If you were just starting out and had $150,000 to invest in real estate where would you begin?

261 Replies

If you were just starting out and had $150,000 to invest in real estate where would you begin? ( This is me! I would like to have at least $4000 a month in income by the end of the year.) 

IF you pick the right market, and you have good credit, you can easily achieve that.  The key is to be able to use that $150k more than one time...actually have an unlimited use of it.

Here in Michigan, one of the best markets to do this in, That $150k would get you started with your first two rental properties.  Funny, but I just analyzed two deals where this would work perfectly.  I should get them at the price I need based on, too long an explanation for this post.

I just partnered with someone from out of state that is starting with almost the same situation you have, with the same goals, and she should be where you want to be within 1.5 years.  Could be faster, but she's new and I don't want to move faster than she can handle to start with.

The hardest part is to invest in the right market.

Anything is possible I suppose, but 4k in year sounds very difficult to me. Are you talking net?

If it is possible can anyone give some hypothetical examples? Hey, I want it to be true, I would love to pull in 4K per month net off a 150 investment!

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$48K cash flow on $150K? Ummm...

Love the high bar goal, but that is a ~31% cash flow return on your equity. Flipping a home, perhaps but a direct real estate investment in home rentals or apartment building is probably not going to hit that lofty goal. Unless you see a ton of deals and can identify, lock up and purchase the dream apartment building investment (mom & pop seller) who has no idea what their property is actually worth perhaps with equally low in-place rents, you're probably not going to hit this goal. 

Some mobile home park investments can cash flow that high, but not if you don't know what you're doing. 

If you're looking for $4K in monthly cash flow to quit your job, and aren't afraid of hard work. I would do one of the following:

1. Learn how to wholesale deals - spend time and/or money getting educated - this includes taking successful wholesalers to lunch - ask a ton of questions.

2. Spend a $2-$5K (mailers, website, targeted ads, etc.) of your $150K on marketing to find great deals (motivated sellers). You're going to need a lot of inbound leads. 

3. Go to local RE investor meetings - meet deal guys / girls that you can wholesale to. 

If you get the front end (inbound lead system) set up correctly and continue to feed the marketing beast with reinvested capital from your first couple deals, you should have a steady flow of new deals that you can assign for cash. 

Putting $150K into a duplex / small apartment building is not going to set you free anytime soon. You need to think about building a business to hit this level of cash flow in a year. 

While we prefer real estate syndications to leverage your time and money vs wholesaling, it still will take longer to hit $4K in free cash flow after you pay your investors their preferred returns. Wholesaling is probably the highest probability path to income replacement for you. 

When your wholesale business is on cruise control and after you've learned a ton from seeing the deals your investor contacts / contract buyers love and hate, you can step up to the ownership big leagues and start raising money from private investors. 

Once again - invest in yourself first, otherwise you can take the $150K to vegas. 

Originally posted by @Mark Masiel :

Anything is possible I suppose, but 4k in year sounds very difficult to me. Are you talking net?

If it is possible can anyone give some hypothetical examples? Hey, I want it to be true, I would love to pull in 4K per month net off a 150 investment!

 Me too!  ^^

It's easy.  First you have to have the right market to make it work.  Markets out west, or on the coast, or near DC don't work since their cost to buy is too high to cash flow.  You have to buy with cash and refi it out, then keep repeating the process.  You never actually spend the money, but you are using it multiple (unlimited) times.  Each time it is used, you get it back from the refi, but you also get cash flow from the property it is "leaving".

Depending on your source for funds, and how many and often you can refinance, you CAN do what @Gina Dovel  is looking to do.

Thanks for the replies! I understand my goal is lofty! But I really want to know what others who are experienced would do first if they had $150,000 to spend.

Originally posted by @Gina Dovel :

Thanks for the replies! I understand my goal is lofty! But I really want to know what others who are experienced would do first if they had $150,000 to spend.

 You goal isn't lofty.  Your goal is your goal.  Now figure out a way to get it...and you can.  That goal is well within reach.

