What would you do….

Question

1.  You have 65K cash to spend.

2.  You can't get conventional financing for another year due to a short sale.

3.  You're soon to be homeless and jobless.

4.  You will be moving to the Pensacola/Milton area due to the potential job/RE opportunities/and nice weather.  (easier to be homeless in a warmer climate!)

The above is happening to me, as I work overseas and will soon be back home.  I've been trying to think of the best way to slay this dragon.  I can come up with three options.

1.  Acquire a small duplex outside of town with a combo of cash and/or private/seller financing.  Using the rent to cover most/all my costs to own the property.  Then refinance when I can to get my capital back/pay off private lenders.

2.  Acquire a small home for cash, possibly a mild fixer upper.  Refinance when I can to get my money back to use on another investment.

3.  Rent a place and and make somebody's pockets bigger, but not mine.

Since future income is unknown I'm trying to avoid a monthly payment, I realize taxes and insurance will never go away but unless the property produces money I'm hesitant to borrow any money.  In both cases I want my money back to use on future deals.

What would you guys do?  Am I thinking about this correctly?

Lynn McGeein · Answer

If I could rent a room from someone cheaply in the area on a month-to-month basis, I would do that until I was comfortable with the area and had established the fact that I was staying there and could find employment.  I would live as cheaply as possible until I found employment and what neighborhood I really wanted to purchase in as an investment, and I would then look for a duplex or somewhere I could live in one and rent the others until I got more settled and could refinance my cash out and do it again.  I definitely would not want to tie myself into a long-term lease or purchasing a property until I had more knowledge of the situation.

Jerry W. · Answer

Actually I liked every option but number 3.

Trevor Hartsock · Answer

Been busy with the move stuff past two days.....

Pensacola area is ideal due to the fact that I've been a defence industry guy for a while....so there's a lot of defence type employment I could most likely work my way into.  Plus I like FL, and RE still seems reasonable there.

Temporary living will be a bit of a challenge, I have friends I can stay with for a bit, but like some of you have suggested, month to month rental might be good.  Don't laugh but I seriously thought about buying a used RV to live in as temp housing!

The 65K is not every dime I have, just my max on what I'd want to put towards RE right now.

I fully intend to hit up the local RE clubs and look at as many area's in P-cola/Milton area as I can.  Learn the market.  Since I'm jobless for now, should be able to cover a lot of ground quickly.

If I buy a SFR cash, I intend to live in it until I get some income going.  I can always get all or most of my money back via refi/rental.  The key of curse is to buy it right.

I haven't seen many 2-plex's, of course I'm limited to online shopping till I get State side.

Thanks for all the replies!  Helps me think outside the box!

Jassem A. · Answer

Taxes won't go away but you don't have to pay insurance if you pay for a house with cash if you're willing to accept that risk.  Maybe find a cheap house and live in it and fix it up while you look for a stable job rather than rent.  For the equivalent of a year or two of rent, you might be able to find a cheap house that will meet your housing needs.

Cal C. · Answer

You have to live somewhere when you get there and unless you buy something sight unseen or have someone you trust A LOT look at it, you will be staying somewhere for at a minimum of a few weeks, even for a cash close.  I suggest finding a rental that will take you on a month to month basis, until you can learn the market and then actually buy a property. I much prefer owning, but you have to look at the logistics.

NA Jones · Answer

I can't understand the idea of renting in your position either.  You have a finite amount of funds, and no employment.  Like you said - why transfer that into someone else's pockets?  I would buy a place with a good portion of the cash - preferably a duplex as others have suggested so you can rent out one side and live in the other.  Once you stabilize (ie get a tenant and a job) then you can decide your next steps.

And honestly, if you aren't married to the Pensacola / Milton area (I have no idea what the market  is like there and what 65k will get you) then do some research and find a town where 30 or 40k will get you an awesome duplex ;)

Trevor Hartsock · Answer

The previous 3 homes I bought, I paid retail for and thought I was investing due to "houses never loose value".  Being in the service at the time each move I bought instead of rented.  When I moved I would rent the homes at negative cash flow.....at the time I was only thinking capitol gains not cash flow.

The odds of me buying my "forever house" within the next 5 years is slim and I need a place to live so I'm trying to use my house fund (65K) to buy something that either cash flows while I live in it or when I decide to rent it in the future.

I agree with you guys that a temporary living period will be necessary to learn enough about the area I may want to buy in.  3-4 months is what I'm thinking now.

Marcia Maynard · Answer

I agree with @Lynn M.

I understand your take on renting vs. owning. But your track record doesn't sound too good with owning. Paying rent to someone else would not be a waste if you were gaining something in return... like shelter and time to sort things out. Take some time to get yourself in a better situation financially. There are real costs to owning, as you know, and before getting into the RE investment game you need to build your reserves. Anything can happen and when you least expect it, it will. It could be a disaster or a great deal coming your way! Be prepared for both!

Trevor Hartsock · Answer

Jerry W - I agree.  It's hard for me to make any sense of rent.

James - I really like the 2-plex idea.  Being half way around the world I've only searched online for properties and have not found a whole lot I can buy with cash.....being from Ohio....it's not quite like your Cleveland markets as far as I can tell.  Once I get boots on the ground in FL maybe I'll find stuff that works.

Lynn - Thanks!  Learning the market and area is important.  In fact I've spent all my time looking at properties and numbers.....time to do some market research online....

Steve V - Forgive me for my ignorance......what is a CSI?

La Nae - Words of caution...I like it!

Everyone including myself seems to agree that some real market knowledge and experience will be very important.  I understand that satisfying a personal living requirement and an investment requirement at the same time is tough......having tried to do this 3 times before with total failure, this time I'm choosing to live in an investment and buy a "home" later on.

Here is my issue with renting.  I see it as a total waste of money. Yes it buys me time, and time could equal money.  I don't plan on throwing down hard cash on day one.  I've got about 2-3 months of temp living built into my move.  Call me crazy but when buying real estate with cash I see it as a currency transfer.  I just transformed this currency sitting there into a house, if I need it back later once I get more established I can get currency back via a refi or a sell or rent it.  Every payment I make to a landlord is a small wealth transfer....me to landlord.  I would rather transfer that wealth to another commodity....in this case real estate.  I have zero debt right now, and keeping expenses as close to zero as possible will be key while I establish some income, another reason I was thinking cash for property, no rent/note payment.

Everyone that replies helps me look at this scenario from a different angle and think of things I haven't thought off, great stuff!

La Nae Duchesneau · Answer

Absolutely Not! You are not in a solid financial position to buy real estate right now. Rent something that is not expensive like a mobile, one bedroom apartment or rent a room from someone until you get a job in Pensacola and get on your feet. Take any job you can get even if it's for $10 an hour and pay your bills and try to save. Meanwhile, you can be looking for a job that pays your more money for what you have experience in.

It is admirable that you want to invest in real estate, and you have great ideas. But you are not strong financially at this point in your life. This is a great goal to have though and you are smart to be thinking that way.

Just get your ducks in a row first. You don't want something to happen to your small duplex or whatever you buy and then you can't afford the fix and you go into foreclosure.

Move first, get a job second and then go from there.

What would you do….

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