$40,000 saved up. What would you do?

Question

Hey all! New to this community.

I have $40,000 saved up to utilize for an investment property. What is first thing or property you would invest in?

Very broad question I know, but I am a rookie at this, but want to start getting my feet wet.

Doug Morton · Answer

This is tough to answer.

You'll have a hard time finding a good $40k house that will cash flow positive for you.  Looking at the rental house calculator in BP, you'd have to find a home with an all-in price (all expenses and rehab costs) of about $38,500 and it would have to rent for $700 a month.  That's a hard find but they are out there.  See the screenshot.  The expenses could be lessened but I think you'll be hard pressed to find this ideal $40k house.  Good return on investment if you can find it.

You could get investment loans from banks and buy a couple/three houses and use the $40k as your down on them both at 20 to 25% down depending on the bank.  This would be good leverage for rentals. Find three houses or a quadruplex for a total up to $200k with 40k down.  You'll want some money in the bank for a rainy day so you may want to buy less home.

You could joint venture with a bigger investor on multi unit deals.  Make sure you vet who you are investing with...check all references and past deals.

You could joint venture on a fix/flip.  Plenty of contractors/investors out there with deals.  You can make 10% to 12% APR plus a couple points in three months.  Make sure you get an attorney filed mortgage on the property (paid by the borrower) and set up an inspection based draw payment (deposit, exterior, interior, punch list is fairly common).  Again check references and past deals.  12% on $40k over three months is $400 a month for $1200 total plus a couple points (2%) for your up front fee equals $800 - will net you $2000 in three months.

Lots more ways to do this.  I do all the above... I have a couple 40k homes.  It depends on the day if it's a good investment (another blog story for another day).  I fix/flip and there's never enough money so we look for private money.  I've got some owner finance deals where I got control of a cash flow positive rental for $5,000.  Those are nice but hard to come by.

I hope this helps.

Doug

Brian Kang · Answer

@Anthony Susco Thank you for your response!

Goals are to buy my first out of state investment, single family home to generate some positive cash flow. The reason I want to start investing in rental properties is because I would like to generate multiple streams of income.

I am a self employed business coach that recently quit a 9-5 sales job in February 2016.

I've read Rich Dad Poor Dad, but looking for more books on investment rental properties.

Curious if I should utilize the whole $40,000 for my first property, or spread it out amongst multiple properties.

Anthony Susco · Answer

@Brian Kang welcome to BP and congrats on saving up the $40k.  Like you said - your question is very broad.  If you could give us a little more information about you and your goals it would help with suggestions.

Education is probably the first step you should take, but that should be free (at least mostly) and you have already taken a step by joining this community.  Once you provide more information I'm sure you'll get a lot of great suggestions on how to best get started.