15K - 20K to invest...starting out
Maple Valley, WA · Member since 2017 · 45 posts · 12 votes
In November I expect to have a small amount of cash to invest. Due to this limited amount I'm thinking about the following options:
- Partner w/ another investor (I provide the cash for rehab?)
- Use it to be a private lender in order to build reserve up over time (I assume this would need to be with investors outside of WA state where there's more affordable housing)
- Wholesale (don't need a partner)
- Another option I missed?
Thanks in advance for the comments!
Hey Taj,
What is the average $ home in your area? Depending on where you live, you could use that money as a downpayment for an FHA 3.5% down load, or USDA 0% down loan. You can also roll in your closing costs as a concession if the purchase price is over 100k~. If you go the FHA route, you can bundle it with a 203k construction loan, which you can use to help you rehab a property. Then you can use the BRRR method to pull your money out and do it again,,,and again..........and again.
Good luck!
Thanks @Andrew Syrios. I'm considering more affordable areas of WA that will make my 20% down payment go farther and also because I will want to hire a property manager since the home may end up being a few hours away.
@Jonathan R. I understand what you are saying. It's pretty eye opening seeing some of the crime reports listed on Trulia though. Eventually I'm going to have to take some type of risk. I just want to make sure the numbers work first and then do the best I can regarding the area.
@Ivan Mares I've thought about your 2nd suggestion but that much leverage makes me nervous. I expect to pay "tuition" by making some mistakes but I don't know that I want hard money to be one of them; at least not this early in the process. I would probably be more comfortable using hard money for just the rehab portion but I'm no pro at estimating ARV, getting a fair/accurate quote for rehab and ensuring it's done on time so I don't increase my carrying costs.
@Michelle R. The number I had in my head for true cash flow is $200/home, unit, etc. I'm hoping that's a conservative number (that was my goal anyway) so I would need 10 homes in 2 years and 30 in 7 years to hit my goals. I don't know what I don't know so if it takes longer it's not the end of the world, as long as I'm close to my $200/unit target.
I'm curious, are you getting +/- $200/month on your units?
I was mostly being sarcastic, you can invest 20k without being in a war zone. Michelle is right in her belief that you should try to invest in your own area or the risks do go up. In my opinion, if the deals aren't in your area, go find them and take a risk. To me, 20k is not a lot of money, but it can be through real estate; if I don't invest it, I'll waste it. If wasting it is what will happen, I'd much rather take a risk in real estate. Last week I had a deal sent to me with an asking price of 21k and a county appraisal of 57k. The house needed 6k of work. That house will rent for $725 a month no problem. I bet it could be bought for 17k. These deals are in my area all day long, my next purchase will be in March, still saving. 6k a month in passive income is not as hard as Michelle believes it is. For me, that is 10 houses free and clear or 16 or so if their is debt involved. 5 years with a 50k a year job.
@Jonathan R. To truly invest in my area may mean looking at condos. I would need to understand the potential concerns around those (besides HOA fees) to see if my risk-meter gets pegged or not.
@Taj Hayden good. Well, at least you know your market. I would pass on the condo. A long time ago people from the Midwest went to Alaska and California for gold and jobs. Today, I'm telling you real estate gold is in the Midwest. You can hang up there and keep analyzing bad deals or get in your wagon and make your life happen.
@Taj Hayden My pleasure. Let us know how it goes.
Hi again, Taj -
I have a mix of single family, multi family and condos in New York and Chicago and I am getting more than $200 in cash flow per unit, but I tend to take a risk-averse blue chip strategy. I've been buying in Class A and B areas and making significant down-payments. The homes then act as "forced savings accounts" for me because I like to pay down the mortgages as quickly as I can until I own them free and clear and they generate more cash flow.
Most BP contributors seem like they take a much more highly leveraged BRRRR approach so they can accumulate more homes.
By the way, I didn't mean to be so strict with you that I rained on your parade. It's GREAT that you are thinking about how to invest in real estate. I would just want you to have a safety cushion. I love BP, but most people write in about their successes and not about what can go wrong very quickly.
I started investing in Chicago because it's much cheaper than the New York market, but although property costs less I have a lot more expenses as far as plane tickets, time off from my day job, landscaping, snow shoveling, property management and paying repairmen higher prices for emergency fixes. These are all things which would disappear or be very minor if I actually lived in Chicago and could take care of things myself.
I have decided to work through the recommended steps in the BP Podcast 200 (step by step guide to buying your first REI). Time is on my side & this approach will allow me to:
- Build knowledge/confidence as each step is achieved (and ultimately be ready to act when the steps have been completed)
- Force me to be specific about my REI plan and will help identify gaps I need to fill to give myself the best chance at success
- Focus on progress, not perfection
If you haven't listened to the podcast (or downloaded the pdf they mention) I would highly recommend it. Thank you to everyone who contributed, I greatly appreciate it!
