Plan of action recommendations!

7 Replies

Hello BP community!

First off, thank you in advance for taking the time to share your opinions and thoughts!

I am interested in real estate investing with my ultimate goal of building a passive income vehicle .

A little background on myself:

Obtained a real estate salesperson license after high school in 2009

Successfully fixed and flipped 2 SFH's while holding a part time job and doing all the work with my father(tradesmen) between 2011-2014

Got offered a full time job I couldn't pass up at the time in 2014

Purchased primary residence which is also a rehab/potential investment in 2015

My current situation:

A full time job that brings in about 100k a year, long hours

Own 2 properties: Primary residence(40% equity) and vacation home(100% equity)

About 50k in retirement funds(401k and Roth IRA)

Access to roughly 200k (with everything on the line)

4 years after accepting my full time job I am wanting to seriously get back into the real estate investing game with full a vengeance and am currently in the educational phase, determining which strategy is right for me, as well as researching and analyzing my target market. Reading the forums, books, and listening to pod cast all day has peaked my interest in the BRRRR method found here on BiggerPockets.

My intent is to work towards dedicating my full time focus on this business. I would love to know the route you more experienced guys and girls out there would take if you were in my shoes with the end goal in mind. CASH FLOW!

If I may ask, what would your road map would look like? What would your short and long term goals be? Multi family vs single family? BRRRR method, ect...

Any good book recommendation?

I'm open minded to any and all ideas! I look forward to hearing your suggestions and feedback! Thank you!

Kind Regards,

Corey Perdue

I would take that $250k that you have in cash. Buy rental properties in the midwest and put $20k down on each one.

That would allow you to get 10 rental properties about. 

That would generate $2000/mo in passive income. Then I would take that cash and put it towards the mortgages and pay off homes to open up credit lines so that you can continue to buy more and more. :) 

@Corey Perdue So before I give you my perspective my general advice is:  Do what the heck you want to do!  If you want to flip, then flip.  If you want to buy-and-hold, do that.  I never think it makes any sense to engage in the whole "means to an end" process.  Example:  "Hey, I'm gonna flip properties to get $500K in cash and then do buy-and-hold!"  Real estate isn't a riskless endeavor so I'd want to get really good and where I wanted to end up.  Anyway, my monotonous sermonizing (which countless others will disagree with) aside...

1.) You make good money right now. Maybe you work long hours but the last thing I would do is engage in any real estate endeavor that will distract you from work. That's just me. Earn a great W2 while you can and use that to fun your acquisitions. If the real estate market goes south, you have a backup. If your career keeps growing, you can increase your REI velocity. And that pesky W2 also really helps when it comes to talkin' to the ol' banks about loans.

2.) If I were in your shoes (given your W2) I'd stick with multi-family properties. If you make a $100K W2 I can't imagine it's going to excite you to get out of bed in the morning for an SFR with $100/month or $200/month in cash-flow. It's still a "thing" that needs attention, no matter how little/passive, and $100/month isn't going to move the needle. Find a 10-unit that cash-flows $100/door and have tenants pay down a mortgage and at least it's something that matters. Your 10-unit "thing" doesn't require 10 times the attention than your 1 unit "thing".

I'd leave your money in your retirement accounts and take out a 60/40 mortgage on your vacation home.  It's going to be "cheaper debt" and you won't have to deal with any hassles around early withdrawals, blah, blah, blah.  And if you're that gung ho about real estate you can always mess around in publicly traded REITs with your retirement account dollars.  

Not sure if any of this helps, just one perspective.

@Andrew Johnson  All great points and thanks for your perspective!

I would definitely have to agree with you on the whole idea of the 10 unit vs a single. My initial thought was to go down this path. That being said, and pardon my ignorance, but your talking using the 60/40 as a down payment correct? 

I have been looking into the difference on duplex/triplex/quad vs small apartments and from my understanding the couple big ones are the financing and analyzing process. Is there any other differences other than the numbers being bigger? I am trying to learn as much as possible about the small apartment concept and would love the insight! 

@Antoine Martel Thank you so much for your insight! 

May I ask why you would go with single family's vs multifamily? 

Originally posted by @Corey Perdue :

@Antoine Martel Thank you so much for your insight! 

May I ask why you would go with single family's vs multifamily? 

 Multifamily is great as well. Just would be putting all your eggs in one basket.

@Corey Perdue Yes, I was suggesting that you take out a mortgage on the vacation home. I know everyone loves to do 80/20 or pull out as much as they can but I do think you lose flexibility. If the market goes down you can lose the option to sell without coming out-of-pocket. Anyway, it's at least something to think about at it would be 30-year fixed debt. The biggest difference that you'll find with "small apartments" (5+ units) is that you now need commercial debt. Sometimes it's actually easier to qualify for that debt that it's going to be a little different. A 20 or 25 year amortization table vs. 30 years. A 5 or 7 year fixed-rate timeline vs. 30 years. So with interest rates still crazy low (from a historic perspective) there is some risk that interest rates will risk in 5 or 7 years (whenever the fixed-rate term is up) and you'll reset through a balloon payment -> refinance scenario into that new rate. The other thing to keep in mind is that you don't pay down too much in principal during that first 5 or 7 years so when you do refinance it's not as though the loan amount is going to be massively lower. You could easily find yourself in a place where a loan today at 5% has a lower monthly payment than a loan in 5 years (with the associated principal reduction) at 7.5%. Consequently, my perspective is that you have to "stress test" commercial properties at the mortgage debt a little more than if you have a 30 year fixed-rate loan on an SFR, duplex, triplex, or quad. There are some exceptions to the commercial financing terms I laid out above but those are generalities to think about. You really have to consult with a local/community/regional bank as they usually are the institutions that carry that debt. Anyway, just for fun you should put a guess at a loan amount into a mortgage calculator and look at the monthly payment at 30 vs. 25 vs. 20 year amortization tables. It's a noticable difference.

Good question @Corey Perdue the two questions that I would ask before investing those hard earned dollars.

1.  What does it mean to be a passive investor?  There are a wide range of strategies to deploy when investing in real estate.  The majority take a very hands on approach to managing real estate, managing property managers or partners.  Speak with people who are working in the business you want to be in (fix/flip, buy and hold, etc) and understand what their day to day looks like?  How passive is the strategy?

2.  What do you enjoy about real estate?  Did you enjoy the work with your father fixing up a home and selling it?  Have you managed renters or property managers? etc, etc.  I would focus on the strategy that gets you excited about waking up in the morning.  All across the BP community people are having tremendous success with a wide range of strategies.  Pick one, become and expert and financial success will follow.

A tip that was given to me when I was 20, that has worked in every phase of my career.

A. Book a meeting with a professional in the market.

B. Ask good questions, be curious and find out what has made him/her successful.

C. At the end of the meeting, let them know your intention to be a professional in that market and ask if there are 1 or 2 people who are in the business that they would be open to introducing you to.

D. Rinse and repeat

After 4-6 weeks of doing this exercise you will have built relationships in the community, understand the highs & lows of the job, what it takes to be success and how to get started (ask how they started). This knowledge will give you a clearer picture of the investment approach you want to take, how to execute on your vision and potentially open up the doors to future partnership.

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