I have 100k. What should I do?
Tustin, CA · Member since 2017 · 57 posts · 14 votes
I have 100k. What should I do?
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Investor · Louisville, KY · Member since 2017 · 199 posts · 253 votes
8yFind a duplex, triples or fourplex in the town where you live and purchase it now before you change careers. Purchase it through an FHA loan with 3.5% down.
Live in one unit and rent the other/others.
You should be able to live in the building and pay all mortgage, insurance, upkeep, repairs etc....out of the income that you generate from the other units if you self manage.
That eliminates the $1,700 per month you are currently throwing to another landlord each month.
Then once you are settled and comfortable go purchase another four plex with the $100,000 to cover the down payment.
Each month bank the $1,700 you saved from your former rent payment along with profit from the four plex (lets say that amount is $1,400 which is $3,100 a month)
That is $37,500 per year going back into the bank. Every couple of years you will have enough cash built up to buy another four plex. That adds another $16,000 per year to your profit.
So in ten years that will be five buildings added to these original two. That is a grand total of $117,500 in profit.
Here are the keys:
1. It is a retirement fund that you have to work. It is not a vacation fund or to help nephew Johnny cover the cost of rehab. Treat it just like a 401k and nothing can come out of the account except to cover the cost of managing the rental units.
2. Rents must be raised so you can capture the market value while your mortgages are fixed. This allows the spread on profit to become larger as the years go by.
3. Don't be afraid. there are thousands of people that will tell you not to do it because they have fears that drive their decision. Renters are not jerks that are going to destroy your investment and the person that tells you they are is the actual jerk.
There is nothing that can happen that hasn't happened to every other landlord somewhere and they survived.
You will have to deal with a case of bedbugs, a tenant will overdose on heroine, a tenant will not pay and you'll have to evict, you will get a call that they have found mold, you will (insert what ever nightmare that person tells you about that drove them out of the rental business).
You know what, it is nothing you can not handle and each experience that you go through will teach you that as a landlord and investor you have the skills and mindset to be very successful and all of your fears and anxiety were just in the way.
42 Replies
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
well I am thinking if you have 100k you want 50k for an emergency fund...
so that leaves you 50k.. I would buy a home where you live for the 15k down and get out of paying rent.
depending on what you buy in CA this will be a very wise move for you..
continue to poke around find some things that interest you... right in your area is Norris He is a very big HML and if you can get in on his fund you can see how the lending works.
plus drive by your properties you loaned on..
you could throw 10k into a crowd funder who accepts non accreds.. most syndicators you need to be accredited and from what you described your not quite there yet.
partnering with a VERY good GC on some flips can make you some decent money although high risk.. need to be very careful there..
but many ways to make money.. at your stage and income to get to 10k a month passive on purely positive cash flow rentals is going to take a few decades.
- Home Stager · Sussex, WI · Member since 2012 · 170 posts · 64 votes8y
@Jacob Prelle you don’t mention if you have reserves, which you will need when buying rentals. Can you elaborate if you have sufficient savings / retirement funds for reserves?
- Investor · Louisville, KY · Member since 2017 · 199 posts · 253 votes8y
Find a duplex, triples or fourplex in the town where you live and purchase it now before you change careers. Purchase it through an FHA loan with 3.5% down.
Live in one unit and rent the other/others.
You should be able to live in the building and pay all mortgage, insurance, upkeep, repairs etc....out of the income that you generate from the other units if you self manage.
That eliminates the $1,700 per month you are currently throwing to another landlord each month.
Then once you are settled and comfortable go purchase another four plex with the $100,000 to cover the down payment.
Each month bank the $1,700 you saved from your former rent payment along with profit from the four plex (lets say that amount is $1,400 which is $3,100 a month)
That is $37,500 per year going back into the bank. Every couple of years you will have enough cash built up to buy another four plex. That adds another $16,000 per year to your profit.
So in ten years that will be five buildings added to these original two. That is a grand total of $117,500 in profit.
Here are the keys:
1. It is a retirement fund that you have to work. It is not a vacation fund or to help nephew Johnny cover the cost of rehab. Treat it just like a 401k and nothing can come out of the account except to cover the cost of managing the rental units.
2. Rents must be raised so you can capture the market value while your mortgages are fixed. This allows the spread on profit to become larger as the years go by.
3. Don't be afraid. there are thousands of people that will tell you not to do it because they have fears that drive their decision. Renters are not jerks that are going to destroy your investment and the person that tells you they are is the actual jerk.
There is nothing that can happen that hasn't happened to every other landlord somewhere and they survived.
