How would you invest $500k to start flipping?

48 Replies

I inherited a property that is in the process of being sold. Once the deal closes at the end of the month I am looking at paying off all debt and have the opportunity to continue investing in real estate in the sum of about $500k. My wife and I have a couple of rental homes which cash flow nicely. One of them is paid off and the other has a balance of about $60k. Other than our rental homes we are total novices in terms of flipping, wholesaling ect. but have read a few books, watched some YouTube videos and read a lot on this site. I guess I’m just trying to figure out the best approach to grow a business that will allow me to retire in about 10 years. With our personal home (paid off) our two rentals (valued at about $350k for both) and this lump sump- we hope to cash in our chips and live overseas and I’m seeking strategies on the best route to do that.

Would you buy a couple more rentals in cash and put 20% down on another and let the extra cash flow pay it off and then maybe get another in a few years?

Is it smarter to buy a couple wholesale, flip and then rent?

Is wholesaling where it’s at?

There is a realtor that works with a contractor that I met recently that could help us potentially flip to sell?

Where would you start to grow a business that you could liquidate in 10 years if you had $500k?

Thanks for any input and advice!

There's a lot to digest here. If your ultimate goal is to go overseas then I would say creating a powerful cashflow portfolio might be a really good option imo. Something that you can manage from afar and still reap the benefits. With that kind of money, I would consider commercial multi-units. I know a handful of investors who set themselves up for life while creating a legacy to pass on to their posterity that way. I hope that helps and best of luck and congrats! If you have questions about finding good commercial multi's PM me. 

If cash is tight (even with $500k), financing your rentals will always make you more money than paying fewer off in full.  Run the numbers on using $200,000 on buying 1 property outright, versus 5 down payments of $40,000.  Leverage is power.  We have 24 rentals (40 units).  We see rentals as the bread and butter, and the flips as the gravy on top.  Just be sure to account for taxes / capital gains up front when you sell your flips.  
We’ve done 4 flips… biggest lesson so far:  cosmetic flips are where it’s at.  Don’t bite off more than you can chew.  We took on a 1925 house that has taken 4 times longer than a cosmetic flip that we will make the same amount of money in the end.  

Wholesaling isn’t our gig… but we will buy from a wholesaler.  It’s probably more about your skill set though.  You deal with a lot of crappy situations on either end of wholesale deals…. Divorces, death, bankruptcies … and usually the person selling their house is losing out, while you gain.  it takes the right person to say, ‘that’s what I want to do every day!”

We have been impressed with the appreciation in our portfolio over the past 3 years.  We have some properties that we have sold for 2.5 times their purchase price in less than 2 years… like buy for $55,000, put $10,000 into the unit, and sold the property for $160,000 two years later!  You can’t predict the future, but having a fleet of rentals has allowed us to sell a few off for some great profits! 

All the best!

Randy

@Adrienne Binder If I had the capital and wanted to learn how to wholesale or flip, I would probably invest a little in myself and attend an event like Flip Hacking Live. The event is filled with successful investors and very transparent about the systems and processes they use. 

Also, I like @Frank Rodrigues ' recommendation to consider commercial multi-units. Depending on your interest you could pursue that as an active or passive investor. If you invest as a Limited Partner (passive), you can earn pretty solid returns, take advantage of bonus depreciation to offset active income from flipping or wholesaling, and ultimately when you get ready to move overseas it's very passive so you can easily continue to invest in that strategy without any major adjustments. 

Cheers, 

Marcus

@Frank Rodrigues Thanks for the advice! I hadn’t looked into commercial multi units at this point in the process. I was talking with a friend yesterday about how with the changing world amidst COVID that commercial real estate might look a little different with so many companies opting to work from home. What are your thoughts on this? Do you think it will continue to stay strong? I’m a total novice on this but we were just tossing the idea around.

@Frank Rodrigues and yes, this has been a lot to digest. We are trying to navigate the right strategy before we put any money into one particular direction and it’s been challenging to piece it all together to get the vision to take our next step. I appreciate your help!

@Randall Alan Thanks so much for your response! And congratulations on your successes with your rentals!

