How to invest $80k in real estate without financing?

Question

Hello everyone,

This is my first post, I've been a reader for about a week and now ready to ask a broad question. How should a first timer invest $80k in real estate?

First I'd like to thank the regular contributors for offering so much of your time to help us new comers, this seems to be a very supportive and patient community. I've recently decided to make my first real estate investment, I'm very excited but also a little overwhelmed. A little about myself, I'm an entrepreneur in my late 20s born and raised in Baltimore, MD. Strong construction background and handyman ability. Nearly 2 years ago I sold my company and liquidated my entire material life to travel around the world indefinitely. After 18 months on the road, I'm back in my home town to work on my new "life plan".

Here's my situation: I have $80k in cash that I'm willing to invest in real estate, around 75% of my total net worth. Excellent credit, never owned a home, former LLC owner. My monthly COL is very low, I own a houseboat with slip fees paid through the year, car paid off and my only expenses are insurance, cell and entertainment. I generate enough positive cash flow that keeps me in my lifestyle without dipping into my savings, some months even banking money. I'm in zero dept and have nothing but time to jump right into whatever property I buy. That being said, I would like to be ready to sell within a max of 2 months.

In a nutshell, my basic plan is to rehab and flip my first house. Then with the profits from the sale, purchase a cash flow property. This will allow me to maintain my current net worth, increase my cash flow and I'll still be able to purchase my restaurant/bar in paradise which is what I was searching for, for 18 months. Believe me I am fully aware that this is not a strait forward process, this is just my plan.

With so many options in my area, I'm not sure which direction to go in. I'm not out to make a huge profit off the rehab/flip. Optimistically, I would expect to net $25k-$30k. There are a large amount a short sales, foreclosures, auctions, etc, in areas that I am willing to purchase. This is where I'm unsure. Today I attended my first 2 auctions. They were Absolute and held on location. It was a great experience, the process seemed reasonably simple and the buyers will both certainly make significant profits which is encouraging. I've been getting great advice from friends and family who are doing or have made similar investments lately but I wanted advice from veterans who don't know me.

Where I'm mostly stuck is do I invest a large amount in 1 property that needs minimum repairs and is the safest investment? Do I buy a very low cost property that needs an extensive rehab but could potentially net higher profits. Do I wait for the right auction, buy low and sell right away for a smaller fast profit? Should I start looking for pre foreclosure occupied? Given the information I've provided, how would you invest $80k in real estate? Thank for very much for any advice, it's greatly appreciated.

John

Account Closed · Answer

Joel- Thanks for responding. Looking at the quoted statement, I can see how it would sound naive to someone without knowing my background. I was a cook/Chef for over 10 years. Started cooking for pay at 12 and held every job in the restaurant industry from crab steamer to Ex Chef/GM, including bartender and pizza cook. Food is my life and passion, I've been a Chef on a yacht and worked in several kitchens/bars abroad. Also have designed the new menu for 3 restaurants all in various countries. Having managed my own business successfully combined with my restaurant experience, travel experience and cooking skills, I'm extremely confident that I will be an excellent restauranteur.

I have no plans of buying/building a business in America or any Westernized country. To be honest I really don't like it here or there. I only return to make some fast $$ when I feel like it and go back to exploring the world. Running a business, especially a restaurant, in a developing country is COMPLETELY different than operating in the US. Much less overhead and regulations, not the normal ordering headaches you'll find, staff is much more reliable because they NEED their jobs and the stress level is minimal. That's not all the differences but you get the idea. My dream isn't to own a crazy multi million dollar ocean front sports bar on an overly developed island. What I'm looking for is small restaurant/bar/guesthouse on the sea, somewhere in the world, though tropical climate is a must. A very small place with a Jamaican/Tiki style and very laid back feel to it, maybe 10 tables and another 10 spots at the bar, with fusion cuisine of the world coming out of the kitchen made by my own hands. Wood fire oven and grill, chalk board menu, open/close when I feel like it.

I'd much rather buy a turnkey cash producing business with a long lease already in operation. I've found a few of these that I was very interested in. All the logistics that I had in mind were there, Visas, government stability, taxes, tourists, access to stock, etc. I just wasn't ready to settle down yet. One was on Koh Rong, Cambodia, one on Penang, Malaysia and the other in Vava'u, Tonga. However, I do like the idea of buying land and building something from scratch. I'll cross that bridge once I get this chapter of my life out of the way. Any advice on how to invest in this current RE market?

Account Closed · Answer

I should also point out that I am willing to possibly partner with a veteran investor. Since I'm bringing so much to the table, I feel I could be just what a REI is looking for. Liquid capital, great credit, proven business track record, contracting skills, intelligent, nothing but time and eager to learn. Before I get ahead of myself I should keep my head buried in these books and blogs for awhile though.

Account Closed · Answer

Thank you all for your replies.

Marie- I would love to finance my first property and most of the money to rehab/flip. I've spent my entire working life keeping my net worth and credit score high. Unfortunately, I have no work history or proof of income for the last 2 years so it's doubtful anything other than a hard money loan is going to happen. I'm trying to avoid a high interest loan that eats into my potential profits. I'm a gambler and don't mind tying up some cash if I'm confident and educated on my investment. If I could find a way to leverage my cash and new property against a low interest loan, I would.