You will have to deal with a case of bedbugs, a tenant will overdose on heroine, a tenant will not pay and you'll have to evict, you will get a call that they have found mold, you will (insert what ever nightmare that person tells you about that drove them out of the rental business).
You know what, it is nothing you can not handle and each experience that you go through will teach you that as a landlord and investor you have the skills and mindset to be very successful and all of your fears and anxiety were just in the way.
Hello Jacob,
You could easily leverage $100,000 into a $500,000 acquisition and rehab line of credit to give you more buying power. Use the line of credit to acquire foreclosed properties with as little as 10% down payment. Rehab the property, place a renter and refinance 90 days later based on fair market value and cash out your original down payment funds to use for the next property.
If you are open to acquiring buy/holds out of state, there are plenty of opportunities to build a portfolio of buy/holds and cash flow 10K per month using the technique listed above.
@Jacob Prelle Welcome to the BP community. You really can have ALL your immediate questions answered locally here by reaching out to local investors who are willing to take a little time and answer your questions. You can contact them via BP or meetup groups, etc. Make sure you are speaking with someone with experience to answer your questions and concerns. When you are done researching your options here in Orange County, then you can do the same out of state if you wish. There are many opportunities here locally, you just need to find them.
My two cents is to buy something local. Why are you renting? The landlord and Uncle Sam are your best friends right now.
Good investing...
- 8yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
This is an interesting question and one that many have on BP. I have 100k and I want 10k a month. You have less money then you want every year, so you're going to need more capital or you're going to need to build it up in a way that allows for large increases in the value of your property, like major renovations, a sale, a bigger property, another sale. If you leverage it you'll be able to make it go further but you still won't be there yet. I personally see two options if you can't get any more cash 1) Go the house hacking route in southern california. However, you're going to have a hard time finding one with 100k even if you go FHA. The loans simply will be too big. Think about where you could live with your job and shop in that market. Find something that is major value-add and put a lot of sweat equity into it. You could also consider buying a SFH and house hacking it but use the bedrooms as airbnbs. Or the same duplex/tri/quad with airbnb, self managing and hoarding cash. Focus on getting as much cash saved up as you can from that activity so you can put it into more investments. 2) Buy a value-add apartment out of state. I personally would buy and out of state value-add small apartment for the cash-flow. There are many markets where you can get a 10-20 unit. I personally like Kansas City and currently invest there. I am also going to Cleveland to see about adding properties in the area to my portfolio. You'll be able to get into something that costs 400k or so but just be careful that you have enough money to cover repairs and if something goes wrong. Buy something that is value add and increase the NOI by increasing the rent and decreasing the expenses. Once you have increased the value either do a cash out refi or 1031 exchange into a bigger property. Keep doing that over and over and you'll be able to get up to your 10k a month goal eventually. Remember that the real weath is created when you do value-add not when you buy cash flow. You can buy cash-flow but only if you already have a ton of cash, which you don't. I hope that is helpful and know that I'm in a similar situation in SoCal and doing the out of state value-add approach!
- 8yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
@Jacob Prelle, I invest in all the areas of real estate (residential real estate that I directly own, syndications, crowdfunding, debt/notes, apartments, and much more). They all have pluses and minuses (and anyone who tells you that one is always better than the other doesn't understand the full picture).
My first advice would be to ignore any advice that comes from someone selling one of these products to you, because it's probably going to be pretty biased (as you can see from reading the responses on this thread).
There's nothing wrong with your plan of buying a rental property in another state and holding onto it. The amount of yield you would get depends on the state you're going into. Secondary states yield more than in California, but you are taking more risk because if the economy goes south the job market is probably not as strong or diversified, so your investment may suffer. Tertiary states yield even more than that, but again with more risk. So it's important to understand fully what you're getting into, and then make sure you're okay with the risk.
My rental properties here in Tampa yield between 7-9% unleveraged. Tampa is a secondary state. However, I bought them about 1-2 years ago, and since then prices have gone crazy like they have over most of the country. If I was buying today, I would be lucky to get 5 to 6%. If you're looking for higher yields, you may wish to look in tertiary markets like Kansas City, Indianapolis, etc. Although even those are starting to become pretty well "discovered"which is driving up prices and reducing yields. I'm not sure if I would be comfortable going to markets even less primary myself, but it all depends on your own risk level and comfort.
Also, I'm not sure which part of California you live in, but if it is expensive enough, you may find that it is actually a better return for you to rent, and use the difference between that and what you would've paid per month on your house to invest elsewhere. (Especially with the tax changes coming up in 2018). You can run the numbers through, for both and see which yields you more. This is another example of were some people would say it's always better to buy and own yourself, but in reality I don't think that's always true.