I recently met a realtor that works with investors specifically and finds properties to flip. She has a team that will then manage the flip and then we could either sell or rent out the unit. I'm sure we wouldn't make the same if we managed it all ourselves but being novices it might be a good place to start? After processing over the last few days, I have been thinking about starting with a couple of rentals for the income flow (we have two already but want to add two more) and then get one or two flips going and gains there would be future investment into more rentals… I understand on paper you can finance the rentals and make more but it's really hard for me to not have that side of things debt free and just get a loan for the flips and put 20% down for those. The rentals that we target are $165-$170 turn key and return $1150 after all expenses each month. The area is back in my hometown. The area that we want to flip in with this realtor is where we live in the Houston area. My wife and I have good credit, established our LLC almost 2 years ago, have our first two rentals paid for and have this lump sum to invest

… how much do banks lend to people like us? I guess we need to talk to lenders next to get a good gauge on what we can do.

I appreciate your perspective on the wholesaling part and I do think that will probably be off the table.

@Marcus Long I’ll have to check out Flip Hacking Live. I’ve been reading several of the books that I’ve seen suggest on BP and watching some different investors on YouTube but I’m always looking to learn more. I guess everyone starts somewhere but no matter how much I read it seems like there is still so much that I don’t know and I don’t want to think I have it figured out and take a leap in the wrong direction.

Where do you suggest looking into commercial real estate? I like the idea of not having tenants to manage when overseas but haven’t considered that avenue. I’ve seen sites like Fundrise where you can invest passively. Are there other avenues? Maybe look at finding commercial realtors in the area?

Thanks for your response!

With regards to the debt portion of your concerns, I would suggest you read Robert Kiyosaki's Rich Dad Poor Dad book.  He explains how there is "good debt" and "bad debt".  To really cut to the chase, "good debt" is debt that makes you money, and "bad debt" is debt that doesn't (when you buy material things that just sit there).  In short, if you could make $4,000  a month, versus $1,000 a month, you really have to ask yourself, "Why wouldn't I want to make $4,000 a month?" when your tenants are covering all the debt expenses associated with the properties.  In addition, you get A LOT of tax write offs with real estate, including deducting the interest on the mortgages of the financed properties, so I would encourage you to work on rationalizing the idea that having a mortgage that returns positive cash-flow is actually a good thing.

Every location is different, but we target $75,000 - $100,000 homes that rent for $1,000 a month.  It's all about what is in your area.  But the idea is to buy as cheaply as possible, and rent for the most possible.  When we do that, our net return per financed property is about 1/2 of the total rents.  It has really worked out well for us.

Finally - know that property management will cost you 33% of your PROFITS on a financed property.  So free and clear properties have an advantage there, but there just isn't that much to do in managing a small amount of properties.  We managed 20 doors while maintaining full time jobs.  By the time we got to that level, it was getting a little busier (and we had enough income to start quitting our corporate day jobs, but still nothing we couldn't handle (recognizing the amount of gain we were getting from it).  It's all about systems.  One of the best ones we found was "RentecDirect.com.  It collects our rent, markets our properties, screens our tenants, tracks our expenses, etc, etc for about $4 a month per door.  Can't say enough good things about it!  

All the best!

Randy

@Adrienne Binder That is great that you have been working on the education piece through reading and other mediums. Aside from the phenomenal cast of speakers, I think one of the great things about Flip Hacking Live is being in the same room and connecting with the caliber of investors there. If you put some effort into building relationships, those people will be there for you to reach out to when you hit speed bumps in your own journey. 

I personally have never invested in commercial real estate through Fundrise or any similar platforms, but rather directly with the operators through 506(b) or 506(c) syndications. I eventually moved to the active side of these types of deals, but still hold multiple passive positions. The most active part for a Limited Partner (Passive) is finding a General Partner (Active) that they trust and that their investment goals are aligned. Once the investment is made, it is very passive for the Limited Partners. I'm happy to jump on a call sometime if you want to learn more about the structure of these investments as well as share things I learned from my passive investments and the types of questions I would be asking the General Partners. 


Cheers,
Marcus

@Randall Alan

I actually have Rich Dad, Poor Dad sitting on my bookshelf! I’ve read it and I totally get it. I’m a number cruncher and love looking at the possibilities. However, it just doesn’t sit well to have that much debt long term for some reason. Even though I know in my head that the numbers work and the gains could be so much higher and it’s “good” debt. I also play the penny slots when I go to Vegas and only take $20 with me if that explains anything. 😊 Lol…

@Marcus Long After processing everything this week I do think that we are leaning more towards the passive commercial and/or syndication side of things with a bit of our seed going into flips in our area. As we move forward we are going to be researching projects and specific groups that specialize in this sort of investment. Do you have a website that shows past/future projects?

