How to Invest 100k in Real Estate?

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tylerrr
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How to Invest 100k in Real Estate?

Post by tylerrr » Mon Nov 21, 2016 4:17 pm

I want to invest 100k in real estate.

I save 4k per month, which goes into a savings account or stocks/bonds.

I'm asking for possibilities regarding real estate. What is the best long term investment in real estate if you had to invest 100k?

Would you buy a small condo and pay it off in cash? Find a small town where I could buy a 100k house in cash? Buy a more expensive home with a mortgage if I can pay off the mortgage within 4 years?

Looking for any replies/ideas......thanks

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Dragline
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Re: How to Invest 100k in Real Estate?

Post by Dragline » Mon Nov 21, 2016 4:32 pm

I don't know the answer, but this is where I would look to find it: https://www.biggerpockets.com/about

ether
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Re: How to Invest 100k in Real Estate?

Post by ether » Mon Nov 21, 2016 4:43 pm

Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit

OTCW
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Re: How to Invest 100k in Real Estate?

Post by OTCW » Mon Nov 21, 2016 5:39 pm

Have you considered REITs?

7Wannabe5
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Re: How to Invest 100k in Real Estate?

Post by 7Wannabe5 » Mon Nov 21, 2016 6:12 pm

Buy a duplex. Live in one half and rent out the other half. Will save you a great many of the headaches associated with being a landlord, such as having to get up in the middle of the night and deal with frozen pipes. When you interview tenants, you will automatically filter out some of the drek if they know they will be living next door to you. Many improvements you make to your rental unit will improve your own living space and vice-versa. Any services you want to hire out, such as lawn maintenance, will be reduced in cost. Most of the tax/mortgage benefits of homestead will apply, but you will also have the flexibility of some of the rules (loop-holes) that apply to rental property. If you want to relocate yourself, you will own two made-to-rent units. If you can find a duplex that is located in a neighborhood that is otherwise mostly well-maintained single family homes, you will likely have a very easy time finding good tenants.

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tylerrr
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Re: How to Invest 100k in Real Estate?

Post by tylerrr » Tue Nov 22, 2016 12:13 am

ether wrote:Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit
thanks for the breakdown...Good stuff.


This is pretty much what I understood. 3.5% is not that great when compared to 7-8% average in the stock market.

Therefore, real estate isn't a great investment most of the time. I guess I'll just buy a place if I want to live in it. I've swore to myself I will only buy in cash or at a price where I can pay off the mortgage within 4 years.

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FBeyer
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Re: How to Invest 100k in Real Estate?

Post by FBeyer » Tue Nov 22, 2016 5:59 am

I have an unsubstantiated feeling that the rewards in real estate is either to know how to flip houses, or to bump up the ROI with leverage. Buying a house in cash is not the way to make a lot of money from your investments.

Rent tends to increase with inflation and RE tends to provide a much more stable income than stocks. It's illiquidity is what gives it an edge over bonds that are supposed to work in much the same way, cash flow wise. Unless you're leveraging your RE investment, don't expect it to yield anything close to stocks.

The reason you're including RE in your portfolio is to diversify away from bonds and stocks, right? Why wouldn't you expect this asset to behave significantly differently from those two other classes then?

Phil pustejovsky has a youtube channel. You could check it out. He's obnoxious, but after five minutes you get why he's so excited. He also advocates frugality and using your money to make more money. He seems legit. Like he couldn't be bothered to write the book, and just put it all on Youtube instead. I can't find fault with much of his reasoning anyway, and since you're an American, his advice might hit closer to home compared to a euro RE investor.

JasonR
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Re: How to Invest 100k in Real Estate?

Post by JasonR » Tue Nov 22, 2016 10:55 am

Book for reading:
What Every Real Estate Investor Needs to Know About Cash Flow...And 36 Other Key Financial Measures
Distills it all down to the essential math. No cheerleading, no hype, no sales pitch (despite the title), just simple math.

I think Jacob did a blog post about it once, a long time ago on a server far, far away. (Search gives me nothing...)

Next, PM me and because I like you, I'll sell you a two unit that grosses 1050 per month for the low, low price of 45k. Today only. Hurry.
You pay w/s/t and common electric (about 30 per mo).
Property manager does a good job handling issues.
Makes money...and it could be YOURS if you PM me today.