I dont know about bringing in 4k a month. But what I would do is start with lots of research and patience. Personally I am not afraid of a mortgage in this scenario, because it frees up more cash for more investments which will give you more income per month while someone else pays for the house via rent.

Next I would find the areas that I will get the best return on rent vs what I pay for a mortgage, though personally I tend to avoid dangerous areas just because thats more than I want to deal with, it opens a whole new can of worms.

I would find a house in good shape, not too big, 1200sq ft to 1800, at least 3 bedrooms and 2 baths. Make sure the big ticket items are in good shape and will be for a while. The roof, the foundation, the heater and AC, plumbing and electric. If I can tick all those off as being good for many years to come I am happy. I would look for a house that was cared for but out of date and give it the renters polish. Tile floors or high durable and water resistant laminate/linoleum etc, new coat of paint on the inside for sure, maybe new paint on the outside as well if really needed and get some reliable but not fancy appliances. Then lather rinse repeat until the banks refuse to do more mortgages. This is how my mother has done it and she is probably making about $1200 a month in rental income after paying the mortgages from 3 properties. At this point the renters are paying off the loan and she is just making money from them.

I would put a chunk of money into a savings account for any repairs on the rentals, then use some of the remaining money to do a flip. If I could get 15k out of the flip I have made $1250 a month over the year for it. If I am making $1200 off the rentals thats just short of $2500 a month for the year. If I could flip more than one then that would increase as well.

I know some people prefer to pay cash flat out for a place and then reap the full payments back in rent, but there are pros and cons to both as far as being able to invest more or dealing with interest, the above is just how I would do it.

Leverage rental properties like crazy! That's what I would do.

I would get a plan

What are you going to buy, where are going to buy, what type of 'sweat equity' Are you willing to put in.

Money is the easy part.  Defining your goals and finding great deals is the hard part

@Gina Dovel  A couple of days ago there was a question on what to do w/ a $1M.  I just net a Million Dollar Game.  I responded to the post w/ the answer below.  The numbers will be different in your market but the strategy's rather simple.  Leverage hard or private money to flip a few properties, use your $150K to cover the gap; then purchase some buy and hold properties w/ the profits.  

Kelly Foydl Earlier this week we sat down w/ some investors we've been working w/ for a while. Their original question was how to turn an $350K inheritance, making less than 5%/year in to a portfolio that would throw off more cash than their income. They had also just been pre-approved for some HML loans & some conventional loans. Here's what we worked out on paper. You just have to triple the numbers if it was $1M. The newbies are in their late 40's. The numbers we used are typical for Single Family projects we've been involved w/ on Chicago's southside & we used them to illustrate the art of the possible.

Step 1: A renovated brick bungalow on Chicago's south side on the right block, in the right condition, will retail between $150K to $200K. These bungalows can usually be purchased between $25 to $40K w/ gut renovations between $60 & $80K. So you're all in number is around $100K. Some will be more, some will be less. The gross margins is $50K. With their lender providing 65% of the ARV as a loan the cash reserves they need per project will be ~ $20K to $30K. Mathematically they could do 10+ projects but we settled on 8. Using a 6 month time line per project would mean 16 projects per year; with a gross before taxes of $432K.

Step 2: Take 1/2 of the earning & use it for down payments on cash flowing properties.

Step 3: Repeat Step 1 & Step 2

Step 4: At the appropriate point move in to lending.

Step 5: Every time you finish a project reward yourself

This is naturally a perfect world plan & stuff will happen the 1st time the plan has contact w/ the real world. But it's a plan that's relatively safe because of the amount of the cash reserves available for stuff that's bound to happen.  

Here is what I am thinking to do with the $150,000. 

1) The money came from a refi on my personal home that I previously had no mortgage on. I would like to buy a rental that will cover the repayment cost which is around $770. I would like to pay no more than $50,000 for this rental.

2) With the remainder of the money I would like to buy a house that needs rehab that I could make $20,000+ on. 

3) After I sell this rehab I would like to do the same thing again with another house. 

Have you any idea how many times this type of question has been asked on these forums? I'm amazed you have had so many responses!

Good luck anyway.

