Newbies with $700K Cash

9 Replies

Newbie here! My friend and I are looking to get into real estate investing. We are in Austin, TX. She has $700k cash and is unemployed. I have experience running a business (successful passive income biz on Etsy), am a CPA, and have a FT job (sales so its flexible not 9-5). Both 700+ credit and desire to build a successful long term real estate business together. 

$700K buys a duplex in Austin or possibly a SFH with ADU to BnB. We were thinking we'd house hack one unit and rent the other. Are we starting too small?
Also how would you split equity/cash flow? She has cash and time during day, but I would do bookkeeping + set up/run BnB site + have reno skills. I am approved for $450K mortgage (SFH not sure if that will increase for multi) and can bring that to the table as well. 

If our goal is to acquire a portfolio of properties how do we best start and use the cash available? Go big or go home right! TY

I would start with the formation of the partnership LLC/LLP after a thorough discussion that you will both be on the same page for the strategy and tactics of investing, and that the partnership is a relationship of mutual trust and there should be gentle and considerate exit strategies for both of you, in the partnership contract.

Then with the partnership formed get the house hack with the minimum cash outlay required to get into the deal, which is to say using the maximum amount of mortgage funds.  Analyze the house hack to make sure the numbers make sense for cash flow as it won't just be a residence but also an investment set of units.  Think of yourselves as virtual renters when calculating cash on cash return.  Some cash beyond the typical down payment amount (or rather gap between loan amount and appraised amount) will also be needed for closing costs and the gap between appraised amount and sale price.

After that first house hack take a look at what cash there is left for the LLC/LLP and evaluate what sort of a deal that can get you guys into, be it a small MFH or a turn-key SFH. There will be an adjusting dial based on that post-house-hack cash position.

At a high level, one at a time with minimal cash outlay each time, careful vetting of each deal particularly for cash on cash ROI, and new assessment of where you've landed cash-wise after each deal.

@Sarah Schmidt Hey Sarah! I’m an agent here in Austin who works primarily with investors

I have a great Airbnb property you & your friend might like that can easily double the cash flow it currently has! Feel free to shoot me a text

318-452-6927

Great advice from @Ronald Allen Barney . Communication will be key. 1) You need to communicate with a good lender to maximize your investment power. Money is cheap these days and if you are investing in Austin you are doing it to maximize ROI so understand what your payment will be, make sure you are comfortable with it, have some reserves, but leverage is the way to go big. 2) You need to communicate with an investment savvy Realtor who can help you reach your goals. There is a big difference between a Realtor and an investor focused Realtor. 14000 Realtors here in Austin and maybe 500 at most know what your CapEx should be. 3) But most importantly you need to communicate with each other to always make sure you are on the same page and make sure no one is feeling slighted. Also come up with some scenarios that could happen and what you both might want to do. i.e. Winter storm kills all the landscaping, how much should you spend to get it going again? Tenants have a felony conviction from 10 years back for grand theft auto but say they have turned their life around and make good income, do you consider them? etc. But you are in the right city to go big!

All good comments. I will add also that you should probably speak to a good attorney that can help you devise an llc. A good attorney will do their best to prevent troubles down the road, in the event that you two don't see eye to eye. @Dan Burstain I would suggest that less than 500 realtors know a good capex or even know how to determine cap rates/yields to see if a property is even priced correctly. 

@Sarah Schmidt I wouldn't recommend starting small only. Buy smaller properties with leverage and invest passively with others with that kind of cash. Every Realtor on here is going to try and sell you a portfolio of residential properties and that doesn't make a lot of sense IMO.

There are a lot of directions you could go. Which is both a benefit of real estate and a drawback because it's overwhelming too. It sounds like you want to get in and maximize profit and are willing to put in the time at this point in your journey. I've been in the same boat since I got the investing bug. I also looked into all the major ways to invest and had a hard time deciding which way made the most sense to me. And of course that will change for us over time.

Since you are in discovery mode you might consider taking a look at my favorite model in the SFR space. We call it Hybrid investing. I didn't come up with it, but it made a lot of sense to me so I got an amazing coach and turned it into a full time business where I help other investors benefit from it. Watch the overview video on our site and let me know if it's something that looks like a fit for you. I'm happy to answer questions. https://hybridrealestateinvest...

It might make more sense to invest in an area where that $700k will get you a better return. We buy duplexes from $60-$100k and rent each unit for $1,100 minimum. If you want to know more about this market feel free to shoot me a message. 

@Sarah Schmidt Love the idea of go big or go home! You can definitely do a lot (even in Austin) with $700k. You should be able to purchase a few properties with some leverage. What you choose to do (rental property, house hack, airbnb multifamily) almost doesn't matter as long as your do something!

This might be an unpopular take, but unlike the others I don't think the best think to do its to dive right into the partnership. From what you mentioned it seems like she's bringing the money and you are bringing the business acumen, but neither of you have much RE experience. Too me that seems like the lack of experience will result in some struggles which will put strain on your partnership unnecessarily. Consider doing a deal on your own or partnering with someone with more experience and come back around to the partnership with one of your close friends. To me, maintaining the quality of my relationships is more important than doing deals.