You have 50k to invest. Where do you buy?

63 Replies

If you have 50k to buy rental property with, where and what would you purchase?

Well first I wouldn't use it to make a cash purchase, as long as you have a job and your debt to income ratios are good I would use it to make a down payment on a multi unit in a lower income area. You aren't looking for a warzone that has high crime but simply an area that is slightly economically depressed and on the way back up. 

630‑370‑7422

buy a Sfr close to home.

I would finance 2 nice rental properties using the $50k as down payment + closing costs for a mortgage (assuming you qualify) purchase prices being ~$100k each.

That's what I would do for myself at least.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ

I'd look to leverage it across multiple units, close to home. Either multifamily units or commercial property. With $50k down, you might be able to buy small apartment building or a few 2-4 unit properties. 

Really depends though. Whatever has the best cash flow in your area is what I'd recommend. 

Interesting that almost everyone says close to home. My question for those of you that have property is: Do you use a property manager? My long term plan is to use a property management company, making my main focus ROI/cap rate, and a landlord friendly state.

Originally posted by @Alex Applebee:

Interesting that almost everyone says close to home. My question for those of you that have property is: Do you use a property manager? My long term plan is to use a property management company, making my main focus ROI/cap rate, and a landlord friendly state.

1.  What do you think a property manager is going to do that you can't? 

2. You have $50,000 to invest.  What "focus" will you be doing on cap rates?  You won't be dealing with cap rates unless you are investing in commercial properties. 

3.  What metric will you use to determine a "landlord friendly" state?  Most people seem to think a state that punishes bad landlords is unfriendly when good landlords in the same state feel the state is friendly to them.

Originally posted by @Bob Bowling:

3.  What metric will you use to determine a "landlord friendly" state?  Most people seem to think a state that punishes bad landlords is unfriendly when good landlords in the same state feel the state is friendly to them.

 Good point.  It does seem there is a correlation, though. Like most things governments do, they usually go too far when they meddle.  Landlord friendly to me is enforcing the reasonable rights of tenants to protect them from sleazeballs, yet making it reasonably easy for landlords to evict and collect damages when justified. But balance is not something governments are known for achieving.

Ok I usually don't comment more than once but I really feel I have to....@Arlan Potter @David Boykin why should she invest close to home? I know some of the arguments may be well she's more familiar with the market. Well unless she is a real estate agent that has already dealt extensively within her own market she really has no better idea of what her market is than one far away. Second argument well she can keep an eye on her property? Granted this one has some validity but that's nothing a property manager can't do. Third argument well she can save the money on using property management. This is true but as a first time investor as it sounds who is to even say that she would be a better property manager than one she could hire? @Alex Applebee No offense intended of course just trying to debunk the invest close to home theory. I think she or anyone should invest where they can find a deal that is worthwhile, it it happens to be close to home well even better. We are all though in this game to make money and not every area offer adequate price to rent ratios. If by chance she lived in LA where it has been completely documented the prices don't justify the rents, she would lose money every month. She would however possibly recover in the appreciation game which is purely speculative and nothing a beginner should go into lightly if at all. 

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I think the "close to home" thing is a preference on how much you want to get involved. Do you want to learn to be a landlord and manage that part of the business as part of your REI - Or do you want it to be totally hands off? The pros of starting out close to home is that you get to learn the business, your market, and will be able to get better deals if you are buying direct and saving money on PM. The pros buying out of your area are that generally everything is done for you and you can be totally hands off... but it can cost you especially if you are buying turnkey through a marketing company...

I live in Chicago which is know as one of the most tenant friendly cities.  I have 0% problem with it.  With the type of buy and hold investing I do the rules and regulations in place do not effect me and since every little thing is outlined it is very black and white and easy to resolve disputes.  

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

Originally posted by @Alex Applebee:

If you have 50k to buy rental property with, where and what would you purchase?

Hi Alex,

Check out the Midwest for SFH.

A $50,000 investment can easily generate you between $5,000 - $10,000 in net income.

Ohio, Michigan, Indiana, Kansas City just to name a few.

Thanks and have a great day.

Medium list n sell logo designEngelo Rumora, List'n Sell Realty | [email protected] | 419 740 6999 | https://agentscomefirst.com/ | Podcast Guest on Show #89

Originally posted by @Alex Applebee:

Interesting that almost everyone says close to home. My question for those of you that have property is: Do you use a property manager? My long term plan is to use a property management company, making my main focus ROI/cap rate, and a landlord friendly state.

 Close to home is always best if your local market will support the returns and purchase prices you want.

I always recommend a PM [I had a PM even when I only had one SFH rental]. Your time is [or it should be] more valuable than the $75-$100 per month they will charge you to deal with everything.

For me, I would buy a SFH REO in your area for under $40k and then rehab it with the other $10k [you can get more rehab money by using the in store credit cards at the big box stores - Lowes, Home Depot, Menards, etc]. Once it looks nice, then get it refinanced [most local lenders will go 75% LTV] this should get your principle back and maybe some extra cash from equity. Then rinse and repeat. By doing this you can have zero in the investment [which is an infinite return] and keep adding rentals for as long as the banks will loan you the money.

@Alex Applebee  Since you are in Arizona I would recommend Pinal county if you are looking to invest right now. Phoenix Metro is priced pretty high right now and it is difficult to find good investment properties.  

We currently like Milwaukee. Nice ROI on the properties we will be bringing on line. We expect >15% ROI, perhaps a lot greater but we had the advantage of buying well. Since the properties are not online yet we don't know our final numbers yet.

