I’m a newbie and I’ve always wanted to become a real estate investor. I’ve taken real estate courses, read a ton of books, read the weekly real estate section of the paper for years, followed this blog regularly and met/talked with real estate agents. The time is right to take the plunge now.
I have 200K cash to do whatever I want with. I’m planning to open an LLC. I’m not sure which direction to go as I’ve never done any real estate investing. I am leaning towards flips just to get my feet wet. Another option is to buy and hold.
I’m located in Southern CA and would love to get some advice. I’m in dire need of a mentor who can help me to become successful. I’m eager to learn and I have a lot of time on my hands. I have no family obligations.
I would appreciate any advice or guidance you can give me,.
Southern California is tough. First I would find out what works there and do that. I would go to one of the local real estate investor’s clubs and find out what actually works there.
You don’t want to talk to them anyway. You want to talk to people actually doing it in your town. I was finishing up a rehab and had placed the house in the local paper for rent or owner finance. I got a call through that ad from a woman that said she could tell from the ad that I was an investor and wanted to know if I would tell her how I did what I did. I was really impressed with her smarts and told her yes. I met with her at the house and told her how I do what I do, what vendors I use etc. You might try that. If one doesn’t want to bother with you there are bound to be dozens of investors working in your area. I would talk to any and all of them to see which ones you have a real affinity with. Who knows it may even lead to some business relationship.
I have this chunk of money and I have no idea what I’m doing when it comes to real estate investing. I would really appreciate it if someone would provide some guidance and help me. Thanks.
The first thing I would try is to put a team together.
A good real estate agent is a first step. Even though the best deals are not on the multi-list they can help you analyze deals. Give you realistics DOM and sale prices.
I’d then try to find a contractor who can look at your properties and give you an idea for rehab prices.
A good book is R.S. Means Residential Repair and Remodeling Costs. $39.95 Lowes. This will help you to at least have a frame of reference for rehab costs.
A consideration with your operating capital may be to flip a property then reinvest the profits in a rental.
Put that money in some bonds, money market fund, or some other short-term security until you have gained some good knowledge.
I saw a man turn a $500,000 bank account into a crushing $500,000 debt because he jumped into a business before fulling analyzing it. Took him 10yrs to dig out of that hole.
BUT… post messages in places like Craigslist and anywhere else you see ads for investments, houses for sale, I BUY HOUSES ads, etc.
The message should say something like… I got $200k to invest in Real Estate. Looking for experienced investors doing it. Make yourself available to Rehabbers and flippers as a Private Money Lender.
You may find it is worth while to loan them cash at a good rate with permission to watch what they do. At worst you will have the phone number of every other rehabber/flipper in your area in youor contacts. ALWAYS be networking!
When you form an LLC, you will have to consider the expenses involved such as initial fees. Other states may need annual reporting fees. Most important is you should know the rules and regulations in forming LLCs in your specific state as it may differ from others. This will surely help you avoid wasting your money and effort.
Buy $170k in physical silver bullion. Take your remaining $30k and read up on and try to talk to “FDJake” here on this site. In 5 years when the market has bottomed out and no one is even thinking about housing being an investment…buy. Use your 4,250 ounces that could appreciate due to reckless fiscal policy and buy houses at bottom dollar prices now that you know what you are looking for and what you are doing. Call it pre-sight for hindsight.
If silver hits it’s nominal inflation adjusted high price of $150 per ounce (1980 @. $49) you will have $637,500 in cold hard asset buying bullion.
Is this a guarantee? Nope. It is what I would do if I had your money in my account.
If I had a spare $200k, I would probably do something like this:
Buy 4 properties with down-payments of $40k each (total = $160k). Let’s assume each property is purchased at $200k so the down-payment represents 20% and the remaining 80% would be borrowed.
The type of properties I would seek would be positive or neutral cash-flow, so that I have no holding costs (ie. the rental income covers all expenses).
I would spread the properties over different towns/cities, possibly even going interstate.
I would be looking for areas where governments are investing in infrastructure such as public transportation, new malls etc and their are already signs of population and jobs growth. Easier said than done right
The remaining $40k would be spend on taxes and setup costs, which might be enough depending on where you live.
I would then have a portfolio worth $800,000 and if I were to get my desired capital growth of a minimum 7% per annum, this portfolio would be worth $1.6 million in 10 years time.
Rents should also have increased during this period, so I should have a reasonable passive income as well.
This is obviously a buy and hold strategy with a view to minimising risk and maximising returns.
The hard part is deciding what type of properties to buy and in what area, this is where you would need to do your own research and get professional advice.
I wouldn’t necessarily seek out to spread those properties over several cities or states. Some people like being able to brag that they own property in X amount of states, but the truth is that you have to figure out who to work with in each of those locations. You need to have repair people you can trust, someone to show the units, etc. Much easier to do this in one place.
One of the only valid reasons I could see to spread out the properties is if you were really concerned about property values continuing to drop in an area, but if you’re in it for the long haul that doesn’t matter as much…
But if you are purchasing props for 200k each, shouldnt you have a minimum of 2k rent per prop? 1-1 rule. I think it would be much easier to purchase properties in the 60-80k range and have rent of 1k/mo.
Never buy a property for “neutral” cash flow. The smallest unexpected expense makes it a loss.
There are too many unreasonable assumptions for growth , i.e. 7% annual appreciation rate and rent increases. For buy and hold, you need to make money even if the property value decreases and rents go down.
Not leaving any money for cash reserves is foolish.
This approach doesn’t leave you with an alternative exit strategy. If the property doesn’t perform, you are stuck with it or you may have to sell at a loss.
