I Have 150,000 Dollars What Would You Do????
Hello, I live on the Central Coast in California and properties are too expensive to get a good positve cash flow..so I was looking into the Fresno area. With this money what should I look for?? I do own a rental in Southern California and this is what I'm interested in, but I don't know if I should buy a big apartment building 8+ units or buy some four-plexes, du-plexes?? I just don't know 
Thank you
How about buying something with a positive cash flow with none of your cash or just a small amout in the deal. Takes some time but no biggy and alot more fun than just laying out the cash for an average deal. Oh and there are unreal deals where you are, some today some yesterday and more tomorrow. Have fun.
Generally this is what I would do had I an extra 150k cash to spend:
1) Buy as many single family homes that would have no problem being rented out asap.
(i.e. are desirable rentals in that area and market) Bread and Butter Homes baby..
2) Use as little of your money as possible per home! Get mortgages on the homes for purchase with the highest possible LTV (loan to value) ratio such as 90%. Your money spent on each property will pretty much consist of the down payment (hopefully very minimal down payment).
3) Rent these properties out immediately. You should at least be able to break even (rent covers your expenses such as mortgage, insurance, maintenance, etc). (I personally love properties which are only break even today, as other investors pass them by for lack of nice positive cash flow; I will explain why this is okay and very good further down)
That money should purchase you alot of homes in a decent market (inexpensive, normal bread and butter houses), such as northern california, oregon, etc.. On the topic of good markets, any reasonable size cities will grow in time, and any cities along major FREEWAYS OR Interstates are excellent market areas.. For West Coast Investors (like myself), focusing investing in decent size cities anywhere along the I5 (California to Washington) Freeway is a great market.. Northern California in addition to kinda eastern California is a cheap buying market (such as Fresno) but it is not along the I5 corridor which all major traffic, commerce, business etc. runs up and down.
My point which I'm having a hard time expressing is that good size cities along major interstates WILL grow much quick and thus have much greater appreciation.. Southern California is a wonderful example on I15 as new cities continue to go up and developement..
Study the market you will buy in, drive around and look around to determine whether or not there is an excess amt of vacant rentals (high vacancy rate), read your local newspaper for rentals, and speak with some local property management companies. From this easy research you will learn if there is a high vacancy rate in that market or a high demand for a certain type of rental and what the average rent is for a certain number of bedroom home.
Knowing the avg. rent, you'll want to buy just basic nothing special homes, whose expenses will be below or even to the avg rent. Try to buy homes that appear to be more in demand, whether it be the number of bedrooms, style, area, location, or features, etc.
For example I could purchase 15-20 homes in Oregon (where I live) with that much downpayment capital.
Play the hard job of "landlording" your single family home rentals.. Its not too hard.. Or you may have a management company do it..
Oh yes, Single Family Homes have greater demand for renting, selling; and higher appreciation per year than multi-family (apartments).
1) Assuming you spend 10k of your money per home you buy;
2) You pay 100k per home with your 10k down;
3) that's 15 homes with a value of 100k each totalling 1.5 Million
Now you are curious about profit, correct? Well we're talking about "investing" are we not?
Your renters are paying all your expenses on your homes.. Say you have 20 year loans on the homes you are profiting in two ways: 1) Mortgage being paid down/off; 2) Property's value is appreciating every year
Thus in 20 years when all your homes are paid off, you will have assetts not worth 1.5 million, but assuming a measly 5% appreciation per year you will have well over 3 million dollars in assetts.. Thus you turned 150k into 3 million dollars.. You will have a positive cash flow over the years as you raise your rents with the market.. And your invested money is completely secured unlike stocks for example..
Chris,
To Toolittletime:
I would use $100k and do exactly what
Chris said. Buy as many rental properties as you can. However, I would
pay no more than 80% of market value and rent them out with a minimum cash flow of $200.00 per mos to cover vacancies and other expenses. I would then use the remaining $50k to buy and sell real-estate with. You need money to make money. Try and hook up with a private investor you can pay 12% interest to with a point or two for 100% financing and use your money for fix-up. You will double your money in no time! Good luck
Jeff
Okay you guys really got me thinking...I was going more towards multi-family, but single family makes a lot of sense. You said along the 5 freeway not the 15 right? I'm very excited to start..I especially like the idea of trying to get in with very low down or no down. I have been working my way through the Carelton Sheets program and trying to find a way in this strong market to do "no money down" Carl, Do you think it would be too hard to buy homes 3+ hours from my home? I also like the idea of flipping and have been reading books on the subject. Any courses or books on investing, flipping that are a must have? I'm trying to get all the knowledge I can so I don't mess up! Thanks so so much for all the great info!! Lisa
toolittletime,
1) cky advice will probably not work with conventional lenders such as banks. 2) His strategy also does not cover vacancies, toilet , roof, heater and all other repair that you'll have to deal with regularly when you have 15 houses in your portfolio. I guarantee it, even of they are close to new condition when you got them!
