The Right Investment Strategy

14 Replies

Here's the scenario, If you had $40k cash to start investing in Dallas, Texas area real estate with a goal of acquiring $1 Million of property over the next 2-3 years, what would your strategy be? I'd love to know what kinds of property you'd target, how you would leverage your financing and cash to make multiple purchases, and any other general strategy ideas you would suggest. 

Thank you!

I think it's different for everyone. Experience has a lot to do with the types of choices I've made and why. I would have never known to be in the niche I'm in without the experiences I encountered. 

Many who answer the question will probably talk from the experiences they've had. There are definitely several paths to success in real estate investing!  

Thank you Rachel. For a new investor, the options are overwhelming for where to invest first. I'd love to hear about some good strategies from different property and finance perspectives as I explore what direction I will take.

Hi @Jason Jones , and welcome to BP

I think you'd get alot more valuable advice from the people here if you share some more details of your situation.

You mentioned 40k cash available now, but to own $1M in properties you'd need anywhere between 100k-300k investable. Can you save up that amount in your 2-3 year timeframe, or will you need to walk into the equity another way (adding value)

Two other variables that will be quite important, is your amount of free time, and risk tolerance level.

Finally, it would be great if you fleshed out your goals with REI a little more. Having a specific number such as $1M in 2-3 years is great, because it sets a target to measure yourself against (mine is 100 doors in 5 years). On the other hand, the dollar value alone is a bit vague - you can buy a single $1M McMansion, or 10 100k SFRs, or a few quads or a small 5+ MFH - each of these will have different tradeoffs between amount of work require, returns, stability and risk, etc.

I think we're in the same boat in many ways. My plan personally is to start with a few buy and hold deals to gain experience while at the same time exploring forced appreciation type plays to leverage OPM to build my own available capital. Another option to trade your time for rapid capital growth is via flipping.

Hope this helps!

Cheers

-D

@Dmitri L Thank you for your response. My initial thinking is that I will target single family homes with a ARV or 130-150k at roughly 70% below + Repair costs. Therefore should have enough to put 15-20% down on two home this year with the amount of money I have to use for REI. Will use some sweat equity and some reserve funds for fixing up property and then rent for cash-flow. This is when I get a bit fuzzy... How do I get funds for more purchases.

I have heard of people doing cash-out refies on their properties to buy additional properties. So in my case I'd refi both houses (hoping I have enough equity) to fund the purchase of two more properties. Then do the same thing again a couple of more times. In three years I could have 6-8 homes all worth 170-180k each (with appreciation) which could get me to the $1 mil goal.

Does this strategy work well for people? Other strategy or property niches I should consider. What do I need to consider? Wondering if this property niche is too tight. I am targeting north Dallas suburbs which is currently in a sellers market and homes are appreciating well.

This post has been removed.

I think your most profitable flips right now in DFW are absolutely in the $250 - $400k ARV range, located in the hot school districts I continue to tout...Richardson, Grapevine/Colleyville, Fisco & Plano. Those areas aren't as great for buy & hold, in terms of meeting the 2% rule or coming close to it. On the other hand, some moderate school districts where the ARV's are slightly lower, but rents remain strong are Garland, HEB, Keller, North Richland Hills, SW Arlington & some of the smaller communities north of Dallas.

@Jason Jones  don't forget about cash flow. You may want a portfolio worth $1 M but if you're not cash flowing then that's not really wealth is it?

@Jason Jones  @Rachel H.  @Leon Yang  @Stan Hill  

Great question, Jason. Like Rachel writes, sometimes a strategy will change based upon one's experiences. For example, I've transitioned from buy and hold to JV rehabs that my money is in and out of in about 4- 5 months, and then off to another....

This is a great site to bounce those strategies of of others, though!

Thank you everyone for the feedback and ideas. 

@Hattie Dizmond 

I'm finding exactly what you are talking about. I'd like to keep my rentals fairly close so I'd focus on the Plano, Richardson, Carrollton, McKinney areas, but as you say its far from the 2% rule and l likely only above 1% when buy significantly below market value fixing up a bit and then renting at roughly 1% of market. It does seem that rent is increasing substantially in the north dallas area as home prices do. The data seems to point to good numbers with the strategy I outlined early buying ARV 150k in the 110-120k range spending 5-10 to fix and then renting for $1500 monthly. Will meet the 50% rule and meets a huge need for the middle class with a solid job and family (responsible, paying renters who want good neighborhood and good schools). This probably matches my personality better than doing low-income housing or larger 300k+.

What am I not thinking about? What are the holes in my strategy related to both Buy-and -Hold and funding via cash-out refis?

@ James Burch 

I like the JV but feel I don't have the confidence or experience yet to move this direction. I'd like to eventually when I get a feel of rehabbing a few places.

Can someone tell me what I am doing wrong with tagging people? I doesn't highlight in blue when I try to tag. 

@Jason Jones  

you're probably doing what I did at first, which is just type the "@" sign followed by their name and keep typing.  Just type the @ symbol, followed by the first few letters of their name, then look below the "Post a Reply" text box.  The user name, with their profile picture should pop up below the left-hand corner of the box.  Click on the user you're trying to tag.  Bingo...blue highlight!

Originally posted by @Jason Jones:

Here's the scenario, If you had $40k cash to start investing in Dallas, Texas area real estate with a goal of acquiring $1 Million of property over the next 2-3 years, what would your strategy be? I'd love to know what kinds of property you'd target, how you would leverage your financing and cash to make multiple purchases, and any other general strategy ideas you would suggest. 

Thank you!

 You need to first think about the fact that we are far from the bottom of the current real estate cycle. Hopefully we are not at the top, but are we likely to get there in the next few years.  That means that your $1 million may quickly become $700k or even less, and that will be particularly painful if you are overleveraged. I think it will be difficult for you to reach $1 million in assets in a few years starting with $40k in the bank without being overleveraged.    

In other words don't be in a huge rush, slow down and find deals that are truly good deal don't do deals just to be doing a deal.   Been there done that and lost a lot of paper assets during the last cycle downturn, but since I wasn't overleveraged it didn't come back to bite me near as badly as it did many other real estate investors.  

@Hattie Dizmond

Thank you for the tutorial. Look, I did it!!

@Cal C.

I appreciate you sharing your wisdom. I'll definitely keep this in mind. Thank you!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here