What would you do with $600K to start Investing

9 Replies

Hi BiggerPockets friends,

I am searching for ideas and I would appreciate your input.

I am in the process of selling a property with no tax basis that will net me at least 600K. I can take the tax hit or I can do a 1031 exchange. Investing in real estate has always been an interest but for whatever reason, I haven't jumped in.

I am learning so much by being a part of this group. Thanks to all of you!

My question is, what would you do in this situation?

I am interested in single family rentals and I understand the process of a 1031. 

Would you purchase 2-5 homes cash and start from there? Buy more homes with 25% down and having mortgages or a combination of both? 

My risk meter is high since this is new to me. I would appreciate your input and if possible, an explanation of how you would proceed and why?

Thanks,

Mike

Buy all cash, then refinance all the money back out.  It's taxable going in, but as a 1031 you are delaying that tax, but when it comes out it is in the form of a loan...so it isn't taxed...and your tenants are paying off the loan for you.  Tax free income.

Thanks for your response Joe.

Would you then use the loan money to purchase more properties?

I would focus on SFH in good neighborhoods. I wouldn't go to fancy or big because that adds to costs without increasing rents much. Hopefully ones that are relatively local.

Another option might be a multifamily and hiring a property manager.  You might be able to find one that is that range.

Did you inherit the property?  You would have a stepped up basis if you did.

A partial 1031 might be a good option if you can't find properties for the entire amount.  When you get more experience, you will likely be able to find properties that make up for the tax hit. 

Joe brings up a very good point...

Me personally, I would do what Joe said and then keep buying more property at 25% down until I run out. While you are in the process of selling, and before that 1031 clock start ticking, I would talk to anyone and everyone about REI. Learn what they do, why they invest the way they do, what makes them tick, ect. Go out with your local Realtor if you are thinking of investing local, get to know neighborhoods, ect. Attend REIA events and meet other investors. Do all this so when you have the money you are able to make a decision based on your gut instinct and what feels comfortable to you.

Yea I agree with Joe as a beginner it may be hard to use that entire amount to leverage into one property. Even if you leverage that into a bunch of properties you may bite off more than you can chew. Like he said buy a few SFHs all cash and once you get the hang of investing start pulling the money out and expanding.

I wish I had that kind of cash.

This post has been removed.

So if I am understanding this correctly, the suggestion is to get connected in the industry and learn as much as possible. Then purchase SFH's in cash and when I want to purchase other homes, refinance the paid off properties and use those funds for other homes. Would the goal be to have a greater number of homes and create leverage?

Originally posted by @Mike Koebke :

So if I am understanding this correctly, the suggestion is to get connected in the industry and learn as much as possible. Then purchase SFH's in cash and when I want to purchase other homes, refinance the paid off properties and use those funds for other homes. Would the goal be to have a greater number of homes and create leverage?

 Yes

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