I saved $10K. What are some realistic options?

Question

Hello BiggerPockets,

I'm new, but I'm hoping to become a regular. Some quick background on me, I'm in my late 20's, single, work long hours, and am currently purchasing a single family home. I recently refinanced my property to a 15 year loan. I owe a little under $80k and it would probably sell for about $150k in todays market. I could maybe pay it off in 3 years and collect rent on it for the rest of my life. I'm currently renting it out for $950/month. However, due to the interest rate increase we are currently seeing I figure that some people with variable interest will let their houses go. It's an unfortunate situation, but also my chance to get a steal on a property. I've thought about buying really beat up houses and renovating them to rental properties, but like I mentioned earlier I workj long hours. If you are me and have $10k what do you do? Do you wait to save up more, or do you try to invest it? If so what options are there with $10k on hand?

Chris Mason · Answer

Traditionally wholesaling was regarded as having the lowest barrier to entry. Most still think it is.

I disagree. The numbers that I've seen from folks doing furnished rentals (airbnb, homesuite, etc) have knocked my socks off, relative to the amount that needed to be invested to get started.

In particular, furnished rentals that you do not own. Save up another $5k for cushion. Then, call it $4k security deposit, $3k furniture, $8k left for operating expenses, vacancy, etc.

@J. Martin, @Wenhao Leu, and @Al Williamson are some brains to pick -- I've never done it myself, I've just seen what the tax returns look like a few years down the road once the business is up and running.

And this is where your sales ability comes in. One possible pitch to your 1st potential landlord (I'm sure it'll get shot down the first few times... it only takes one "yes" though):

• I'll pay $200/mo more than market rent.
• I'm paying double your standard security deposit. 
• I'll take on all routine maintenance, taking that time/money as my expense and not yours.
• I'm addressing local rules/regs by _____________ (such as if short term <30 day rentals are banned in the area, you focus on >30 day tenant white collar professionals... consultants on 6 month contracts, travelling nurses, gov't workers getting a per diem, etc)
• All you've got to do Mr Landlord is cash an extra $2400/yr in rent checks and enjoy not having any 2 AM "Hey Mr. Landlord my toilet is clogged" phone calls!

If you don't have any sales ability, check out To Sell is Human by Daniel Pink. He covers how a "pitch" doesn't have to be a distortion or manipulation of information, it can (and these days generally should be) just a transparent sharing of information that will help them reach the right conclusion (Landlord: "+$2400/yr + no routine maint expenses + no 2 AM phone calls + double security deposit?! Heck yes, dream tenant!"). The above is a suggested "first" time pitch; once you've proven your model it should be easier to pitch to future landlords.

And, fun fact, if you throw your furnished rental income on Schedule C for a few years (while saving up a down payment using net profits from that business), it's mortgage qualifying income (granted it was a huge pain in the butt the first time I used it, and I know for a fact that not all lenders will go for it) in the event that you're so successful that you quit your day-job (2 of the 3 names I dropped above are people that do not have a traditional day-job). Right now you're a middle man, if you own the places you cut out one level of middle-man and get off the ever-increasing rent treadmill, which is always a good/easy way to increase net profit.

Account Closed · Answer

Interesting response. Not exactly what I was looking for, but not a bad suggestion by any means. When it comes to selling let's just say I've been doing it since I was 5 years old. I almost have 25 years experience and I'm pretty damn good at it. The only downside to your suggestion is that I'm not too confident it would work in my town. If I still lived in Los Angeles it would be a no brainer. Glad I can add another option to my future investment

Account Closed · Answer

Interesting response. Not exactly what I was looking for, but not a bad suggestion by any means. When it comes to selling let's just say I've been doing it since I was 5 years old. I almost have 25 years experience and I'm pretty damn good at it. The only downside to your suggestion is that I'm not too confident it would work in my town. If I still lived in Los Angeles it would be a no brainer. Glad I can add another option to my future investment