I am completely overwhelmed with REI

General Real Estate Investing
1

Hey guys. I’ve come to this site because I’m looking for Cashflow. I’m a 30 year old Construction salesman. I have about 50k in my checking account right now, and I have no idea what direction to take, and I hope you guys can help.

I was looking to start off with smaller investments. My ultimate goal is CASHFLOW for long term wealth and retirement. I don’t want to flip real estate. My ultimate goal is to make a residual income of $10,000/month. This what I’ve looked at so far:

Buying Duplexes/Fourplexes I first started looking into these type of properties as people suggest they are much better for cashflow properties. Problem I’ve noticed is in Los Angeles speaking to a few brokers, these property get 20-30 offers IMMEDIATELY when they go on the market and ALL CASH OFFERS tend to get accepted. Since I don’t have 400k to buy one, I don’t see this as a good option.

Tax Lien Certificates/Deed Sales The high return on these type of auctions really interested me, hearing places like Texas getting 25-50% ROI is amazing!! The only problem is you have to physically be at the auction with the exception to a few online bidding states. In addition, the auctions are HIGHLY SATURATED. Extremely competitive and I hear most liens get bought down on the interest by the bidders, depending on the county of course. Plus, some of the Deed sales here in California are very high to bid starting at $40k to start.

Mobile Homes (One of my top 2 places to start) Since mobile homes are probably a lot less competitive by investors, I thought this would be a really good place to start. The one question I have is dealing with Tenants, which I hear a lot of issues with being a land lord. However, I was reading on seller financing to buyers who may not qualify for Fannie/Freddie, financing the home to them at a smaller deposit and higher payments so i get positive cashflow.

Discount Notes Although reading the articles I have a hard time following how the math involved on these notes work, the concept of being able to 100% finance a note is very appealing to me and make positive cashflow makes this seem like the best option!

I know I’m green, but I need to take action! I respect all of your opinions. What courses or what steps do you think I should take? Is there another option you feel would be better suited for a beginner? I appreciate all your responses :slight_smile:

2

Well, you have an understanding of why things won’t work.

Now, it’s time to put your other hat on, and figure out how to make things work.

Without going deep on this, you need to focus on one thing. It doesn’t make any difference what you focus on. However, you are going to have to become the expert on one of them.

This is a sweat equity business at the beginning. So start sweating.

Back in 1990, we discovered the Sub2 financing niche, before it was a term. This allowed us to buy any real estate we wanted without having to come up with standard down payments, or depending on our credit.

Frankly we had the down, and our credit was great, but we still couldn’t get financing on the deals we really wanted.

You said you wanted to invest for cash flow. That necessarily means you need to either stay with the cheapest houses you can find, or move up the food chain to the cheapest apartments you can find.

Of course apartments are the faster route to cash flow, but you need some management experience first. Why?

Because you are going to manage your managers. They don’t manage themselves over time, very well. You need to know how the ball bounces, so you don’t end up having the ball bounced off your head, by advantage-taking PM’s.

I’m getting ahead of you here, but there’s cash flow in the management intensive properties. How much management you’re willing to tackle (and master), dictates your bottom line.

I’m painting a picture that management is awful. It’s not. It’s easy, if you do it right. However, so few know how to do it right, it becomes a miserable chore.

Which is another reason we find lots of motivated sellers in the ‘management intensive’ niche.

Meanwhile, I’ve managed low-end property since I was a baby. I waved my little rattle at all the late-payers, and projectile vomited on all the deadbeats, and don’t cha know, got my doll house rents on time…!

As a result, I was able to buy first class strollers, and keep myself in designer diapers …until I was probably 18…!

3

Jay has some great advice for you. I’ll add that you may consider changing locations and live / invest in a different area. Many areas of CA have notoriously high prices and the purchase price vs rent doesn’t make good sense. Of course you may have reasons for wanting to stay in LA, but there are other places where it is easier to get good cash flow.
For cash flow over time, you’re pretty much looking at building a portfolio of rental properties. Whether this is sfhs or multi-family or a combination of both is up to you and your financial situation. Like Jay said, do one thing and do it well in the beginning. Chasing multiple paths will ultimately lead you to nowhere as a newbie.
Your goal of 10k/month is definitely reasonable and attainable, but it will take lots of work…especially in the beginning. When we started, we only hired out what was absolutely necessary. Now we hire most of our work out. We still do things like some painting and light demo, but the lion’s share of the work is contracted out now. In the beginning, it’s hard to afford that. Once you get a few properties and get some momentum going, things get easier.
We deal with low income properties so we have that management intensive level of properties like Jay mentioned. Some people are just fine. For others, it’s like you’re almost having to parent them.
Since you’re in an expensive area, I’ll caution you to not leap out in the beginning buying properties several states away. It’s best to invest where you are - all else being equal. So that goes back to can you make it work in your area or should you consider a move? Several years ago, I lived in an area where rentals didn’t make good sense, but then I got transferred to a new location where it was the exact opposite so we started buying properties then.

4

The Safe Act makes it infinitely more difficult for you as a seller to carry a note to a sub-prime buyer - not impossible, but definitely read up on how to not run afoul of the law on seller financing.

Real estate isn’t get rich quick, it’s a slow and steady process that you build wealth over time. One of the things we did before we invested a dime was to lay out the long term goals and how to get there - what we needed to get there and how long it would take if our plan continued along without major bumps in the road to get there.

For example, if you want $10,000 per month income, that’s your net after paying everything. If each house were to net $200, you need 50 units, to get 50 units, you need 12 four-plexes or 25 duplexes or 50 single family…or a mix, or a couple of apartment buildings.

Let’s pretend you decide to go with duplexes - to get 25, at a purchase price of $250,000 each (just an example, I don’t know your market), you’ll need at least $50,000 to buy each if you can get financing with an LTV of 80%. Would you have $50,000 a year to invest? If not, but you do every two years, then you’re looking at a period of 50 years to collect 25 duplexes. If instead you roll your cash-flow into property acquisition, you’ll have your number sooner, but not income in your pocket until you get there.

5

From My experience if I had 50K and wanted to invest I would handle each situation accordingly:

Buying Duplexes/Fourplexes: I would have to get extremely creative with financing and go the non-conventional way of financing. As an alternative possibly look at a deal where it may be possible to finance a single unit first, build equity and experience to expand as the market moves upwards.

Tax Lien Certificates/Deed Sales: Make sure you dot your “i’s” and cross your “t’s” and have a legal team prepared to help you with this one.

Mobile Homes (One of my top 2 places to start) I have no experience with this, but be careful on state laws on predatory loans or “options to buy”

Discount Notes: These will provide a decent return on your money, but with 50K, there maybe another category that you can choose.