To me, syndication is a lot like the stock market.  You put your money in, and you sit back and watch it.  Hopefully it performs well.  Hopefully the money managers (Sponsor / GP) are good and reputable.  But much like Elon Musk tweeting on his airplane about taking his company private and then his stock tanking, you, as the investor are just a passenger on the plane and have absolutely no control over how things go, or what the people managing your deal will do.  In addition, syndication necessarily puts layers of management / overhead in-between you and the maximum profits you could make with your money.  While syndication probably offers a far better return than the stock market, it usually won't touch the return you can get from a self-managed property.  So you have to decide what level of return you are satisfied with, and what level of work you want to do in a deal. 

For us, we are good with managing our properties.  Anything we can't handle, a phone call can.  If you like control, you will like self-managing.  Sure, there are days where you say, "Man, can another thing break today... and then it will."  But there are plenty of our units where we haven't seen our tenants in 4 years... they just pay their rent and time goes by.  It's all a balance.

All the best!

Randy

@Randall Alan I completely agree that once you invest in a syndication as a passive investor you give up control of the decision making for that investment. However you do have control of who you invest with. I would not personally compare it to the stock market because (among many other reasons) it is difficult to get to know the CEOs or the companies that you are investing in the stock market. While there are certainly some large syndications in which that might be the case, I wouldn't "hope" that the Sponsor/GP is good and reputable..... I would take the time to get to know them. For syndications that I have invested in passively, I know the GPs well enough that I communicate with them (not specifically about the investment) every 1-4 weeks.   

Originally posted by @Adrienne Binder :

@Michael Plante Out of curiosity- what market do you find $80k properties in? Do you have a target area that you invest in? We are looking at flipping in the Houston area and I haven’t seen anything near that price range.

I set alerts on Zillow as well as checking it 3 - 5 times a day 

As soon as a property comes up for sale that matches my criteria I have already thoroughly researched  the area 


I google the agents cel number. Text them a photo of my drivers license and a screen shot of one of my bank account to show proofing funds.   I tell them I want to put in an offer for $x no contingencies, no inspections  close ASAP 

found a good one Friday   I have it under contract   Found another this AM have it under contract 

Gurus try to make things so much harder so you buy their books and courses 

 Here is what a 30 second search showed me in Houston 2 BR 2 BA 90k less

it’s up to you to researching these are a go or a no 

@Michael Plante Wow! I hadn’t seen such inexpensive properties before. My search has always been single family homes and I hadn’t included townhomes in the filters settings. This definitely changes the search results. I’ll have to do some more investigation. Thanks for your response.

Originally posted by @Adrienne Binder :

@Michael Plante Wow! I hadn’t seen such inexpensive properties before. My search has always been single family homes and I hadn’t included townhomes in the filters settings. This definitely changes the search results. I’ll have to do some more investigation. Thanks for your response.

I just  took out out everything except single family homes 
there are 38

@Michael Plante I’ve mostly researched rental properties in the past and so my search is tailored to those areas that I would want to manage. I’m just recently branching out to the flipping side of things. The only areas that I see single family homes under $80k are in areas I wouldn’t drive through. The townhomes might have potential though. I would definitely need to crunch the numbers and investigate the recent sales in the area to get a better gauge.

I have no idea about anything in TX. It’s up to you what you are willing to do or not do
you wouldn’t drive through

Pearland 

Manvel

Holiday Lakes 

Angleton 

If. It then chAnge it to $200,000

You have 500k after all

We can always find reasons NOT to do it.  I am scared every time I put in offer 

It’s being wise and cautious 

Nothing wrong with that.   
but we can al fall victim to analysis paralysis 

@Randall Alan wow, $4 per month?? Thats impressive! We have had issues getting our tenants to sign up for auto deposit. Do you know if that is an option for the software system you suggested? Does the system tie into the local MLS to post rental vacancies?

We have paid 1 month’s rent for our realtor to find/screen/show our empty property… which is about $2100 each time.