Real Estate Agent · Los Angeles, CA · Member since 2016 · 7 posts · 6 votes
Hey everyone...
If you had $200,000 in the bank...what would you do?
Buy a house (like my accountant suggests) or buy an income/investment property like a duplex or triplex or 4-plex? Or...would you look into something else?
I don't want to house hack...mainly because I'm 38 and don't want roomies...but I like the idea of my own unit...so an investment property sounds good...or even a house with a guest house...I could rent the front house...live in the back.
Then there's the other opportunities like syndication that don't get messy dealing with property managers, tenants, etc.
What would I do? Shut off your DMs on here because now everyone on here knows you have $200k. That is a little bit of a joke, but seriously look out for off the wall investment proposals coming your way.
If you are a hands-on person who doesn't mind getting a little dirty buying a duplex, 4-plex etc. is a great way to learn the business. If you have time to deal with tenants, renovations, repairs, you will learn a lot. But if you want to be more passive, syndications can be great, and much easier and very little time commitment once you have vetted the sponsor and the deal(s).
I noticed you're from Beverly Hills, and it's possible that syndications would allow you to invest in deals in areas with greater returns. It would be good to look at the return potential on a few different options, e.g. single family house, tri-plex, syndication A, and syndication B. This would be a data driven way to help you make the best decision.
What would I do? Shut off your DMs on here because now everyone on here knows you have $200k. That is a little bit of a joke, but seriously look out for off the wall investment proposals coming your way.
Lol, @Michael Noto is right. Prepare to be bombarded with "deals."
In all seriousness- what are your investing goals and timeframe? There are a billion ways to make money in real estate, but your strategy has to meet your goals and you must invest in a market that supports that.
For what it is worth, I started off investing in triplexes. It was a great way to learn how to manage properties and tenants. I eventually had 5 of them and it became a little much to manage them all. I eventually sold them all and invested the proceeds in much larger apartment buildings. As previous posters have pointed out, it all depends on how handy you are, how much free time you have, and what your predisposition to being a landlord is.
@Kirk Hawkins I would decide what I want first. You sound like you've already narrowed it down a bit. If you don't want roommates (which I understand), how would you feel if you were sharing a yard? or a wall? If you are fine with that, then you could buy a duplex or a place with a suite or accessory unit. This would let you buy for a lower down payment and then you could move in a year or two and keep it as a rental. It would also decrease your living expenses because if done right, the tenant on the one side of the duplex or in the suite would be paying most of the bills. If you rented out the main part of the house, you'd probably be living for free in the small unit.
Can you borrow money to make the $200K go further? Ie use it as down payments rather than for a cash purchase.
Decide what you like for rentals and the type of tenant you want. The type of tenant is dictated by the location as well as the condition and type of home. Single family homes have fewer problems with neighbours, vs fourplex where you may have tenants who have problems with other tenants.
Good job saving up all that money. Whatever you do, I'd suggest you take your time and don't spend it all at once.
Keep it in the bank until you're no longer asking what to do with it :)
you can spread that 200k across 4 units or across 1,000 units if you partner with an experienced operator which will also limit your downside and offer a higher chance of a higher overall return. Happy hunting Kirk
I'd invest in 1st and/or 2nd position notes on single family flips with the property as collateral yielding 8-10% simple interest. For example you can see whether you are loaning the first or second position your principal will be well collateralize:
Purchase (1st) position - $240k
Second position (available note) - $100k
ARV - $470k
It appears you are also looking for a tax write off which this strategy would not do that.
For example, say Bob bought a SFH flip for $240k with financing. He needs about $100k to cover the construction and soft costs. I loan Bob $100k at 15% for 12-months. The notarized note is recorded on the project title. When the home sells the title company requests a payoff amount and an account number to wire the funds. Although this is hypothetical, the numbers are referencing a real project in Portland Or. and the lot was split a few years ago. The split lot was developed and the home which has identical specs as the project sold for over $500k. So $470k can be considered conservative and if you ever went to auction, after paying the 1st, 2nd (you), and there would be enough to pay your second position again.
Hi @Kirk Hawkins. Great question. If you want to do real estate full time or become obsessive about your acquisition and operations, you have many options. If you want to generate passive income and get the same (or better) tax benefits and appreciation, I would vet the best syndicator you can and invest with them.
A to look to read reviews would be Ian Ippolito's Real Estate Crowdfunding Review. If you decide to take this path, I would read Brian Burke's new book called The Hands-Off Investor.
@Dennis Cosgrave Im curious if you tried working with a property manager before selling ? The reason I ask is because once I read a certain level of multi family units I would like to have a PM handle them for me.
This 200k will give 40-44 properties and cashflowing you around 9-15k monthly in 10 years.
1. Buy preferable 2-3 properties which is equity is around 30 % more. Example buy a house for 100k, but is worth around 130k. ( I explain why later )
2. Rent it out, make sure rent is over 1%. Preferable 1.25% and avobe if you care about your DTI. The lower your DTI the more often you can cashout refinance later.
3. After renting it out for at least 6months, cashout refinance both properties. ( For investment property you get 75% LTV means, when the property is worth 130k you get 97.5k ) You notice you get close what you paid for, which was 100K.
4. You use the 97.5k x 2 and buy another 2 properties and repeat the process
@Kirk Hawkins it totally depends how you want to spend your time. If you want to actively manage and work on your properties I'd look for some condos/houses that need work, get them at a good price, fix them up and rent them out. If you don't want to get your hands dirty go turn key or consider other ways to invest.
Ernesto Carozza, I never had a property manager in the proper sense of the word. Once I purchased larger apartment buildings, I had live-in superintendents who took care of the day to day stuff. I always maintained financial control and I personally screened new tenants. My properties were always well maintained so the turnover was very low. When tenants moved out, I would take care of the refresh/rehab myself.
If the first position is in default and the lien hold initiates a foreclosure, the property would go to auction. Sale surplus goes to the property owners after 1st principal/interest/fees and 2nd principal/interest/fees have been paid. As a second position lien holder, you could also buy out the 1st position and own the property.
Well your original post leads me to think you will be pitched by a million syndication folks looking to partner with you...
Personally, I would educate myself on real estate investing until it was 100% clear what type of investing is a good fit for you. You would not be the first to lose 200k on a nice idea pitched to you from a professional salesman. Probably won’t be the last.
Is there any chance you could lose your money holding a second position lien? I ask because in my country this is a very risky play, and actually even the lender in the first position can lose a lot of money if the borrower defaults on the loan.
There is always risk in any investment. The risk is assuming the ARV of the project. The closer the project worth is to what is owed is your risk. It's your responsibility to determine the likely ARV. If you are unfamiliar with the projects market you can have a local agent perform a BPO to help your analysis. Your efforts are rewarded with high return for the amount of work you put in and you sleep well at night knowing you did your homework. Local title companies can confirm what is owed. Trust what is presented but verify everything.