and a free and clear property to will to my kids. If you create a nice product, it will rent. Tons of people rent apartments, go find one to upgrade. I wouldn't recommend buying a property surrounded by vacant houses, I didn't do that. There are lots of great real estate strategies, this one is mine. If you can find a deal in your area, that is of course the best thing.
It isn't under attack. I'm merely pointing out that if you have a small amount of money to invest, the best strategy to grow that money is to get maximum velocity on it. Parking it in the Midwest is like putting it into a retirement home. Just starting out investors cannot afford to put their working capital in a retirement home and collect pension wages on it. You might get wealthy, but we call that the crawl slow to wealth program. I'd prefer to run to wealth... Or take a bullet train. I'd put it into something that turns over several times a year and has upside. When I really started to get into real estate full time, I partnered with another guy and we targeted foreclosures with good equity spreads. One of our early deals was a house we paid $20K cash for subject to the $700K loan. We had to make a few payments and spent $5,000 fixing the place up, but it sold for $1.2M.
I also did the good old Lonnie Deals - buying and flipping mobile homes in family parks. I would double my money on 2-3 deals. They were all small deals, but I could turn $15K into $30-40K by the end of 1 year.
I see no upside in owning a stick built house with a retail value of less than $100K. In this day and age I wouldn't ever consider putting my money into an asset of such impoverished value. If I do a rehab loan to a fix & flip investor and it goes south, the upside is I get to foreclose and now I own a house with a loan in place and a 30%+ equity spread. A deal like that can be converted into cash quite quickly.
Aaron, investing in the mid-west is not parking your money. Investing in a D class asset that doesn't increase in value is. I have invested in the mid-west and have turned $20k into over many times over 7 figures. It's about strategy, location and buying right. Somehow in California when times are good everyone forgets that their real estate could soon be worth half of today's value. Investing in the Ghetto in California cities is also a sure way to park your money.
@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.
Shawn, if you invest in a syndication, I would suggest you go with a smaller/mid sized outfit that you can have personal contact with the main person/people. Your goal is learning, so be sure they allow you to be apart of the deal and "shadow" them and coach you along the way. I would try to get a portion of the General partnership as well, so that you can use that or your experience with the banks. Good luck!
Awesome advice from @Todd Dexheimer ! I only got involved after I did all of my homework and actually knew the people behind the deal. It was NOT a fast process to make the decision and be comfortable.
@Johann Jells I guess that would depend on your custodian. The company that I am pretty far in the process with, essentially does what I ask them to do. No more/No Less, but they have the necessary custodial powers to allow me to use my qualified funds. I will probably post and talk about the whole process when I am finished with it. I have been taught and connected to the process by people I know and trust. That is big to me.
@Jared K. great point. I syndicate my multi-family deals and expect my investors to proceed with caution. You are putting up a lot of money into a deal and anyone can put good looking numbers on paper. I have conversations with my investors about the expectations and will tell them to sit out on deals if they are not comfortable. The last thing you want as a sponsor or investor is to be nervous about the partnership!
@Todd Dexheimer Preach!
When we syndicate an investment we always make sure our investor understands their financial situation and their risk tolerance. In the end this is what we do, and my best advice to any potential investor is for them to run us through the ringer and ask their financial people about our company and the investments. We can be a great company and have a great investment, and you can be a great person. That doesn't mean it is the right investment for you at the right time.
@Paul B. is speaking my language!
Hey Jared. I agree with most everything you said about syndication with the exception of the risk part. Passive investors are equity holders in a leveraged deal and their invested capital is at risk.
Congrats on saving! Lots of good comments above, so I'll just add a new thought here. Keep in mind that you CAN get bank loans for investments. So you don't have to buy a $40k property...in fact, that be a terrible way to start (I'm not saying it's a bad idea overall, but it might be a bad way to start if you don't have the stomach/experience). Perhaps you can find a $100k property that will cover your mortgage and cash flow. You'll put 20-30% down, depending what the bank requires, you have some for closing costs, and perhaps a bit for fixup (not a fixer-upper home...but no property arrives perfect). Your cash flow will be lower, but you have to start somewhere, right? And you have to believe in what you're investing in...not just AFFORD it.
