what to do with my millions of dollars???

56 Replies

Hey BP, 

Now that I've got your attention, I sadly do not have millions of dollars. However I do have 100k in private money that I can use at my discretion. I am very green and have learned allot from BP, the pod casts, and books, but have yet to do a deal.

My question is this: how can a first time'r best use 100k to invest in real estate? 

Would you use it as down payments on buy and hold properties?

Would you not use it until you have learned more? 

My idea is to partner with an experienced flipper and use my capital and my willingness to work and learn as "what I bring to the table" and use the proceeds from the flip to build my personal asset pool to further my own real estate goals.

I would plan to structure it as a 50/50 split with the flipper and split my 50, 50/50 with the private investor. 

I would gain 25% proceeds and lots of knowledge and experience and gain confidence.

Is my idea stupid? Is it good? What do you flippers out there thinK? 

Thank you for any and all feedback!

How's your credit?

Joe Villeneuve
REcapSystem
A2REIC

There is a lot of information about what you are going to do, but not a lot of information about why you are doing it. Define your goals first, then go from there.

Originally posted by @Rusty Thompson:

There is a lot of information about what you are going to do, but not a lot of information about why you are doing it. Define your goals first, then go from there.

 Rusty is correct.  You need to start with where you want to end up...and reverse engineer from there.  If you don't know where your want to be, how will you be able to figure out a plan to get there...and how will you be able to analyze if that plan is what you need and if it's doable?

Joe Villeneuve
REcapSystem
A2REIC

@Caleb Mclamb  , my answer to your question was going to be "partner with an experienced flipper" before I saw that was your plan.

Nothing is better then real life experience.  There are so many things you don't know you don't know when you're getting started, and that much money can be dangerous if you get into a position you could have avoided.

Great question and keep up the good work!

Sounds like the money isn't really yours. If it's your family's money or if you have some fiduciary responsibility, sounds like you don't have enough knowledge or experience, as it's pretty easy for a new money partner to be stripped in a rehab. So, I'd suggest you get with a mortgage broker, or a RE broker (not agent) or a reputable builder (or all three) then your attorney. I can assure you, if you've been scoring the internet for an education, what you have are ideas, not a real education per se. Financing or backing a construction project is one of the riskiest areas of RE financing.

Your post may make good conversation in a forum, but I'd suggest you put other people's money at risk without experience, it's not about being intelligent, it's about experience and understanding the ways you can lose it before you can do your due diligence.

If it is your money, well, good luck! :)      

Updated almost 3 years ago

not out other people's money at risk :)

@Joe Villeneuve   my credit is admittedly bad, 660. this is not because of bad spending habits but because i took bad advise on how to build credit last year and opened four cards simultaneously and haven't used them enough to help my credit rating.

@Rusty Thompson @Joe Villeneuve I have been developing a plan and did not want to make the post twice as long with it. However, it basically consists of keeping my day job and using the private 100k to partner flip with an experienced flipper to build my personal capital Once i have done 2-3 flips with partner I feel I would be ready to do it on my own. 

I will then begin (with that personal capital) to purchase 2-4 unit properties (a predetermined amount each year) in order to have enough constant cash flow to feel comfortable not having a day job and pursuing "active" investing full time while my "passive" investments pull me thru the leaner months.

(for my passive portfolio) I am doing allot of market and sub market research to determine the best zip codes and have narrowed it down to three and am searching them for specific neighborhoods every weekend.

What else should I be doing? I have fairly concrete goals. the end being financial independence in 5 years.

@John Horner thankyou for the feedback, do you think a experienced flipper would be interested in partnering with a newbie if they brought substantial cash and work ethic to the table? or would they have to currently low on cash to consider it. In other words, what would most motivate them to want to partner with a newbie like myself? Im involved in my local REIA and already have my eye on a few people, but dont want to make such a bold move until ive been there a little while and can show them my concrete goals.

@Bill G.  To answer your question (i dont mind) yes it is family money, My parents arnt "rich" but it is money my father uses to play stocks with so he is perfectly aware of the risk and is interested in real estate but just never got around to it. I see your point, and it is exactly why I asked this question! Would You see a possible solution to be using the private money for just one or two down payments and let the bank pick up the other 80%?

