If you were starting, investing for cash flow, and had $100,000, what would you do?

29 Replies

Hi, looking for input.

I live in Atlanta, and am looking to start investing in real estate next year (there are various reasons for this timeline). I am interested in investing for cashflow.

I am not "handy" and not interested in being a hands-on landlord.

Any suggestions?

Depends on the return. Is this money part of a 1031, IRA, 401k etc.?? or is it cash free and clear??

How you invest the money depends on where it currently sits and issues deploying it.

The return you are seeking annually off that 100k plays a difference as well. Just you just want the return or the tax depreciation as well ??

@Andy Norcia  

I look forward to seeing what others suggest.

Perhaps you should investigate private lending.

Find an honest partner if you really want to be hands off, and let them invest the money. 

Consider a REIT mutual fund.    

If you buy something yourself and hire someone to manage it, you should run your pro-forma calculations carefully to ensure that you will not evaporate your cash flow in management fees, vacancy, unpaid rent, maintenance.

There is no free lunch, especially not in 2014, in Real Estate.  

Originally posted by @Andy Norcia:

Hi, looking for input.

I live in Atlanta, and am looking to start investing in real estate next year (there are various reasons for this timeline). I am interested in investing for cashflow.

I am not "handy" and not interested in being a hands-on landlord.

Any suggestions?

Hi Andy,

I suggest you look into the Midwest.

You can pick up SFH in solid B class area for between $40,000 - $45,000 with net cashflow coming of between $5,000 - $10,000 per property.

Make sure to establish the right people on the ground and they can make it as hands off of as you wish.

Thanks for reading and have a great day.

This would be cash. My brother will probably realize this gain in the next 12 months from the sale of a business. It's an amount of money he is willing to invest for hands off returns.

Does anyone think 15% cash on cash returns would be a realistic goal?

@Andy Norcia your question will get boatload of replies, but my suggestion to you is to start learning the REI business if you want to be in it. The expression "it's not rocket science" is true, but overused to oversimplify REI. There's a lot you need to know. You are starting with a significant amount of cash that you don't want to turn into tuition to the school of things I learned the hard way. If you don't know how this stuff works, it's like handing over your money to someone and saying, here, grow this for me. Man, that's a huge (careless) risk IMO.

"Never invest in a business you cannot understand." --- Warren Buffett

@Robert Leonard
I am reading things on this blog and listening to these and other podcasts. I definitely do not want to spend the cash foolishly. I have a business background but no background in real estate, construction, etc

@Andy Norcia  I think you are on the right track to get some foundational learning in place before you "jump in."  Your business background will really help in this business.

Cash is King, so you will be in a good position to take action, when you are ready to pull the trigger.

There are lots of ways to invest and be "hands off" like you said you want to be.  The more you learn, the more will be drawn to strategies that will fit your investing/business philosophy.  You don't need to spend years reading and learning, but just don't rush into anything before you understand it.  That's my main point. 

I hear this "jump in and figure it out as you go" way too much.  You'll never know everything and you should expect the unexpected, but when you make decisions based on sound strategies that you understand, you eliminate a lot of the uncertainty (anxiety/grief).

I totally agree " establish the right people on the ground "

Good luck moving forward.

@Andy Norcia

You could answer that question a thousand different ways and there are a lot of unkowns as well to this questions sordof like what @Joel Owens is talking about. It is not quite as simple as the stated question. 

However, I will try to answer in a simple and basic way that will maybe shine some light on your question. 

Hands off RE Investing for Cashflow:

1. Find a landlord friendly state. Crap will happen in REI and in landlording, when it comes to tenants I think a mistake investors make is by not first of all finding a landlord friendly state. Example I do rentals in Indiana near Chicago. Eviction time is 2 weeks 10 minutes across the state line now in IL eviction time could be up to 6 months some times. If you are leveraged or free and clear either way you are losing cash.

2. Since the question was about hands off investing. The second thing you need to do is to find your property management team and then a back up and then a back up. If you want to be hands off you will need your management team in place and to keep your cards stacked in your favor always have another PM team ready to go.

3. Once you have this ready now you can start narrowing down your selection of where to invest. I do agree with @Engelo Rumora   that the Midwest can offer some pretty good terms, but now you will face a little hurdle in travel for yourself. But still great returns. 

4. Also one thing you should look for is to determine what type of house you want meaning what type of area. A--B--C--D--F first let me dispel the belief that you cannot make money in F areas or D areas you can make money in any of those areas. But each area comes with its own headaches and its own negatives and its own positives. It is very wise for you to know what you are getting into before just buying a house. 

5. Last piece of advice I will give you is this. Remember in school you did not just make an A--B--C etc you could make an A+A- B+B- C+C- etc and RE is the same type of thing. One approach is to by in a C+ area get good cashflow and watch over time as your property may become a hot bed for flipping, so now you increase in equity as well. But if you are not careful your C+ area could go down to a C- area and you could lose value and that approach is the same for B+and B- etc. 

Anyways I could go on for days. If you want any more thoughts just let me know. 

Good Luck investing. 


Andrew

It's harder to be passive and do 15% COC on 100k.

My clients are passive but the will partner 3 to 4 with 300k to 600k each for  a larger 5 million property.

