Best ROI investment strategy with 150K
Los Angeles, CA · Member since 2019 · 77 posts · 32 votes
Best ROI investment strategy with 150K
Most Popular Reply
Los Angeles, CA · Member since 2020 · 6 posts · 17 votes
6yI'm also in LA, early stage investor, and in the 5 zeros club. However, I did do a deal here this year that made sense for me. It's not the kind of thing that would land me in a podcast but I'm happy with it and perhaps it will be helpful to you as well.
Here are my learnings about buying in LA:
- Finding a property: I used the MLS and worked with an amazing agent. I only looked in neighborhoods that I knew pretty well and in places I would want to live. I drove to every place I thought was even a little interesting and scheduled walk throughs with my agent after driving the neighborhood.
- Analyzing in LA: this was hard because the vast majority of content on BP is not specific to LA. The main difference I have found is that the 1%-2% rule is pretty hard to find unless you have all cash and get pretty lucky with the seller's situation. So I focused on house hacking in a neighborhood I wanted to live in and sub-market appreciation. My goal was to cash flow any amount in a property I lived in. Not a very impressive goal in 90% of markets. But in LA that represents $2000-$3000 a month that I am not paying in rent (plus any cashflow). I can't scale that strategy but it is a great base of operations for me and significantly lowers my dependency on needing to be an amazing real estate investor to pay my bills. Sub-market appreciation: (this isn't investing, it's speculating) I found an area in between 2 other areas that have appreciated a ton in the last few years. I figured it's a solid bet that this area will follow suit. Since I had driven up and down every block I narrowed in on a neighborhood that I believed had some potential. I included this imaginary appreciation in my numbers when analyzing each deal.
- Getting your offer accepted: I'm not a professional investor and I'm not a typical first time home buyer. But (because of BP) I know the numbers both groups are looking at when analyzing a deal and that helped me know what to look for and what to offer. I looked for houses that first time buyers would be scared of and made offers 10-20% higher than what an all cash investors/flippers would ask. This meant my real offers got real responses. Each response I learned a lot and adjusted my strategy.
- how to break analysis paralysis: The internet is an amazing and powerful tool but eventually I had to log off and get my hands dirty. (Walk neighborhoods, make real offers, order inspections, etc) Since no one in my family does this and my friends aren't there yet either, I was pretty scared to make a mistake. Tim Ferris has a Tedtalk about Fear Setting (like goal setting) that was really helpful. The key for me was to realize that the consequences of my worst fears were really rooted in pride and not in financial ruin. I was worried I would make a deal that wasn't as sexy as the other investors in the room and Brandon would never ask me to be on his podcast. Guess what? 100% chance of those fears happening! But I figured the worst case scenario was that I would tie up my limited capital, have $0 rent in LA and in 30 years own a home out right in LA. If that was the worst (realistic) case scenario I could live with it. All that to say, to break the paralysis I had to know my numbers, know my fears, and get my hands dirty.
-The result: Personally, I think telling other people the numbers behind a deal I made is like telling them about a dream I had last night. It's interesting (to me) but pretty irrelevant to everyone else trying to find their own deal. That being said, I bought a run down duplex with a detached garage on a conventional loan. I fixed up and moved into one unit, have a below market tenant in the other, and I'm turning the garage into an ADU that I will move into soon. Once I move into the garage the front 2 units will cash flow and I will never have to pay rent to anyone ever again! The house has appreciated about 10% in 10 months and maybe more once the ADU gets finalized. Not a home run but I'm stoked be at least be on the field and playing the game! My second property will be an entirely different deal since I can't house hack again. If anyone has any advice for me or wants to grab coffee and collaborate, let me know, I'm available!
25 Replies
- Chatsworth, CA · Member since 2016 · 190 posts · 224 votes6y
I'm curious what others have to say. I'm also in LA with around the same amount to invest. Currently I'm looking at doing out of state BRRRRs. I think normally house hacking would be the best bang for your buck.
- Los Angeles, CA · Member since 2019 · 77 posts · 32 votes6y
@Allen Tracy I considered out of state BRRRR as well, but after the rehab and refi, the cash flow wasn't that great. I'm considering Buying and moving into a house with a detached garage and converting it into an ADU (house hack). The cash flow is nice, but requires to park so much capital up front.