If you hire management company you'll go bust even sooner then of you try to mange them yourself and that might even be the good news because why bother prolonging agony... Jokes aside, landlording is a job and you have to 1) buy properties right 2) be prepare to be on call when your tenant call you at 10PM because the igniter on the new stow stopped working. Going back to bank financing, they will not allow you to buy more then 1-2 houses, leave alone 10 or more. And, If you want to own 10 or 15 houses, then they rather be close on to another or you'll might end up running around like a "fly without the head".
Anyhow, to get many bread an butter SFR, you got to by them using the unconventional, private party agreement, which is the other and more appropriate name for creative investment. In case you are thinking multi unit up to 4, good lack:
So. California - General Market indicates:
SFR = Expensive - 100% financed buy banks (Housewife/s love them)
4-plex Expensive (Housewife/s turned investors love them)
4+ Now you talking - The bigger the problem the greater the return
10+ Units - more drastic example of the one right above
If I wan to turn your money quicker, I would use 1/3 of the money to secure the right to buy 10 "to-be-built" pre construction houses in Vegas and in time they are about done, resell the right to own them for certain price, doubling my money.
Now, with all the other advises above, you should be fine. [ Edited by omega1 on Date 01/08/2004 ]
Chris--
Isn't leveraging 15 x $100,000 units at 90
% pretty risky? Yes, with appreciation, etc and assuming all goes well, you could have $3million free-and-clear in assets in 30-years, but what if times get tight in that 30-year period?
Omega--
Question: what's (generally) the difference in appreciation between between SFRs, 4-plex, and 4+ ? Just wondering if the difference in typical cap-rates balances out by the difference in typical appreciation rates. e.g. like growth stocks vs large mature div-paying stocks.
Thanks
-J
Why not purchase secured notes?
Chris you are crazy. I can't get any rentals in my area that will not be a negative cashflow situation when finaced with a 90%LTV. Even if I could find such a property no lender will give me 90%LTV on a non owner ocupied home. Even if I could find such a house and secure such a loan, there is too much risk with such leverage. If there was a drop in home prices or an unexpected expense or a vacancy you could end up in foreclosure lose your equity and ruin your credit.
If you play with fire expect to get burned!!
I believe that Chis is kind of on the right track. I also buy and rent single family homes. People often stay there for years. Ihave not ever experienced vacancy's but of course that day could come. I guess that I'd be a little bit more conservative with the money. Id want to keep at least 25K in a money market or somewhere as back up funds. I'd buy low and do a little rehabbing to make them more valuable. Perhaps buy the first few with an interest only balloon for 3 years and then sell those to put the money into the others or into new ones. Man, give me 150K and I'll turn it into 500K in five years for sure![ Edited by Sandbahr on Date 01/15/2004 ]
I am finding this post very informative but have a question about the last comment. If you can get a 90-95%LTV loan, why would you not want that high of leverage? Isn't the name of the game little to no money down? Ofcourse I happen to live in an area where your typical $100,000 house gets about $1000/month in rent.
You got $150K, I got bills. Hey, you can pay some of my bills for me. LOL! Jus' kindin' had to throw that one in. Just in the mood to laugh.
What to do with 150K?
1) Don't tell people you have a 150K.
2) Buying property cheap is 90% marketing. Take 5 or 10k and start a direct mail program to people in distressed situations.
3) Buy property like you don't have money and keep the cash for unwanted cash flow problems. The guy that has cash when evryone else needs it... wins.
Quote:
On 2004-01-15 14:47, elissnurse wrote:
Isn't the name of the game little to no money down?
That may be your game but my game is cashflow. Increased LTV = increased loan payments = lower cashflow. Without a ROI generated from cashflow you must get a ROI from appreciation. You cannot assume future appreciation. Assuming appreciation is speculative investing.
Good healthy cashflow will always save your bacon and right the wrongs.
