Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
Hi All,
I've been lurking here for a while. Finally a post: My company has been bought out and I am facing a lay-off from a narrow field with no competitor to move to in my area. I'd like to stick it out in West Michigan for at least four more years so teens can finish school here.
The question I have is, is it realistic to take $100K cash (life savings except smallish 401k) and turn it into at least $3500/month with a multi-unit? Currently we have excellent credit but without the job we probably are not bankable. I was thinking of buy & manage instead of trying to flip. Maybe a 12-16 unit at $26k/unit. We currently are taking payments on two LCs that will be over in 24 and 48 months (the furthest out has a small mortgage). Any advice.ideas would be appreciated.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Paul, you're in a big town, your skills transfer to banking, investment banks under portfolio managers, not sure if you have any license, but you might consider a Series 6 and 7 in a larger bank. At least you know what a cussip number is. You could still engage RE as well. :)
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Originally posted by Paul Jamgotch:
is it realistic to take $100K cash (life savings except smallish 401k) and turn it into at least $3500/month with a multi-unit? .
Are you thinking net $3500 a month? That would be a 42% return on you $100K. That is not realistic. Can it be done, yes, but probably not on your first deal with no experience.
Can you start with $100k and by hard work, doing deals, flipping properties, and building your portfollio over time wind up there? Absolutely yes and perhaps much better than that. Good luck- Ned
Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes
13y
[quote=Paul Jamgotch
The question I have is, is it realistic to take $100K cash (life savings except smallish 401k) and turn it into at least $3500/month with a multi-unit?
I hate to be negative, Paul, but I would not rely on that for a plan to feed my family. It is unrealistic to expect that kind of return on your $100k, especially as a net. If it was me, I would buy some SFRs or a multi and also try to pick up some kind of job to make up the difference. Good luck.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
13y
To quote my friend Mike Cantu, "If you will do what other won't for five years, you can do what others can't for the rest of your life."
There's more to that quote, however the point that I want to add is that have a little money to invest can be a dangerous thing. My vote would be to hold off using your retirement at this moment and set aside time and some money for your training (maybe $2-5k) and learn the business that you intend to be in. After all, it is a business.
You might even considering getting a part time job working with someone who has rentals assisting them during acquisition, renovation, management and rent collection. All the time, keeping your money safely away from you, until you fully believe you could do this safely with other people's money and be accountable to them.
Orlando, FL · Member since 2013 · 165 posts · 62 votes
13y
Let's see.. You are about to be laid off. You have $100,000 in the bank. Here is a plan that is hard to beat.
Go to real estate school. Get a real estate license. Sell real estate for commission. You did not mention how much your income was at your old job, the one that is laying you off.
Whatever your old income was, set that as your first year goal to earn in commissions selling real estate. Find a Realtor that is already making that much and ask him what you would have to do to earn that much money selling real estate.
Put as much effort and learning into selling real estate as you did in your old job. It won't be long until you are earning the same income as before. You are you own boss,. You can not be laid off ever. You don't have to ask anyone what time to show up or how many hours to work. You find bargains that your fellow BPers only dream of finding.
When you find one of those bargains that you can't help but find that is too good to give to a stranger, buy it.
In five years, you will still have $100,000 in the bank. You will have a better career than your old one. You will have lots of real estate knowledge. You will have income. Life is always more pleasent with income. Take this opportunity to statrt this new career.
Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
13y
Thank you for the feedback, everyone. FWIW, I was thinking of something like this: http://www.grar.com/property/mls/12044036 My guess is that it needs tons of updating when each unit recycles??
I'm leaving a job that made >$75K but can live on much less as our only debt is $117K for house.
I've thought about becoming an agent and think that I could do well. We live in an area where the median home price is <$120K (Grand Rapids metro) with no shortage of agents in the area. Is it realistic to net $30k-40K as a first-year agent if I hustle and do what others won't?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Paul Jamgotch the underlying theme here is - get a job. Whether that being a real estate agent or something else, moving and doing your old job, finding a new career where you are or something else, you need a new job.
A few real estate agents do well, most do only a few deals. You cut of commissions is about 2% of the sales price. With an average price around $120K, that's $2400 per house you sell. That 17 houses you would need to sell to hit $40K. About one every three weeks. I think thats a tough goal for a new agent.