@Gina Dovel  I think you're heading in the right direction, but you're thinking old school and placing limits on your cash power this way. Your goal of using the cash flow to pay your new mortgage on you residence is a good idea, but it should be accomplished as part of the plan...not the main goal.  Here is what I would suggest:

1 - Focus on repeated use of this $150k, not just a one time use (as you suggested for paying down your primary).
2 - Use the funds to buy a series of cash flow properties.  You will refinance each of them, using the funds from the refi to buy the next one.
3 - Repeat.  This way, that $150k should have an unlimited lifespan.

I can give you a current example here using the market I know here in SE Michigan.

Rental Profile:  3 Bed/1.5 Bath; 100 sf ranch:  Bank Property
CF (w/PM & refi) = $325/month;     Cost all cash = $ 50,000 (w/rehab);      ARV = $72,000

Steps - 
1 - Buy/Rehab property
2 - Place tenant & refi within 2 months at 70% ARV = $ 50,400 (fees are less than $400)
3 - Use refi cash to repeat on next house, and so on and so on, and so on, and...
4 - Each repeated use of funds (the same funds) = a rental left behind @ $400/month
5 - With $150k, you could be doing this 3 at a time, so your $150k could be = $1500/month per use.
6 - 3 uses per year generates $4500/month/year, and...
7 - You keep going.
8 - Another great part is if you look closely, you are never actually spending your $150k since you keep getting it back after every refi.  Refi the last 3 houses, get it all back, never having spent it.

I would wait until the market dips and buy 5-6 distressed homes in our market for cash and then owner finance them. Clear about $700 per month on each on and I am not a landlord. That's the only way to invest in residential for me. 

I think that is a very high goal and not easily obtainable unless you leverage into several properties. Simply buying one or two and expecting that kind of return would be nearly impossible. I would ask: are you familiar with your market? Are you willing to be an absentee landlord or do you want to purchase in your area? Are you able to obtain financing to be able to leverage your cash? Do you have reserves or is that 150K the total you have available? Before you jump in, do your research. Remember: it is sometimes a LOT easier to get into a deal than get out of one. Take your time, study, ask questions, and be careful. It probably won't make a difference if you buy something within 4 weeks or 4 months....but it will make a big difference if you buy the right one.

@Joe Villeneuve  

Who on earth will give financing on these repeated properties you post? I mean in real life this person states they already have a loan to get the $150k.................doesn't a small thing like debt to income ratio get in the way?

It really sounds wonderful but it really looks like a house of cards.

If you want buy & hold you will have to be very selective and very patient. I look at my first rental. I am all in for $32k, rents for $975/mo. Nets me around $530/mo. 

You would need 8 of these. I just don't see them anymore in my markets.

Originally posted by @Jay C. :

@Joe Villeneuve 

Who on earth will give financing on these repeated properties you post? I mean in real life this person states they already have a loan to get the $150k.................doesn't a small thing like debt to income ratio get in the way?

It really sounds wonderful but it really looks like a house of cards.

 How about a smart investor that understands the difference between debt...and debt?

Keep your money and use other people's. There are several lenders that will provide funding for flips at 65 and 70% of ARV with little money out of pocket. US Commercial is just one. If your partner has experience in flips, the money is out there.

I look forward to working with you in NC.  Nick Patterson is right.  Have a plan and work the plan, the money is the easy part.  

Joe Villenueve is right.  On fix and flip scenarios, debt ratio of the borrower doesn't come into play.  The  job of the rehabber is to buy it right, rehab it to be comparable with the best properties in the neighborhood and then price it correctly to sell within 90 days from purchase.  The original onus is on the property and structure of the deal, not the debt of the borrower.

Buy a single family home.

Find a specific investment area near you (when I did this, I picked 5 average neighborhoods near me) and study valuations. Look at every house on the market, look at every house that just sold, etc. Once you have a good idea of the average psf, then begin making offers on a single family home that brings a realistic return on investment (for your area).  This experience will be worth way more than $4,000/m, but not in your first year.

@Joe Villeneuve

Joe...........you never answered. Just more smokescreen. I maintain House of Cards

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