Investor 路 Nashville, TN 路 Member since 2019 路 92 posts 路 96 votes
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!**
Rental Property Investor 路 Los Angeles, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
5y
@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鈥檒l 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鈥檚 highly personal.
Investor 路 Lake Worth, FL 路 Member since 2016 路 233 posts 路 140 votes
5y
@Klint Ruud
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.
Rental Property Investor 路 Los Angeles, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
5y
@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鈥檒l 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鈥檚 highly personal.
Rental Property Investor 路 Northern Virginia 路 Member since 2019 路 793 posts 路 620 votes
5y
@Brian G. 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.
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.
Investor 路 Austin, TX 路 Member since 2016 路 531 posts 路 310 votes
5y
@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.
Ann Arbor, MI 路 Member since 2014 路 1k+ posts 路 997 votes
5y
@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...
Investor 路 Nashville, TN 路 Member since 2019 路 92 posts 路 96 votes
5y
@Brian G. 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.
@Theresa Harris@Aaron W.@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.
Rental Property Investor 路 Indianapolis, IN 路 Member since 2018 路 4k+ posts 路 4k+ votes
5y
Dude making $100K in Nashville is already living the dream.
REI requires work, creativity, education, and market research. If he doesn't have time or desire to complete those tasks I'd take every dime and invest in mutual funds, stocks, ETF's, or anything passive and low risk. If he can get 10-12% per year on his money it will double every 8 years.
Investor 路 Lake Worth, FL 路 Member since 2016 路 233 posts 路 140 votes
5y
@Klint Ruud
With you helping him in the Nashville market I'd recommend a JV to buy a value add multi family 10-20 units for less than $1 million. This way you can both be compensated.
Investor 路 Raleigh, NC 路 Member since 2019 路 433 posts 路 743 votes
5y
I had a similar situation recently. One of my best friends works for Credit Karma and they were bought by Intuit. His shares vested and he suddenly had an extra 100k to play with. It get's better. His wife works for Tesla and had over $1M in TSLA sotick. They wanted to diversify so she sold her stock and now thye have about 300k they want to play with. They're interested in Real Estate, but don't know the education side. But they know that I invest in RE so they approached me about it.
I showed them what I've been doing with the BRRRR strategy and then proposed that they could be me Private Money Lender and give them the education before they jump in themselves. They loved the idea and are now funding one of my deals. In return, I'm keeping them updated and educating them on every step along the way.
Perhaps you offer to your friend that if he's looking to invest while also protecting his capital, he could fund your deals and use the asset as collateral. Helps you build your wealth, helps him learn about RE and still get a decent return. It's a win-win all around.
Investor 路 Chicago, IL 路 Member since 2018 路 352 posts 路 176 votes
5y
@Klint Ruud
Education hands down is step #1, especially if he isn't starting off with a lot of financial knowledge. He should learn about his options (real estate is just one, and might not be the best for him). If he's already making 100k a year then this inheritance isn't going to be life changing. It will save him the time of putting together a down payment though. Personally I'd suggest that he split the money between stocks and real estate. And although the stock market is probably overheated at the moment, long term it's still something he will want to develop an understanding of.
Investor 路 Chicago, IL 路 Member since 2018 路 352 posts 路 176 votes
5y
@Patrick Britton
Sounds like you actually want to be a gambler and not an investor, maybe your money would be better spent at the racetrack or at the blackjack table.
The run-up we are seeing in the stock market right now is not sustainable and a reckoning is sure to come.
If you buy an investment property and you know what you are doing you can count on consistent returns So long as you hold it. Mind you, you will have to spend money on repairs, so budget for that in your analysis. The IRS let's us depreciate the value of a properties for a reason! They are depreciating assets! I.E. just like cars, you need to spend money to keep them in peak operating condition!!!
You're right, real estate can suck, it's not passive, constant unexpected repairs and most times, it doesn't get any better. With that said, DM me when you are ready to sell.
