$80k in Cash and Ready to make the leap...
Financial Advisor · Metrowest, MA · Member since 2021 · 3 posts · 3 votes
I have had a passion for real estate investing for a long time but never put the passion to use. Now that I have educated myself the last few years in my path to becoming a Financial Advisor (understanding and learning Real Estate is almost mandatory when being a financial advisor) I wanted to make the leap to expand my investing portfolio.
To keep things short, I have $80k in liquid cash and was tempted to buy a small condo/apartment unit within a complex in cash. The more I read and the more I talk to investors, they advise a different approach in putting a couple down payments on maybe 2 multi-family deals instead.
I guess my question is what would some of you recommend? My thought process is with a paid for rental unit I will be able to snowball real estate investments much faster than leveraging multiple deals at one time...Thoughts?
Hey Anthony,
Great to hear you are ready to pick up some real estate. So is it worth buying a condo unit in cash? I would say the answer depends. There are two sides to this:
1) Super safe and bullet proof route, paying in cash. By paying for the unit in cash, you never have to worry about a mortgage while owning it and can benefit from more net income on the property. Also, if the market ever tanks and prices go down, you are still protected as you have 100% equity in your property. Unfortunately paying with cash with result in extremely slow growth. But, if you have a significantly high salary that can regularly support paying cash for properties, that may not be the worst idea. But, if have a "normal" salary, I would not recommend this route.
2) The common investor route, buy properties with a mortgage on them. This is the route I would personally suggest. Taking on a mortgage will allow for a higher return on your money compared to paying cash. There are not too many investment vehicles that allow you to purchase an asset worth hundreds of thousands of dollars for 25% of the cost upfront, and allow you reap all of its benefits as if you owned it 100%.
If I were you, I would Google paying cash for rental properties vs mortgaging them and you will find your answer. My recommendation, use leverage and get a higher return on your money. Yes there is risk in leverage but if you buy right, you will minimize your risks.
Good luck on your journey!
Hey Anthony,
Great to hear you are ready to pick up some real estate. So is it worth buying a condo unit in cash? I would say the answer depends. There are two sides to this:
1) Super safe and bullet proof route, paying in cash. By paying for the unit in cash, you never have to worry about a mortgage while owning it and can benefit from more net income on the property. Also, if the market ever tanks and prices go down, you are still protected as you have 100% equity in your property. Unfortunately paying with cash with result in extremely slow growth. But, if you have a significantly high salary that can regularly support paying cash for properties, that may not be the worst idea. But, if have a "normal" salary, I would not recommend this route.
2) The common investor route, buy properties with a mortgage on them. This is the route I would personally suggest. Taking on a mortgage will allow for a higher return on your money compared to paying cash. There are not too many investment vehicles that allow you to purchase an asset worth hundreds of thousands of dollars for 25% of the cost upfront, and allow you reap all of its benefits as if you owned it 100%.
If I were you, I would Google paying cash for rental properties vs mortgaging them and you will find your answer. My recommendation, use leverage and get a higher return on your money. Yes there is risk in leverage but if you buy right, you will minimize your risks.
Good luck on your journey!
@Brandon Rush hit it right on the head. There’s benefits to both, but it just depends on your goals. It’s more efficient to spread your cash out, but to some people they don’t like carrying all of that debt where paying for cash would be more preferable. It just depends on what you want your portfolio to look like and how fast you want to get there
Thank you for the informative advice @Brandon Rush & @Dominick Galinis
My goal is to accrue enough passive income that when my wife and I become empty nesters, I could look at her and say "lets fly to Aruba on Monday". (hahaha don't we all?)
So with that said I am guessing there are a few variables, one would be my time horizon. Our youngest child is 2 and I would predict we have about 23 years of reaching this goal. Another variable would be income, I love what I do and probably will do it until my mind goes. As a Financial Advisor I can do the job from almost anywhere as long as I have an internet connection, so the cash flow would be added to my salary. Eventually I want to break off on my own and have my own book and I think that's why I am nervous of the leverage play in real estate.
Thank you for the informative advice @Brandon Rush & @Dominick Galinis
My goal is to accrue enough passive income that when my wife and I become empty nesters, I could look at her and say "lets fly to Aruba on Monday". (hahaha don't we all?)
So with that said I am guessing there are a few variables, one would be my time horizon. Our youngest child is 2 and I would predict we have about 23 years of reaching this goal. Another variable would be income, I love what I do and probably will do it until my mind goes. As a Financial Advisor I can do the job from almost anywhere as long as I have an internet connection, so the cash flow would be added to my salary. Eventually I want to break off on my own and have my own book and I think that's why I am nervous of the leverage play in real estate.
