Newbie With Inherited Property
Member since 2020 · 14 posts · 19 votes
Newbie With Inherited Property
Most Popular Reply
Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votesIf you inherited the property, I'd suggest selling it (with step up basis) pretty much tax free, toss it into an index fund, and forget it is there. The dirty secret that most people here don't want to say out loud here is that index fund investing returns the same or better than most real estate without any of the hassle.
Here's a fun stat - a 9% annual return, which is reasonable if you re-invest dividends, gets 8x your initial investment in 24 years. I don't know how old you are, how bad you need income, or any other factors, but you need to fight the feeling that you "need to do something with this money." Real estate is far more active and gives a greater sense of accomplishment, but the market is ugly right now. Unless you want to take on heavy rehabs or house hack, I just don't think that it is worth it. Even short term rentals don't actually cash flow in most markets...you can make it look good on paper, but end of year actual numbers do not cash flow until probably year 3. And even then, it's pretty meager. Take the tax free cash, let compound interest do its thing, and forget that it is there.
And don't pay for a course.
43 Replies
- Investor · Toledo-MetroDetroit-Dallas · Member since 2022 · 122 posts · 71 votes11mo
@Niko Rossley, sorry for the loss. I highly suggest looking out of state for cash flow. In the Midwest states like Ohio and Michigan, you can get great single-family homes in good neighborhoods for around $100k that will rent for around $1000. With 400k, you could be making around $4k in Revenue per month or $48k per year.
Yes, having them under an LLC is best. Ideally the LLC will be based in the state you are investing in. Happy to share more specifics if that's something you're interested in!
- Real Estate Broker · San Diego, CA · Member since 2016 · 187 posts · 117 votes11mo
Quote from @Account Closed:
@Niko Rossley, sorry for the loss. I highly suggest looking out of state for cash flow. In the Midwest states like Ohio and Michigan, you can get great single-family homes in good neighborhoods for around $100k that will rent for around $1000. With 400k, you could be making around $4k in Revenue per month or $48k per year.
Yes, having them under an LLC is best. Ideally the LLC will be based in the state you are investing in. Happy to share more specifics if that's something you're interested in!
Hey Mo,
I have a bunch of rentals in Lansing, MI. Where in Michigan are you finding homes for 100K and renting for 1K
- Investor · Toledo-MetroDetroit-Dallas · Member since 2022 · 122 posts · 71 votes11mo
@Tony Savage in Detroit metro! But I very much prefer Toledo instead. Much better contractors, tenants, PMs, laws, etc. than Detroit in my experience. The price points are better too for nicer neighborhoods. Detroit suburbs like Warren, Redford, Dearborn Heights, Westland, etc might be worth looking into but under 100k is tough to find in the suburbs, and in the city might be a rough neighborhood so you have to be extra careful!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes11mo
Quote from @Account Closed:
@Niko Rossley, sorry for the loss. I highly suggest looking out of state for cash flow. In the Midwest states like Ohio and Michigan, you can get great single-family homes in good neighborhoods for around $100k that will rent for around $1000. With 400k, you could be making around $4k in Revenue per month or $48k per year.
Yes, having them under an LLC is best. Ideally the LLC will be based in the state you are investing in. Happy to share more specifics if that's something you're interested in!
Suggesting to a newbie to invest out of State in 100k homes is borderline reckless on several levels. "Great homes in good neighborhoods"?? I live and invest in the Midwest and 100k properties are absolute war-zone hood. On top of that they are 100 years old and need new everything. And how would an LLC be beneficial?
- Investor · Toledo-MetroDetroit-Dallas · Member since 2022 · 122 posts · 71 votes11mo
Quote from @Marcus Auerbach:
Quote from @Account Closed:
@Niko Rossley, sorry for the loss. I highly suggest looking out of state for cash flow. In the Midwest states like Ohio and Michigan, you can get great single-family homes in good neighborhoods for around $100k that will rent for around $1000. With 400k, you could be making around $4k in Revenue per month or $48k per year.
Yes, having them under an LLC is best. Ideally the LLC will be based in the state you are investing in. Happy to share more specifics if that's something you're interested in!
Suggesting to a newbie to invest out of State in 100k homes is borderline reckless on several levels. "Great homes in good neighborhoods"?? I live and invest in the Midwest and 100k properties are absolute war-zone hood. On top of that they are 100 years old and need new everything. And how would an LLC be beneficial?
Well I have several myself that I own and have for years and its working out just fine for me! No "war-zone hood" and they didnt need new everything since they were turnkey and newly renovated.