P.S. I can also buy a rental for $100,000 that will rent for $1,000/month. That $1,000 will not cover expenses and a $90,000 loan
I agree that cash flow can be tough on a single family home. In my area single family homes (average 3 bed) sell for about 85-90K. I try to buy mine for much less and then rehab to increase the value so that I can refinance or use the equity as collateral on another house. I have a tough time making them cash flow as the average 3 bed house here rents for less than 800.00 with taxes averaging 180.00 per month on one of these houses it's tough to make more than $100 or so in cash flow after PITI. I guess that I am doing the buy and hold on these while using the equity for others. Then I flip rehabs on the other side to make fast cash to keep it all going. I wish that I could put more down and get the cash flow out of them too!
Dear Sandbar
If you had 150,000 then you could increase your downpayment and get the positive cashflow that you so despretly need. Thats what this thread is all about.
I think you are headed for disaster. how do you pay your other expenses with $100/ month? PITI is not you only expense. What pays for repairs, advertising, vacancys, etc... How would you pay your PITI if you had a vacancy or your tenant refused to pay rent?
Your working to hard to risk everything when you run into a some bad luck. do yourself a favor and payoff some of those loans with your next rehab. Then you can regroup with your stronger base of positive cash flow.
Quote:
On 2004-01-15 15:05, bigideas wrote:
What to do with 150K?
1) Don't tell people you have a 150K.
2) Buying property cheap is 90% marketing. Take 5 or 10k and start a direct mail program to people in distressed situations.
3) Buy property like you don't have money and keep the cash for unwanted cash flow problems. The guy that has cash when evryone else needs it... wins.
You got that right!!!! You will have a whole post of people in need.
JUST KIDDIN'
so maida7, are you suggesting you need 20% down to invest in rental houses or are you giving advice specific to someone with $150k to keep there risk lower?
elissnurse
I'm not saying that you must have 20% down. I'm saying you must have healthy cashflow or the deal is off.
Why not take the 150,000 and buy three houses for 100,000 each with 50% down. Use the incredible cash flow to pay down your loans very quickly. After a couple of years you would own the three houses free and clear. You would have such a strong foundation of positive cashflow that you tackle future aquisitions without worring about where you next morgate payment or the water heater need replacement. you would be invincable until the twister wipes you out Ha Ha!! That how this applies to having 150,000
makes sense, thanks.
Why don't you look at using other people's money to fund the deals?
In reply to maida7.... I have another job, my husband has another job and we have plenty of backup money that we choose not to use unless we have to as it is invested in other ventures. I would not attempt to do what I'm doing without backup money. I could pay these all off if I needed to. My husband is a Warren Buffet admirer. He hates to take anything out of the market for a house. Slowly he is coming around but our goal is to get a supply of money built up with out using what we already have in other words using OPM (other peoples money) That's also where the Rehabbing comes in. I can make a good chunk of change doing that regularly and then every few houses I flip I can buy another. That's the plan. It may be slow by some peoples standards but it has been working for me. I've increased my net worth substantially in the past two years. Anyway, maybe this thread can convince my hubby to invest more of the cash in real estate. I'd love to find a way to convince him to do it. So far I can't convince him.[ Edited by Sandbahr on Date 01/15/2004 ]
Lisa,
With the money that you have, you might consider buying discounted properties. This way you can pick up equities without being overly leveraged and then refi your money back out and repeat--until .... Your loan to value ratios will also be more suitable for future loans.
Regards,
Ed
$ 150,000, wow!! I could retire off of that pretty easy here. I would buy 5 or 6 rehabs, fix them up and rent them out which should allow me to collect about $3000 a month minus minor expenses ( $3000 a month is about what I make at my job now ). What should you do with $150,000? It all depends on what you want? My goal is to have enough passive income to replace my current income and then I will come up with a new goal. Wish you well!!
Hmm.
No one way is the perfect way.
You made and saved that money. Now the goal is to make it grow and not loose it. You might be the agressive high risk taker type...... or not.
I for one do not want to loose my money I worked hard for it. Now i want it to work for me. What I am doing is paying cash for rehabs ONE at a time to resell to get my cash and my profit to do another one. I have a work sheet that is similar to the one here.
http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=19852&forum=33
My formula is set for me to "tripple net" 10 thousand dollars after taxes.
After I have done 10 I will pay cash (10 x 10k = 100k) for one to rent out. I will finance that house for 50% of LTV so have room for competitive rent if neccessary on 15 year notes.
Continueing at this rate i will have many options open to me. All my property's will have equity. I will never fall prey to a resession. I will always be able to sell in any market quick if need be. I will always be able to get lines of credit on the deals that turn out better than the others. my debt to income ratio will never be out of round. And at 50% of market ALL my propertys will be paid for in 15yrs or less, my option.
This is how I am working it. After I reach 20k a month positive cashflow then I will re-evaluate the situation. who knows maybe some commercial might be fun to play with using similar formulas.
