Best uses for $250K for beginning RE investor... - Posted by Jimmy

Posted by Chris (TX) on September 15, 2003 at 14:01:32:

no text :wink:

Best uses for $250K for beginning RE investor… - Posted by Jimmy

Posted by Jimmy on September 07, 2003 at 11:32:10:

What would provide someone with about $250,000 with the best easy return on investment who is new to the real estate world but eager and willing to learn the business? Tax liens, flipping homes, foreclosures, etc. I know there is a wide divide between those who say you should invest as if you have nothing and those that say you should put the money into certain vehicles. I am looking for some good ideas from anyone who has been in that position.

Re: Best uses for $250K - Posted by Chris (TX)

Posted by Chris (TX) on September 15, 2003 at 08:12:34:

Hi Jimmy,

I’m sorry but my email to you only bounced saying is not a valid user :frowning: I was going to give you a little more detailed information than what I have written in this post, so if you will email me, perhaps I can elaborate a bit more if you like.

There are many avenues for profit in real estate investing, and as I am sure you have seen, many investors have their own preferred methods or avenues and stand strongly behind them. What works best for each investor depends upon their individual situation and what they are trying to accomplish with their investment strategies.

For someone new to the business, all the different options for investing can be overwhelming, and even become confusing. Confusion is not a good thing, and it can slow you down or cause “paralysis of analysis”, which can even be worse because it can stop you from doing anything at all, for fear of taking the wrong step.

If you care to share what it is you seek to accomplish with your investments, perhaps I can offer some guidance or, at least help you look in the right direction.

It looks like you have funds available to use for investing and that is a very good thing for someone starting out… PROVIDED they use the funds wisely.

The most important point I can make to you right now is that the best investment you will ever make in real estate is in education. The Creonline boards and articles are a valuable resource and I hope you are using them. Beyond that…

My next suggestion would be to either partner with someone who has the education and experience you may lack, or to focus on learning one or two avenues of investing which are in line with what you want to accomplish. The latter will mean buying books and courses and putting those to good use. This does NOT necessarily mean you should spend a lot of money on courses. Sometimes the best information comes from the least expensives books, tapes, etc… There are a lot of guru’s out there and a lot of courses, however, the price of the information is not always an indicator of the quality of it. Some of the higher priced courses, in my opinion, do not live up to their promises and may only give you the very basics. This can leave dangerous “holes” in the knowledge you have going into investing and can cost you in the long run. You should never rely upon only one guru or author, or one course or set of books. You must devote yourself to continuing education in real estate investing if you are to be successful long term.

If you choose to partner with someone who has the experience to evaluate a deal and make it work, seeing it through to the end, and then splitting/sharing the profit, this would most likely alleviate most of your initial fear or “lack of confidence” going into a deal. It would also bring you return on your money in a shorter amount of time because it removes the initial learning/studying time and the intial “mistakes” or “learning curve” that everyone starting out has to go through. (But remember, even if you go this route with an experienced partner, you still MUST advance your own personal education and understanding of real estate investing.) With a “good” partner, you will be able to “earn while you learn” so to speak. Also, you have the added benefit of a form of “insurance” against making “beginner mistakes” because your partner would be there making sure mistakes did not happen.

Moving on to your questions about “best easy return on investment”…

My personal opinion is that, if you have the funds available, rehabbing provides the greatest profit on money invested. If you talk with a few rehabbers you will see why. Houses are bought every day for 40 to 60 cents on the dollar, rehabbed for a few bucks, then sold in the top “retail range” of price, within only a short period of time.

Here’s an example…

One of my contacts brought me a deal last week for a 3br 1.5ba home in a nice area. It needed $8,000 worth of cosmetic work, and comped out at $100,000. The price of the home to me is $55,000. So that means I can buy this home and have the repairs done for a total of $63,000 invested, and market it for $100,000. I have a few retail prospects already, so I’m confident it can be rehabbed and sold within a short time span of around 45-60 days, netting me $37,000. For a return on investment, I don’t think that’s bad at all.

