How should I invest 200k?

28 Replies

I'm located in Dallas, I've been looking at several different options..mutual funds, multi-family, apartments, or franchising. I have access to the VA Home Loan, but there's a lack of multi-family properties in my price range that I'd be willing to live in (approved for $685k months ago). I have no experience in apartments, and I've heard the loan process for those is a completely different animal. I'm not too fond of my job, so I've been looking into franchise resales. Mutual funds have worked well for me, but I'm exploring my options for better returns.

Any input would be greatly appreciated. 

@Michael Nieves , I'd lean towards looking for a property (even an SFR) that SHOULD be worth $1M+ due to surrounding sold comps, but because it's the worst house in the street, it's only going for $685k (for example). Then, you've still got $200k to get into it with some high end finishes etc. Voila! In one year, you'd be adding $100k+ to your net worth!

That's equivalent to a CoC return of 50%+. (Just a thought). Thank you for your service. All the best...

Originally posted by @Brent Coombs :

@Michael Nieves, I'd lean towards looking for a property (even an SFR) that SHOULD be worth $1M+ due to surrounding sold comps, but because it's the worst house in the street, it's only going for $685k (for example). Then, you've still got $200k to get into it with some high end finishes etc. Voila! In one year, you'd be adding $100k+ to your net worth!

That's equivalent to a CoC return of 50%+. (Just a thought). Thank you for your service. All the best...

Great thought, the only issue is that properties get snatched up fast here in the Dallas area and I don't think I'll be working with my current partners after this sale

Another option is HML. I would investigate your state laws and see what you can and cannot do. Returns can be substantial and you won't have to deal with tenants.

Originally posted by @John Thedford :

Another option is HML. I would investigate your state laws and see what you can and cannot do. Returns can be substantial and you won't have to deal with tenants.

I'm definitely curious about that, what kind of returns do they see? I have an associate who under writes or something of the sort

Returns will vary. Different states have different usury laws. I don't know TX law and only lend in FL.

@Michael Nieves What is your ultimate goal? How much work are you willing to put in?

1. you could loan the 200k to other investors in short-term loans. This only requires vetting the property, math, and investor. This also helps guarantee your money more than being a partner. Being partner means you also except a loss whereas a loan puts the borrower on the hook for the full amount plus the interest or allows you to foreclose.

2. Flip, this requires the knowledge and work finding the deal and managing the deal. Also, the guts to pull the trigger. Here you accept full responsibility.

3. JV on a flip. This requires the guts and allows you to learn while being paid at the same time from a more experienced investor.

4. Multi-Family, this requires the knowledge and time to manage either the property manager or the property yourself. Also, requires the footwork for loans and finding the deal.

5. Note investing for long-term loans. this requires the knowledge of the space as well as the footwork of vetting the borrower and property.

6. Long-term partnership. Partnering with another investor on a property for the long term allows you to learn while being paid.

Let me know if there is anything else I can do to help.

Originally posted by @Sean Carroll :

@Michael Nieves What is your ultimate goal? How much work are you willing to put in?

1. you could loan the 200k to other investors in short-term loans. This only requires vetting the property, math, and investor. This also helps guarantee your money more than being a partner. Being partner means you also except a loss whereas a loan puts the borrower on the hook for the full amount plus the interest or allows you to foreclose.

2. Flip, this requires the knowledge and work finding the deal and managing the deal. Also, the guts to pull the trigger. Here you accept full responsibility.

3. JV on a flip. This requires the guts and allows you to learn while being paid at the same time from a more experienced investor.

4. Multi-Family, this requires the knowledge and time to manage either the property manager or the property yourself. Also, requires the footwork for loans and finding the deal.

5. Note investing for long-term loans. this requires the knowledge of the space as well as the footwork of vetting the borrower and property.

6. Long-term partnership. Partnering with another investor on a property for the long term allows you to learn while being paid.

Let me know if there is anything else I can do to help.

I'm not too sure I'm interested in the sweat equity in real estate, I was rarely at the property for this flip and was mostly just the partner with capital. I did have a partnership but had a dispute over contractual things. Lending seems to be more up my ally but I don't have the knowledge to analyze such deals yet. Multi-family may be out of the question since the properties here in Dallas are so expensive that I'm only approved for 1 property which I'll end up doing with my VA Loan to avoid using capital.

What worked for me is to get a real estate agent to write up a sales contract for you for a set fee. I was able to get this because where I live a real estate agent has to work under a broker for 1 year to become a broker themselves. My agent was looking to establish himself, so he wrote the sales contract for $500. We found our own buyer through word of mouth and we were able to get wholesale pricing AND no real estate commission. Now I'm currently in the process of flipping the unit and we have a deal with this real estate agent trying to establish himself. He will represent us as a sellers agent for a commission 1% below anyone else will touch in the area.

