A friend of mine recently gave me a call a few days ago seeking advice. He recently inherited $150k and wanted to start investing in real estate. Naturally, I told him to first go learn anything and everything he could about real estate, then we could talk. He has a stable W-2 job producing 100k/year and an additional savings of 50k. Obviously, I have my own bias advice as to what I would do with it but I thought I would throw it out there to see what kind of strategies others might have.
SO... if you were given $150k, what would you do? Looking for a DEEP DIVE. Obviously, basic strategies like house hacking, BRRRRs, Flips,and 1% rentals are all great but how much would you leverage? Would you go one flip at a time and buy all in cash? Would you finance... how much? Would you do SFRs or multi-family. Considering Nashville and the surrounding markets as the point of entry.
**Always happy to hear from investors that have their money in the stock market as well!**
It really depends on if he wants to do active real estate investing. It is very time consuming when starting out and as much as there is to gain there are risks, especially if it is your first time. With a six figure income I'd personally look for a multifamily property ideally 5-10 units (up to $600k) with value add that makes sense with a property manager.
If he more of a passive real estate investor then I'd spmit the money over 4 to 5 real estate syndications in different markets.
To be truly passive and not in real estate with a long time horizon total market index funds are the way to go.
With a six figure income I'd hope he is investing significantly in a 401k so real estate is a good choice for these non retirement funds. This split is how i manage my personal finances.
@Klint Ruud this is not a fruitful question because most of us would answer this based on what we would do which is related to our goals, experience, resources, investing strategy, etc. You’ll just get 11 different answers from 10 different people. The first step for him is education so he can develop his own strategy based on his own situation since it’s highly personal.
@Brian Gerlach I think you are answering your own question. You can ask 10 different people this question and get 10 different answers.
How your friend invests this money will depend on his objectives in investing in real estate. Why does he want to invest? Does he want to invest for cash flow or appreciation? Does he want cash flow now? What is his appetite for rehab? Does he want to invest actively or passively?
There are a lot of things to consider as I'm sure you are aware. That's why I believe real estate investing, like personal finance, is personal.
Good luck to your friend!
I think the first question he needs to ask himself is how much time he wants to spend doing this? If he has a full time job that pays well, chances are he's working long hours and doesn't have a lot of time. In that case, I'd first find out how much he can borrow for a mortgage, and then decide if he wants a multifamily unit, duplex, single family, single family with a suites or a mix of the last three (depending on how much properties cost in the area). I'd also interview property managers. He can look in the town where he lives as well as nearby locations.
I'd buy in a good neighbourhood where vacancy rates are lower. Don't spend all of the money in one go, take your time and look for solid investments and also see if this is what he wants to do.
@Klint Ruud I would recommend he start with a rental, where he puts 25% down in a cheap market. (thinking like 30K down). He uses that to learn how rentals work and understand the process from start to finish. Then uses the remaining cash to BRRRR.
@Klint Ruud does he own or rent?
@Klint Ruud Sounds like someone I knew a few years ago. Quite frankly, unless your friend ENJOYS sleepless nights, constant stress and worry, unexpected and excessive expenses I would stay CLEAR of real property.
I own 11 rental properties, four utilized the BRRRR strategy and I pretty much regret every single purchase at this point. not necessarily because these were bad decisions, but rather because I should have just stuck all of my money in a handful of very specific stocks, including the likes of Redfin, Tesla, Nvidia, AMD and Activision. Considering my time horizon, which is 15 to 20 years, I would have been much better off just putting it into these stocks and waiting. Now, I am terrified of checking the mail for fear that there's some other screw up thanks to some moron lender, some idiot insurance agent or some half-wit real estate agent. The only thing holding me back from selling everything is that I'm already in for the long haul.
Building up a real estate empire is a fantastic idea in theory, but in practice unless you're incredibly lucky, you'll be better off putting it in some sort of truly passive investment, like Redfin stock.
I believe MOST people here do not realize how problematic real estate investing can be, the degree to which luck plays, how little is truly within one's control, and how inefficient and illiquid the real estate market is. Also, real estate is at a tipping point so might not be the best time to buy...
@Brian Gerlach That is exactly what I'm looking for. Our backgrounds and situations are very diverse but there may be similarities and/or experiences to learn from. Looking to hear what strategies have worked for others and using personal metrics to see how individual strategies may apply.
@Nicholas L. Own.
@Theresa Harris @AJ H. @Ken Naim For more background:
He is looking to actively invest in the Nashville market and surrounding areas. I told him that I would help PM his projects because I have a lot of experience investing, flipping, wholesaling, managing in this area. So I would be helping him through the process as a first-time investor and it is likely that I will be sourcing the deals as well. We've also discussed with other investors about the possibility of pooling our capital together to JV on deals.
@Patrick Britton I appreciate the input. I'm sorry to hear that real estate investing has taken you through the wringer.
Id recommend staying as far from RE as Humanely possible. Its 2021. Where Ratios are irrelevant.
Hint. Ratios are very relevant.
Gambling is allowed. Things do MOON---take TSLA.
Warren does not do Bidding Wars.
Warren does do Cash Secured Put Selling to get into stock positions. Selling Option Premium is the way to go today. That $150k could be $200,000 in a few maybe more months. Trade Options with Coffee with Markus. Go check him out.
$500,000 buy power acct. He is Trading to generate $15,000 a month. He is showing us all his trades. Just play with BAC could get you 20% annualized.