Getting started with $200k - what would you do first?

Question

Hello - I am in my early thirties and have now paid off all of my debts and built up about $250k in savings. I am very new to this but I think I’m ready to put about $200k into my first real estate investment.

What would you do with that much money to start with? What should I look into first?

Account Closed · Answer

@Russell Welch Hi Russell, Congrats on putting yourself in this position and saving & eliminating debt. I guess I would start with - What is it you want out of REI? Is it a steady cash flow (buy and hold), more immediate returns (fix & flip) or something else. Each involves its own set of activity by you and can range from pretty passive ie turnkey to much more involvement on your part. Once you know that I'd start diving into that strategy and building out a plan.

Steve Morris · Answer

See if you can find a local syndicator for multi-units and start with $50K.  Then watch and learn and keep saving.

If you don't know what you're doing, $200K can be pretty expensive tuition you put it all into one bad deal.

Russell Welch · Answer

Thank you, Account Closed! I have a busy full-time job so it would have to be pretty passive. I am looking for somewhere to park my savings long term (and I can add about $4k to that pot per month). My very preliminary understanding is I will get better returns over the long term putting money into real estate than I’d likely get from the stock market (including the tax incentives, appreciation, etc.).

Ideally I’d use these gains for long-term things like kids tuition and retirement. I would certainly welcome monthly cash flow from rent payments, but my work income is high enough that it’s not my main goal.

Does that sound like real estate investing is worth looking into for my situation (in general, of course)?

Calvin Ozanick · Answer

@Russell Welch , first of all congratulations. You have afforded yourself the truly rare opportunity by dedicating yourself to eliminating debt and saving. I would highly recommend diving into REI and diversifying yourself across different asset classes. I would also love to talk to you about the potential of investing in the Rock County, Wisconsin market. I am located in the Janesville and Beloit area and this market is booming. Many large business such as Amazon, ABC Supply Co., Dollar General, Shine Medical, Mercy Health and many others have created a booming rental market. We are seeing all time low vacancy rates under 2% and great Rent:Price ratios. If you are interested, I would love to just talk about your goals and see if there is any way I can help you reach those goals in the near future. Best of luck on your journey, and congratulations once again.

Steve Donovan · Answer

Hello @Russell Welch  I agree with the others on this thread that you should start with an investment considerably less than your available nest egg.  You will learn a great deal from the first investment, both in terms of what is working well and what you should look to avoid on your future investments.  I would also advocate making several smaller investments in possibly different markets to further spread your risk and increase your knowledge.  Best of luck to you in your investing future!

Chris John · Answer

@Russell Welch

That's exciting.  Good for you!  Honestly, I'm a pretty passive investor so I believe that there are a lot better uses for the money, but I'm pretty lazy...  If I were in your shoes I might wait for coronavirus to resolve itself first (obviously I have no crystal ball, but I personally believe the potential downside is lower than the potential upsides is higher until this figures itself out.  Definitely could be wrong...)

Anyway, I'd personally use leverage and try to acquire about 950k of property at 20% down.  If you buy right, you could probably get around 10k/mo in rent and your mortgages would probably run around 4.5k-5k/mo.  If you manage the properties yourself, you'd probably make around 60-65k a year (before unexpected expenses).  If you pay managers you'd probably make around 50-55k.

The great part is that with appreciation, depreciation, tax write-offs, etc. it'd probably be even more lucrative.  Happy hunting!

Getting started with $200k - what would you do first?

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