Have you visited every city in the midwest and looked for homes in that range?? The midwest is bigger than just Milwaukee
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes11mo
Quote from @Account Closed:
Quote from @Marcus Auerbach:
Quote from @Account Closed:
@Niko Rossley, sorry for the loss. I highly suggest looking out of state for cash flow. In the Midwest states like Ohio and Michigan, you can get great single-family homes in good neighborhoods for around $100k that will rent for around $1000. With 400k, you could be making around $4k in Revenue per month or $48k per year.
Yes, having them under an LLC is best. Ideally the LLC will be based in the state you are investing in. Happy to share more specifics if that's something you're interested in!
Suggesting to a newbie to invest out of State in 100k homes is borderline reckless on several levels. "Great homes in good neighborhoods"?? I live and invest in the Midwest and 100k properties are absolute war-zone hood. On top of that they are 100 years old and need new everything. And how would an LLC be beneficial?
Well I have several myself that I own and have for years and its working out just fine for me! No "war-zone hood" and they didnt need new everything since they were turnkey and newly renovated.
Have you visited every city in the midwest and looked for homes in that range?? The midwest is bigger than just Milwaukee
Really? Where are they? A fresh coat of paint is not the same as newly renovated. I hope you did not buy them from a turnkey provider? A full rehab with all major components on a small 1960s property will cost anywhere between 60k and 80k - if you know what you are doing.
Homes have an intrinsic value and that is anchored in the cost of land and the cost of labor and materials. When you look at your property insurance dec page you will see replacement cost for the property that you own in the Midwest. That number is probably in the 350k to 450k range, because the insurance knows that's what it would cost to rebuild it when it burns down. So any time you have a house selling for a fraction of replacement cost, it is because the location dictates a steep discount. You can also build a similar logic argument based on rent and income. What you are describing (a turnkey home in a good neighborhood) is a unicorn. You can
I think it's great that you are successful with your properties, but you are encouraging someone who is totally new to the game to buy an aged property in a low-income neighborhood half a continent away and making it sound like it's easy money and you can make $4k a month (and no expenses). Sorry if I sound harsh, but that's irresponsible.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes11mo
Personally I'd live in the house - no mortgage payment, so you're winning already. Then save your $ (since you'll have no mortgage/rent) and invest in smaller cap stocks. The market is on an absolute tear right now. Invest in anything the government is investing in - DOE is essentially subsidizing some rare earths, nuclear energy. There's a massive undersupply of AI data centers etc. I'd do that personally and let the house appreciate it. Maybe renovate it a bit too.
Cash-out refi would take some analysis - not sure it makes sense to do right now since interest rates will likely be coming down. CA isn't very tenant friendly, so I personally wouldn't invest there either.
- 11moTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
If you inherited the property, I'd suggest selling it (with step up basis) pretty much tax free, toss it into an index fund, and forget it is there. The dirty secret that most people here don't want to say out loud here is that index fund investing returns the same or better than most real estate without any of the hassle.
Here's a fun stat - a 9% annual return, which is reasonable if you re-invest dividends, gets 8x your initial investment in 24 years. I don't know how old you are, how bad you need income, or any other factors, but you need to fight the feeling that you "need to do something with this money." Real estate is far more active and gives a greater sense of accomplishment, but the market is ugly right now. Unless you want to take on heavy rehabs or house hack, I just don't think that it is worth it. Even short term rentals don't actually cash flow in most markets...you can make it look good on paper, but end of year actual numbers do not cash flow until probably year 3. And even then, it's pretty meager. Take the tax free cash, let compound interest do its thing, and forget that it is there.
And don't pay for a course.
- 11moDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Travis Timmons:
If you inherited the property, I'd suggest selling it (with step up basis) pretty much tax free, toss it into an index fund, and forget it is there. The dirty secret that most people here don't want to say out loud here is that index fund investing returns the same or better than most real estate without any of the hassle.
Here's a fun stat - a 9% annual return, which is reasonable if you re-invest dividends, gets 8x your initial investment in 24 years. I don't know how old you are, how bad you need income, or any other factors, but you need to fight the feeling that you "need to do something with this money." Real estate is far more active and gives a greater sense of accomplishment, but the market is ugly right now. Unless you want to take on heavy rehabs or house hack, I just don't think that it is worth it. Even short term rentals don't actually cash flow in most markets...you can make it look good on paper, but end of year actual numbers do not cash flow until probably year 3. And even then, it's pretty meager. Take the tax free cash, let compound interest do its thing, and forget that it is there.
