After a year of vague forum posts, let's get personal.
My wife and I have 100K. No debt.
We rent a townhouse, at $1,700 a month in Orange County, California. Currently we make a combined $160k.
Our end goal is to have relatively passive income of ~$10k a month. (if possible)
We have thrown around the idea of buying a house in Cali (~400 to 450k), and (if possible) simultaneously a tri or quad in another state. Our target price for the income property is ~250k which would make our down payment about 65k.
If we go FHA on our home back in Cali, we could be looking at a down payment of around 15k. Taxes, closing costs on both properties might wipe out our 100k.
I'm tired of speculating and guessing in my own head. What do you all think? What steps should we take? Should we scrap the buy and hold ideology?
You have $100k cash, no debt and $160k combined annual income.
Why would you scratch the idea of buy and hold?
You are far ahead of most from a financial aspect to start building a portfolio.
We don't want to start careers in Real Estate. We want to be able to retire and travel; knowing that our investments will continue to provide returns every month. Buy and hold seems like a great opportunity to turn our 100k into a retirement account.
What do you suggest?
I probably should have mentioned before that I want to change jobs. I am possibly going to start a new field that would make our income more like 100k annually. So getting loans with those new figures could be more difficult.
If you have 100k and your paying rent you should probably buy a house for yourself.
If you want to get into passive income buy a duplex or triplex and live in it a while.
I’d buy a bunch of rentals (probably out of state) and/or invest in a syndication.
Your rent seems a bit high, so maybe also buy a primary residence.
You might consider hard money lending. it is passive income and should net 10-12%. No renters to deal with or repairs to make on weekends when you could spend time with family. If you don't need the income now you can roll the profits over and grow the 100K . You lose some tax advantages but gain more quality time.
choice 1 buy SFH for 100K rent for $850 month = $10,200 minus $3000 in taxes /insurance /repairs = $7200.00*
choice 2 lend 100K at 10% interest only = $12,000 (no rent / insurance / repairs) -$3000 taxes = $9000
* values based on properties in my area.
Never thought about it. I'll have to do the research. Thanks!
I ended up house hacking a 4-unit with an FHA loan in Santa Clarita and used the extra cash (since I only had to put 3.5% down on the 4-unit) to buy an SFR in Kern County from a distressed seller.
Good luck and feel free to reach out with any questions.
Agree. Consider hard money lending. Beware of out of state buying. Managers will rape you with mgt fees. I don’t care what a time says. Logistical nightmare. Consider hard money lending. Keep control of you money as best you can.
@Jacob Abuata Going only based off your post, I would suggest that to first ascertain your goals and objectives. In particular, you said you want to get passive income, don't want to start a career in the real estate industry but might consider investing out of state (as Cali is expensive).
But investing out of state carries it own set of risks and you might be sucked into buying yourself a second job. That's not always the case just saying, if traveling and enjoying truly passive income is your goal (without making a career in real estate), the investing out of state might not be the best fit, especially since you have limited real estate investing experience.
I would recommend attending your local REIA and real estate meetup events. You can network with local investors and understand how they're positioning their incomes and portfolios.
You are lucky to have zero debt and a decent income. Don't rush into things, take a step back and educate yourself a little more.
It's super easy to get into a deal but a PITA to get out of one.
Best of luck!
@Jacob Abuata Since, you guys are not really interested in careers in real estate. Find a really good partner in the market you are considering and determine what asset class you like (this will require some research from your end).
After you do that, you must visit that market and the partner to see if you have flow with that partner and share similar values.
Hope this helps. Goodluck. Thanks! - Ola
@Jacob Abuata From your description of your goals, it sounds like a turnkey provider may be best for you. There are a TON of companies out there, and a lot less good ones. The other idea someone else said, hard money lending. Except, again keeping your passive income goals in mind, put some of that 100k with a reputable hard money lender and let them do the hard work of sourcing it and managing projects, etc... Again, can't stress enough how important it is to do homework on the companies before giving them your money. But you're on here and have 100k with 0 debt, you probably don't need to be told that lol.
If you would like some ideas of companies in each field pm me, I don't think I can put them on here. Good Luck!!
@Jacob Abuata I would consider a live in flip for your first purchase as you can get equity and at some point down the road claim rental income. I am confused of your goal, is your goal to travel the world or to get 10k of income, or is 10k of income what you think you will need to travel the world? The reason why I ask is because I know people who do it with far less just by downgrading their lifestyle, and turning their residence into an AirBNB rental when they are gone. I would start with why do you really need the money, and then go from there. A number of years ago I rented an AirBNB rental from a woman on AirBNB, and I recently checked out her profile and it turns out she has rentals all over the world now that allow her to travel all over. She has no income outside of AirBNB but she is able to go all over the world because she just blocks off dates on the calendar for her rentals. I would reverse engineer the goals to see what gets you there most. If you set multiple goals then that will cloudy your strategy, focus on the one goal that will make you happiest and go from there. I think you are having trouble figuring out which one you want to do because you are unsure of your goal.
Since you’re local, I would invest in 1 or 2bd apartment in Long Beach. Lots of opportunity for passive income. Will PM to connect.
@Jacob Abuata When people say you could become a hard money lender they are probably meaning becoming a private money lender. The difference is a hard money lender is a professional lender. They are in the business of lending money and they often have employees who they pay to qualify borrowers and to lend their money. They usually have their own docs that they use that are prepared by lawyers and that follow certain legal regulations. A private money lender is usually less sophisticated and often knows the borrower personally and uses more generic docs and they don't tend to lend their money professionally.
Those are the main differences that I see between a hard money lender and a private money lender.
