50k now or 150k in three years?

3 Replies

Hi BPers!

Currently we are building out the Garage in our Los Angeles based property to be it's own 1 bedroom. I have some extra cash right now I can use to either invest in the market and save for maybe 3 Years to potentially build another unit on this property, or an other scenario came to mind and I am hoping you can help me pick it apart.

If...

  • Each year I have about 10k to invest and play with
  • The cost of the extra ADU build will take 3 years to save (30K my cash and 120K loan) and the potential rent would be $2000
  • I have the ability to purchase out of state homes at less than 50k that has a true cashflow of $200+ 

    Would you...

    • Invest in the market earning 7% and build the ADU on the land you already own in 3 years?
    • - or-
    • Invest in 50K properties for the next tree years making $250 cashflow each. 1st year 1 home $250 - 2nd year 2 homes $500 - 3rd year 3 homes $750 

    Trying to keep it concise but let me know If i am missing any important information to gauge the best strategy. Partially believe money now is better than money later, but also know the risk added complications of out-of-state investing and multiple properties can be a downside to the convenience of the cashflow.

      Thanks in advance!

        @Kim Leduff have you dug deep on both plans?

        Have you identified a market, a team, a lender for $50k homes, OOS strategy (BRRR, Turnkey, multi vs single fam, etc), analyzed deals, and networked with other local investors to confirm the "true" 200-250 cash flow?

        For the adu, do you have an actual 50k quote from a contractor? Does the ADU add substantial value to the property and is the rental income return acceptable?

        If you can answer yes to everything above, you should be able to confidently say which scenario will yield you better returns.

        @Kim Leduff I like option 2 simply because you are taking action today. If you believe in real estate why not continue buying now? 

        What you may find is that you may earn (not save) enough money to build another ADU in year 3 AND have 6 homes and a ton of experience. With option 2, you'll be earning cashflow and if you need more funds in year 3 for the ADU you can refinance and pull money out.

        Lastly, it's hard to predict where you will be in 3 years. Think about what happened over the past 1.5 years... Are you sure you will still be in LA in 3 years? Will you want to build another ADU? What if you want to buy a bigger house or car with the $50k instead of building an ADU?

        Take the guesswork out of it and jump in today.