Once me and my partner sell this post-flip, we'll be able to throw that capital as a larger seed for the next project, which is what also entices our real estate agent to give us a sales break. It's all about the relationship. What do you have that someone wants?

I'm not sure if I'm over-analyzing, but unless you're doing a large-scale operation, it becomes infinitely more difficult to at least not have a part in the flip itself. So when you say you aren't interested in sweat equity in real estate, my mindset is that you go and make your money on the purchase price/situation, and work hard (to at least help) in the renovations to either increase rental income for a positive cash flow, or to sell at a higher market price dictated by your perceived increase in value on a property. As such, I would find a single family residence with the goal to have more than $200k to go for a multi family residence down the road - if you can pull it off. I would also try to find said real estate deals from reaching out there and finding property owners looking to sell before they list with an agent.

Sorry for the rambling - hope it helps.

@Mindy Jensen

The question is asked a LOT. I have 200 - 500k what should I do? Invariably some number of people always come back with Get into hard money lending. 

When you look on "site:biggerpockets.com start hard money" on google there are random pieces of information but there is no blogs, no books, no pod casts so these comments don't really provide much insight into how it's supposed to work if you're getting started. 

If there are administrative fees with the lending attorney, and then there are recovery overhead reserves in the case that someone buys a property and doesn't finish the flip where you need to foreclose on the property. What guidelines should one use?

10-20k for lawyer fees (licenses, contracts and such )  

50-100k for recovery reserves ( to fight to get your money back ) OR is this in the form of 15+% of the deal 

Either way that would reduce the initial capital available from 200k down to 130k on the high side to about 100 on the lower side. If you only had 130k would you be able to find a borrower without to much pain or wasted effort? 

The point is that for this particular subject this is a gap opportunity for biggerpockets 

Michael,

Sounds like you like MF apartments but not crazy about actively managing them.  You can be passive as a limited partner.  Syndications may focus on MF apartments and are seeking limited partners like yourself who appreciate the benefits of investing in apartments but don't have the time, skill, money to invest in say a 200-300 unit apartment.  See blog links below on why I like investing in large apartments and 25 FAQs on syndications.  Many of these types of offerings require accredited investor status so if you qualify great, if not, you'll have to hunt around for specific syndicates / deals that will allow some number of non accredited investors. 

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/65780-syn...

I agree 100% with @David Thompson .

That being said, since your question is "How should I invest 200K?"and nothing about real estate, I'm going to move away from real estate and make a different suggestion - look at low cost index funds that hold all S&P 500 companies. Mutual funds tend to have much higher fees that index funds. Studies have shown that two investors, starting at a young age, both with $100K to invest, the only difference being that one investor pays 1% in fees while the other pays 2% in fees, could be the difference of 10 years worth of retirement income!!!

VFINX and VOO are popular ones among the worlds elite financial experts, check them out.

Disclaimer: I'm not a financial advisor :)

Originally posted by @Michael Nieves :
Originally posted by @Brent Coombs:

@Michael Nieves, I'd lean towards looking for a property (even an SFR) that SHOULD be worth $1M+ due to surrounding sold comps, but because it's the worst house in the street, it's only going for $685k (for example). Then, you've still got $200k to get into it with some high end finishes etc. Voila! In one year, you'd be adding $100k+ to your net worth!

That's equivalent to a CoC return of 50%+. (Just a thought). Thank you for your service. All the best...

Great thought, the only issue is that properties get snatched up fast here in the Dallas area and I don't think I'll be working with my current partners after this sale

There seems to be a lot more behind "this sale" than we've been told about. Reading between the lines, has the experience tempted you to never do it again like that? But, have you honed into just why the results might be less-than-optimal? Is it just about personality clashes? Or, who's boss? Or, did some of your guesses prove to be wrong? Funding cost more? Sale price too optimistic? Unacceptable rehab costs/delays?

But, if you put that making-money-method behind you, might you be "throwing out the baby with the bath water"?

So, you can't make money as a Flipper in the Dallas area anymore, because "properties get snatched up fast"? Boohoo.

Somewhere, you mentioned your non-interest in "sweat equity". But, both Flipping and BRRRR can be passive. You just have to have the right Contractors and Designers and Deal-spotters on your team! All the best...