Hey Anthony,
Its great that you enjoy your job, have a vision and willing to be patient. In that case there is no harm in you paying cash for properties. Even if you buy one every few years cash, it will make a significant increase in your income in 20+ years. I would still recommend taking on some debt to utilize leverage and make that income even higher in 20 years. Maybe instead of buying properties outright in cash, you buy multiple condos or multifamilies with large down payments? The two benefits to this is you have good equity in the properties right from the start protecting you from any future crash and you are locking in debt that will remain the same for term of your loan.
Either way, you will not lose. Good luck on your journey!
@Anthony Feola Everything Brandon mentioned is solid. I would add another layer, especially if you're clear on your goals. Assuming you do pay all cash for those condos... how long would it take for you to buy you next property (cash flow plus money saved from your job)? With condos, you do want to be careful that the HOA doesn't eat into your profits. I've heard of some HOAs increasing a little bit every year, AND some not allowing you to rent out your rooms. I would simply be weary and really understand what rules and regulations exist before you make a purchase. Best of luck. Cheers!
Anthony,
IMO, in your circumstances and goals I would rather put a down payment to 4 singles and have 4 doors than buying one single outright as an example. By the time the birds leave the nest you will have more equity, more leverage and more money with 4 doors than you would ever have with one. Buying a property outright is not a bad option either but it won’t produce a better return in the long run.
As a former financial advisor, now full time passive investor - I would recommend looking into real estate syndications. With $80,000 you could get into three deals and you are accredited so you have plenty of choices. You won't have to worry about getting a loan (or not) and you won't have to manage the properties or manage a property manager. You can focus on your financial advising business and invest in real estate with fewer responsibilities and fewer headaches. You can use the knowledge in passive real estate investing that you gain and share it with your clients - most of whom are probably W2 earners who, like you, don't have time to become a focused active investor.
Active investing has a lot of benefits - it just isn't at all passive, even the "passive" turnkey kind - I am a big believer in matching your investing to your lifestyle. Everyone needs to make that choice on their own!
@Anthony Feola - congratulations on begininng your Real Estate journey.
The only mistake you can make here is by not getting started. Just know that, as you progress with your decisions.
It sounds like your goal is cash flow, along with the ability to snowball into further investments. If thats the case, I would leverage instead of own in cash. The reason being is that if you put 20% down on a home that appreciates 10% in value, then you actually have an ROI of 50% on your down payment (just from that one property). If you owned in full and the bulding appreciated even 20% - you would only be up ... 20%.
If you can find a way to diversify your 80k on multiple homes, increase your ROI (from appreciation), and still maintain a cash-flowing portfolio, then I believe thats the way to go! You'll be able to do cash-out refinances and portfolio loans that allow you to purcahse new homes for little to no additional cash out of your pockets before you know it.
As @Jim Pfeifer said, real estate syndications and funds are also a great tool if you are looking for a totally hands off investment. Reach out if you have additional questions on this, and I can help explain what kinds of options you may have for this type of investment (open-ended vs closed-ended, private vs crowd funded, value-add vs core, etc)
Hope this helps. Reach out anytime.
Hi @Anthony Feola. Congrats on getting started! I agree with @Jim Pfeifer. If you want to be the best financial advisor, husband, and father, you may want to consider offloading the heavy lifting to a full time syndication team then keep rolling over profits into more deals over a few decades.
One alternative would be to use airdna.co to find the best markets for Airbnb/VRBO homes. I know a guy who put down about $80,000 and got a great house that cash flows roughly $50,000 per year. He says he only spends 1 to 2 hours per week on it and automates most of the effort. Happy Investing!
Anthony,
Lots of good advice here. My only input is to caution anyone that goes all-in on one unit. The biggest horror stories I hear are from investors with 1 Unit and their tenant falls apart and so does the investment. Usually they don't stay in real estate after that. With 1 unit your vacancy is either 0 or 100%, the same as the income. I would try to get to more units to spread risk. The Passive approach would allow you to jump in and see income. Depending on the project you could be a partial owner of a Multifamily Complex controlling 200+ units in the sunbelt with a small investment. To reduce your risk ever further there are Multifamily Funds that are holding multiple assets.
Good Luck,
Joe
Thank you everyone for such great advice, I am starting to see a constant in all this information and it is both leverage and syndication.
By utilizing leverage I could probably purchase 3 units, my plan was to invest in small condo/apartments in my area. The reasoning for that is because with the HOA fee it eliminates utilities and Capex from the budget (or at least in the complex I have been looking into). HOA fees do increase "slightly" every year but so does the "allowable" rent I can charge a tenant, I am currently waiting on documents to see if the HOA fees are increasing at a faster rate then their allowable rent.
The other option I was looking into was Multi-Family homes, but in Massachusetts my $80k is gone in one swoop and the house would be old (means more repairs more frequently). I feel like the cash flow from the condo's would be better, but where I would take the hit is the appreciation.
As for syndication, I know what it is but never fully educated myself on the topic to get a good feel of it. I guess this will be my homework over the weekend haha. Thanks Again for all the advice here, you guys have been a huge help.