If this were you, what would you do?

32 Replies

If the below was representative of you & your position what would you do to take full advantage of the inherited capital and launch your REI business?

  • - Recently inherited roughly $250k
  • - Long-term goal: Passive cash flow of $5k per month from buy and hold investments. With a balanced portfolio of high cash flowing properties & high appreciation properties that also cash flow)
  • - Primary residence is in Austin Tx
  • - Very attracted to the BRRRR model
  • - More than willing to invest out of state. Will not invest out of country (yet :))
  • - Capable of and would enjoy doing the majority of the rehab work if the property were in or close to Austin
  • - Obtaining a mortgage likely not an issue given W2 income, credit score & DTI
  • - The only market with applicable relationships (to help until a reliable team is established) is in Jacksonville, FL
  • - Have 20 - 30 business hours and 10 - 20 outside of business hours per week to dedicate to this effort(s)
  • - Have been learning REI like a machine for the last 6 months and ready to move on 1st deal now
  • Thanks in advance!

I would probably go somewhere reasonably conservative in the markets or a well-considered real estate investment trust given your parameters. You're looking for a 2% return, and honestly real estate is too much work for that low of a return. No way would I do a rehab or anything else for that kind of return. So I would look at some REITs or similar, which will truly be passive (owning RE outright is rarely "passive" in the sense you think) and abandon the idea of BRRRRR (I add an R for reserves). Most people (myself included) go the rental/flip route for the returns, which can be fantastic if you're willing to do the work and realize that it's not a passive investment the way holding a CD or bond is. Frankly, I had to go this route because I started too late in life and had a lot of lost ground to make up. If you're reasonably young and that's all the return you need, there's really no need for the consumption that can be owning RE.

@JD Martin   2%?  I think you calculated the $5K as an annual return.  To get to $5K per month she needs a 24% cash on cash return, so REITS are out.

@Carissa Holmes Austin is a tough market right now since prices are high, but not sure why you would immediately go out of state.  Texas has many great markets for both single family and multi family investing.  I own property from Temple to Sherman.

Originally posted by @Greg Scott :

@JD Martin  2%?  I think you calculated the $5K as an annual return.  To get to $5K per month she needs a 24% cash on cash return, so REITS are out.

@Carissa Holmes Austin is a tough market right now since prices are high, but not sure why you would immediately go out of state.  Texas has many great markets for both single family and multi family investing.  I own property from Temple to Sherman.

Whoops! You are correct! Bad math on my part :) I need to start wearing my glasses - I indeed thought it said annual, which was puzzling to me - so completely ignore my post!!!

 

@Carissa Holmes If you try investing 250k in Austin right now you'd be better off going to a casino and putting it all on black. Lol. But take a look at syndications if you qualify. You could spread your 250k over 5 different ones to diversify to other markets. And its truly passive.

@Carissa Holmes  


Do not rule out being able to obtain a mortgage, there are programs like a bank statement loan that you could qualify for or an investor cash flow loan. Both are 30yr fixed loans with competitive rates, especially in Austin.

If it were me, I'd create a Joint Venture or partnership with a builder/developer. 250k is enough to help you with multiple down payments....or purchasing single property outright. If you JV with a builder they handle the work/repairs and you split the earnings and just rinse, recycle, repeat and you're the cash provider. Inventory is low all around, it's competitive as heck in the 250k range, so I'd recommend creating inventory, cashing out, doing it again and again until you can focus on your long-term buy and hold strategy in a slightly less competitive price range.

Hi @Carissa Holmes

There's some great advice above. @Andy V. , you're spot on: the market is ultra competitive in the lower price range. A friend of mine made an offer on a home in San Antonio that had 19 offers within 24 hours... all sight unseen.

Carissa, any thoughts on checking out the smaller towns outside of Austin? Your $ can go a lot further driving down I-35 between San Antonio and Austin. Especially on the East side of I-35. I'd be curious to see if you can find what your looking for if you explore the small MFHs in that area. 