That property is a HORRIBLE rental. This will not only not make you $3500 a month, it will such cash out of your pocket. Its listed at $429,000. Average rents are $553 or $2212 total per month. You have a disconnect with your goal right there. I'll assume you will do the management and minor maintenance your self, so I'll allocated 36% to expenses, vacancy, and capital. Here's my quick and dirty analysis:
There are reasons to buy cash flow negative rentals. But you need cash flow now, so I don't think those apply. This property is priced about double what you could afford to pay and turn a profit.
Real Estate Investor · Dallas, TX · Member since 2010 · 449 posts · 173 votes
13y
So Jon is human after all. I was wondering there for a while ;)
The property has some possibilities, but the problem I see is the amount of money it would take to get into it.
At 5+ units you're looking at a commercial loan. It would be difficult to get a loan of that size w/o some experience to show successfully operating other properties. The other difficulty would be that you'd most likely need to put about 30% down. There are scenarios where the seller can finance a portion, say 10 or even 20%, but again the problem is your (main) lender agreeing to this without seeing that you are in a solid enough position to make this work.
Then there would be closing and other acquisition costs (for ex. the inspection would cost a lot more for a 15 unit building than a SFH).
That puts you at around $140K already, and then there is fixup to consider. Given that the property is pretty cheap for the amount of rent, I imagine there's a decent amount, but you'd have do a lot of due diligence and figure out a good estimate of what it would take.
And then on top of that you need reserves for capital expenses, maintenance, vacancies and so on. You never want to be in a reactive position when there are things coming up that affect your property's rentability and you're struggling to come up with the money, and desperately trying to patch things to tide you over.
If a person could get over all those humps, then it looks like (at leased based on limited info) the property would cash flow. One big factor would be whether the tenants pay all utilities. At 50% expenses, the cash flow would be something like $25K/yr. That's based on an amortizing 20 yr loan at 5%. I may be a little off on that since I don't have experience with commercial. If the owner does pay utilities, you've got to estimate closer to 55-60% for expenses, which brings the cash flow down to more like $16K in the 60% case.
Sorry to be such a downer. I just figure that pointing out the shortcoming of the plan is going to be more useful to you at this point than "rah rah anything is possible".
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Doh! Posting too quick before rushing out the door. That changes things quite a bit! I used a 5% fixed 15 year loan, though I'm not sure what you might actually be able to get. From what I've read, you're probably looking at a 5 year balloon, though perhaps you could get a longer amortization that 15. If its been in the family 50 years owner financing might be a possibility. I'd be concerned about deferred maintenance, too.
Price: $429,900
Rent: $8,295
Down %: 20%
Rate: 5.00%
Term: 15
Down Pmt: $85,980
Loan: $343,920
Payment: $2,719.70
Rehab: $0.00
Total cash: $85,980.00
Expense %: 36%
Expense Amt: $2,986
NOI: $5,308.80
Cash flow, monthly: $2,589.10
Cash flow, annual: $31,069.23
Cash on cash: 36.1%
CAP rate 14.82%
Residential Real Estate Broker · Bremerton, WA · Member since 2013 · 494 posts · 142 votes
13y
Paul Jamgotch I'm in a similar position as you. While I'm not getting laid off, I do see my job going away soon - I'm self-employed and I see my client base dissolving in the next 1-3 years. Odd turn of events. I've also been investing since 2002. I'm not going to invest all of my cash into 1-2 investments - no way. If I had little to no experience, I'd be even more careful with my cash.
My plan (right now) is to get my RE license (currently studying for exam) b/c I've always wanted to do this - I see this as an opportunity. A stroke of good luck, actually. It may be difficult to match my current income of $50K/yr. in my area as an agent, I dunno. I'm fine with this taking 12-24 months. I work hard, have business experience and know the area and agents. I've watched the RE industry since 2001 - low competition here. There are a handful of agents with most of the listings. Not sure what the other agents are doing (selling the other three/four agent's listings?).
Average sales price in my area is $250K. Population is 250,000. Average commission per agent is 3%, I've run my numbers on 2-2.5% simply to be careful. But, I'm getting a job to support my investing habit.
Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
13y
Jon Holdman Thank you for the detailed info. 36% is a tough number to swallow but I'm sure you are correct :)
@Stephanie Dupuis Thanks for sharing your situation. I looked up a pre-licensing class today. I actually took one about 20 years ago for college credit. I'm guessing some things have changed since then.
I'm sure I have the @ thing wrong. Again, I really appreciate all that contributed to and read this thread.
Residential Real Estate Broker · Bremerton, WA · Member since 2013 · 494 posts · 142 votes
12y
Hi Paul!
