Help Me Invest 100K!
Last August I bought my primary house under market value and my area is appreciating very quickly. I talked to my realtor neighbor and she said comps for my house are 320k-340k, I owe 235k...so I have about 100k in equity.
My business plan orginally was to tap into my equity to purchase 4-6 SF rentals under market value over a 2 year span , rent them out for 4-6 years (keeping 100% of the cashflow...min. $100/unit or room) then 1031 these properties along with the saved cashflow as a 20%downpayment for a commercial property. My goal was to purchase a million dollar property with a 10% cap rate and quit my day job since the 100k a year would be enough to live off of.
Well this was the plan when I thought I had like 30k worth of equity. Now that I have more it seems like I should have more/better options. My first major goal is to create enough passive income to supplement my day job (I'm an engineer for a major automotive company). I'm willing to do whatever it takes to reach this goal BUT I do work a lot of hours and have a very active 4 year old so I don't have a ton of free time to spend chasing the deal. With my current SF rental I spend next to no time with it and have only heard from the tenant twice in 8 months...I'd like to keep it that way with my new properties!
So please give me ideas on how to spend my money. Thanks!
You may want to look into Mobile Home parks, Smaller apartment complexes, smaller strip malls, etc etc etc . With the amount that you have I would look below the million dollar mark, to keep some in reserves, and dont forget you will have to pay for the appraisal, environmental reports, etc. From what you have said so far I am assuming you like a hands off approach, so I would advise staying away from Single Families and start getting into a portfolio that you can hire a manager or management company to run, and just sit back and get a check. Then just build up some more equity and do it again. If you have problems spending the money just let me know, lol
Good Luck,
Kyle
Sounds like you are in a highly appreciating area. I would get as much cas out of your resisence and rental with the lowest rate IO or ARMs, with fixed payments over the next 5 years, loans (You will find the payments are much less than with conventional amortising loans)
Then, I would get the best rate HELOCs on the propertys. You have now gotten as much Equity out in Cash as you can. Now go out and buy below market 'Good SFRs' or FMV SFRs with Seller carryback loans of at least 10% of each .Ppty.to cut your downpayments to (at most) 10% with new 80% Loans.
Value/Dn Pymt = leverage factor(LF)
$100K/$10k= LF=10
LF x Appreciation % = Your Return
if LF = 10, App= 10
then 10 x 10 = 100% Return
LEVERAGE IS THE NAME OF THE GAME IN AN APPRECIATING MARKET. (Make sure you can cover the payments, though!)[ Edited by pmatheson1 on Date 05/21/2004 ]
no venture no gain
Leverage cuts two ways. If the market stalls or falls back a bit the high leverage can skin you alive.
The general plan is OK. Stay with the plan but use the extra cash to drive a better bargain.
As to your success so far over the last 8 months on the rental. Assume you have gotten lucky. It might continue that way for a long time. Then again you might get the nightmare tenant. Screening goes a long way to preventing this but it will not stop all negative situations.
You also need to consider that you might lose your job, etc. If you are going to pull more equity out of your home and therefore pay higher payments have a buffer in cash that you can depend on if things get bad.
Part of the game is to grow the assets. The other part that is not covered in the books as much is keeping the assets which problems crop up. It is not what you buy it is what you continue to own.
John
[addsig]
did you have a feeling about MF (2+ units) as the next step toward the 10 cap property?
The concern I have w/ SFR is 100% full or 100% empty.