What Would You Do With $50K?

Question

Put yourself in the shoes of a newbie, you have no other RE assets, just $50K in free cash.  How would you go about starting your quest for financial security and success in the world of Real Estate?

Kevin C. · Answer

I second what Ryan said, and don't believe anyone that tells you Rent - PITI = cash flow!

Ryan ODonnell · Answer

Keep your money, educate yourself by reading. Talk to a lot of EXPERIENCED real estate investors that you will find are more than willing to share real knowledge based on experience. Don't listen to theory about how a deal or strategy should work. Take action on a small deal and always always always be willing to WALK away!

John Hicks · Answer

Also meant to mention the possibility of forming an LLC or similar partnership so you can have a bigger pool of resources. Even though you give up part of the profits, you also limit your risk.
This format would also allow you to look at larger deals. Pick your partners carefully and I always recommend a buy-sale clause which is bascially a "prenupt" .

Kevin Kaczmarek · Answer

Jake, there is plenty of solid advice on this thread but the most important question of them all is what is your ultimate goal in real estate? 
Once that is determined, you can take this advice tailored to what you want to do.

John Hicks · Answer

With only $50K, Leverage is the route I would take.

Local & reputable Investment Clubs,
Owner financed deals, etc.

Be patient and stick to your acquisition model. You don't have enough reserves to make a major mistake so be sure of your project.

Ryan ODonnell · Answer

Ok...I can give you a much better answer because I was in the same boat after I felt I was "educated". 
In hindsight the thing that kept me going and made sure I didn't go broke in the first deal or two was RESERVES. Just because you have 50k doesn't mean you have to or should leverage all of that. If I had to do my first deal over I would do it the way I'm doing it now. I find private money and get them to purchase the property. I choose a property that will require about a 30k or less rehab (These are all over the western suburbs in the 200-250k ARV range). Then I negotiate where the investor covers purchase and holding and I cover rehab so I still have skin in the game, they like that. Then we split PROFITS however we agree. I do it that way so that I don't guarantee them a return on their money, but rather a significant portion of the profits. 
I also try to stay in control of the purchase, rehab, and sale. Investors will try to tell you how to execute, but in the end you have to make sure they understand you are being paid because you know what you're doing and all they have to do is write checks and monitor progress. 
I had an investor try to tell me to replace a toilet! That was just the tip of the iceberg so needless to say I walked away from his money because I didn't have the room to operate the way I know best.

That's just how I do it. Sorry for the long response, but hopefully that's more helpful.

P.S. You need to make sure you have some connections for contractors and who's going to do the work if you want to do a rehab type deal.

Rob Gillespie · Answer

Keep all of your money liquid, and flip contracts until you have more capital built up to buy something really great free and clear that will make a decent true residual income for you.

Jake C. · Answer

Thank you all for the replies.

Allow me to be more specific.  I've read a number of REI books over the last year and a half, I've been on the BP boards about the same amout of time, been to a couple of th local REIA's.  I ask this question not to have someone write me a step by step plan for what to do next (I'm ready to take action in some form), I'd just like to hear the opinions of other BP members if they found themselves in this set of circumstances, in the current market.  Any replies with regards to such would be much appreciated.

Thank you!

Mark C · Answer

I recommend finding a local Real Estate Investors club.  You have to sift through the marketing pitches and whatnot, but there are generally some good people there with a lot of valuable advice.

What Would You Do With $50K?

Most Popular Reply