And don't pay for a course.
>The dirty secret that most people here don't want to say out loud here is that index fund investing returns the same or better than most real estate without any of the hassle.
What is the source of the dirty secret. By the way it is not accurate for leveraged property. The average property increase over the last 29 years nationally is ~5.5% (I invite you to verify this). At 80% leverage this would be 27.5% annually from appreciation. Add the cash flow, tax benefits and the average index fund does not come close. Maybe if you have a fund tracking FAANG it probably would beat it over the last decade but I have doubts that even FAANG over 20 years would out produce the return from leverage residential RE.
Note I historically have done brrrr (extracting all of my invested money at the refi) and have over 100% annual return on most of my properties.
Now if you stated that index funds out produce non leverage residential RE it would be close. Take the 5.5% national average appreciation for the last 20 years and add average unleveraged cash flow (if you use the 50% rule and a 0.7% monthly rent ratio) of 4.2% and you are at 9.7% without accounting for the tax benefits. Before the tax benefits, that is fairly close to lifetime S&P, but add the tax benefits and residential RE historically has produced the better return.
Note past performance is not necessarily and indicator of future performance.
I invite anyone to look at these numbers.
Best wishes
- Member since 2020 · 14 posts · 19 votes11moDon't want to sell the house, I just want to leverage it. Can I make 4k a month without selling?
- Investor · Toledo-MetroDetroit-Dallas · Member since 2022 · 122 posts · 71 votes11mo
Quote from @Niko Rossley:
Don't want to sell the house, I just want to leverage it. Can I make 4k a month without selling?@Niko Rossley, I'll let some of the lenders on this forum chime in with if this is possible.
- Member since 2020 · 14 posts · 19 votes11mo
Can I rent it out and take equity out to do your suggestion? I don't want to just sale.
- 11moChristina Scarborough-cuttingPro MemberReseda, Los Angeles · Member since 2018 · 1 post · 0 votes
Quote from @Niko Rossley:
Can I rent it out and take equity out to do your suggestion? I don't want to just sale.
You could rent it out for 3-4k depending on your market, do a DSCR loan on it to have the cash breakeven, and then use the cash for a different purchase and keep scaling. Usually, people advise waiting a year or two before doing anything with an inheritance to give yourself time to assess your priorities. Since you have no taxes due to the inheritance, you could definitely sell it right now to redeploy the funds in literally anything. This is technically unnecessary leverage since you can sell for cash with zero taxes.
- 11moTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
You can't make $4k a month with a $400k house as your starting point. The math does not math at all. Real estate does not pay at all for the first couple of years unless you pay cash for a property. If you want more income, get a job that pays more. If you want income 5-10 years from now, real estate is great if you know what you are doing and are patient.
Oddly enough, a 5% withdrawal rate on $400k in index funds gets you halfway there with no work, no hassle factor, and without draining your bank account.
The cash flow bros on the internet are not pitching a realistic view of real estate investing in 2025. If you need or want income, leave it paid off and rent it. You are not going to come close to $4k per month of actual income with $360-380k of investible cash if you sell it or $300k of leverage at 7-ish% after you refinance.
You're in a great spot here, but don't try to create an outcome that does not fit. And please do not buy cheap, out of state properties in questionable neighborhoods that look great on a spreadsheet. They don't actually make money or go up in value.
I work part time and mostly live off of cash flow from real estate and investments. I've gone through this exercise. You don't have enough money to create $4k in income (unless I am missing something) and real estate in the current market does not pay you well at all. If you want a roadmap to financial independence, I recommend looking into Wes Moss's books and content. You probably need a net worth of $1.5-2M invested in the right places (not 401k/retirement or primary home equity) to get there.
- Member since 2020 · 14 posts · 19 votes11mo
I was responding to what @moe sidd said about the 4k
- 11moKerlous TadresBusiness MemberRealtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
Quote from @Niko Rossley:
I just inherited a house paid off worth 400k. How can I leverage that to make money and start an investment portfolio? It also seems like people put property in LLC's. I'm in California
Also recommended courses plz
Hey Niko, I would do a HELOC if you want to take that money and start putting into investments. Kind of curious to hear what your strategy is afterwards. You still pay a decent interest rate for your HELOC afterwards
Kerlous Tadres | Reafco Real Estate540 Reviews - 11moTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
@Niko Rossley Ah...I missed that regarding the $4k. I think out of state investing in a declining or stagnant rust belt market for "cash flow" is really bad idea. You should look at this windfall and move forward with a "don't lose" strategy rather than making the absolute best investment.