My first investment property was in the same city I lived in simply because of my own comfort level, but it's all personal preference.

Good luck! 

Austin is super duper hot right now. It's going to be tough to get the returns you want in basic BRRRRs/turnkey long term rentals. I would look into the short term rental market and maybe do a few Airbnbs as Austin is such a hot spot. The STR returns are usually 3x++ what a longterm rental produces so it should still pencil out!

Also, I know out of state investing might be daunting at first but I'd look into finding a market you like that meets your criteria for returns/growth etc. and build a solid team of lenders, contractors, property managers and agents out there that you trust. No better place to meet your team than right here on BiggerPockets.

@Carissa Holmes ok before you target 20% growth realize the first priority is not to lose the investment, which you stand a good chance of doing if you are chasing high returns: high reward=higher risk.

250k investable is a lot of money but it’s not a LOT of money. I can see a couple of different approaches that could work well:

Commercial real Eatate with fixed NNN lease or established in-market multi to grow the money: you could lever up to maybe 1M fairly safely and target a spread of 3-5%. Won't grow on trees but acheivable. That could grow your investment by 30k+ a year. Reinvest that money at a higher return.

Or start smaller, learn the ropes with A- to B+ property locations and use those to get paid to learn.

If you have a five year plan to reach your goal from that starting point I think you can, trying to do it in a year is very, very risky. Target 5 years I bet it happens earlier, target one year and go broke

@Carissa Holmes

You’ve got a great start, you have capital and drive. You won’t be getting 5k/mo from your initial investment of 250k. So I would focus on using that 250k to force appreciation in properties and trade up. San Antonio, small growing town in TX, or another growing Midwest market will likely work for you. Protect your downside and go for it! 

@Carissa Holmes $250k would allow you to buy a house in an A/B class neighborhood in San Antonio in cash. Rental investors love the northeast side (Schertz/Converse/Universal City) for cash flow. I know some Austin investors who are bullish on the Near Eastside area close to downtown (78202/78203 zip codes), betting on gentrification/appreciation like they've seen in East Austin. Those properties tend to be more extensive rehabs and better fit the BRRRR model.

@Carissa Holmes I have a number of clients purchasing properties in Bell County, counties east of Austin, as well as San Marcos and New Braunfels. These would all keep you within a 1 hour drive of home AND will have way better options to cash flow than Austin proper. 

@Carissa Holmes Take it slow and play it safe. You can get a 3/2 SFR in Killeen all-in for $100k (give or take, if you pay cash, depending on condition) that will rent for $1,200/mo. This leaves you with a ton of money in the bank before you actually refi. Once it's rented, go ahead and BRRRR. You could buy your 2nd house before the 1st refi is even complete. In one year you could easily buy 4 of these, rehab them, refi them, and still have most of your original $250k in the bank. This would gross $4,800/mo (net would be substantially lower) but you are well on your way, and you're learning by doing, with very little risk.

For a better return, go with multifamily... but duplexes and the sort are in incredibly high demand the past few years. A duplex may cost you $135k, but may generate $1,600/mo gross.

I have also had luck with these numbers in Indianapolis. To your original scenario, these would probably not be highly appreciating assets, though.

I would looks at Kileen ,San Marcos, Bastrop and Collège Station for multifamily properties. These areas have had a steady population increase and you have a tenant base from Military, College Students and relocations. 

You can split the money into several projects to limit risk eg 4 projects with a total of say 20 units (being ultra conservative) you would need to cashflow $250 per unit to hit your $5000 target.

@Samara Huntley Unfortunately Austin is cracking down on non-owner occupied STR for SFH or duplexes in residential neighborhoods. They won't issue a permit. You can get one for a condo/large multifamily, but they're subject to geographic caps, approval from the property manager, condo fees, etc. Most current STRs in Austin that would be most profitable are Owner Occupied or grandfathered in.