I am following GreenHorizons on this one that your market will make a huge difference in how to invest.
What is the state of your market? Is it hot, cold, leveling off? Is it a buyers market or a sellers market? How are rentals doing in your area? What is the average priced home in your area?
There are many options to begin investing. From rehabs, rentals, owner carries, lease options, wholesaling, subject to's, contract for deeds, apartments, commercial, and developing.
Your market, your capital, your credit, and your motivation dictate what the best options are.
If you are wanting to get involved in a market where houses average $500K then $100K needs to be carefully allocated in a rental or rehab situation even on a single family home. Now in a market like my own where the average priced home is only $125K, a $100K can go a long way. You could buy and rehab a small apartment complex with that much capital.
As for your age, I started investing in my early 20's. Age isn't a factor in success. Diligent effort and commitment will breed success no matter what your age is.
What is your current position on capital, credit, and motivation? Also, what state are you in? State laws dictate your options, also.
When I started doing rentals, I worked backwards to find out how much capital I needed.
First I determined how much income I wanted to get from rentals. My initial goal was $4,000 a month. Now I also had a partner so my number was $8,000 per month or roughly $100,000 per year.
Now I determined that I could find rentals at 40% return on investment, so I figured I needed to build about $250,000 in capital to invest at my 40% ROI to get my $4,000 per month.
So my initial strategy was to figure out ways to turn what money I had (under $10,000) into $250,000 to reach my goals.
Before you invest all of your 100K into rentals (which produce small increments of long term income) you might want to figure out how you will get more money to invest once your 100K is gone. That 100K may prove to be more valuable in generating more short term capital (like rehabs) which then can be invested into longer term investments (like rentals).
$100,000 invested at 30% or 40% may provide a good supplement to your income, but it won't let you retire. You are starting with a larger amount of capital than most new investors, so you need to make sure you carefully plan how you will utilize it to its highest potential.
Hi Ryan,
I would love to do rehabs but the market around here is slowing down a lot. Theres to much competition for home sales I think. Perhaps a strat. of buy, hold and sell is the best bet. Any thoughts anyone ? I'm assuming offering all cash when looking at a property gives you more buying power ?
Now I am merely speaking from speculation and vicariously at this point because my market is still very strong. I have spent quite a bit of time planning and developing my strategies for when my market slows down but again it has not yet. So the following is merely theory for me at this point in my real estate career.
I personally believe and have seen from other investors that what a slow market requires one to do is mainly shift your numbers. If you are normally buying property with 70% equity then one has to shift that number down to 60% or even 50% depending on how slow your market is and the availibility of deals. As long as your city isn't becoming a ghost town there are still people buying houses. In reference to a rehab, you would need to factor in longer sell times and decrease your sell price significantly, but if you are offering a better house, 10% or 15% cheaper than other houses on the market yours will be the one to sell. As long as your numbers represent this shift then your profit won't change.
The shift from a seller's market (normally under 6 months of inventory) or otherwise known as a strong market to a buyer's market (over 6 months inventory) or a soft market opens up the door to investors to purchase properties at even a more significant discount than before. You would naturally come across more motivated sellers and be able to negotiate much more significant discounts.
Now part of my strategy also includes offering creative financing on my properties that will allow more buyers to purchase my rehabs. In Texas because of legislation around other creative avenues, I will be offering them mainly through seller financing. As interest rates climb and banks tighten up, I believe creative financing strategies will become even more of a factor than they are now. Because I have developed my relationships with banks and HML's, as others are turned down they welcome solid investors like myself to loan money to.
I also still feel that wholesaling opportunities are still a viable opportunity in any market, strong or soft, but a wholesaler has to understand the shift in numbers. If you are flipping properties at 70% of ARV minus repairs in a strong market then as it slows other investors will need more margin. A wholesaler's numbers may have to shift to be selling them at 65% or 60% or even 50%. A wholesaler would have to recognize that their investor base to sell to will shrink, also. The top investors who have established themselves in the good times will find the competition falling away in the bad. I understand as a wholesaler that my relationship with the select few investors that will survive the slow times may well become my only customers. I have to shift my perspective and my numbers when these times come. Investors will always be buying houses just like they were in other slow times. Now they may be buying at 50% of ARV, but if its a good enough deal, they will buy it. My job as a wholesaler is to find those deals.
When I first started investing and really still to this day, I pick the brains of what I call the "old timers". These guys are usually in the their 60's+, and they have been investing for 20+ years. In my area they are normally hard money lenders in the present day, but they started their real estate careers in the 1980's when the market was in the toilet. They were ambitious and creative, and the soft market that they were in didn't slow them down. When the market started picking up in the 1990's and has continually grown across the country until very recently, their businesses exploded exponentially. The tide raised all ships, and they became the key players in the current day.
My point is this. No matter what the market is doing, there are ways to make money. It may require ambition and creativity, but opportunity doesn't disappear in a slow market, it merely changes its face. If I have learned anything from my success journey, it is that financial opportunity is more about perspective than anything. Your current perspective will either cripple your success or it will propel it.
Just make sure that you have your greatest asset (YOU and YOUR MIND) working for you and not against you.
To get back to your original question, I think that most investment strategies will still work in any market but you have to properly structure your numbers with a full understanding of what your market is doing. My original point remains, how will you grow your business when your $100,000 is fully invested? If you are only making 30-40% on that investment through rentals, will it be enough to provide the fuel to grow your business sufficiently. It depends on your goals and the timeframes you set up to reach those goals. Just make sure you look far enough down the road to see what you will need when you get there.
the whole point in investing is not to use your own money. I would suggest that you find ventures that cost the least to nothing out of your pocket and take the 100K and spend on a night out!!!
I wouldn't necessarily recommend whytehouse's advice to use your money for a night out, but he was referring to leveraging your money through financing.
I would recommend getting some experience under your belt first, and then leveraging it with a bank. With $100,000 in cash, one could reasonably get a line of credit with a bank for 2 or 3 times that, if not more. Depending on the bank, a line of credit can be accessed in a day or two, so an investor still could close with a line of credit just as fast as with cash.
The issue here is leverage. Leverage is a fundamental key to this game, and that is what whytehouse is referring to.
Financing and leveraging is a mute issue until you have determined your goals and the strategies in which you will reach those goals. I would focus on what you are searching to get out of real estate long term and then work back from there. When you have determined what you want then the next step is figuring out the best path to get there, which is where leveraging comes in.
Start with the first step and then you can take the second. Most people in general and especially in this business don't start with a defined goal in which to create specific plans around. With a goal and a plan in place, then one can work efficiently and effectively in taking steps of action. Without a defined goal and organized plans, one's action steps will lead them nowhere and will only create frustration and impotency.