The point of this example was to let you see what a typical deal looks like for a rehabber. Now, comparing this to “flipping” or “wholesaling”, remember that all I did was answer my phone to learn about this deal. To flip or wholesale you have to go out and beat the bushes to find the deals, chase down the owners, negotiate a workable “very low” price, tie it up with a contract, then market it to rehabbers for a few grand profit. That to me is a lot of work for only what? $1,000? or maybe $5,000? Hmm… that’s not for me, thanks.

So comparing these… taking one phone call and buying a property to rehab is much easier than finding the property to begin with, negotiating it down, etc., etc… Sure, next I’ll have to do the rehab, but that too, in my opinion, is easy work. I just get on the phone and line up the same people (subcontractors) who’ve proven to be dependable and have provided quality work for me in the past, to paint and install the carpet, etc… I drop by the house a few times to check on the work and keep track of the progress and, once it’s completed I usually already have it sold due to my “pre-marketing” system.

On the other end of the spectrum, another form of investing that doesn’t involve much cash invested is lease optioning or buying “subject to”. (These are similar, but not the same animal.) The good news is, most markets are overrun with sellers who NEED to sell their homes immediately, but have little or no equity. This is where you can come in to buy “subject to” or to lease option the home. With the papers all signed you immediately market the home in an attractive “no banks, no qualifying” manner, select a tenant/buyer who meets your criteria, collect a cash down payment from them and put them in the home and let them make the payments to the original seller for you (usually with a little extra for your pocket each month), and as soon as they new tenant/buyers secure their own mortgage on the home (usually this is within 24 months), you pocket another $10,000 to $30,000 at closing. The only outlay of cash you had in this deal, is your deposit or option money (which is actually returned to you), marketing expense, and maybe a loan payment or two if it took longer to find a qualified tenant/buyer than you had anticipated. But once they are in, there should be no more expense to you. This is not a “landlord” situation and you are NOT going to be making any repairs for your tenant/buyer, that’s their responsibility under the terms of the contract they signed.

So all in all, under lease optioning or buying “subject to” you have very little invested and stand to make substantial profit. Not only that, you get to feel good about your work because you help the seller save their credit because they won’t have to default on their mortgage (this is often the reason people with little or no equity end up selling, they HAD to relocate due to job, divorce or whatever, and are unable to keep up the payments on this house)… and you helped the new buyers realize their dreams by helping them get into a home they wouldn’t have been able to qualify for through a bank. And in a year or two you’ll step out of this picture altogether, with several grand in your pocket for your “trouble”. If waiting isn’t a problem for you, it is a good way to make money in this business. I am not usually all that patient, so I prefer rehabbing in order to receive my profits very quickly.

I hope this information helps. Feel free to email me. Also, where are you located?

Best of luck to you, Jimmy.


Re: Best uses for $250K - Posted by Harold

Posted by Harold on September 11, 2003 at 10:13:44:

There are several things you can do with your capital. The first thing I suggest is that you establish credit lines with a good bank. This is essential because you will eventually their money instead of your own. Since you are beginning I would probably suggest buying foreclosures, fixng and selling them(remember you will have capital gains tax on your profit). You could also buy, fix, refi. This would save you on your tax bill(ask me how). I suggest selling versus rental in most cases but not all. If you are interested in my suggestions contact me.

Re: Best uses for $250K - Posted by Jimmy

Posted by Jimmy on September 15, 2003 at 12:10:24:

Thanks for the advice. I am new to these boards and I find all the different ways to make money in this arena so much more exciting than the day job, although the day job isn’t that bad in my field. Would it be okay to email you directly with questions? I am in the Houston area.

Thanks again,


Re: Best uses for $250K - Posted by Jimmy

Posted by Jimmy on September 16, 2003 at 08:14:01:

I have heard renting is not as easy as it would seem. There is a lot more than goes into it obviously than picking up your check every month. I would welcome any advice or good resources you could point me toward. Thanks for your response.