Starting out with $250K. What would you do?

Question

Hi folks,

Nice to meet you all. I am a newbie investor and looking to begin kickstart journey. I'd like to your feedback on two options I'm considering. I've read many discussion on this forum, but nothing really comes close to your own experience.

I have access to $250k (tied to my stock portfolio) that I would like to invest in real estate. I've read several books on REI thus far but realize that the great minds on this forum can also provide significant and relevant insight on strategies they'd apply in current market conditions if they could start over with $250k in cash.

For context, my family and I reside out-of-country, at the moment, but will likely return to the US in 1-2 years. Nevertheless, our first few moves will be executed while abroad. My wife and I have 3 kids, so house hacking wouldn't be an option for us.

The options we had in mind are as follows:

1. BRRRR: All-cash purchase and rehab of a SFH or small multi-family up to $250k. Wait for first few fed rate cuts and refinance to purchase the next property, and onwards. It could make sense to take advantage of minimal competition and relatively "low" home prices while interest rates are still high.

2. Buy and hold a turnkey SFH with 20-25% down. Get our feet wet and gain some experience in this space and, in 6 months to one year, either purchase another SFH with a mortgage or go for an all-cash purchase and start BRRRRing. My fear is that acquiring a of couple properties with a mortgage and then BRRRR later will likely put us in a position where we won't have as much cash left for an "all-cash" purchase and then BRRRR.

A few other points for context:

1. We have excellent credit and can quite easily qualify for a mortgage.

2. We do not own a single property and have zero debt.

3. We have aggressive goals as they pertain to real estate investing, and plan to be fully dependent on it in 5-10 years to replace our W2s (currently at $300k).

4. We're open to other strategies i.e. short and medium term rentals.

What would you do if you were in our position? :)

Jonathan Greene · Answer

I agree with everyone else that BRRRR is a definite no from out of the country. I think turnkey rentals are a good option, but you have to be very careful with turnkey companies. I would find an investor-friendly agent in the area you like and use them instead of an all-in-one shop for turnkey.

You want to buy an appreciating asset more than cash flow. If you focus too much on cash flow right now, from abroad, you are going to get more maintenance and more costs with it.

Lateefah Mathews · Answer

Hi @Yair Zarmon Welcome to BP! You're on a promising path with a good strategy and substantial resources for your down payment. One key consideration is the market you're planning to invest in. Have you decided which market you would like to start your investment journey?

As for your strategy, I'm in agreeance with Samuel Diouf, start with turn key. Specifically with a turnkey triplex or quad, using it for STR or MTR. This approach will cover your mortgage and still cash flow, especially as current interest rates, expected to decline, may not offer immediate cash flow year one for LTR's. With your seed money, starting with multiple units right off the bat could leverage your entry into real estate investment and rapidly scale your portfolio to help you replace your 9-5.

Samuel Diouf · Answer

I think option 2 could be a great way to start. Buy something that's turnkey with value-add potential. Use this experience to work out the kinks and build a strong boots on the ground team. The first purchase is always a huge learning experience so it's smart to buy something you can't lose your shirt on. Once you're ready for the next purchase you will have experience, solid systems, and the confidence to tackle a bigger project like a BRRRR.

Alecia Loveless · Answer

@Yair Zarmon I appreciate the concerns about getting a mortgage as an out of country investor. So be sure to do your homework on that subject prior to putting in an offer unless you will be paying cash.

That being said you are in a great situation with the size of your income. I was able to finance $20 doors in 6 buildings on just a $50K salary and these were $200K+ buildings. I primarily buy properties with existing tenants so I can leverage the existing income against my DTI or just utilize the income to get the loan.

I’d recommend buying a small multi family to give you broader protection against vacancy and other expenses.

Joseph Bui · Answer

Hi, I started back in 2020 with roughly the same amount of capital. I've done turnkey, BRRRRs and now working on my first flip, all in midwest markets. Happy to connect and knowledge share.

Michael Margarella · Answer

Welcome to BP! I believe investing in a syndication or fund could be a good fit given your situation.

Pick solid operators and solid asset classes.  We syndicate self-storage projects. Even if there is a crash, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions.

And during inflationary times, our rental rates increase. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases.