[addsig]
Forgive me if I play the part of the second rider on the victory Chariot ride, I do not know for sure what is occuring elsewhere in this fair land of ours, but I see a small slowing in sales rate and a topping of prices in the housing market here on the Pacific Coast. Of course the increase in spread between Top Market and the slightly more conservative True Market Value seems to have halted. The price is still way high, but the trend towards the insane or oh my god has stopped.
The statistics are slight but now present and to my mind portray a hesitation in the market which leads me to tighten a bit and require a bit more value in my buys.
If the nice man from the Federal Reserve increases interest by at least a quarter of a point my cautious observance will be proved correct, if not well carry on up the hill.
I wish you all well with your established methods of play. Remember the trip down the hill can be just as profitable.
Yes even in a complete reversal and a classic deflationary situation, you can throw the switch and adjust your game plan and still carry on and be successful in the field of Real Estate Investment. It is just that I think we should all be a little aware of what is going on.
Income versus full governmental expenditure is not on the same track and the gap is widening. You cannot spend money as we have on foreign ventures and continue the support of other nations conquored or otherwise.
There are still the applicable laws of economics. A plus is a plus and a minus a minus. The Theory of Causality is still with us.
Now thats wordy. All I am saying is hone your exit strategy and always watch the sun.
Pensively Lucius
Lucius, I agree! I too see the market values going down in my area as well!
WheelerDealer...... I really like your strategy. [ Edited by Sandbahr on Date 01/16/2004 ]
I'm really enjoying this...thanks for all the great information and please keep on posting!!! I'm starting to understand all this REI. Where else could you get so much info from so many different great minds! Lisa
Why not look for foreclosures that the banks own. Make them a low offer. When they accept the offer you come in with 100% financing from a conventional lender use your cash to rehab or fix the properties then flip a few of them for positive income. I would also look into rentals with 20% down to acheive your low interest rates(ie lower payments). This could increase your cash flow by leaps and bounds...
Jason
Quote:
On 2004-01-01 23:10, rickomarsh wrote:
How about buying something with a positive cash flow with none of your cash or just a small amout in the deal. Takes some time but no biggy and alot more fun than just laying out the cash for an average deal. Oh and there are unreal deals where you are, some today some yesterday and more tomorrow. Have fun. <IMG SRC="images/forum/smilies/icon_smile.gif">
Iam kinda in simmilar situation as the started of this thread, iam in southern cali, looking for something to get into. And no luck so far.
What did you mean by no cash or small amount up front how would that work, nut sure i understand what your saying
thanks
Lufos,
What is a classic deflationary cycle? Could my homes (some with purchase options on them which I paid for) go down in value even with conventional loans (I'm not bringing in interest-only loans right now!)? What are the causes and signs?
Alan
suposedly Fresno has "poped" already.
Is it cash flow or cap apprieciation that you want?
TO: TOO LITTLE TIME --
My advise is simple and short
1) INVEST YOUR $150,000 into a small mobile home park.
2) That amount will buy a small park for cash
3) Then have all that rental income from and spaces roll each month.
Cheryl Lopez
I just sold my house. I got 100000 after escrow closed. I am in escrow now buying two new houses. One -390 000 and another -470 000. I took them in January - 6 months for building. I did not close yet but my 470 000 house already is around 600 000. In 390 000 house at least 60000-70000 equaty.
My advise - buy new houses. Elena
Please check my posting on this subject dated January 16, 2004.
The other day Dear Alan da Green. Let fly the first of a series of gradual increases in interest yield. The first one as of June 29, was 1/4 point. Not much did not even turn on the Red light on my HP 12C Calculator. Market responded with a small drop in the Dow, but lets wait a day or two and see. Friday is a good time to check it out. If it picks up steam bite your nails if it reverses or staggers, lay in a supply of the Chateau du Marget and call me to come over.
My Broker of Market Fame, can usualy pick a looser faster then anyone I have ever met, called me wants to make a deal if I will steer clients his way. The problem I have no clients that have suffered any losses in Real Estate. Oh I am sure there is a paper loss here and there but not any for real type stuff.
In playing the top of the Spike in the market here in LaLa land I am along with my Construction activities, starting to make Damn Fool offers.
I meet the price on the spike and ask the Seller to come back with a Purchase Money Trust Deed Securing his Note. The note to read principal payments only and the full payment is to apply on the reduction of principal. There is no interest. The payment schedule is the unpaid balance of the note at day of origination divided by 360 the actual amount of payments that will be made. So far one sucess and two failures, but of the two failures one woke up and brought his price almost, repeat, almost down to true market price. You may if you like run the monthly payment and insert into your calculator an interest rate of 6.2% which is standard at this time. Then see what the real principal balance is. You will be shocked it runs below the market. This is of course just another little method lifted from the history books.