I do not plan to spend it all, not even close. I plan to have one deal under my belt by May 2015. If I do that then I am right on schedule. 

And I definitely plan to meet with all of the above people before making a move. I am networking in my local REIA to find good "team members" ie a lawyer, CPA, general contractor, etc.

@Bill G. One last thought, I realize the enormous risk of a flip, that is why i thought it might work to partner with a flipper, It would have to be someone with a proven track record. I believe it would greatly reduce my risk by having a seasoned partner. thoughts?

@Caleb Mclamb  Put the money in the bank and don't rush into doing anything until you thoroughly understand the niche you are interested in, your local market, etc. Go to some meetups (look on forum Events and Happenings) to meet others and learn. Check out what others are doing by actually visiting their jobs. Always check references on partners, builders, etc. 

I wrote this some time ago, and it may be of help to you. Start here

@Karen Margrave I have been doing these things for the past month, when will I be "ready"? When is too soon when I'm partnering with a experienced investor? Is it a bad idea to learn from them along the way? All genuine questions and I want a good answer not the answer " I want to hear. " 

and thanks for the link! very helpful 

Originally posted by @Caleb Mclamb:

@Joe Villeneuve   my credit is admittedly bad, 660. this is not because of bad spending habits but because i took bad advise on how to build credit last year and opened four cards simultaneously and haven't used them enough to help my credit rating.

 Carry a balance on each card that is greater than 1% but less than 10% of the credit limit.

creditboards.com 

myfico.com

@Wilson Churchill   My local bank told me to shoot for 30% of the limit, is there a reason for one or the other? 10 or 30?

thanks

Caleb, I'm the last guy here that will tell you the answers you want to hear!

I have no idea what your dad's expertise is, an accountant familiar with inventory and process accounting along with inventory control can probably safeguard your money, if they are good.   You get half way done, have cost overruns, the labor guy doesn't show and you have to pay more to get it done, the material costs go up, inspector says tear it out and do it again or a million other things and you have a job half finished. You have a choice, bail and try to get your money out or dump more money in to get it done.

Don't mean this in a personal way, but you can read books for a year and you still won't have a clue.

Without construction knowledge, buy a place, bid the job, contract for the finished job without financing it, put it on the contractor(s). Put it on the market and sell it. Buy right, you can have a place rehabbed, no sense in financing the rehab part. You need to learn to value properties in your market, work hard at it, in 30 or 45 days you can learn that.

Key to getting started is not biting off more than you can chew, don't BS yourself, segregate duties, put people in that can do what you can't, learn to manage, not drive nails, that's a skill.

Don't get greedy, if you have the money, follow more of a management path, do ten deals a year for half the money, you'll do better than doing three trying to do more or everything.

Your dad probably has a head for numbers, you concentrate on keeping the money safe he can see if things pencils out.

Good luck! :)

What kind of return it your money partner looking for? What kind of payback period does he want?

Personally, I think you goals are admirable. I know I started 3 years ago with very little knowledge. Your doing it right by starting on biggerpockets. I wish I had known about this website before I bought my first couple deals. 

A 5 year plan that starts with a 100k bank roll is a great place to begin. I also have a 5 year plan, but could only pull 14k out of mt 401k. I leveraged it to buy 3 houses right out of the starting gate. Was it a good idea. Probably not, but I learned a ton and my equity position and cash flow from the three is amazing. 

Each path is different & I don't know your area. If things cashflow were you live, my first step would be to use a 5% loan to purchase a cash flowing 4-plex that you can live in and manage yourself. Rent out the other 3 units & rent the extra rooms out in the unit you will be living in. It will give you the experience you will need when you are managing multiple units, allow you to live rent free & allow you to make some extra money. There is also nothing like a home loan to skyrocket you credit score. 

In the mean time decide how much you need, to do REI full time and if you can acquire it with the 100k. And also if landlording is for you, because it isn't all Unicorns and Rainbows. If it is, read some of Ben Leybovichs articles on Investing in Multi-Families. Maybe you will decide that Flipping is really what you want to do & you realize that landlording isn't all its cracked up to be.