@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...
That's quite the portfolio. Telsa even beats bitcoin I think. Once in a decade type stocks albeit in hindsight will and absolutely beat the pants off run of the mill rentals or even top performers.
Reminds me of a story I once heard where a guy bought a empty lot for 20k and ended up selling it for a million plus many years later (20+). His office also happened to overlooked Apple hq. At the same time he bought that lot, Apple stock was down in the dumps but then Steve Jobs came back. Well fast forward same time period and if he bought Apple stock his 20k would have turned into $32 mil plus divs. Some stocks can create life changing wealth looking back I guess.
@Matt R. All of this stock nonsense is accompanied with 20/20 hindsight.
Exactly, although one did not need to go more than 12 months looking back on Telsa stock and or a 600% nonsense gainer there I think. Perhaps a little foresight vs hindsight might also be worthwhile. Maybe not all that much different of a skill set than investing in the path of progress for real estate like the guy who bought the 20k lot. (Vision). Although it was not like Tesla stock was some crazy hidden gem still.
Investor 路 Castle Rock, CO 路 Member since 2018 路 297 posts 路 159 votes
5y
@Klint Ruud, If he wants to be an active RE investor, I would consider spending a chunk of it to hire a mentor/coach and then use the remaining to invest once the education and coaching have been curated.
I'm all for investing in yourself and education first.
Tacoma, WA 路 Member since 2019 路 36 posts 路 4 votes
5y
@Patrick Britton sounds like you are stressed to the max with those properties and offloading a few of those will take that weight off of your shoulders, right?
I鈥檇 be interested in hearing some more about them. 馃槈
Rental Property Investor 路 Central Kentucky 路 Member since 2019 路 67 posts 路 43 votes
5y
Well Nashville is insanely high and I'm assuming won't cashflow for anything at the moment. I used to have a prop just outside of town that did well before the recent boom, though i can't imagine it producing much now.... but maybe I am wrong(??????) Anyway if they simply stuck it in a mediocre mutual fund (9% growth) and never touched it again they'd have about $2MM in 30yrs, $4.5MM @ 12% growth, and $5.2MM with the 12% + adding 3k per year...... Exponentially more with additional capital and a better fund... So whatever they do, they need to beat that. Everything here is pretty simple though every source out there tries to make things seem difficult. You can get burned badly in the market OR REI. I've had doors kicked in, drug trafficking, a beaten tenant, $400 leaky faucet repair bills, etc etc..... and that was with a good property, in a good area, with a good property manager....
No matter what is said on any forums, for now, I've narrowed my view down to this......
My wealth needs to come from about 50% stocks and 50% REI.
Stocks are not hard unless you want to play market cowboy. Like Ramsey says, find a solid mutual fund, put in the cash and take a nap. You will most likely gain between 9% & 14% per year depending on the fund. Maybe throw a little into Apple or the like to see a big jump for giggles if you want, but stick to the KISS method. For this method to work best, be debt free.
With REI, I like to remind myself of MY true goals.... not anyone else's or the "dreams" (1000 doors and monthly vacations to Tahiti or redeveloping an entire city)... At minimum, I simply want a few income generating (ie high cashflow) properties to supplement my life and to hand to my kids to supplement their income when I am gone. I'd also like to develop some modern (midcenturyesque) homes.
Simple enough right?
Also, regardless of the BRRR method, etc, debt means YOU are beholden to another entity, period. No matter how you spin it. So be conservative there to cover your own butt.
Investor 路 New York City, NY 路 Member since 2013 路 1k+ posts 路 269 votes
5y
@Klint Ruud I think the first question would be for any investor is if they are looking to be active or passive. Real estate is mostly an active management business where you have to search for deals, manage properties or projects, tenants etc. Investors can be passive and invest with others you do all of that obviously for a cut of the profits in some way. Best of luck in all your endeavors.