==============
I rode around with an investor/realtor for 6 months while he showed me properties and we practiced running numbers. I also read about 50 RE books, all of which were worthless except the one mentioned above. Then I started buying properties. Commercial. Garages/storage. Grocery stores. Keeps risks down, tenant issues down and many other problems near zero. It was a good foundation and I recommend it to all who ask. And since you asked:

I would buy storage garages in the city. Any city where people need to store crap. Contractors storing materials. Motorheads storing the car they're "going to rebuild" and the like. No maintenance issues, no tenant issues. Just collect the checks.

inchicago
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Re: How to Invest 100k in Real Estate?

Post by inchicago » Sun Jan 01, 2017 10:35 pm

I would have to agree with JasonR about the storage units (if you can find them). They can bring in some real good cashflow and a lot less hassle.

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Riggerjack
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Re: How to Invest 100k in Real Estate?

Post by Riggerjack » Mon Jan 02, 2017 4:42 pm

Why do I always gotta be different? :twisted:

I like the storage/commercial idea, but I have no experience with them. In the Seattle area, anything zoned commercial becomes expensive, with property taxes to match.

While the formula listed above works well for apartments, I have never in even the darkest days of 2011 seen 2% rents on SFR.

The only real advantage of RE is leverage. Leverage and relative stability. That is why it should be in your portfolio. If you don't value it that way, there are other, more passive investments you should be putting your money and effort into.

My strategy has been to find the 2br 1.5ba with a garage home that looks like the fantasy home of every 10 year old girl. Craftsman, white picket fence, crown molding, blah blah. Too small for a family, perfect for empty nesters. I price my rent similar to a house not as nice, and but an inflation adjustment into the contract.

This gets me great renters, many applicants to choose from, with long term being the goal. Turnovers are a headache. I want to minimize this. Other than turnover, landlording is a breeze.

I started a thread, with numbers. If remember, I came out at 6% inflation adjusted.

But, buy low, sell high. Now is not the time to be buying RE retail. If you don't have an edge, now is the time to study and run numbers.

Augustus
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Re: How to Invest 100k in Real Estate?

Post by Augustus » Fri Jan 20, 2017 4:48 pm

I've been making an average of 5.9% after expenses with single family homes and townhouses/condos. I went with single family mainly because I want to deal with people who are like me i.e. making a good income, have kids, educated, etc. instead of doing low rent or other stuff. I hate dealing with headaches, and so far this strategy has worked out for me. When I was younger I bought a crappier lower rent duplex, lived in one and rented the other, and eventually had to evict the tenants, it was miserable. You could probably do a duplex and protect against this with good screening, but my reasoning is that people who want to live in more expensive places and just had a baby are not likely to make much trouble because they don't have any time to get into real trouble, as long as they have a solid financial history - 7 yrs+ decent job, no long unemployment spells, etc. Those are my favorite candidates. I make it clear to anyone before they apply that I'm going to choose someone with a great financial track record and high credit score, but I still get a ton of crazy applications with historical major financial problems and have to reject probably 95% of applicants. If I had done that in my first duplex I probably wouldn't have had the problems I had.

One BIG thing to keep in mind are maintenance cycles (every 20 years, depending on where you live, you need to replace: roof, furnace, ac, faucets, toilets, and water heaters). Furnace, ac, and water heaters maybe even sooner, but definitely will go after 20 years. That stuff can be extremely expensive. So if you're going to buy a place, figure out where it is in the cycle, and when you can expect to dish out 20-30k in expenses doing it all. It also behooves you to make sure properties have standard equipment, one place I saw had a funky custom furnace form factor, the replacement cost would have been 20k for parts alone.

I like being extremely hands off. My favorite property is a townhouse we bought last year, it's 10 years old, the hoa covers the roof and exterior and is low enough that I probably come out ahead in that area of maintenance. I got a first american home warranty on it, which is AWESOME, I just submit a claim and any time anything goes wrong I pay a 65 service fee and they manage the rest like finding contractors, hounding contractors, etc. Totally worth it. Contractors are some of the hardest to manage people I've ever had to deal with in my life, always behind schedule, always over budget, half the time they don't even pick up the phone. I put 90k down, and on average after expenses I've been getting about 5.7% annual return on the 90k. Should go a little bit higher when I pay off the mortgage.

Most importantly: it depends on when you buy and what kind of deal you get. If I bought the same property at todays market price it'd probably be closer to 5.0%. You have to run lots of numbers, check out rental prices on comparable units, etc. Figure on some maintenance, I figure on about 5-10% of gross income, I usually come out ahead though. Or at least I do now, my first one I got in at the end of the 20 year cycle, roof is the last thing I need to replace, and will probably do that next year, bye bye profits. Nowadays maintenance and lack of headache are my key criteria, I try to keep things in tip top shape, lots of preventative maintenance, and really good tenant screening.

