Enlighten me on the best way to go about investing 200k+ in cash

13 Replies

I have been renting a house out that is 180 miles from where I live. We used to live in the house but moved out 2 years ago. We've rented it out for the past two years but have decided to sell it and buy properties closer to where we now live.

I'm expecting to clear around 200-220k on the sale. The area of rural Western Kentucky in which i live has opportunities where rental style houses sell for 50k if you know where to look. We were considering trying to buy 3-4 of these types of properties using cash money from the above sale. I can probably strong arm my way into these situations and buy these places for 40k with a cash offer.

My other thought was to build a nice duplex or triplex. Is it more expensive to build new than buy existing? Is my idea sound? Should i borrow money instead of paying cash?? How would you handle 220k?

Why are you only considering investing in your back yard?  Neither of the options you propose sound like good investments.

It isn't that hard to own rental real estate remotely. You've done it yourself. Look farther away for better returns.

You didn't talk at all about cash flows, or whether you want to do rehabs or just buy turnkey properties, or any other goals. What is it that makes you want to sell the property you have now, and what are you hoping will be different if you reinvest the money elsewhere?

I am in a similar situation - we have a rental that we used to live in, planning on selling soon and using the proceeds to buy more property elsewhere. But our motivation for selling is that I am just not making very much in income compared to the amount we have in equity, and I think I can get a better return elsewhere. Plus I want to pull some of the equity out to pay down personal debt while I am still in the no-capital-gains tax period since we lived there, so I need to sell now to take advantage of that.

Give us more details and you'll get better responses.

I don't know the costs of building but I would sell property using a 1031 exchange if needed. Then buy cheap but solid properties, rehab them, rent them, refinance them, then repeat the process over and over again. Or use to buy a commercial multi, maybe even invest with a partner or syndicator. You have alot of options its really more about your personal risk levels and amount of work you want to put in. I wouldn't build new personally. Money is cheap right now so I would try to use leverage to my advantage. Hope this helps. Happy Investing!

David Espinosa

@Alison Lee -  I would totally use that $200K as down payments to leverage bank loans or owner financing deals.  You'll be able to take that money much further.  You could also do bridge loans, hard money loans, or commercial rehab financing and get the rehab funded on fixer uppers.  The name of the game is to use as LITTLE of your own money as possible.

@Alison Lee

You have not mentioned anything about your motivation for a new investment. What are you looking to achieve? Do you want income, or do you want capital growth, or both? What is your personal risk profile? Are you predominantly a risk taker or are you a more conservative investor? What is your view on debt? Are you comfortable with the concept of being in debt or not? What is your investment time horizon? Is it short term or long term? How much experience do you have with investments? Are you a seasoned investor or a novice? Do you want a passive investment or do you want to be, "hands on"?

These are just a few of the questions you should be answering before anyone could possibly give you an opinion of how you might invest your money.

There are many ways you could invest your money. However, you really would be wise to answer the questions I have detailed here to be able to develop a strategy. Once you get clear on your risk profile and your investment objectives you will be able to focus on investments that meet those criteria and stay away form investments that do not.

Good luck on your journey!

Wow, thank you folks!! Those are excellent questions and I should've tried to outline a better question firdt time. 

The reason I'm selling is because I was only getting $1200/mo and it's a paid for home worth 200k+. I didn't think I was making enough rent on it AND it's in the Louisville area, Jeffersonville, IN technically and I now live 180 miles away in Western Kentucky. I could get $1,400 out of it but even that's not enough on a 200k+ home is it??

I think I can actually bring that money down here and actually buy three SF properties for around 50k each and have much more than $1,400/mo coming in and for less $$$. I should be making more money down here with less financial commitment is what im saying. I do own another rental house right next door to that house im talking of selling and it's only worth 100k but I get close to $900/mo out of it. I will keep it because it's got a great renter who has lived there for 5 years and pays a day early. 

My time horizon is 20+ years, I'm only 44. I need cash flow because I'm a self employed contractor who dabbles in rental property. I currently have only two SFH. Of course it would be fantastic if I could buy rental property that appreciates greatly but that would not be my main primary purpose. We need a nice cash flow and 200k should be able to get me there. I truly don't like debt but could take some on given the proper scenario.

Private lending meaning hard money loans, bridge loans and such?? How would i find these people to loan money to?? 

Private lending seems risky, much more than me buying a few rantal properties.

If I were you, I'd strongly consider the option of executing a 1031 exchange. If you sell the property outright, you'll be subject to a long-term capital gains tax rate which at the time of this writing is 15% (a.k.a $30,000+). Along with that, you also have to consider depreciation recapture on the sale of your property. Since you're required to claim depreciation on your property each year that you owned it, the dollar difference between the depreciated basis of the home and your sales price will be subject to this tax. With a 1031 exchange, you can take your sales proceeds and invest them in "like-kind" property. In your case, that could mean purchasing an apartment building, commercial complex or purchasing multiple properties (usually up to 3). There are strict rules you have to follow in order to make your 1031 exchange valid so I would encourage you to speak with a professional who has a lot of experience helping investors execute these transactions. Hopefully, that helps and let me know who it all goes!

All the best, 

When you are saying its a "paid for home"

Are you saying that you are getting $1200/month in profit/cash? Or your rent is $1,200 and you have mortgage/expenses etc. on the property?

@Alison Lee

Seems like you already figured out what you want to do with the money as you keep mentioning buying a few SFHs in your local market. If that's the case, then as an investor you should consider to 1031 into it (if possible) to defer taxes. 

I don't have to do a 1031 because I qualify for the 2 in 5 rule. We have lived in the house for at least 2 out of the last 5 years, meaning as a married couple we get a 500k tax break. 

My problem with bridge loans, HML, and buying into large commercial properties is my limited experience. Although I would probably entertain bridge loans under the right scenarios.

When i said it's paid for, I mean I own it outright...no mortgage, the bank doesn't own it.lol 

@Alison Lee So, it's obvious that you need to sell it - fast. You only have one year left or you lose your 121 exemption. List it soon. It could take 6-9 months to sell, and another 2 to close. You don't want to push it!

Here are the 3 main reasons you need to sell:

1) A $200k property should gross more than $1,200. Since you did not tell us about your cash flow, I'm guessing you probably have not even run the numbers and you are likely unaware that you have a negative cash on cash return.

2) You probably do not own the $200k property in an LLC, therefore you are not protected from it's liability, nor is it protected from your personal liability, or the liability of the house next door. Any bad tenant that learns that the property is owned by you free & clear will find a reason to sue you... and you have $200k on the line, in one property!

3) You're missing out on leverage. With 80/20 loans, you could control a $1,000,000 property!

Stop thinking small, once you have the 200k in cash, find a sophisticated investor partner who will also put up 200k (or more) and you can both own a 30-50 unit apartment complex that nets $100,000+ per year.