Curious if anyone ran the numbers comparing the returns on both strategies.
- 6yNabil SuleimanBusiness MemberReal Estate Agent · Los Angeles, CA · Member since 2016 · 596 posts · 299 votes
@Paul Wolfson
Let me preface this with there is no "right" answer. It completely depends on the kind of investor you want to be and the time that you have to dedicate to it.
1. You can be fully engaged and buy a single family and add an ADU
2. You can buy a duplex in an area that is foreshadowed to appreciate (I don't run numbers based on this its just a cherry on top) renovate and pull equity out of it while renting the second unit (you can also convert the garage(s) of these into ADU's.
3. Be less involved and invest with someone else that does a lot of the work and you share in the profits (aka on the smaller end flippers look for investors, then medium developers, then into large developers) Most small to medium will look for private equity while the larger ones may be only using institutional, but there are a lot of opportunities out there, you just have to find the ones that may fit your interests best... often times these can yield you a higher return than options 1 and 2, though the tax write offs are not always there (depends on the deal).
4. Number 1,2, and 3 all exist with out of state options where the barrier of entry is smaller in many states.. you just have make to make sure again that you really do your research on the areas, the homes and or the teams you decide to invest in.
5. Due diligence on 1-4.. no matter where you are putting your money, researching and discovering what your money will be doing, if it makes sense and knowing all the exist strategies is important.
This is obviously a very short example of options that are real estate related only, but you would need to start with deciding how active (or passive) of an investor you want to be, and then start looking at options that best fit your wants and needs. From there you can start diving into the type of investments work best for you, your time and your personality.
(edit) to answer your last question, I have had investments make great returns but was tied into two years of stress and city issues. I have had great returns come from things I put 0 time into because it was someone else's deal that I received a set return as well as a share in profits, and then the stock market has been (the last few years) doing great as well but not sure if that will continue.
Atlas Elm | Nabil Suleiman4.47 Reviews - Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes6y
@Paul Wolfson
It really depends on how active or passive you want to be in the investment. $150K can do quite a bit.
If you want to be very active, then you can Cash Flow pretty well finding a Class C/B property, renovating it, and renting it out using the BRRRR method in certain markets in the Midwest or Southeast. This strategy usually requires that you buy with cash, or get hard money/private lending. So that will be a factor in how far $150K will go. You can look up what the BRRRR method is here on BiggerPockets. Again, this strategy will require you to be VERY directly involved.
If you only want to be partially active, then you can purchase cash-flowing Turnkey properties in places like Kansas City, Memphis, Oklahoma City, St. Louis, Jacksonville, and others. Again, you can look up what the Turnkey method is here on BiggerPockets, as well as Google. The nice thing about Turnkey is that the rehab is already completed and it generally cash flows from the first month of purchase. You can purchase Turnkey property with 20%-25% down and conventional financing. So in the right markets, $150K could easily get you 3 or more properties.
Finally, if you want to be completely passive and have essentially no involvement in the property, then you can invest in multifamily syndications with as little as $25K-$50K. While not all do, there are plenty of multifamily syndications that provide Cash Flow from the beginning on a monthly or quarterly basis. Be aware that many of these require you to be an accredited investor, so you'll need to know that.
- Real Estate Agent · Muncie, IN · Member since 2017 · 16 posts · 11 votes6y
I can't tell you what the "best" way to invest would be, but I can tell you the way I would most likely proceed.
I would focus on out of state properties for a long term investment. I would take that $150k and put it towards down payments using lenders local to the area you intend to invest. That $150k (assuming you use all of it and don't hold some back for early repairs/rehab) could get you $750k in property. Provided this is all self serving debt you could have $750k worth of property in 15 years once the notes are paid (assuming there is no market appreciation), and that's not counting the monthly rental income beyond the debt service.
Specifically where I am located I could make roughly $2,110/month assuming slight vacancy. That's after principal/interest, paying a property manager, taxes/insurance (not including any maintenance). This is assuming you purchase about 11 (roughly $60k-$70k) properties and use some of the funds for closing costs.
If you were patient and selective you could potentially even increase the monthly income a bit.
Just my take, and it's fairly specific to my area.