These syndication can provide an 8%+ cash-on-cash return - providing you monthly cash flow - and a 15-20% IRR over the length of the project. Feel free to reach out.

Engelo Rumora · Answer

G'Day Zair,

Just commented the same to another fellow looking to do something similar to what you are.

I think that BRRRR from out of state is very risky business.

If I was you, I'd continue immersing myself in everything and anything real estate related.

Come back home to the US and start in your local market.

Using leverage should only be reserved once you already know what you are doing and you have experienced the income/expenses over a few year period.

I've always believe that "Cash is King, Cashflow is Queen and Finance is the Peasant" lol

In your local market or a market of your choosing you can buy, fix and flip or buy, fix and refinance.

But I suggest you buy, fix and flip until you have enough cash reserves to buy, fix and hold without it affecting your cash position for future deals.

Build a strong foundation without leverage and only then start looking to refinance or finance.

30-50% of your portfolio should be un-leveraged.

It's a slow process but all good things take time.

Just my opinion and wishing you much success

Michael Smythe · Answer

@Yair Zarmon first, don't trust anyone in real estate!

All of us professionals are trying to make money off you and those trying to help for free, well #1 their opinions are often worthless leading to #2 you get what you pay for regarding free advice.

So, question everything to avoid being sold a load of crap.

There's a lot you can do remotely - if you put in the time learning enough to avoid getting taken advantage of and/or build the right team.

Your first challenge will be WHAT type of investing you want to do. Guessing it'll be Buy & Hold Rentals.

How will you acquire them?

Are you okay taking small returns with turnkey or can you take the risk of BRRR?

What Property Class will you target?

Once you answer all these, then you can start looking at what markets suit those goals.

Dani Beit-Or · Answer

@Yair Zarmon Do you know for sure you can get a mortgage in the US, or are you just assuming you can? The truth is, about 99.5% of lenders who offer conventional mortgages in the US won't lend to someone who isn't based in the US, even if that person is a US citizen living abroad or works for a US company. This is a common problem we see with many investors who are based outside the US.But don't worry, there are other options besides conventional mortgages. While the terms might not be as good, they're not necessarily terrible.I bring this up because we've seen foreign investors pursue the BRRR model, only to find out they can't get a favorable mortgage when it comes time to refinance. This can cause their plan to pause or not work out as they hoped.So, when you're shopping around for mortgages that fit your situation, be careful. Many mortgage brokers will say they can help you, but most won't be able to follow through when it comes time to close, which can put your deal at risk.If you have $250,000, you might want to consider buying the property outright with cash. Then, once you own it, you can look into refinancing without the risk of a lender failing to perform.As for which strategy to choose, think about picking one that fits your situation and has the best chance of success, especially since you're new to investing and live in another country.Vision the follwoings:Option 1: BRRR - This involves a lot of micromanaging and supervision work during the renovation process, including dealing with contractors, permits, and other details. Doing all this from a distance, especially as a newbie, can be challenging to say the least.Option 2: Buying a nice rental property (maybe with cash) in a good area. It might need some minor cosmetic work but would be close to rent-ready. You could rent it out long-term or maybe as a short-term rental. This option involves less hassle and stress from investing remotely, although it might not sound as exciting as the BRRR model.

Either way good luck (behatzlacha)

Travis Biziorek · Answer

I'm going to go against the grain here as I often seem to do...

I personally hate the traditional turnkey model. It turns real estate investing into simply an interest rate play. You aren't creating any value and, as a result, you aren't realizing the biggest benefit of real estate investing.

Out of state and out of country BRRRR's are 100% doable. You just need the right market and the the right team. I've helped over 100 people do this strategy from out of state and country (primarily Canada, France, and Israel). My target market is Detroit and I have 12-doors there personally.

If you have aggressive goals and want to transition out of your W2 in 5-10 years you will NOT get there following a turnkey investing approach unless you just have gobs of capital.

I was aggressive building my portfolio in Detroit, going from 0 to 12 doors in just 2.5 years. I had ~$280k of access to capital to work with so solid BRRRR deals were a must for my success.

It's doable, but again... you need a team that can help you execute. Shoot me a DM if you want to talk more.

Starting out with $250K. What would you do?

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