I think that stupid loses more than smart wins. You're in a great spot. Don't screw it up, and if you can live in the place mortgage free, that's life changing, and probably the exact outcome that the family member who left you this house would want.
- Specialist · Member since 2025 · 483 posts · 270 votes11mo
Congrats on the free-and-clear win. In California, think "options, not pressure": either rent it as-is for cash flow, add a light value-add to boost rent, or tap a HELOC/cash-out refi to seed your first 1–2 cash-flowing rentals in a cheaper market while keeping this asset. Don't rush into an LLC just yet; get the first deals done simply, carry strong insurance, then revisit entity structuring with a CPA/attorney as you scale. Next step: define your buy box, get three HELOC and two DSCR quotes, underwrite one real deal with full expenses and reserves, and only pull equity if it still cash flows at today's rates. For learning, pair BiggerPockets forums with a focused course on deal analysis and DSCR lending so you can move from theory to your first offer fast.
- Member since 2020 · 14 posts · 19 votes11mo
Hi @Travis TimmonsIt's in a senior living community.. No can do. I'm thinking of renting it out and doing a Heloc for 120k on a duplex near me.. Maybe in Sacramento or somewhere near me. Theres no mortgage so renters of house will cover Heloc and taxes
New renters will cover duplex mortgage. I don't know
- 11moMelissa JusticeBusiness MemberRental Property Investor · Phoenix, AZ · Member since 2024 · 518 posts · 1k+ votes
Congrats on the inheritance! That’s a fantastic position to be in!
You’re sitting on a paid-off $400K asset, which gives you incredible flexibility to start building a real estate portfolio the right way. Here’s how I’d think about it:
- Leverage the Equity -
- You can do a cash-out refinance or HELOC (up to 70–80% LTV) and use that capital as down payments on multiple cash-flowing rentals in affordable, landlord-friendly markets - think Midwest and Southeast (Birmingham, parts of TX, Memphis, Georgia, Tulsa, Akron & Canton, OH etc.).
- Those markets still offer strong rent-to-price ratios and solid returns, especially if you go the turnkey route.
- Turnkey Strategy -
- If you don’t want to manage full rehabs or remote tenants right away, look into turnkey properties - new builds or fully renovated, tenant-ready homes that cash flow from day one.
- As far as courses go - Rent to Retirement has an Academy that walks you step-by-step through building a portfolio, particularly as a new investor - the course is optional and not required to do to actually invest with homes in that marketplace.
- Bonus: Once you become an Academy member, you get $1,000 back for every property you purchase through that marketplace for life, which can really add up as you scale.
- LLC & Structure -
- For rental properties, yes - LLCs can help with liability protection and bookkeeping.
- Just be careful with your inherited property in CA - transferring it to an LLC could affect your Prop 13 tax base or trigger reassessment. Talk to a CPA or real estate attorney before moving title.
- Keep Learning -
- BiggerPockets Real Estate Rookie Bootcamp
- Rent to Retirement Academy (great if you want to actually take action)
- BP’s “How to Buy Your First Rental” course
- Podcasts: BiggerPockets Rookie + Rent to Retirement Show
You’re in a great spot - your inherited property can be the launchpad for a full portfolio if you use leverage wisely and invest in cash-flowing markets that make sense today, not just emotionally.
Always happy to chat more about what has worked for other investors. Best of luck!
- Leverage the Equity -
- 11moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Niko Rossley:
I just inherited a house paid off worth 400k. How can I leverage that to make money and start an investment portfolio? It also seems like people put property in LLC's. I'm in California
Also recommended courses plz
Hey Niko congrats on the inheritance—that's a really strong position to be in and a great way to jumpstart an investment portfolio. Since the house is paid off and worth around $400K, you've got a few solid options: you can either rent it out and let it produce monthly cash flow while it appreciates, sell it and redeploy the capital into multiple properties to diversify, or pull out some equity through a cash-out refi or HELOC to buy more rentals while still holding the original asset. A lot of investors use an LLC to hold property mainly for liability protection, but that's something to talk through with a CPA or attorney because there are tax and legal considerations, especially in California. If you're serious about getting started, a few great beginner courses and communities can give you a solid foundation, but honestly, hanging out here on BiggerPockets, running numbers, and analyzing deals daily will teach you a lot. Long term, the goal is to make that equity work for you instead of letting it sit. Happy to connect and answer any questions you have!
