If you had $150,000 in cash

General Real Estate Investing
1

What would you do? Im the typical (or will be in July 2008) “New Investor” who is currently working in Iraq, but should be back in Arizona in July 2008 with about $150,000(give or take $10,000) in the bank. I also have my application for an AZ Real estate license in the mail. I have been reading this site and some different books(rehab, rental etc etc) and initially thought about buying some single family homes for rentals(or possible flips), but my thinking has changed and I am leaning towards some smaller apartment buildings(1-4 units) or maybe even a bit bigger. With the future foreclosures coming in about a year, I hope my cash will go MUCH farther than it would have 2 years ago.

A little about me. I own my own home and have a credit score over 720. I am going to do real estate when I get back to AZ, but could also go back to my old job at $60,000 a year.

So if you were new to the game(but not new to life, Im 37) what would YOU do with $150,000???

Thanks and I really enjoy this forum and have learned a lot!!! If my thinking is naive, do not be afraid to point that out(not that some of you would have a problem with that!!!LOL)

RoostKing…

2

I would put that $150K in a money market fund and do everything you can to hang onto every penny. Hopefully, you can use your job as a realtor to pay the bills while you build your rental portfolio. I would try to buy rentals with little or no money down and ensure that they all have positive cash flow.

Good Luck,

Mike

3

Property Manager is absolutely right in that you want to put that money into an acoount nice and safe. One of the things about lending in this country is that banks are much happier lending you money for outstanding terms if you have money in the bank. They get nervous when you have a lot of loans and no money in the bank.

So don’t make the mistake of over-aggressively investing your money in down payments on investments. Look for distressed properties with little or no cash investment from you to keep your nest egg whole. When you buy with any cash investment - look to either resell quickly to get your cash back - or possibly rehab and refinance so you get your investment back. Properties that offer a solid positive cash floow you should keep for long term appreciation.

I would initially start with SFRs. There are lots of them - lots of distressed properties - and the financing is fairly easy and straightforward. Do a couple of these to make your initial profits and mistakes and to build your knowledge and confidence. After that I would start venturing into larger properties - apartments and commercial units - where the big money can be leveraged big.

4

Thanks guys, money market it is! Got any tips there!!! :deal

RoostKing…

5

There are tons of options. You might even get a bit more out of a mid-term CD since you won’t be home for a while.

Personally, I use Fidelity’s Money Market at approx. 5%.

6

Why put your money in the bank where you can’t control it? Put the money in real estate where you are in control of how the monies perform. Put your money in the bank and enjoy your 4-5% or live a little and put your money in real estate (or anything else for that matter) and control your future.

7

Is what they are saying is try not to you most of this money for paying for the real estate by getting the majoority of the mortgaged financed. I wont be buying any property until I get back, that way I can do the inspections as well.

Thanks again guys and gals!

RoostKing…

8

Bank investments are a waste of perfectly good cash flow. What do you think the bank is doing with your money when you deposit into their bank? They are reinvesting your money with bigger returns. I agree with some of my peirs and beive you should try to hold onto it while you try to buy properties. Banks do like to see that you have the ability to handle hardship when you have multiple properties. Do not look at older homes or fixer uppers to start though. These homes may yeild a little rental income for a longer period ot time, but ultimately give you headaches from repairs and making sure your tendant pays the rent. Keeping new properties for shorter terms gives you better renters in better neiborhoods and allows you to benifit off of increases equity which would be several thousand if not tens of thousands of dollars more than you can expect from rental income. nAlso please keep in mind the tax benifits of investing in real estate compared to giving it all to the bank. Savy real estate investor or slum lord, the choice is yours.

9

If I had $150,000 in my current market, I have a couple of lots that could use some nice new houses. I can build a good house for $100,000 if I already own the land.

Are you going to be in AZ permanently? It’s hard to have rentals when you aren’t there to oversee the tenants and maintenance.

I don’t know what the market is doing in AZ. I suggest that you keep your funds in a money market fund while you study what that market is doing.

I like to buy and hold, especially when the market is at a low point. If that is what looks like it will work in AZ, I suggest some serious bargain hunting and don’t over-leverage.

You want to be in a position where you are comfortable riding out a slump and waiting for a turn-around. Large mortgages can be uncomfortable when prices are weakening.

A big down payment will also improve cash flow, which, again, makes it more comfortable to wait out the market.

You might get home and discover a market where you can fix and flip. You won’t know until you get home. The market next spring probably won’t be the same as the market this winter.

If you can flip, start small. Finish one while you learn how to work it.

AZ is a retirement destination and the baby boomers are still going to retire, so AZ shouldn’t get as bad as some of the other states.

You can start right now studying your market. MLS is probably on line and craigslist is a good source for inforamation about prices, because it often includes both photos and locations.

Start lookig so you get a feel for what is available and what asking prices are running. You don’t want to purchase for retail asking price, but you do need to have a feel for what asking prices are, and whether they are going up, or going down.

10

i try to put my money where i’m getting the highest returns.
That changes every year between stocks, bonds, and RE.
If you’re just starting and would like to invest in RE, property manager dispenses some good advice in that you should jump in using little money to minimize risk. If you can pull that off successfully you should be able to handle most other types of investment.
Having a full or part time job while you are investing isn’t a bad idea either, especially if you can leverage your client base to help your investing efforts.

Good luck.

11

I am a firm believer in the value of owning real estate. It is not, however, without it’s challenges. There are other alternatives that you may want to consider that could be just as attractive and/or lucrative (i.e. purchasing a business, etc.)

While I agree you don’t want to use your own money if you don’t have to, no one has mentioned asset protection. I don’t necessarily think that you should be buying property in your own name to begin with. You need to also consider the tax consequences as well. I know the money earned overseas is tax free for the year it is earned but as soon as you return then any gains earned from it will obviously be taxed as income. You maybe better offer putting that into a retirement account, either managed or self directed.

If you are set on using the money, then I would suggest forming a small LLC or S Corp and loaning the money to the corporation. You could also form your own private real estate fund and put the properties in the fund’s name.

With a private fund or a corporation even, you could raise down payment money from other investors (You have to follow Security and Echange laws in most states. Some states allow up to 5 investors before coming under those laws- There are reporting and registration requirements and such before you can offer investment opportunities to groups of people. It’s not complicated but always seek advice from professionals. It’s worth the time and effort to do so)

Just having a real estate license is not going to prepare you for investing. You definitely need to gather knowledge and experience and if you don’t have the time or inclination, associate yourself with those who do.

Be that as it all may, the biggest obstacle for most people is taking action! If you aren’t comfortable with my suggestions then just go ahead and take the plunge. Start small. Know your market by all means. Housing values can vary street to street and neighborhood by neighborhood so don’t assume a property is a good value because of a “particular” area. Again learn your market. A real estate license can help you in that area!

GOOD LUCK!