I am also reviewing the purchase of the one premium life insurance policy as an instrument to purchase a real estate property. Have not played with that one since the 1980's. You might like to explore that one. Bought a really nice house on Coldwater Canyon in Bev. Hills Post Office back in the 80's.
Of course I start all of this good stuff and of course the Real Estate Market will make a move and my time will be wasted. But check it all out. Does answer the problem. See there is always a way to go. In the Stock Market other then the Gold Spike I plotched. I have always had a problem sticking my life and money in another hands. That I learned the hard way as a young Fighter Pilot in the RAF. I looked around at the high casualty rate among number two men and quickly saw the problem. Do not let your number one man make all the decisions, he just might use you for bait. He becomes a super Ace and you become a number on a cross somewhere. Of course in the interests of fighting a nice clean war I changed that real fast. I had all the Sgt. Pilots show up on the flight line wearing little signs that said. "Bait". I almost got Court Marshalled but it sure changed things.
I think the same applies to Real Estate and damn it to life.
Thats the only fun you get at 82 all that experience to draw on. Too bad it does not work in a bar trolling for ladies, elderly of course. They all just come over, call me Sir and offer to help me to the restroom. Annoying. I think I will lie about my age. Tell them I am 25, think it will work?
And thats all the news from LaLa land.
Cheers, Lucius
what i'm doingt is paying cash for rehabbs. that way i don't have interest breathing down my neck. i can hire most of the work needed. rehab. quick, sell quick, make a good profit move to the next. i'm not limited to rehab. i also can do the same with flip,f/c and other ways i find that the "no" interest way gives me piece of mind and when doing deals cash IS king....good luck.....kenmax
IMHO from this post:
If I remember correctly, you can have 4 conforming loans. After that go to commercial lending departments of local banks to get 80% loans, or other brokers can do the loans (still fairly reasonable from these 2nd tier places and there rates have not been rising lately with traditional mortgage rates, 30yr fixed 100% has been around 7% for a while).
A highly leveraged stragegy is risky. Jumping into landlording is also risky. Assumming continued appriciation in real estate in this market is a little silly (rising interest rates, decreasing rents, peak building, all time high materials cost.... all pointing to a bubble). Last thing you want to do is jump in all the way now. I would buy houses or duplexes at 80% LTV, buy slow to make sure it suits you. Real estate is not risk free, 11 of the 12 properties I have bought since 2003 have been from investors taking a loss, sometimes a sizeable one. The remaining property was a break even from previous investor, some of the ones taking a loss were up to -30%. Landlording is not for everyone.
This is the $150K Question.
finding Positive cash flow is not happening here in Chicago area. What I am doing is 5-10% dwn on multi's with Interest Only loans. Now conceptually, since I am not initially going to reduce principal, some of you may think I'm missing the boat. But I think the goal is to "control" RE for the potential cash flow, apprec & tax ben's. I can get all of that without reducing principal. Reducing Prin ties your Capital up, IMHO. Thoughts ?
[addsig]
Well, too little time, I'd take the $150,000 (or more likely only $100,000 of it and hold some cash for reserves) and do a development deal. Find some underutilized property (even in California there must be such a thing) and find a new and better use. Some old factory to convert to artists lofts, a strip center with vacants to re-lease as office space for small contractors. That sort of thing.
Reasons:
1) leverage is easier in the commercial biz. your $100,000 could easily tie up a million dollar property.
2) its easier to generate cash flow after you've made a big hit with added value.
3) commercial space is easier to manage.
As to your "buy a big apartment building 8+ units or buy some four-plexes, du-plexes??" the cap rates will be best in the 20-100 unit buildings.
I agree with Chris as well but take a look at your persan situation before buying houses with no positive cash flow. In my case I'm almost 50 so waiting 20 years to realize the benefits of REI makes no sense, I'll probably be dead, so positive cash flow NOW makes sense in my case. In any event it's nice to have positive cash flow to cover unexpected expenses and vacancies.
Chris A.
Roztom,
Your approach is exactly the approach I am taking in the Detroit area. I can put $4000 of my own money down and be $300 cash flow positive every month after expenses and a maintenance reserve contribution. That's almost a 100% return every year. I have to cull through a lot of properties to find ones that fit the "model" though. Some of the properties out there are just lousy investments as rentals.
Chris A.