Ed- This is precisely what I've been doing since the idea became stuck in my head to invest. I have a REA who is also a good friend. He's always done a great job and I have used him several times when thinking about investing in the past but always went in a different direction. REI and PM is his specialty so he's keeping an eye out for what I'm looking for. I've started to look at comps in my areas of interest. I'm keeping an eye on a few properties that just sold and also speaking with all the REAs I know to find out what types of properties are hot and where. I'll keep attending auctions to see what homes are selling for. This week I'm forming an LLC and setting up a new business account which I will use when purchasing this first home. Also, my contractors and inspector are lined up. Are there any foreclosure paid listing sites that are worth the money or do I continue to scour all the usual MLS sites and look for homes in my area with the white paper/blue tape?

Ned- Thanks for the advice. It's great to see someone from our area on this site. I loved reading your blog last night and will continue to do so. I always perform tons of research before jumping into a project so I'm trying to be fully informed before making my first purchase. My problem is more about patience, I'm not good at doing nothing. I literally have no stress and nothing to do at the moment besides research REI and look for homes. If I had the property, I would have a project to keep me busy. I can't stay in one place very long so that's why I would really like to get the ball rolling soon or I know that I'll loose interest in researching/looking and I'll answer the call of the open road again.

I'd love to pick your brain over a nice lunch and a few drinks. I'm living in Perry Hall now. I am a serious foodie and treat my friends very well. I'm sure that I could learn a great deal from you about our market. Who knows, maybe I could even let you in on some of my secrets of how I make my $$ outside of REI. Thanks again, if anyone else has any suggestions or guidance please feel free to chime in. I'll be sure to post more detailed questions as my research continues.

Account Closed · Answer

Great question. Glad you attended an absolute auction. Go to more before you bid. Definitely follow the data on the purchases you observed until there is a re-sale on those props. Or until they are rent-ready. It's not over until its over and you are only guessing that there will be profit.

I'm all for no-money deals in the beginning. Especially when you have money. To paraphrase Dylan: when you have something, you have something to lose. I suggest researching and reading about the many ways you can control property and/or re-sell property with none of your own money. You'll need some of your money for marketing and earnest money deposits and inspections, etc. But I suggest making it a goal to buy something and profit on it without your own capital. It can be done. I did it lots of times when I had way less than $80K in the bank. Actually, there was way less than $800.00 in the bank.

Jeff S. · Answer

There is no right way to invest, cash or finance both have benefits.

When you use cash you can go fast and save time, hassle and expense. This would be great for your light rehabs.

When you get into something more complicated it may be better to use financing because you have other experts assessing your risk, and theirs, thereby giving you an extra set of eyes. These people can know things you don't when it comes to problems, markets etc.

Good luck.

Tracey Williams · Answer

John, If I were in your shoes. I'll settle with your first option Buy one property with less work, rehab and resell, make atleast 10k profit and re- invest my profit to repeat the process. Good luck!

Joel Owens · Answer

"This will allow me to maintain my current net worth, increase my cash flow and I'll still be able to purchase my restaurant/bar in paradise which is what I was searching for, for 18 months."

Going to the bar and owning one are 2 very different animals.Lots of hard work behind the scenes that customers do not see.

I was in the restaurant industry for years and owned one before.It wasn't a bar but the pizza industry.I know the industry very well.

First you need to ask if you want to own the land and building or rent the building??

The downside to renting is the landlord keeps raising the rents making it hard to control costs.The upside is the landlord is responsible for the repairs to the building if you set up your lease correctly.

With owning the real estate you control costs better as the mortgage is fixed and principal is paid down over time.Later if the business goes bad or sales slow you have an asset with the land and building you can sell and cash out.

If you are just renting you and the business goes bad you have old equipment you might get 10 to 15 cents on the dollar with and that's it plus you have the looming liability of the lease with the landlord left.

Why not go work at a bar as a bartender and see if you like the business or not from behind the scenes??

Ned Carey · Answer

John,

You are in my market, Baltimore. You can check out my blog in my signature and it may help you understand the Baltimore market somewhat.

I note you said

The safest investment is the one you understand the best. Don't be in a hurry to invest your money and good deals are always available - cash is king. That some time to learn real estate in general and your market specifically.

There are lots of people here including me to help you stay out of trouble.

Ed L. · Answer

First bit of adipose is to take about two weeks to study your market.

Get on the Mls and search all active listings. Watch for pending and closed listings to get a idea of what is selling and for how much. you may need a re agent to provide you with this stuff so make a friend.

Spend some time driving every neighborhood you can just to familiarize yourself with the market

Once you have a complete grasp of how the market is working I would search daily for new foreclosures, estate, corporate owned etc.

Find a good prospect and have your realtor friend submit a all cash offer with a 7 day due diligence period to perform all necessary inspections.

Have the home inspected. Make sure to get a good termite inspector if they are common I your area.

Close the deal and get ready to learn. You will probably nave plenty of noob problems stating out. If you turn a profit great. Break even great. Lose a little and consider it the price of tuition.

How to invest $80k in real estate without financing?

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