Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
Hi, I started real estate investing this year about two months ago as I needed some investment to increase value in my 401k. I've attended a couple of workshops and I'm now the proud owner of two SFH rentals with one rented and the other about to rent. I had thought that doing some flipping on homes in Phoenix area would be a good way to build funds to invest in further rentals. But I'm told by people that I trust that there's really not much market. People that are doing well in it are doing the rehab themselves, being very choosy about what they work and great negotiating the resale.
General question for you, I'll likely work for another 10 years before retiring (I'm not working now and haven't for a year). I have about 200K more that I can invest in SFH for rental or flip or some other avenue. What would you suggest?
My advice would be to leverage that $200k using hard money and buy more rentals. Hold them and when they are cash flowing, use them as leverage to purchase more rentals and even flips if you can find a good deal. There are good flip deals out there but you need to be patient. While you wait, go for the rental holds and keep building equity. Slow growth is always better than no growth.
My advice would be to leverage that $200k using hard money and buy more rentals. Hold them and when they are cash flowing, use them as leverage to purchase more rentals and even flips if you can find a good deal. There are good flip deals out there but you need to be patient. While you wait, go for the rental holds and keep building equity. Slow growth is always better than no growth.
Lender · Peabody, MA · Member since 2015 · 82 posts · 49 votes
10y
200k is a lot of money to have free and clear. I would go to some local meet ups or reiclubs and try to network with other local investors. Phoenix has lots of investors and good market for buy and hold and fix and flips. With that much money available maybe other investors bring deals to you or you can joint venture with someone you trust. If you plan on working another 10 years buy and holds might suit you better. Phoenix is showing good appreciation right now so in 10 years you could cash out and retire comfortably or hire a property manager and enjoy the monthly cash flow and hand over an empire to your family.
Investor · Phoenix, AZ · Member since 2015 · 37 posts · 14 votes
10y
I'm a firm believer in knowing your finish line- what do you need that 200k to grow to? Rule of 72- asset will double in the time of 72/interest (investment yield). So if you're getting 10%, the 200 will be 400 in 7.2 years, about 471k in 10 years. Is that enough? If it is you can get that return with stocks or promissory notes. If not you need to get more aggressive. If you want real estate for the appreciation potential, bear in mind appreciation is sometimes negative. Play with the spreadsheets and work your solutions.
What is the source of the 200k? Did you move 401k money into a self-directed IRA? Excellent move.
Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
10y
Hi, Thanks for the advice. I moved 401k funds to a solo 401k. It seemed to have better options than just mutual or stock funds and better than a self directed IRA. With the solo 401k, I have more options available and less in fees.
In theory the stock market is paying 8% or better. Its a matter of timing and luck. @Fred Boyd good point on the appreciation sometimes being negative. I'd have loved to have bought in 2010 when the prices were half what they are now but in 2008 the prices for RE were higher than they are now. It doesn't always go up or down. The hope of course is that we're not close to the top now. RE seemed a good investment with a more positive cash flow than stocks. According to the professionals at least rent seems to go up all be it slowly.
Investor · Phoenix, AZ · Member since 2015 · 37 posts · 14 votes
10y
Craig-
Have you joined AZREIA? It's a great group and Allan does a wonderful job of keeping us updated on the Phoenix market. If you decide to join, please mention my name and I get 2 months added to my membership- they're having a membership drive right now.
I really like promissory notes for people in our age group- reliable payment stream with good ROI. If you're interested I'd be happy to discuss it with you. Have PM'd a connection request.
Investor · Tampa, FL · Member since 2012 · 94 posts · 26 votes
10y
Search for articles from Jeff Brown and Dave Van Horn, they have written a ton about note investing. Both can help you find notes also. Be careful when buying notes. Great investment but you need quality.
Investor · Clayton , NC · Member since 2012 · 63 posts · 86 votes
10y
Craig - since the money is inside of a Solo 401k you will want to be careful about using those funds for flipping activity. You can do it the activity inside the 401k, but you will need to outsource any and all work or you will risk triggering Unrelated Business Income Tax (UBIT).
If you really want to do a Flip with those funds you should consider borrowing from your Solo k to fund the project.
Just search Solo 401k on this site and you will find plenty of expert material.
Note buying is a fairly safe way to get returns higher than investing in the Stock Market.
My question is, how much risk are you willing to take?
I do not know the AZ market at all, but duplexes and triplexes sometimes can get you a decent ROI if you buy and hold. Also, if you have a vacancy, you still have some income coming in from the other half or units. If the property needs improving, could always improve a unit when the lease is up. Then you can raise the rent. It might take 1-2 years, but if you improve the property and make it more desirable than the other duplexes on the market, you could sell it for a decent profit. Not near as fast as a typical flip but can be a way to go to the next level of investing.
Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
10y
@Fred Boyd@Mike T.@Drew Cameron . I haven't joined any of the groups yet. I'll join some of the discussions and see what's available. I'll mention your name Fred. Thanks for the tips on reading.
I've been on a steep learning curve the last couple of months and am just now finding how much I don't know. The various blogs on Bigger Pockets and podcasts have been good learning. The next thing I want to do is determine how much rent to charge for 2nd house purchase.
As far as the amount I need to hit retirement, that's a good question. I've been able to eliminate all my debt so it's just living expenses now. I've played the commodities market and that was good until about 2013 and I've done some stocks and mutual funds but not doing so well there right now.
I'll have to check out the notes and possible investment opportunities.
Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
10y
@Jay Raught sounds like an interesting proposition. I'll have to follow-up on it after this round of learning. :-) I feel like I'm back in college trying to cram a lot into a too tight skull. Thanks!!!
Investor · Newark, DE · Member since 2015 · 248 posts · 178 votes
10y
@Craig Stephens It is like being in college, the learning never stops! I just prefer the cash flow that way, if the toilet or washer break. I do not know!!!
Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
10y
@John Upperman - thanks I appreciate the reminder on not being able to do any work myself within the solo 401k. The UBIT tax is pretty extreme if its triggered.
Investor · Mesa, AZ · Member since 2016 · 37 posts · 6 votes
10y
@Robert Blanchard . I haven't done flips yet. I really don't have the background knowledge for contracting and estimating the work. I've just done two buys and hold (rent). I want to look into Notes over the next month. So I'll be asking questions after I get some basic knowledge. I've got a 4 day real estate conference (Brandon Broadwater's Higher Laws in St George UT coming up and then onto Notes.