I agree that tax liens would be the place I’d invest that kind of money in.
that’s because in your described scenario you need to be pulling $1000+ /mn in rent to be breakeven after all expenses in the Real World (go to landlording forum as is has been discuss at extended length). in a market with 100k homes, people who can afford $1000/mn are not called renters, they are called home buyers.
Morever, the mortgage is the single biggest expense and for the most part one of the few that you can influence.
Just for fun, I’ll say what I would do if I were you.
I would put all of it in a money mkt. With a money mkt you can earn a 3-5% interest rate, get the money the same day, and pay no penalties for withdrawals. Then I would start looking for great deals to buy and rent. I’m talking deals that cost $50,000 and rent for $1,000 a month. 2% deals. If you look hard, bid low, and never settle, you might be able to do 3-4 of these deals over the next year. On top of rentals I’d continue rehabbing and selling. I would cut the flipping down to doing only 1 deal (start to finish) at a time. Same as the rentals, no more than 1 deal at a time. I’d pay cash for your flips, and put 10% down on the rentals so that you can lock up the mortgages with a low fixed rate. Most importantly I would glue your eyes to this site and learn everything about cash flowing a property and dealing with tenants.
Buying 1-4 unit properties at great deals that bring in $100 a month is great. But it would be difficult to own 80 units ($8,000 a month) to have both my wife and I not work full time. Plus it would take a while to build up the necessary knowledge and 80 units.
If you are willing to work 3-4 hours per day, 3-4 days per week doing the management and maintenance yourself, you don’t need 80 units - you only need about 40 to make $8,000 per month. In my opinion, paying someone else to do the managment is the biggest rip-off going.
Mike
Maybe…but quiting ones job is a huge step, probably the second biggest step (starting is the first biggest step). It would be difficult to find properties where the units make $200 a unit positive cash flow. Especially when the rents are only $400-600 a month on average to start with.
I go back and forth on management companies. If you don’t use them, then you are limiting yourself. But at the same time it’s good to be hands on. I’ve personally decided that the small properties will be handled completely by me. But any commercial properties will be handled through a property management company.
for an apartment that rents for 700.00 a month, your looking at spending $2.30 a day for property management on average. I guess it just depends on how valuable your time is. To me, that is worth its weight in gold, because while some are wresling with tenants, I’m putting more contracts together.
High, you asked why 80% LTV properties don’t usually cashflow. Using real world numbers (as discussed in length on this site and practically ALL landlord specific sites), approx 45-50% of a property’s rent income is used for taxes, insur, vacancies, repairs, maintenance, etc., leaving only 50% for the mortgage.
Using 80% of $100K, you’d borrow $80K @ 7% = roughly about $535/month payment. To cashflow, you’d have to get $1000-1100 month in rent.
If you are at the point where you can quit your day job and still make a living, then it makes sense to become your own property manager. If you aren’t, or you aren’t willing to quit your day job, then once your number of rentals gets past a certain point (which will be different for different people), then hiring a good property management company is a better idea.
Another point on quitting your JOB. Make sure that you are making alot of money in REI (or whatever business) before quitting and/or your spouse keep their “real” job. First, it takes alot more income from a self-employeed position than from a paid job to actually earn the same amount. Second, lenders are in the box thinkers. They don’t like self-employeed applicates. They usually can’t read a tax return. So unless you have (easily) provable income (ie 1099’s, check stubs) make sure that you have some kind of employment.
Raj
I am currently buying multiple pre-construction properties at a discount myself in Charlotte NC WallaceHobbs
About to miss this, Wallace. I hope you’ve done your homework carefully, friend.
Charlotte has one of the highest foreclosure rates in the state, a very high rate of real estate/investor fraud, and one of the lowest in the state for value vs. rents. Generally speaking.
Raj
I guess it just depends on how valuable your time is. To me, that is worth its weight in gold, because while some are wresling with tenants, I'm putting more contracts together.
That’s ridiculous! If you work 16 hours per week to make $4,000 per month, that leaves 152 hours to “put more contracts together”. If you can’t do it in 152 hours, that extra 16 isn’t going to help!!!
It would be difficult to find properties where the units make $200 a unit positive cash flow. Especially when the rents are only $400-600 a month on average to start with.
You’re not making $200 per month positive cash flow. You’re still only getting $100 per unit positive cash flow and you’re earning another $100 per unit per month by doing the management and maintenance. That’s why you don’t need 80 units to make $8,000, you only need 40 units IF YOU DO THE MANAGEMENT AND MAINTENANCE.
First, it takes alot more income from a self-employeed position than from a paid job to actually earn the same amount.
I totally disagree with that. In fact, I think it takes considerably less income to be self-employed, especially in the rental property business. If you get a paycheck, the government takes a considerable portion of your money right up front (someone’s gotta pay for all those section 8 tenants). When you own a business, you get to spend the money first and then get taxed on what’s left. In addition, there are a TON of deductions. The bottom line is that you get to keep a LOT more of the money that is earned.
Mike
Where did you find this information?
From a rental business perspective on income, Mike, you may be right. From a strictly self-employeed perspective, I’d still say it takes more income.
There is self-employment tax to consider. End of year taxes (even deductions are merely tax DEFEREMENT. They have to be paid sometime), Business insurance (general, liability, etc.), and the usually much higher health insurance. Just to name a few.
Additionally, it takes more income from a self-employeed vs. W2 to usually qualify for lending, ESPECIALLY when you consider all the tax advantages of being self-employeed (as lenders generally don’t know how to ‘undo’ those tax advantages to determine ‘real’ income).
gilbequick,
It comes from reading the Charlotte Observer and having a working knowledge of the area, as well as getting to read up on all of the great legal cases currently filling up the dockets.
Raj
LOL Rich
I would like to hear more feedback about this post…