- Los Angeles, CA · Member since 2020 · 6 posts · 17 votes6y
I'm also in LA, early stage investor, and in the 5 zeros club. However, I did do a deal here this year that made sense for me. It's not the kind of thing that would land me in a podcast but I'm happy with it and perhaps it will be helpful to you as well.
Here are my learnings about buying in LA:
- Finding a property: I used the MLS and worked with an amazing agent. I only looked in neighborhoods that I knew pretty well and in places I would want to live. I drove to every place I thought was even a little interesting and scheduled walk throughs with my agent after driving the neighborhood.
- Analyzing in LA: this was hard because the vast majority of content on BP is not specific to LA. The main difference I have found is that the 1%-2% rule is pretty hard to find unless you have all cash and get pretty lucky with the seller's situation. So I focused on house hacking in a neighborhood I wanted to live in and sub-market appreciation. My goal was to cash flow any amount in a property I lived in. Not a very impressive goal in 90% of markets. But in LA that represents $2000-$3000 a month that I am not paying in rent (plus any cashflow). I can't scale that strategy but it is a great base of operations for me and significantly lowers my dependency on needing to be an amazing real estate investor to pay my bills. Sub-market appreciation: (this isn't investing, it's speculating) I found an area in between 2 other areas that have appreciated a ton in the last few years. I figured it's a solid bet that this area will follow suit. Since I had driven up and down every block I narrowed in on a neighborhood that I believed had some potential. I included this imaginary appreciation in my numbers when analyzing each deal.
- Getting your offer accepted: I'm not a professional investor and I'm not a typical first time home buyer. But (because of BP) I know the numbers both groups are looking at when analyzing a deal and that helped me know what to look for and what to offer. I looked for houses that first time buyers would be scared of and made offers 10-20% higher than what an all cash investors/flippers would ask. This meant my real offers got real responses. Each response I learned a lot and adjusted my strategy.
- how to break analysis paralysis: The internet is an amazing and powerful tool but eventually I had to log off and get my hands dirty. (Walk neighborhoods, make real offers, order inspections, etc) Since no one in my family does this and my friends aren't there yet either, I was pretty scared to make a mistake. Tim Ferris has a Tedtalk about Fear Setting (like goal setting) that was really helpful. The key for me was to realize that the consequences of my worst fears were really rooted in pride and not in financial ruin. I was worried I would make a deal that wasn't as sexy as the other investors in the room and Brandon would never ask me to be on his podcast. Guess what? 100% chance of those fears happening! But I figured the worst case scenario was that I would tie up my limited capital, have $0 rent in LA and in 30 years own a home out right in LA. If that was the worst (realistic) case scenario I could live with it. All that to say, to break the paralysis I had to know my numbers, know my fears, and get my hands dirty.
-The result: Personally, I think telling other people the numbers behind a deal I made is like telling them about a dream I had last night. It's interesting (to me) but pretty irrelevant to everyone else trying to find their own deal. That being said, I bought a run down duplex with a detached garage on a conventional loan. I fixed up and moved into one unit, have a below market tenant in the other, and I'm turning the garage into an ADU that I will move into soon. Once I move into the garage the front 2 units will cash flow and I will never have to pay rent to anyone ever again! The house has appreciated about 10% in 10 months and maybe more once the ADU gets finalized. Not a home run but I'm stoked be at least be on the field and playing the game! My second property will be an entirely different deal since I can't house hack again. If anyone has any advice for me or wants to grab coffee and collaborate, let me know, I'm available!
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes6y
Originally posted by @Paul Wolfson:
I’m from Los Angeles in the earlier stages of real estate investing.
Curious to hear what strategies have worked for investors with families, in terms of cash-flow, with around $150,000 or under in cash to invest.
Open to hearing all strategies, including:
- out of state
- house hacking
- traditional investing
Which brought you the best returns on investment?
Thanks!
Purchasing a Turnkey in an OOS Midwest market where the prices are low. Properties meet the 1% rule around here all the time. if it is a Turnkey it will be cash-flowing passively from day 1!
- 6yJohn FortesPro MemberMulti-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
All depends on your risk tolerance and how it matches with your overall goal. Hearing everyone else's opinion is great but at the end of the day, you will go through the learning process. Happy investing!