If it were me, I would take the $100,000 and use portions of it as down payments on multi family property in a more affordable market. There are definitely places in America much more economical than the California market, where you can find cash flowing multi family property.
I am actively hunting for, and finding, excellent MF deals in a more affordable market than where I live.
I also wouldn’t be afraid of out-of-state investing. If you have questions about this, BiggerPockets just released a new book on long distance investing. There’s also a podcast where Josh and Brandon interview the author, if you would prefer to listen to his thoughts. Excellent tips in that podcast. Best of luck.
Congrats on accumulating that much cash @Jacob Abuata ! I see your goals are retire and travel but what does that really mean? How much monthly income do you need to retire like you want and travel to the places you and your wife desire?
I'm a buy and hold guy, so I have a biased opinion of what to do if it were my money. Since we started B&H in 2014 our net worth has sky rocketed and monthly income has substantially increased vs any raise I've received via the day job.
I enjoy that you and your wife rent; in this market I think it's extremely smart as it frees up monies to invest, you guys are fluid to stop and stay for a while at one of your destinations, etc. Spend some time detailing out your goals and then go for it with the expectations a course correction will happen.
I think a better question is what do you want to do? How you want to leverage your money that best fits your desires preferences and goals. Buy and hold is a great wealth builder but do you think you would like managing properties and dealing with tenants for the $10K a month income? What really drives you?
If you are concerned about downpayment money consider starting out with Airbnb. You can do this buy prospecting landlord who may be willing to sublease their property for a premium rent then host the space. I don't do AirBnB yet but everyone I talked to makes good money even more than if they were to rent. It costs less to start up the buying a property outright?
Just a thought.
Hey @Jacob Abuata
We went through many RE strategies; from wholesale, fix & flips, SFR, seller financing, quads and all the way up to mobile homes, storage, and land. We have realized that commercial multifamily is probably the best for both the real estate sponsor/syndicator and the passive investor. It took a few years to "get there" with our experience and mindset.
So obviously I'm biased, but for good reasons. We are now 90% focussed on multifamily real estate acquisitions nationwide wherever the deal makes solid sense.
I am a Realtor/Broker in College Station, TX, specialize in residential properties but working with a few investor friends as well. One of my clients was in the same position as you. He decided to invest in a couple 4plexes here. They were cash flowing at the time he purchased them and he got a great buy. Although older units (1982) and in need of those updates and maintenance repairs often, he's like you and wants his money to make money but always "hassled" by tenants. Although these ended up being a great investment (sold one of them 3 years later for approx $75k higher than he purchased them), it's not his cup of tea. So if you decide to buy & hold, consider the age of the units! I'm curious about the HARD MONEY lending as well, as this may be a better fit for my client. But there's so much on the web & I'm not sure where to go for the best information or direction. Best of luck Jacob! You're in a good position to start setting yourself up for that passive income.
@Guy Yoes How exactly do you learn about private lending?
@Jacob Abuata If you don't want to make real estate a full time and be able to travel a lot while doing it, it sounds to me like you're going to have to find someone you trust to invest your money with. Or buy a bunch of single family homes nearby and hire someone to take care of them for you. Problem with that is the people who manage those types of deals are more often than not, not the best at managing properties.
If you give someone else you're money or invest with them you have a few routes to go.
1. Turnkey single family: make 5-8% a year maybe, own the deal yourself, buy and hold property for long period of time and hope there's not any major repairs or long vacancies because you may have to come out out pocket
2. Hard money loan: 8-12% annualized with a couple points up front as a fee. Usually done with flips. If everything goes well it's a great process, but if stuff goes sideways now you own a single family home with "x" amount of work done to it and have to try and get out of it. Also, if the market starts to soften or dip, then you could make no money, lose money, or might not be able to sell it.
3. Multi-family syndication: What I do, invest in larger multifamily properties with professional management companies and earn 6-10% a year with an annualized return on sale of 12-18% (depends on deal) and a ton of depreciation and write-offs. Downsides are you don't own it out right, most deals are longer than hard money loan but not as long as a SFR, no control over decisions, money is illiquid (but that's for all of them). There will also be fees associated with a deal, but investor returns are net those fees and can change from syndicator to syndicator.
4. Crowdfunding platforms: These are platforms that find different investment opportunities and are screened and check by the platform for track record and they do they're own due diligence. This acts as another opinion as to whether they think the deal is a good one and not someone trying to just get money out of you. Downsides are there will be double the fees than finding a syndicator directly, many of these companies are new and might not have a long track record or a lot of experience, potential hidden fees, etc.
I'm sure there are a few others, and I may come across as biased towards syndicators, but that's what I chose to do, so it's tough for me not to be. Hope that helps lay out some options a little bit more.
I live in Los Angeles, CA. I invest out of state for cash flow and in LA county for buy and hold or rehab projects. One can increase net worth significantly in LA but you need larger a down payment to often cash flow well on most property's. If you find a deal that cash flows well in LA you can often rehab and sell it and make a killing.
@Jacob Abuata congrats on what you've done so far.
If you want 10k/mo (120k/yr) in passive income the formula is pretty easy (but no so simple to execute). You'll need $1,000,000 in equity generating a 12% return. If you aim for higher returns you'll likely take on too much risk and may lose hard earned capital.
To achieve this (with as little risk as possible) you'll need other streams of income that you can funnel into income producing assets. Whether you trade time (w2) or find other ways (business income) to create value is up to you.
For me, I started a management company and subsequently grew a syndication platform; both of which provide cash flow and value creation. Most of my clients however have used their gifts to focus on other income streams that can, in turn help them buy income producing assets with me and on their own.
My advice: keep your 100k liquid for now and focus on getting more business and/or financial education. Hope that helps.
Free eBook from BiggerPockets!
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.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.