@Jonathan R.@Michelle R.@Ivan Mares@Andrew Syrios@Michael Ablan@Ingrid J.@Chase Harris@Joe Villeneuve@Trevor Lohman@Sergii Khromchenko
I wanted to share an update as I'm about to take action. I have been in learning mode for months (not that I'm done) and have decided on the following:
Start a 6-month direct mail campaign to generate wholesale deals. I realize there a few good wholesalers and that it's difficult. However, I also see direct mail as a common denominator for finding buy and hold, off-market deals which is ultimately what I want to do.
Money generated through wholesaling will go towards buy & hold properties. I'm targeting $5,000/deal and willing to split 50% if I can partner with someone on a few deals to limit my risk.
I believe it will take 9 months or more but I would like to reach the point where I generate two deals per month on a consistent basis. This cash will be a safety net for when I underestimate a rehab on a buy and hold (inevitable) and also to increase my cash position for when the market turns in my local area, allowing me to potentially purchase closer to home.
I have a list of the BP podcasts which are primarily about wholesaling and will create a best practices document based on these. Most I have already heard (I've been listening to the podcasts in order) but there are some that I will need to jump ahead and listen to so I can finish the document. I've also re-read the ultimate guide to wholesaling.
My wife became a real estate assistant since I first posted and there have been early conversations about partnering with her broker on investments. He's well established (20+ years) and my license hung in his office 12 years ago when I was in new home sales.
That's all I have for now, sorry to have disappeared for so long.
I would love to hear how everyone else has been progressing.
@Taj Hayden, I agree with @Trevor Lohman and @Jonathan R., that attempting to go all-in on a cheap fixer should be on your list of options.
Many people will recommend you avoid rentals that cost less than $30K. Others swear by such investments and make a fine living by focusing on sub $30K buys.
There are many caveats, but then again, there are many caveats in any venture. The most important thing I would recommend would be to not be in a rush. Don't feel like you have to make a purchase days or weeks after you receive the money. Take your time. Read as much as you can. Review case studies of others who have bought and rented sub $30K properties, paying special attention to the times when those purchases resulted in losses.
In the end, you may decide to go a different route. There are many ways to REI success. Anyone who automatically dismisses cheap buys is either ignorant, afraid, or so rich they can focus on bigger fish.
good luck,
Randy
@Randy E. I'm not opposed to a cheap rental but that requires an out of state investment and the best place for me (based on my network) is St. Louis and frankly the areas where I could get something for $30K are war zones. Maybe I can find one in an outlying area (deep St. Louis county, etc.). Also, are you saying "all in" as in purchase cash? Or just a significant down payment (50%?). I would think that such a rental would required a rehab and a potential eviction at some point. Thanks for writing!
I do mean $30K or less as purchase price.
I agree that it's better to invest closer to home, especially for a first-timer. But if you feel you have to invest outside your area with that budget, I accept that's probably true.
I'll respectfully disagree that it would have to be a "war zone", even as I also say that many people disagree about what a "war zone" really is. However, I will agree that no one should ever invest in a place where they feel deeply afraid for their investment. It doesn't matter if it's a war zone or simply a place that feels different than what you're used to. Not having peace-of-mind, warranted or not, might drive someone to make an unwise decision during ownership.
If you think you need to invest away from home AND you feel locked in to St Louis, I think it's too early to make a decision to buy. Nothing against St Louis and its investment potential, but if you aren't seriously considering other locations, you haven't put enough time into this venture yet. Take the time to increase your network beyond a single location. If you're going to invest remotely, you owe it to yourself, your family, and your money, to know all the options. St Louis may end up being the best option for you, but you have to know more options before you can decide that.
Your first investment may very well be the very most important one of your life. Do it right, and you might just eventually (after a few years and subsequent purchases) accomplish your goal of $5k/month, or even exceed it. Do it wrong, and you could be left with such a bad taste in your mouth that you abandon any hope of a second REI venture. As you said, this first buy is possibly a make-it-or-break-it opportunity for you.
That's too important a decision to be limited to one remote area.
-Randy
Thanks for the clarification. When I say war zone, this is based on me having grown up in STL. I can buy a home for $18K in Ferguson but that's not at the top of my list. The home I grew up in was purchased for $30K in 1985 and I looked it up recently and it last sold for less then $20K.
I'm almost finished reading David Greene's book on investing at a distance and that's when I realized that I have a "head start" in the STL market due to personal connections with an established realtor who's also an investor. I can certainly do that in other cities but I would have to start somewhere and STL makes sense when the time comes. I'm not in a hurry and will begin the direct mail campaign which allows me to learn more about areas I didn't grow up in and explore potential opportunities across the Midwest (my contact has also begun looking out of the area as well).
Thanks for the clarification. When I say war zone, this is based on me having grown up in STL. I can buy a home for $18K in Ferguson but that's not at the top of my list. The home I grew up in was purchased for $30K in 1985 and I looked it up recently and it last sold for less then $20K.
I'm almost finished reading David Greene's book on investing at a distance and that's when I realized that I have a "head start" in the STL market due to personal connections with an established realtor who's also an investor. I can certainly do that in other cities but I would have to start somewhere and STL makes sense when the time comes. I'm not in a hurry and will begin the direct mail campaign which allows me to learn more about areas I didn't grow up in and explore potential opportunities across the Midwest (my contact has also begun looking out of the area as well).