Bob E. MBA, LD Funding, LLC | [email protected] | 909‑353‑3863 | http://www.LDFundingLLC.com

I concur with @Phillip Williams on most points.  I invest 100 miles south of where I live for several reasons.  I've found my 'backyard' as J Scott advises, and find that my study is best spent in that area.  But to speak of property management, I do not use one, yet.  I want to get to know all the issues associated with property management, so that when I have too many properties to self manage, I'll have an idea of what character qualities and abilities I want in the property manager I eventually will choose.  

What I would do with the 50k in my market:

  • Dedicate 8k to all forms of marketing to motivated sellers. The more you find, the more you have to work with (direct mail, SEO with new website, bandit signs, news ads, auto ads, hire CL posters) 

Why? Here, I run into sellers so desperate that they would part with a nice conditioned home if you:

1. Pulled them out of pre foreclosure/took care of their payments due to death, job loss, move, etc...

2. Place 5k into their pocket for a rental investment where you may intro. them to another piece of inventory you find...lease option

If the sellers you find (they are out there) fit the criteria above, your 42k left over will be used to process lease option and wholesale deals to both generate CF and capital gains.

"Desparation makes people do the unthinkable, but be honest and fair."

Medium live cash deals logo 4x 100Andrew LeBaron, Live Cash Deals | [email protected] | 4809809022 | http://trustedcashoffer.com

lmao shots fired!  For anyone that can't tell ben is joking well except for the talented part of course! I'm just hoping I don't have to write a blog in rebuttal to @Ben Leybovich  slanderous post lol! It's not true whatever he says ;-)

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Good points made above by @Brie Schmidt  @David Moore  @Philip Williams  

I think the choice to invest close to home involves more than simply how involved you want to be in property management. It allows someone to efficiently leverage a very specialized knowledge of a market to uncover and exploit market opportunities. If @Alex Applebee  has spent her 20-30 years of living in either Santa Barbara (one of my favorite places on Earth!) or Waddell (don't know that one!), she has accumulated and cataloged several years of neighborhood-specific intelligence that should enable her to expedite her buy/don't buy decision process. There's tremendous power and efficiency in that. That's not to say that she couldn't be successful doing out of state investing either. $50K unfortunately wouldn't get you a closet in Santa Barbara!

I always recommend a PM [I had a PM even when I only had one SFH rental]. Your time is [or it should be] more valuable than the $75-$100 per month they will charge you to deal with everything.

$100 a month for what?  Collecting a check and sending you one? I estimate each unit to take about 20 hours per year.  Some of that is time you will spend with your accounting, property manager or not.  But even if the PM takes over the entire 20 hours and charges you $1000 for a year they're charging you $50 an hour.  In reality in my area a PM charges 10% plus half to a full month's rent to fill a vacancy.  For a $1000 rental and one turnover a year that's $1700-$2200.  For the 20 hours that's $85-110 an hour.  If you don't have a vacancy you won't have that 20 hours, since a big chunk of that is turnover.  So, its more like $1200 for five hours work.  If you're investing at a distance a PM is essential and considerable increases your costs.  If you're investing close to home its an expensive luxury you can choose to skip and put that $1200-2200 in your pocket.

Jon Holdman, Flying Phoenix LLC

@Alex Applebee   you need to study your local market, and read all you can on investing.  You will make mistakes on your first investment but you will learn from then.  if you can invest locally it is easier to recover from your mistakes than if you invest far away.  I would definitely seek the advice of your local investors.  Even if you decide to invest elsewhere you can learn a lot from them.

As to @Philip Williams if what @Ben Leybovich says is not true about you how are you going to counter if he says nice things?

My advice? I would buy 50 grand worth of lottery tickets and go to Vegas! Just kidding... Here's my two cents...

First of all, ask yourself a few questions:

What is your investment goal?

Are you looking for true passive income or to be active with your investments?

In state or out of state?

Desired returns? Cap rates? Leveraged returns vs. cash returns?

If you're a 100% newbie, take lots of time to better educate yourself. Take on a mentor who will show you the ropes. Read BP everyday for 6 months. Study your local market. Connect with other investors and investor oriented RE agents. Play the cash low board game a dozen times. Then, make a plan and take the plunge! Don't let analysis paralysis get the best of you.

Good luck!

@Jerry W.  Well in that case I'm sure I would have so say a few nice things back lol! 

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I still have to write my blog posts about these but my first two deals were 1.) 5 hours away mobile home, and 2.) 20 minute away SFH. Both had issues. Both were good learning experiences. The remote one was a bad experience overall but ultimately not because it was far away, because it was far away AND the team I had was bad and when it went south, I had no backup. The local one was "good" because I was totally in control, but "bad" because I had to deal with everything and it took a lot of time, and was more expensive than if I just hired out a good team to manage it. Whenever I had to repair something, it turns out I had to buy a tool from Home Depot because I didn't have a lot of tools. Therefore I spent probably 5K more on that house just in terms of buying stuff that a rehab team or PM company would already have (or the contractors would), even though I saved on the labor technically.

@Alex Applebee I'd ask yourself how you want be investing in 5 years if you are still investing at that time.  The last two times I just jumped in and tried things versus trying to formulate a plan.  I learned that I don't want to be the landlord collecting the checks or doing the rehabs, so I'm going to focus this time on partnering with professionals who do a better job at both of those things, so I can focus my time on picking the investment properties.  I'm glad I had both previous experiences, but I learned as much what I don't want to do as how to do the things I did learn how to do.

All of the above said, I'm in a similar boat as you.  I have some funds to invest, I have some experience and lessons learned, and despite my previous experience long distance investing, I am looking to invest out of my local market in my home state of Ohio and am trying to learn about, and line up some good partners to team with on multiple investments.  I do that for reasons of cash flow being good there, I think Ohio and the midwest is never down and out and will turn around at some point, and selfishly, I ultimately would like to return to the area personally.