- Los Angeles, CA · Member since 2019 · 77 posts · 32 votes6y
@Brian Kemp thank you for the thoughtful response. I can definitely relate as I explored these avenues as well. I think the only criteria I have that’s different than yours is that the duplexes I’m looking for are mostly in neighborhoods that are not very safe. In other words, my wife and kids would be scared to take a stroll around the block after sunset.
Which neighborhood did you end up settling in? - Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes6y
$150,000 can go a long way out side of L.A. 9f coarse. Use it as downpayment of about 20%-25% and you can purchase a sizable property. I'm sure the vultures already envaded you inbox, so be careful who you listen to.
You don't really need to join a syndication just take your time looking at different markets and see where you can get the best bang for your buck. Once you find it seek out the best property manager in that area, Realtor, attorney/title company. They can walk you through the deal. - Los Angeles, CA · Member since 2020 · 6 posts · 17 votes6y
@Paul Wolfson My wife and I bought in NELA. I can't speak too much to safety because it such a personal thing. To research this I used the Next-door App and Ring's community, I talked to people walking around in that area and if it was a duplex/triplex I always talked to the tenants. You'd be surprised how differently you research when you have an offer on it.
I know you've probably ingested a huge amount of info, advice, and marketing from all the forums and it can start to feel like too much info and overwhelming (or at least it does for me) but keep it up and please let us know when you land that first deal (local or out of state)!
- Los Angeles, CA · Member since 2019 · 77 posts · 32 votes6y
@Brian Kemp have you also considered investing out of state? If so, what was your reason to choose to stay local? Were the cash flow returns better with your creative approach?
- Los Angeles, CA · Member since 2020 · 6 posts · 17 votes6y
@Paul Wolfson I am currently looking out of state and even out of country. It's been a whole different animal so far and I have not found success yet.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes6y
Originally posted by @Paul Wolfson:
@Allen Tracy I considered out of state BRRRR as well, but after the rehab and refi, the cash flow wasn't that great. I'm considering Buying and moving into a house with a detached garage and converting it into an ADU (house hack). The cash flow is nice, but requires to park so much capital up front.
Curious if anyone ran the numbers comparing the returns on both strategies.
Here is how the numbers work for the Turnkeys I provide next door to you in Phoenix
3 Ways to Wealth in Real Estate – Fix & Flip, Buy & Hold, Turnkey (Cash flow) – Here’s How
- Chatsworth, CA · Member since 2016 · 190 posts · 224 votes6y
Here is how the numbers work for the Turnkeys I provide next door to you in Phoenix
3 Ways to Wealth in Real Estate – Fix & Flip, Buy & Hold, Turnkey (Cash flow) – Here’s How
Thanks!
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes6y
As several people already stated, (1) you have to decide how active/passive you want to be in real estate?! Also (2) how strong is your "Why". The latter will determine whether you will succeed as there will be obstacles on the way, especially if you decide to be active and start another business as this is what it is when you're running the RE investing yourself.
Here're a few posts to guide you further:
https://www.biggerpockets.com/member-blogs/10850/86626-the-pros-and-cons-of-investing-via-real-estate-syndication
https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estate
https://www.biggerpockets.com/member-blogs/10850/85351-nothing-will-work-until-you-do-maya-angelou - Naperville, IL · Member since 2016 · 49 posts · 11 votes6y
@Ryan Kramer how can you just buy 11 properties though?
- Member since 2019 · 38 posts · 47 votes6y
@Mike M.
Hi Mike
What do your lease/option agreements look like? Do you use a standard mls lease agreement or are their special terms you adjust to make it legit? Also how do you find the buyer/tenant ? And the off market properties ??
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes6y
Originally posted by @Denisse Lara:
@Mike M.
Hi Mike
What do your lease/option agreements look like? Do you use a standard mls lease agreement or are their special terms you adjust to make it legit? Also how do you find the buyer/tenant ? And the off market properties ??
Each lease agreement has to be drawn up by an attorney for each jurisdiction I or my clients do business in. Same with the option agreement. They can be reused in the jurisdiction they are drawn up in but they are specific to what I do and the location of the property. Finding Tenant Buyers is easy enough. There are more people with money to buy homes that have challenging credit than you can shake a stick at. The harder part is finding the right properties. That's where I come in. They are here in Phoenix but not in CA.