That makes it make more sense to me now, knowing you grew up there and have personal contacts. Onward!
@Jonathan R.@Michelle R.@Ivan Mares@Andrew Syrios@Michael Ablan@Ingrid J.@Chase Harris@Joe Villeneuve@Trevor Lohman@Sergii Khromchenko
I wanted to share an update as I'm about to take action. I have been in learning mode for months (not that I'm done) and have decided on the following:
Start a 6-month direct mail campaign to generate wholesale deals. I realize there a few good wholesalers and that it's difficult. However, I also see direct mail as a common denominator for finding buy and hold, off-market deals which is ultimately what I want to do.
Money generated through wholesaling will go towards buy & hold properties. I'm targeting $5,000/deal and willing to split 50% if I can partner with someone on a few deals to limit my risk.
I believe it will take 9 months or more but I would like to reach the point where I generate two deals per month on a consistent basis. This cash will be a safety net for when I underestimate a rehab on a buy and hold (inevitable) and also to increase my cash position for when the market turns in my local area, allowing me to potentially purchase closer to home.
I have a list of the BP podcasts which are primarily about wholesaling and will create a best practices document based on these. Most I have already heard (I've been listening to the podcasts in order) but there are some that I will need to jump ahead and listen to so I can finish the document. I've also re-read the ultimate guide to wholesaling.
My wife became a real estate assistant since I first posted and there have been early conversations about partnering with her broker on investments. He's well established (20+ years) and my license hung in his office 12 years ago when I was in new home sales.
That's all I have for now, sorry to have disappeared for so long.
I would love to hear how everyone else has been progressing.
@Jonathan R. That's a great update! Is everything in Sedgwick Co? Between you and Randy I may need to look at lower priced homes. Based on your numbers you're right around the 2% rule. Good luck at the auction!
Yep, Wichita, KS. Not the most exciting city, but I do meet the 2% rule here. Can't wait to watch the Jayhawks make the Sweet 16 this Saturday at Intrust Bank Arena. I'll take a nice run from the Shockers too. :)
Yep, Wichita, KS. Not the most exciting city, but I do meet the 2% rule here. Can't wait to watch the Jayhawks make the Sweet 16 this Saturday at Intrust Bank Arena. I'll take a nice run from the Shockers too.
Jonathan, what price range are you investing in to get 2%? I'm a new investor in Wichita and I've got one property so far and it's about 1.33%, which I'm comfortable with. Are you just buying properties that need quite a bit of rehab?
@Taj Hayden - Not sure the level of involvement that you want, but if you work full time and want to take it slow/learn etc another option not mentioned would be a Note. I'm sure your local REIA will have several connections if you are interested.
@Deb Somdahl - Thank you for the suggestion. There's a note invest that was on the podcast that I saved and I subscribe to their newsletter but I haven't dove too deep because I thought I would need to be prepared to handle non-performing notes, etc. To be honest I haven't dug too deep but I do know that in David Greene's first podcast he mentioned using notes to accelerate the payoff of his rentals which I find very attractive.
@Nathan Churchill Thanks for reaching out. I do buy homes that need a fair amount of rehab. I do buy in C- or D plus areas (I try to buy on the fringe of these areas, so next to a highway or the corner of "the hood") , so in large part my properties won't appreciate a great deal, they are strictly a cash flow play and I intend to keep them forever. The first property I bought here was 18k, the second was 22k, I hope I can get those numbers lower on occasion. I always use Section 8. So, I rehab them right upfront, I typically change out the ac and furnace too if I know they are on their last leg, which they typically are. My brother in law is in hvac and gives me favorable pricing. I work for the electric company so am good at navigating running an electric line to the house and getting city inspections. The first one I bought because that was the only thing I could afford; moving forward, I don't think I'd do it any other way, at least not until after I reach financial freedom.
@Nathan Churchill Thanks for reaching out. I do buy homes that need a fair amount of rehab. I do buy in C- or D plus areas (I try to buy on the fringe of these areas, so next to a highway or the corner of "the hood") , so in large part my properties won't appreciate a great deal, they are strictly a cash flow play and I intend to keep them forever. The first property I bought here was 18k, the second was 22k, I hope I can get those numbers lower on occasion. I always use Section 8. So, I rehab them right upfront, I typically change out the ac and furnace too if I know they are on their last leg, which they typically are. My brother in law is in hvac and gives me favorable pricing. I work for the electric company so am good at navigating running an electric line to the house and getting city inspections. The first one I bought because that was the only thing I could afford; moving forward, I don't think I'd do it any other way, at least not until after I reach financial freedom.
So you don't have any issues in these neighborhoods. I can see meeting the 2% rule in these areas. For me that seems like too much risk of bad tenants. I only have one property so far and I'd say it's c+ or b-. What's been your experience being in the c- or d neighborhoods? Do you have to deal with a lot of turnover or tenants not paying rent?