I took my exam a few weeks ago and passed. I'm currently on a much needed vaca through next week. Then, I'll be out there to find a firm to work with and finally fully licensed in the next 1-2 weeks. Looking forward to it.
Reading my earlier post in this thread I estimated my current j.o.b. to fade out in the next 1-3 yrs. Between then and now, my job has already had some serious hits financially - I'm making less and it's taking more time to make less. Not good for the psyche or the REI. So, getting my license is great timing. And I loved the RE coursework - learned a ton.
Hi Stephanie, how are things going for you? Did you get your license.
It's funny how ridiculous my OP seems to me after five months of study.
I'm curious how you're doing 5 months after OP. Did you get laid off? What did you end up doing? I've found that 95% of the time, things aren't as bad as we build up in our minds.
Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
12y
@Brian Mathews A month ago I found out that I had six months until my position would be eliminated (now five months). If things play out as I expect we'll have a decent cash cushion with a bleak employment outlook. I'm trying to develop strategic relationships that will allow me to confidently purchase properties to flip. I'm being cautious with our first property but I am looking. The stress level is high as I feel like a dead-man-walking in the office... its easy to feel worthless in my current environment. I think your comment about the 95% is astute. One day I have confidence that we'll be just fine and the next day I worry that I'm going to let our savings fizzle away over the next few years. I know many have went through this very thing and came out alright; I'm sure that, ultimately, we will be fine as well. Thanks for asking and sharing.
Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
12y
I've been through the layoff thing many times in my past career. I worked for years in manufacturing, (injection molding) specialized to a point. I was a manager, supervisor, process engineer. While those skills are transferrable to another field, to maximize my earnings was best to stay in that field, due to my technical skills. Problem was that places were flourishing in some places and non existent in others. So after I was warned about layoff #2, which took 6 months to materialize. I decided to say the hell with this and get out of the business. I had many close calls through the years, through the same thing that is happening to you. Buyout. I decided I want to stay where I'm at, I was tired of moving around every 2 years. I went to hvac school at night for 11 months and worked graveyard shift. I was a tired and worn out man. As mentioned, 6 months into job, I got the news, laid off. I had already gotten a job lined up. I started there almost immediately and took a 50% pay cut since I was such a newbie. I trudged through it, took my lumps and now am making much more than I could ever had made in my previous career and own my own hvac business. It worked out for me and it will work out for you. Keep an open line of communication with your wife, don't make any big decisions too quickly, hug your kids and pray to God everyday.
I used that as an example here and immediately learned that it wouldn't be wise to put our $100K into a $400K+ rental which netted $2400 on paper after 50% ($4200) rule plus debt service($1765 on $310k, 25 yrs) was applied. In short, it was too big & not the right solution for our current situation.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
12y
@Paul Jamgotch I'm glad to see that you're still involved with this thread and BP in general. Its uncommon that I find someones first post and then I see that they have 30+ posts. It shows your commitment, esepecially over the months.
Secondly, its great to see that you have learned from BP. Things such as the 50% rule and others help make things so much more clear for us investors. I'm still working on getting my first deal but I can look back and see where I've come in a year and I'm amazed at how much BP has helped.
Keep up the work. Have the confidence that you'll figure out what to do next!
12 months ago I met a couple (mis 50's) who were both laid off from the same company. They had already been burned (big time) by a guru & all they had done in 6 months was post bandit signs !!
I had breakfast with them, put together an LLC, found two properties within 30 days & CFD it to a contractor/investor I deal with. He collects the rents, PM's the property & maintains it @ his expense. Admittedly it was a small cash deal but returns >18% NET. If they hadn't lost so much to the guru we could do many more deals.
Maybe finding a good local partner could certainly take the edge off.
Beacon, NY · Member since 2013 · 41 posts · 6 votes
12y
Welcome @Paul Jamgotch to BP. Wow, I am in the exact same position. Let go after 18 years and 5 years before social security eligibility. My plan is to look for new employment and roll over part of my 401(k) into either a sdira or a solo 401(k) and use that to ivest. Wish you well.
Thanks for sharing that. Your idea of a partnership is what I am trying to do. My idea is to find a rehabber within 10 hours that needs financing and is committed to at least one deal every three months. I'll come to the area for the 3-6 weeks of the rehab process to learn, fetch supplies, and help keep the project moving. Look for my thread in marketplace within the next few months if I can't get connected in Grand Rapids area.
I want to thank the others not singled out for their encouragement and advice in this thread. Its a stressful time for me and I very much appreciate everyone's time and wisdom.