The Real Estate Crowdfunding Review - Real Estate Technology · San Francisco, CA · Member since 2016 · 262 posts · 265 votes8y
@Jacob Prelle Jacob - Great question to pose to the forums. I'm a fellow Tustin resident, but all of my investments are made in my home state of Virginia. I pool investors and purchase large multifamily and office assets that yield (cash on cash) at least 10% for investors. I'd encourage you to syndicate your $100k with an asset manager with whom you trust and will be able to generate greater returns for you outside of California.
Hope this helps!
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes8y
@Jacob Prelle Sounds like you want a very passive strategy. Here is an article I wrote on Three Key Routes for Passive Real Estate Investing
- Rental Property Investor · Mission Viejo, CA · Member since 2014 · 230 posts · 113 votes8y
@Jacob Prelle Hi! I'm from Orange County also (Mission Viejo). I invest in primarily in out-of-state multifamily properties. Providing you have reserves, and the full $100K is only for investment, I would buy a multifamily (12-35 units) out-of-state that has a value-add proponent. The right property could bring in close to half of your goal. And if you do the light upgrades, reduce expenses and increase income, you'll boost your equity to be able to do a cash-out re-fi and purchase another multifamily property or sell the property to buy an even larger property. You'll get to your goal sooner by buying larger multifamily properties and by buying smart.
- Investor · Dallas TX · Member since 2017 · 75 posts · 33 votes8y
There are 2 kinds of people in real estate that build wealth. Those who have knowledge and know how to find deals and hustle and build wealth , along with it they also help their friends and others on the way. Others who have cash and are interested in investing in real estate but dont have the time or interest in learning, going through the grind and hustling to find good deals and investing. In that case i would advise partner with someone whom you can trust and who is willing to do the ground work. Its leveraging each other's skills to build wealth.
I personally love learning about this beautiful path of creating wealth, i put lot of hours learning and i love to analyze deals and talk to people, but i dont have a lot of capital , so i work with people who can compliment my skills and its a win win for everyone.
- Commercial Landlord · Riverview, FL · Member since 2014 · 3 posts · 3 votes8y
Hi Jacob,
I don't know if you understand but commercial multifamily buildings are greater than 5+ units or "doors". Now as an investor you can place your money into a deal that is guaranteed by the building. For example my investors want a 8-12% return on their money. So lets say a deal is a 40 unit building at $2.9M with 20% down the deal would need $580K and a loan of $2.3M...You wouldn't need to do anything but wire the cash at closing to the closing or escrow attorney handling the closing. A very secure way to invest your hard earned money, because its secured by the real estate. The deal may include others that invest in the deal which would total the full $580K down payment. The loan and other expenses are on me to obtain. You would only be an equity investor in the deal and therefore you would receive distributions equal to your quity value from the profits (cash on cash return of 8-16%) plus appreciation of the building at cash out.
Now if you would like a more complete presentation to better understand your options with this type of deal then email me back and we can explore more fully. Thanks
Sincerely,
Paul H Dengel
- 8yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votesHouse hack a multifamily to get started if you can. That FHA loan will get you up to 4 units. That $450,000 house will slow you down significantly. The multi unit will not. Don’t reduce income if you can avoid it. I’d suck it up for a few years and work like hell towards your goals. Learn through the househack and then read @david Greene’s book about out of state investing.
The Moorhead Team5140 Reviews - Realtor · Charleston, SC · Member since 2016 · 229 posts · 159 votes8y
50000 powerball tickets and 80000 more per year with your salary. The cool thing is the the non winning tickets (which lets face it you wont have many with those odds) can sustain your nutritional needs. Then once you win just sail off into the sunset and live a happy life.
- Tustin, CA · Member since 2017 · 57 posts · 14 votes8y@Chris Armstrong, this one wins.
- Rental Property Investor · Fairlawn, OH · Member since 2018 · 14 posts · 8 votes8y
you should look at Sheriff sales, Tax sales and REO's. You should use the 100,000 as security to build lines of credit allowing you to buy and rehab these houses cash.
Example if the house has a after repair value of 100,000 you need to buy in rehab it for 60,000. My minimal cash flow on these properties is $300 a month. My goal is to get to $6000 a month passive income after expenses. I just bought three more properties that puts me at 23 properties. Once these properties are operating I will have reached my goal but yet I looked to take the turn and buy commercial multi units.
That’s my soliloquie for today. Reach out to me if you want.
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