I also have high net worth clients with million and millions to invest. When you can go large you get the better loans and scale with structure to be hands off. You have to manage the manager but with that size it is not that difficult even remotely investing in other states. 

I concur with @Engelo Rumora pick conservative B class neighborhoods in the Midwest.  Here you can pick them up between $30-45k and you'll be looking at a projected cashflow between $4k-8k cashflow a year.  

Originally posted by @Adam Gerig:

I concur with @Engelo Rumora pick conservative B class neighborhoods in the Midwest.  Here you can pick them up between $30-45k and you'll be looking at a projected cashflow between $4k-8k cashflow a year.  

Thanks Adam

Have a great day.

@Andy Norcia It looks like we're neighbors.... I concur with others - there are an infinite number of answers depending on an infinite number of variables. My 2 cents: Use the time between now and the date next year you actually have the cash in hand developing a relationship with a good realtor and property manager specializing in SFR leasing/management. If your banker doesn't finance investment properties, find one that does and get pre-approved at as high an LTV as possible - 75%, but push for 80%. Let the Banker know you have $100,000 cash for a downpayment, and get pre-approved for as much house, or houses, as you can. Let the realtor and property manager know you want to buy rental properties in the school district of good to great public elementary schools around you - Medlock Bridge, Simpson, Summit Hill, etc. and purchase as many properties as you can leverage with the $100K (put down as little as possible). In that area, I would only consider SFR. After all expenses, debt service, property management costs, you will have positive cash flow and in those school districts, appreciation over time.

Good luck! 

For me, I would buy a SFH REO [or two] in your area [or Indianapolis] for under $40k and then rehab it with the other $10k. 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.

@Andy Norcia  

it depends on a lot of factors. I would start by defining your objectives--how much cash flow you need and how soon you need it. That will drive how many properties you need to generate your desired cash flow, whether you pay cash or finance and even what markets you choose. Personally, I would not invest in your hometown. Atlanta has been fairly well played out and there are much better cash flow markets with better ROI. If you don't need all of the cash flow right away and are trying to maximize future income, I would finance 4 properties in the Midwest (assuming that leaves you with good reserves). I would then apply all of the net operating income towards the mortgages and pay them down in about 10 years so you own them free and clear. After that you can do it all over again by taking cash out of the 4 properties and using it as down payment for more properties. This is a fairly aggressive strategy for building future retirement income. Your situation may be different so this might not work for you. Regardless of the strategy, I would take a close look at Indianapolis and Kansas City. In my opinion, those are 2 of the best cash flow markets in the country and are very affordable. I know both of these markets well. Feel free to reach out if you'd like some more thoughts on either.

Mike

Andy, If I were you I would do a combination two things to increase your portfolio and cashflow. 

Figure out which city is going to appreciate in the future the most. (I am no expert on this but, fundamentally find a city that will have huge population growth in the next 10 years compared to the available housing in the next 10 years) 

Then I would purchase 4 "cookie cutter" homes with a down payment of 20-25k each. (cookie cutter as in 3/2 homes)

Receive the cash flow from those 4 property's and sit back and watch the appreciation take in the next 10 years.  

Easier said than done though. I would suggest looking into citys like Houston, TX or Raleigh, NC

I would also figure out what kind of return you are looking for. Generally on a minimum scale I will not even consider a property unless it has a 10% Cap rate. 

Hope this helps! Good Luck! 

Originally posted by @Shawn Holsapple:

For me, I would buy a SFH REO [or two] in your area [or Indianapolis] for under $40k and then rehab it with the other $10k. 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.

@Shawn Holsapple: Thank you for your post here.

I'm in a very similar situation to the original poster. With a couple of moving parts (own a rental with a lot of equity but it's a monthly alligator and W-2 very low because we own a business and take the bulk of our money in draws.)

Anyway, your very simple (in a good way!), straightforward post HELPED ME A LOT. Has me thinking!

Have a great weekend.

Tommy Coburn Seattle WA

Sounds like you are risk averse. I would look at lending it or investing it in private money firms. Many I've looked at pay decent returns and most will give you a real performance data for atleast 5 years. Definitely don't give it to a guru, and if you must buy something, bang the numbers off the forum guys - they will pick it to death and you will get a better idea of the real costs involved. Good luck.

At what lump sum of cash figure would you guys recommend simply finding a real estate investment group who specializes in pooling money with other investors with big sums of cash to buy the 200+ unit multi family housing properties that cost millions of dollars? 

@Ben Robertson  now you are talking about syndication and you probably want to start a new thread on that subject instead of continuing that conversation under this posts subject.

@andy 

@Andy Norcia  you mentioned you have business experience so I'd identify which aspect of your current experience enjoy doing and then see what real estate investing path aligns most with your interests. 

You can make money with any real estate strategy and there are plenty of people on BP who can help you with that. 

I can tell you what I did and I probably went about it all wrong because I dont know a lot about investing yet. I did have 100K when I started. I bought a rental to begin the positive cash flow putting 25% down and mortgage the rest of it. The left over money I have been using as buy and flip money building back to my original 100K. I got my lumps along the way of what I did wrong and what little I did right. But Im learning!

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.