Jimmy Lieu, Red 1 Realty4.9120 Reviews - Lender · Charleston, SC · Member since 2025 · 35 posts · 4 votes11mo
Hi Niko, from a lending perspective, there are several ways you can leverage the property, especially since it is owned free and clear.
If your income qualifies, you could consider a cash-out refinance through a conventional loan or a Home Equity Line of Credit (HELOC), both of which typically offer favorable rates. Alternatively, if you prefer to qualify without providing traditional income documentation, a Debt Service Coverage Ratio (DSCR) loan may be a suitable option. This type of loan qualifies based on the rental income generated by the property in relation to the proposed mortgage payment.
Based on your goals, it is certainly possible to leverage the property's equity for use elsewhere. The key considerations will be:
How much cash do you need?
Will the rental income sufficiently cover the loan payments for the amount you're seeking? Ex: Does it make sense to take out a $120k loan with $1,000/month payment with rental income of $3,000/month? On paper yes, can the $120k be used elsewhere on another cash flowing property more than likely at the right price.
Would love to connect on any questions you have! - 11moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
As @Travis Timmons mentions, the easy money has passed in real estate back in 2022-23.
Now you have to really work at it to beat a vanilla mutual fund return.
Why don't you try renting out the property as MTR or STR to learn a bit about the industry BEFORE jumping all the way in?
Logical Property Management4.9458 Reviews - Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes11moIf the house is rentable and has good potential, it’s a great idea to make that your first investment if you’re planning to get into real estate investing. Renting it out will give you some hands-on experience in managing a property and help you learn the basics of investing. Is it close to where you live?
Quote from @Niko Rossley:
I just inherited a house paid off worth 400k. How can I leverage that to make money and start an investment portfolio? It also seems like people put property in LLC's. I'm in California
Also recommended courses plz
- 11moDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 979 posts · 643 votes
Hi @Niko Rossley, Congrats on the inheritance. One option is to tap into the equity through a HELOC or a cash out refinance. This allows you to access capital without selling the home, and you can then use those funds to invest in rental properties, diversify into real estate in more affordable markets, or even explore other asset classes like REITs or index funds. Just make sure the return on any investment you pursue exceeds the cost of borrowing. If the property is in a good location, renting it out could also be a smart move.
As for learning, there are some fantastic resources to get you started. BiggerPockets is a great platform their podcast and forum community are packed with actionable advice from real investors. The "Real Estate Rookie" podcast is particularly good if you're just getting started. If you prefer structured learning, look into courses on Udemy like “Fundamentals of Analyzing Real Estate Investments” by Symon He, it's affordable and highly rated. BiggerPockets also offers paid bootcamps that walk you through deals step-by-step.
Overall, you’re in an excellent spot. Take your time to build a solid foundation, connect with experienced investors, and get clear on your goals, whether that’s cash flow, appreciation, or financial freedom. Happy to help if you ever want to bounce around ideas or dig deeper into a strategy.
Spark Rental Co-Investing Club577 Reviews - 11moDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
It is unfortunate that it is in a senior living community and that you cannot owner coups it. Around 5 years ago the state changed the inheritance rules so that the property 13 benefit only stays with the property if the child of the deceased moves into the property (there are a couple other exceptions such as agriculture/farm that do not apply). This means you property tax is.likely going to jump.
With the stepped up basis, there will be no gains tax if you sold. However, there likely will be a 7% to 10% cost to selling.
However, I doubt this is the best investment property. A small MF is likely to have better cash flow and similar appreciation.
By the way you cannot get $4k/montn real cash flow with a $400k investment and I challenge anyone to post underwriting that depicts otherwise. Unleveraged realistic LTR cash flow is likely 4% to 5% (closer to 4% in the large coastal CA cities). This unleveraged approach will drastically diminish your overall gain.
My recommendation is you sell and educate on your best options with the proceeds. RE investing is more challenging than a few years ago. Residential RE is not passive. Alternative rent models are even less passive that LTR. RE Investing is not the best option for everyone. In fact at this time it may not be the best option for most people.
good luck - Rental Property Investor · Member since 2018 · 826 posts · 810 votes11mo
I’m 100% aligned with Dan here. I don’t think this is a good rental property given senior living community. You also lose a big advantage by giving up the original property tax basis.
I vote for selling the stepped-up property and investing the funds after you’ve educated yourself. Part of the education is understanding investment fundamentals - yields are a function of risk, effort and barriers to entry. You cannot achieve higher returns without any of the 3 factors above in an efficient market. Anyone who sells you otherwise on that dream are simply selling you.
