26 w/ 120k cash, no debt

6 Replies

I’m 26 and recently graduated college (no debt, ACCT. Degree). My first job has been contracting for military intel overseas, which has left me with a sizable nest egg. When I get back home, I plan on working in the business intelligence field in Atlanta. I want to buy a house as my primary residence around the 200-300k range (haven’t prequalified yet) and rent out one room. I qualify for a VA loan, so no down payment needed and I avoid PMI. So that still leaves me with a lot of leverage to purchase a rental property. I’m comfortable putting all my $ in index funds, but I’d like to diversify a little and get my toes wet in real estate. And ideas?

Thank you.

Since your goal is leverage, buy a multi family, live in one unit for a year and rent the other(s). When you got to move out, refinance to pull you VA eligibility onto the next one and use your funds for the refinance/pay down mortgage to 80% to avoid pmi. You may not have to come up with the 20% all out of pocket, appreciation and or sweat equity, will help. Your out of pocket could be 15% or slightly less depending on property, local market, demand, etc.

@Alexander Johnson - sounds like a fine plan. I bought a too big house 2400sf 5 BR 3 BA for 255k when working for the Navy and rented out all but my bedroom to people I interviewed. That meant my $1700 mortgage results in $2400 income and I live free and pay 25% utils. With a lot of professionals, I don’t even know they’re home. Often they aren’t. It worked out. And when I changed the bedroom carpets over time it was on their dime from their sec deps because the carpets I bought in the house were finally fully stained by the renters. PM me for any more details. Make sure you treat roommates professionally and never let them pay you late or break stuff without serious consequences. I use a simple 4 page lease. If someone isn’t working out on their year long lease, it’s usually easier to let them leave and re-rent it within a few weeks. Depending on the circumstances, they’ll pay the rent until it is rerented.

@Alexander Johnson - to your question - I keep all my surplus money in s&p tracker low fee index funds and dividend stocks like MO. It’s nice to get 6-15% annually without doing anything. If you want to be really aggressive you could use some of your cash to renovate your house after buying it. With a va loan I think it needs to be in good condition already, so you might buy a big house that needs cosmetic updating and do the updates to generate additional equity. OR you could use the 100k cash as 25% down + fix up money on a 2nd rental property loan.

If you are looking for an active investment, I would buy a multi and live in one unit and fix up the other units to create value. Additionally, I would seek another small multi or single family home nearby that you can keep up with as a rental. 

On the passive side, I would look to partner with an active investor in your market or in a market in the US you especially like. You put up the money, they do all the work, you get most of the returns. Online services like this are www.realcrowd.com

Good luck!

@Alexander Johnson

If I were you, and I wanted to build a portfolio for investment, I would buy a multi family property, but I would use FHA first. You can get up to a 4 unit property using FHA. You must live in the property in order to qualify, but you only have to be there a year and the downpayment is not onerous at 3.5%. If your job takes you to a different location in a year, I would use FHA again and still buy units and live in the new property. Once you've exhausted your ability to use FHA, THEN I would use my VA benefit to buy units again. Now you've potentially got 11 units making money for you and paying your mortgages. You can still use your VA eligibility to purchase another owner occupied property if you didn't use it all up on the last one or refinance the property (if it has enough equity into a conventional loan). Yes, you will pay mortgage insurance on the FHA loans and potentially on the conventional refinance on property 3, but look at it as the cost of doing business while you build your empire.

Stephanie

AS others advise stay away from investing in a SFH. They are often only a money pit that are not a investment at all. A SFH is a life style decision as opposed to a investment.

If you want to invest purchase a purpose built rental property, a multi unit is your best option.

If you want to purchase a SFH do so for personal reasons not as a investment, it is a liability.

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