Just some thoughts

@Caleb Mclamb   Tell us a little bit about the market you are in, values, etc. The best way to learn is by doing. Working with a builder or flipper and learning the entire process, from getting permits, cost breakdowns, hiring subs, bids, etc. Have you checked out @J Scott  information yet? He has written some books, has a great website, etc. that may be of help, and he may even be able to give you some direction. I know nothing of the markets in the southern part of the country. 

However; without experience, you want to limit your risk as much as possible. As to the profit split, it would depend on how much each person is putting into the deal, etc., and what their contribution would be. 

@Bill Gulley   I dont know WHAT you are talking about with my father being an accountant, sorry if implied that at all. He is just a hard working blue collar guy who saved his money and owns some timber land.  But i agree that i want to do multiple deals with an experienced person.

"Don't mean this in a personal way, but you can read books for a year and you still won't have a clue." - i agree compleately, thats why i want to get involved in actual jobs!

@Rusty Thompson my partner is my father who knows nothing of REI he just wants a good return on his money. I would do all the work and jus use his money, what do you think a good split on it would be? I want him to have good returns on his money and be using i for approx the next 10 years, thats a good estimate of him mid retirement and probably wanting that money. I would love to just buy 2-4unit properties with the money as down payments but i don't want to lock up his cash for the next 30 years which would require a cash out REFI and thats betting that enough renovations have been done to provide the money, i estimate on a 150k property it would take me about 10 years to pay him back his. 20% down payment at 10% interest (this being done using my cash flow ) this situation doesn't seem ideal to me...

@Rusty Thompson   one last thing, I plan to buy a quad And owner occupy but currently not finding any in my market that i would feel comfortable having me and my wife live in, there arnt many of them in B neighborhoods and very few in C neighborhoods none priced well for cash flow

@Karen Margrave if someone from pensacola wants to jump in and correct me please do! But in the zip codes im interested in, all multi-families are B-C neighborhoods, prices are slightly bloated and the market is on a upswing, as to SFR i have no idea because i was t interested in i half as much as cashflowing MFR's. Im just staring to consider SFR flippin because it seems like a viable "active" investment that can produce "quick" cash to help build my passive portfolio.

I haven't started any flipping research as I've just begun to consider it as an option. I will start soon for sure.

As to the split, what do you think would be fair in this situation:

Me and my dad: he supplies the cash and nothing else, no work and no involvement, should i pay him interest on his money or bring him in as a partner?

Me and the flipper: i am providing the cash and a willingness to work and learn, he provides the deal. How should we structure the split?

And btw i went to your we site, love the concept drawings, my wife is from socal and she says she'd die for one of them haha

@Caleb Mclamb  

Not rich and $100k to "play the stock market" don't really go hand in hand in my opinion.  A follow up post mentioned your dad likely wanting his money in 10 years for retirement.  I just don't think you are painting a clear picture regarding your father's financial situation.

If your dad is not rich and that $100k is money he will need in retirement, I personally would not touch a dime of it.  The MOST I would ask him to do is ask for down payment assistance on an owner occupant multi-unit property.  Although the bank would require him to sign a paper saying the money is a gift, I personally would pay that money back. 

My brother was kind enough to do that for me on my first home purchase, but I paid him back every penny and bought him a nice "thank you" gift.

I suggest you ask your dad if he` wants to partner or would rather take interest. I also meant that he probably has experience in financial matters, investing and understandings if he's playing in the stock market, not that he is a degreed accountant, but has a grasp of money management and risk.

I've been in your dad's shoes, basically, I started my sons off in RE giving them the opportunity to make decisions, that's how you learn, if he tells you what he wants, you're not investing. But, before that, they had to understand the fundamentals in order to make an informed decision. I step in if it's necessary to save the ball, might assist in setting up the shots, but they have to learn to take the shot.

I also agree with Richard, this is beginning to sound like there is some sense of entitlement as to using dad's money, you should be pulling your own wagon.   :)

@Caleb Mclamb  To be honest, I cannot speak to the split, as we've never had partners. Maybe @Will Barnard  , @Todd Whiddon  or @J Scott  will chime in and offer up some advice. 

From what I'm reading if you are in a market on the upswing, that is economically stable etc., you might try a buy and hold, which may carry the least amount of risk. If you can't find a Quad in an area that you would want to live in, that may be an indication that there's a market for that, so the question is, are there any lots available, zoned for that use, and what is the price, etc.? 

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