I usually get $20,000 or $25,000 option fee per Tenant Buyer. That's one thing that makes this type of investing so attractive. I did Fix & Flip for years but when I switched to Cash Flow things really took off.
Here is how things compare:
The first two are threads on Bigger Pockets regarding Flipping and the third is what I do and what I provide my California investors.
1. Most recent flip numbers compared to HGTV
https://www.biggerpockets.com/forums/223/topics/343683-most-recent-flip-numbers-compared-to-hgtv
2. How would you describe REI to a HGTV Fanatic?
https://www.biggerpockets.com/forums/48/topics/666321-how-would-you-describe-rei-to-a-hgtv-fanatic
3. 3 Ways to Wealth in Real Estate – Fix & Flip, Buy & Hold, Turnkey (Cash flow) – Here’s How
- Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes6y
Originally posted by @Paul Wolfson:
@Allen Tracy I considered out of state BRRRR as well, but after the rehab and refi, the cash flow wasn't that great. I'm considering Buying and moving into a house with a detached garage and converting it into an ADU (house hack). The cash flow is nice, but requires to park so much capital up front.
Curious if anyone ran the numbers comparing the returns on both strategies.
I live a house with an ADU in La Habra so I am familiar with the numbers. But I think you may be looking at BRRRRs the wrong way. You should be getting most if not all of your money back out on the refi so returns are not going to compare to buying a house with an ADU. Considering the costs to build the ADU and its potential income, the ROI is very high. But you have to consider the cost of the house as a whole. If you're in the market for a primary home, then this may be a great option. But double check your numbers if you intend on renting both the house and ADU. I have a hard time believing that you'll get a better ROI doing that vs a BRRRR. I'd even say you can get better returns on a turnkey.
But the best question to determine what you should do is - What type of investor are you? Some people just aren't comfortable investing in properties they can't drive to. If that's you, stick to LA. If not, then I'd at least research other options a bit more. Hope this helps! - Los Angeles, CA · Member since 2019 · 77 posts · 32 votes6y
Thanks @Jonathan Oh for your input.
BRRRR can be a great vehicle for ROI since your initial capital is low if you are able to get your money out in the refi, however the the cash flow after the refi is usually rather small. $100+/mo on average, which isn't all that much. Granted you could recycle this money and now do 10 more BRRRRs. I'm comfortable investing long distance if I can get more bang for my buck than in LA.
You hit the nail on the head in terms of considering the cost of the house as a whole.
Right now, my cash flow is -$2,500/mo. This is the mortgage on my current primary residence.
I'm in the market for a primary home, and intend to house hack. Live in the main house with my family, and rent out the ADU for $1,500/mo. That's a significantly higher cash flow than an out-of-state BRRRR, but the ROI is low because of how much capital you invested in building the ADU.
I ran the numbers on renting out the ADU, and only got 3.2% CoC, considering the house as a whole.
- SFH Price: $570k
- DP: 10%
- Closing Cost: $11.4k
- ADU Conversion: $80k
- Total Cash Invested: $148.4k
- PITI: $3,100
- Gross Rent: $1,500
- Reserves: $500
- Rent Savings: $2,500 (current primary residence)
- Cash Flow: $400
- CoC: 3.2%
*Note: Cash Flow = Gross Rent - Reserves + Rent Savings - Mortgage
This is what it looks like when comparing the house as a whole.
- Lewisville, TX · Member since 2015 · 344 posts · 264 votes6y
Syndication. But do your homework!
- Investor · Dublin, CA · Member since 2019 · 167 posts · 134 votes6y
@Paul Wolfson If you buy out of state and invest in cashflow, will that also help you cover your current $2500 rent? Otherwise you're still losing money in rent which will increase over time. I believe LA rents will increase faster than out of state so your gap might increase.
- Real Estate Agent · Muncie, IN · Member since 2017 · 16 posts · 11 votes6y
Originally posted by @Account Closed:
@Ryan Kramer how can you just buy 11 properties though?
If you were to buy 11 properties at $60k a piece, your down payment would be $132k at 20% down. You would need to save the remaining $18k for closing costs and immediate repairs etc.
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