It’s likely you can achieve higher returns in the Midwest, but it’ll cost you risk and/or effort (certainly no barrier to entry there). Only you can determine if that risk and/or effort is worth it.
FWIW, I have investments in all regions of the country. My highest returns are from the CA assets, but it’s because the barrier to entry is high and it has regulatory risk as well.
Tbh, if you're a newbie in this space, the odds of you being a successful real estate investor with an inherited property are very low. You need to be motivated to make REI work. I think you're better off putting the sales proceed into an index fund.
- 11moJoseph TadresPro MemberReal Estate Agent · Columbus, OH · Member since 2025 · 184 posts · 179 votes
Hey Niko, sorry for your loss. I would sell it if I were not going to live in it. Another option is to live in it and have some friends live with you who pay rent. I'd also consider selling it and buying multiple properties in smaller markets.
- 11moAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
Niko - I would start by getting the property appraised soon for a couple reasons: (1) the fmv at date of death is going to be your basis; (2) you will need an appraisal anyway if you're looking to refinance
The question whether to hold onto the property and refinance or sell. Assuming you can get out $300k, what does the cash flow look like? Given that it's California, break even to slightly positive cash flow would be fine by me. If it doesnt cash flow, you may want to consider holding onto selling the property (there's likely going to be minimal tax impact)
Brick House CPAs53 Reviews - 11moTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
@Dan H. I agree that leverage + appreciation that real estate offers is a better investment than index funds if we assume historical averages for both. Also using leverage to get in and out of deals to make an outsized return beats boring index fund investing as well. Same goes for tax benefits...I'm on my 3rd live in flip and have done cost segs/bonus depreciation for STRs. The tax savings are real and they're spectacular.
The point that I am trying to make is that for someone who has never invested in real estate, $360-380k compounding at 9% is probably going to outperform using a $300k to try their hand at real estate investing. It's a tough market that requires some pain, heavy lifting, patience, and/or inconvenience to get a worthwhile return.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes11mo
Quote from @Travis Timmons:
@Dan H. I agree that leverage + appreciation that real estate offers is a better investment than index funds if we assume historical averages for both. Also using leverage to get in and out of deals to make an outsized return beats boring index fund investing as well. Same goes for tax benefits...I'm on my 3rd live in flip and have done cost segs/bonus depreciation for STRs. The tax savings are real and they're spectacular.
The point that I am trying to make is that for someone who has never invested in real estate, $360-380k compounding at 9% is probably going to outperform using a $300k to try their hand at real estate investing. It's a tough market that requires some pain, heavy lifting, patience, and/or inconvenience to get a worthwhile return.
The difference between your two points is having an operator who knows what he's doing. Of course, an experienced investor can outperform the stock market with a leveraged investment, but the OP says "Newbie". The concern here is that Niko rents out the place and gets it trashed and then spends the next 3 years trying to evict a tenant under CA landlord tenant law...
- 11moAlan AsriantsBusiness MemberReal Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
Im pretty sure in California if you were to transfer the property to LLC you could trigger a reassessment for your taxes that could cause them to drastically increase.
Consider getting in touch with a solid RE agent with investing experience and see what they have to say.
You have a couple options: Keep it free and clear and rent it out - benefitting from larger cash flow
If it needs some work - take out a small loan again the property to rehab it to rent redi and top market condition
Pull some money out and repurpose it to another property.
Truthfully for someone just starting out, its best for you to try to operate this one property as a rental. Again hire a solid agent that can guide you and help you with - finding a solid tenant, drafting a lease, getting property ready according to local rental laws etc
Once you have this property up and running then consider pulling money out. Again if the property needs work, you might need to pull out some cash first to renovate. Consult some local professionals first. If you need referrals lmk. Good luck
Alan Asriants - New Century Real Estate 590 Reviews - Real Estate Broker · San Diego, CA · Member since 2016 · 187 posts · 117 votes11mo
I'm not into rough neighborhoods. Buy box: C+, B- neighborhoods, 2br-1ba or 3br-2ba. 900 to 1100 sqft if thats possible.
Only issue I have with Michigan now is their property taxes. They have on of the highest rates in the country, totally bites into your cash flow. I bought all of my rentals in Lansing in 2013 so it's not as bad as it could be if I had bought in the last 2 to 4 years but it's still bad!.
I self-manage so my other problem I have is putting together a crew in a different market to handle all of my maintenance calls.
With all of that said, I'm on pause right now with picking up another rental. This market is weird right now. I'm looking to learn more about the note business.
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