Originally posted by @Brent Coombs :
Originally posted by @Michael Nieves:
Originally posted by @Brent Coombs:

@Michael Nieves, I'd lean towards looking for a property (even an SFR) that SHOULD be worth $1M+ due to surrounding sold comps, but because it's the worst house in the street, it's only going for $685k (for example). Then, you've still got $200k to get into it with some high end finishes etc. Voila! In one year, you'd be adding $100k+ to your net worth!

That's equivalent to a CoC return of 50%+. (Just a thought). Thank you for your service. All the best...

Great thought, the only issue is that properties get snatched up fast here in the Dallas area and I don't think I'll be working with my current partners after this sale

There seems to be a lot more behind "this sale" than we've been told about. Reading between the lines, has the experience tempted you to never do it again like that? But, have you honed into just why the results might be less-than-optimal? Is it just about personality clashes? Or, who's boss? Or, did some of your guesses prove to be wrong? Funding cost more? Sale price too optimistic? Unacceptable rehab costs/delays?

But, if you put that making-money-method behind you, might you be "throwing out the baby with the bath water"?

So, you can't make money as a Flipper in the Dallas area anymore, because "properties get snatched up fast"? Boohoo.

Somewhere, you mentioned your non-interest in "sweat equity". But, both Flipping and BRRRR can be passive. You just have to have the right Contractors and Designers and Deal-spotters on your team! All the best...

There was an issue with getting things in writing, the partners were very hesitant about having an attorney write up that I shall be repayed my initial investment plus our split upon sale. I had nothing to protect myself and they became hostile once I pushed for it

@Michael Nieves Sounds like you are looking more for a passive investment and don't have much of an interest in being an active real estate entrepreneur.

If that's the case and you want to diversify your investment portfolio with real estate holdings, I would look into commercial real estate syndications. There are a lot of opportunities out there, and with the relaxed SEC regulations, they are easier to find through crowd funding platforms (if you are an accredited investor).

I'm meeting w/ a high end real estate agent this week. He's mentioned commercial real estate syndications. Any one had experience with this? I've in the process of selling one of my rentals. I walk w/ 179 cash. I'd love to do a 600-800 multi family somewhere else other than CA (!) but not much luck finding. Target markets Indianapolis, Atlanta and maybe TN. Current Loopnet offerings seem to be the leftovers (low CAP, weird properties, bad locations, etc). I've called several brokers and will continue to do this. No interest in HML so looking for options. Syndication? I like actively participating in RE. I have Vanguard invests but RE puts money in the bank monthly.

Ok should have looked first. BP full explanation. Since (so far) I can't find a MU, maybe its an option altho I'd still rather be an active participant. Any one w/ experience?

@Jim Watson happy to chat sometime. We syndicate in IN and OH.  Bottom line; you won't find the deals we do on your own and small mfam doesn't have the same consistent returns you can achieve with scale. Happy to share the pro's and con's of syndication IF you qualify as accredited. :)

@Jim Watson I've invested in syndications. My experience has been they are usually as close to passive as you can get. That's the appeal. I haven't seen many that offer "active" participation although I suppose you should clarify - I'm assuming you mean you want to be part of decisions? Or at least looped in on them? 

Sounds like you may just want to find some investors with similar interests, partner on a deal and form your own company and move forward investing like that. 

My wife and I have a friends and family investment on a retail strip center where we offered looping investors in and/or giving them play by play of what we are doing so they can learn. That appealed to a few of them. But once we move into syndication it'll be more hands off. 

Let me know if you have any questions. 

Originally posted by @Andrew Herrig :

@Michael Nieves Sounds like you are looking more for a passive investment and don't have much of an interest in being an active real estate entrepreneur.

If that's the case and you want to diversify your investment portfolio with real estate holdings, I would look into commercial real estate syndications. There are a lot of opportunities out there, and with the relaxed SEC regulations, they are easier to find through crowd funding platforms (if you are an accredited investor).

I'd say you're correct. Real Estate doesn't spark my interest as much as Stocks do, but I like to explore my options.

I'm sure I could find the answer myself on Google, but I find answers here are more dumb'd down and realistic. How does one become an accredited investor? What kind of returns can one expect from Commercial Real Estate Syndications?

http://www.investopedia.com/terms/a/accreditedinvestor.asp

I can only answer the question for myself, but with 200K at my disposal, I'm mainly interested in making that money grow at an insane rate without too much active management. I would personally go into Note Investing. 

@Jason Carter Thanks for the good suggests. Yeah I want to actively participate. Since my last post, I've found a credit partner and one passive investor that wants to learn. More passive investors is the game plan. Talked to CBRE and we're good on a Freddie Small Balance (1-6).  Like Ivan said, the hard part is finding the a good deal on smaller MU's in today's market. Good luck w/ the retail strip center. Hope that's going well. 

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