Which would you pick and why? 3 investing scenarios...

Question

Location: Kansas City Market/St. Joseph

Amount: $100,000 to invest

Conditions- inventory is low and crappy. What would you do of the following and why?

Scenario 1- Invest all in new flip

Scenario 2 - Invest $50k in new rental ($14k gross/yr)/ Save $50k in case flip comes up

Scenario 3 - Wait until after January 5th to see what happens politically and economically.

Pick one and tell us why.

Luther Wilson III · Answer

How about Scenario 2 with a bit of a twist...

What if you were to leverage that $50k by investing part of it into a BRRR and then hold the property as a contract for deed or seller finance deal instead of a rental?  It might look something like this:

Let's say you're able to find a $120,000 house somewhere in the KC market and purchase it with the use of private or hard money...

You're able to purchase the house for $76,000 and it needs $20,000 in repairs.  The ARV is $120k so you're "all in" at $96k which is 80% of the ARV.

Your private money lender does 70% LTV so that covers around $84,000.  That means you'll need to come up with the rest...  If you include your closing costs, loan fees, etc, that might come out to around $25k of the $50k that you've already allotted for the investment.  It might not seem too good on the surface so far.  Bear with me...

If you can do a cash out refinance at 75% LTV (which I'm sure you can) then you're looking at $90k being pulled out.  The private money lender gets paid off (their $84k) and since they'll be some costs to do the refi (let's say $3k) that means afterwards you could have about 22,000 "left in the deal"...  Still doesn't see that cool, does it?

Here's where it gets juicy:  After you refinance, instead doing a regular rental, you do a contract for deed or seller carry and get a $20,000 down payment...  You structure it so that you'll receive payments of $1,200/mth PITI each month, you'll have no maintenance costs and you won't have to hire a property manager.  Essentially, you're the bank...  All the while you're cash flowing each month and with just $2,000 "left in the deal."  Run the #'s sometime...  These deals usually turn out to be pretty sweet.  ;)

Your own payment after the refi might be between $570 and $670/mth PITI perhaps lower if you get a really solid interest rate.  I'd say that's pretty good cash flow and a real nice COC return.  :)

Lee Ripma · Answer

@Olga Marquez

Pick one for you or pick one for me? There is no right move, only the right move for you at this time given your goals as @Will Fraser pointed out.

Luther Wilson III · Answer

Hey, @Carlotta Hall, that sounds good.

If you already have capital then that takes care of a lot.  From there it's just a matter of asking around, letting people know what you want...  Agents, brokers, wholesalers, lenders, other investors, etc.  Eventually you'll find a solid deal.

I used to think that if you find the deal the money will come.  I still think there's some truth to that philosophy however I believe that the opposite is more true...  If you have the money (or at least access to someone's liquid capital), and you know what the heck you want (you have a realistic goal and plan for how to execute it) and you ask enough people, then surely the deals will come.

If you're looking for a homerun type of deal then odds are you'll strike out or end up on the sidelines doing absolutely nothing.  We see that a lot here in the KC area and that's one of my biggest frustrations as a broker.  There are so many investor-buyers wanting deals here now and they all essentially want the same thing.  In fact, I've turned more buyers away this year than ever before...  My response is usually, "If I find that type of deal then I'll do it my (insert expletive) self and if I can't take it down then I'll have it sold almost immediately."  ;)

Tesho Akindele · Answer

Hi @Olga Marquez

You're in a great spot right now. You are confident in your ability to flip a house, and also willing to hold a long-term rental. Why not merge the two together and find a property you can BRRRR? Kansas City is a great market for the BRRRR method, and you could use your 100k to get multiple properties!

Andrew Powers · Answer

All depends on goals as mentioned. If you have 100k to invest, putting that in one basket (#1) seems very risky. Diversification

Will Fraser · Answer

Hi @Olga Marquez, I think this completely depends on the person's goals.  If capital growth is the goal, then #1 is the most likely to produce that IF done with discipline.

If cash flow and long term investments are the goal, the #2 may be the winner.

If waiting is the goal, then #3 is a sure fire recipe for that.

Caleb Brown · Answer

I personally am not a fan of flips unless the margins are great(which is rare). I would go into multi or BRRR. There is certain pockets of KC hot for BRRRs

Lee Ripma · Answer

@Olga Marquez only 2 resembles anything that I would currently do. Although I have done 1. 3 I don’t like because I’m a fan of action.

Jaquetta T Ragland · Answer

@Olga Marquez I would probably go with number 2 especially if there’s some potential equity that you could use later.

Whitney Hutten · Answer

@Olga Marquez I agree, it depends on your goals.

#1 - I'm not so certain that asset prices won't soften in the next few months making flipping now tricky (in a few months, it may be great!).

#2 - I'm in KCMO and there are many off market deals right now (and I see you are a realtor).  I'm wondering if part of the issue is your funnel. Also, last winter, on-market deals were scarce as well!

#3 - Waiting is always an option. I'm not sure how much politics will play in the upcoming markets.  However, I would pay attention to things like the Supreme Court Case that was argued last week, Collins vs Mnuchin (this decides the fate of Fannie Mae, Freddie Mac).  These types of things will greatly impact both the housing makets and the financial markets.

Which would you pick and why? 3 investing scenarios...

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