You're in CA, so that does make it more challenging and I'm not familiar where the cash flowing areas are there. I live on the East Coast, where I can find $100k properties that are in decent neighborhoods where people want to send their kids to school. I prefer to self-manage, so I'm less than a 3 hour drive from each property (I have 4 now). I spend a LOT of time getting to know the area that I'm investing in intimately...that's part of the fun for me is getting to know a new area...understanding the employers, the local economy, the people...I read the town/municipality/village's website in detail. I recently attended a village board meeting and that was a really great way to get to know the town. Property managers can be helpful as well (or so I've heard...I haven't had great experiences so far, and I enjoy self-managing).
I'm not sure how much this translates to CA, but from what the other posters are saying...there's probably something out there for you. My two cents is...don't buy in an area that you don't believe in, don't feel comfortable in, don't want to drive through, just because it's all you can afford. You worked hard to save this money, so buy something that you'll enjoy owning! You'll be tied to the house for a long time - you have to like it!
@Todd Dexheimer Thank you for your comment and tips. I totally agree with you but how do I find smaller/mid sized operations as you suggest?
I have talked with a couple people over the pas 1 1/2 - 2 years and we still have not met in person for one reason or other on their side. I have also told people I am retired and I have the time to add whatever value they think I can add to their business even if it means just stuffing envelopes in order to learn properly. This is in addition to money I have to invest. Not to sound like a smart a-- or anything but I have more than 40k to invest into multi family. I have gotten this money through fix&flips, new construction and wholesaling not to mention some other things I do in real estate that don't bring in the kind of money the other things do but they still bring in money.
I also enjoy what I am doing with my real estate business butI want to keep growing funds so I can continue to learn and not only start multi family investing but to grow that business as well once I get started.
Any assistance you can give or anyone else can give me is greatly appreciated.
good luck
Absolutely, set your price range is important though.
Be careful, the Zillow estimates for rent are over priced for my area (at least in my opinion.)
A good majority of people will recommend stocks as a trustworthy investment vehicle (whether it be indices or individual stocks), and that's what I would recommend also; however, if you don't know much about the stock market, you're better off leaving your money in CASH. Yes, I said it...cash. (How dare I say that blasphemous word). US stocks are not cheap as of now (08/14/2017). But they also have not been cheap for the past few years. So will the bull market continue? I don't know. The number one rule of investing is don't lose money. I've been investing/trading stocks for a long time and trust me when I say that losing money hurts a lot more than the gratification of making money. I would rather break even for the entire year than lose money. So, my "recommendation" would be to learn as much as you can about the financial markets. Because it isn't all luck. I use technicals to identify buy and sell signals, but at the end of the day, you want to put the odds in your favor. If you don't know what you're doing, you'll get eaten alive.
@Craig J Chelette it's hard but not impossible :) I just closed on a duplex in June for 300k (in Provo) , put 10% down with no PMI.
mortgage, taxes and insurance $1607
3% vacancy (vacancy is almost nonexistent in Provo but I wanted to be conservative) $69
5% repairs (bought the home with everything remodeled) $115
8% cap ex $184
I did not include PM because I will be managing it myself BUT every property from here on out that I analyze will include 9% PM.
$50 other expenses (google fiber)
gross monthly rent $2300 (1400 up and 900 down)
cash flow $274.39 with a CoC return of 9.27%
My realtor found it on KSL - it wasn't even listed on the MLS. Now that I'm an agent I am scouring the MLS!
Do or do not -- there is no try!!!
In my area they're crazy under, at least for multis. I have a 3U w 7br that I actually entered in the correct data for, they "Zestimate" $750k with $2200 rent, which is a crazy high GRM. The actual rent is $4750 with a GRM of 13, still high to my taste but probably realistic.
I've been all over this country seeking out quality educators. I've flown to more states than I could recall attending seminars. (Not talking about the sales pitch festivals.) If you're serious about putting your money to work, you might consider booking an Airbnb and coming down south for this meeting at NSDREI.
They are a true nonprofit real estate investor organization and they only have quality educators come speak at their monthly meeting. The topic tomorrow night (short notice) is exactly what you are looking for. That being said, you could just register as a member on their site and get the audio and whatever else they offer (probably the power point presentation).