Anyways, you could probably do 10% ROI without too much work, with a 4plex I was projecting around that much. But it's very important to take into account your temperament and how much effort a better ROI property would get you.

banker22
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Re: How to Invest 100k in Real Estate?

Post by banker22 » Sat Jan 28, 2017 2:14 pm

tylerrr wrote:
ether wrote:Here are the key datapoint you need to look at for every investment:

-Interest rate
-Closing Costs (Depends on state & if cash or mortgage)
-Property Tax rate
-Historic utility costs
-Age of building
-Type of construction (so you know what the most common repair issues)
-Age of roof, HVAC, plumbing, electric, foundation
-How many tenants
-Rent

The general rule of thumb is collect 2% of the property value per month in rent. So @ 100k you want 2k/month cashflow.
The reason you want 24% of your total investment in rent every year is these are your yearly expenses
Opportunity cost of capital (6%) + Vacancy risk premium (4.5%) + Maintenance & Depreciation (4%) + Property taxes (1.5%) + Water & sewer (.5%) = 20.5% of property value in expenses.

Therefore 24% - 20.5% = 3.5% of total investment in positive cash flow per year = $3500/yr profit
thanks for the breakdown...Good stuff.


This is pretty much what I understood. 3.5% is not that great when compared to 7-8% average in the stock market.

Therefore, real estate isn't a great investment most of the time. I guess I'll just buy a place if I want to live in it. I've swore to myself I will only buy in cash or at a price where I can pay off the mortgage within 4 years.
Maybe I'm being an idiot, but I'm not seeing how your math works...

6 + 4.5 + 4 + 1.5 + 0.5 = 16.5%, not 20.5%...

Also, assuming the 20.5 is correct, your return is 3.5% + 6% provided by the market, so 9.5%total cash flow / yield (NOT including appreciation).

This also doesn't take into account:

- favourable taxation - deductible interest and depreciation mean taxes are close to 0
- ability to easily leverage to enhance returns (with added risk) if desired
- much less volatility than equities
- much less liquid than equities
- appreciation potential which isn't factored into the 9.5% at all (although 6% market returns as your hurdle rate is just assumed to be true?)

unno2002
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Re: How to Invest 100k in Real Estate?

Post by unno2002 » Tue Feb 07, 2017 2:05 am

A specific example is in FEB 2013, a solo 401k type account bought a 2 bedroom, 1 bath, 1 car garage brick home for $77,500, which is being rented out at $805/month.

dropoutretire
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Re: How to Invest 100k in Real Estate?

Post by dropoutretire » Thu Mar 09, 2017 11:23 pm

tylerrr wrote:I want to invest 100k in real estate.

I save 4k per month, which goes into a savings account or stocks/bonds.

I'm asking for possibilities regarding real estate. What is the best long term investment in real estate if you had to invest 100k?

Would you buy a small condo and pay it off in cash? Find a small town where I could buy a 100k house in cash? Buy a more expensive home with a mortgage if I can pay off the mortgage within 4 years?

Looking for any replies/ideas......thanks
If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !

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Dragline
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Re: How to Invest 100k in Real Estate?

Post by Dragline » Fri Mar 10, 2017 7:01 am

dropoutretire wrote: If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !
I hadn't thought about that, but it is probably a good bet given the opioid crisis in rural America these days and the increasing demand for transition places. How do you "sign up" a house you own to become an Oxford house?

dropoutretire
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Re: How to Invest 100k in Real Estate?

Post by dropoutretire » Sat Mar 11, 2017 1:22 am

Dragline wrote:
dropoutretire wrote: If it were me, I would buy a house in a city where I could buy a house under 100k for 1OO% debt free. But I would only do whats called an Oxford House and thats a Clean and Sober House. They are self managed like a democracy and its like having a free property manager that kicks butt. They even drug test the tenants. Its a gold none of Landlording Gravyness !
I hadn't thought about that, but it is probably a good bet given the opioid crisis in rural America these days and the increasing demand for transition places. How do you "sign up" a house you own to become an Oxford house?
You dont like sign up, you rent your house to Oxford House just like any other renter. Go to Oxford House.com and look throughout their site and there should be a phone number and simply call them and say hey, come talk to me and lets do this. Any other questions please feel free to ask me. :)

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