My wife and I are coming into a lump sum of 20k and would like to invest in realestate. I currently have one rental house in metro detroit that I share with my father. It is rented to a friend for 700, and we bought the house for 45k. My question is: where is 20k most effectively invested? I am interested in both long term wealth, and cash flow. I am anxious to own 100% of a rental, but personal finances don't allow me to get a mortgage. In my area I could get a rental ready home from 60k that would bring 900/month on average. Assuming I have someone else (my father) aquire another mortgage, should I look for another house like I have? Find a fixer that would possibly require the entire 20k? Find multi unit where 20k is needed for downpayment?
one idea is to loan the dollars to other people you know fixing and flipping houses at hard money rates. You can easily charge 5 points and 18% annual interest for 6 month loan. That makes you $2,800 in profit in six months or $5,600 in one year. If you do this correctly for a few years you will more than double your money. There is more risk in this so you need good loan docs and trustworthy borrowers. Otherwise buying low cost rental is probably your best bet. Stay away from D market locations. I would go for C+ locations or B- if you can find one near you.
You can't hold a mortgage in your name? Well, I'd find a "credit" partner that will hold the debt in their name and you manage the property. They get a piece of the cash flow but they hold the debt. Take the $20k, put $10k aside for oh crap money and use the other $10k for a down payment on a almost turn key $50k property. After deciding what to give your "credit" partner out of the cash flow, save your net profit. Take the net profit once you have saved up enough money, take your $10k you set aside and buy another $50k turn key property with your "credit" partner. Now you have saved your net profit so you should be sitting on some cash to be there if you need it. Now you have two cash flowing properties that are producing you a good net profit even after paying your credit partner. Don't give your credit partner a 50/50 split if they are just holding the debt. I'd do something like if you're netting $400 give them $100 of the net profits for holding the debt. You take care of all the taxes, insurance, repairs if needed, managing it etc. That's just an example and not actual numbers, but something you can see an example of if you were structuring the deal. Put the property in a LLC that both you and you credit partner are members of that way you have legal rights to the property.
Thanks for all the feed back! All of those options are going to get some consideration. @Justin Thompson, I'de like to understand the LLC a little better. I get that it protects a person's other assets to have a property in an LLC, I think I understand in this senario how the LLC would give me some legal rights to the property that I would otherwise not have? And finally I would like to know what affect the LLC has on the mortgage or debt? Is the loan still in my partners name, separate from the ownership of the property?
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