There are as many ways to invest in real estate as there are fish in the sea (and many real estate investing train wrecks that can cost you big time). For me, however, I have very specific requirements for my $55,000 cash, and one in in particular is vital – being able to sleep like one of these:
Specifically, I do not want stress, hassle or headaches with my real estate investing. Also, it is very important for me to make a good return over 10%, AND to be able to be profitable in ANY real estate market – from red hot to crashing and burning.
So How to Invest and Sleep A Baby?
After more than 10 years of investing – and making more than a few mistakes – I have found the best way to meet my requirements is to invest my $55,000 cash in single family homes in certain lower-cost American markets for long term cash flow. Sounds risky, right? Wrong. Here’s why:
I make a rate of return 12-15% with no overhead expenses.
I am protected in a real estate crash. If I buy right, I purchase at 70-80% of the house’s market value. So, if the house is worth approximately $80,000, I will not pay more than about $55,000. Purchasing the asset under market value ensures that I am protected in a bear market. It is people who buy at or even above market value that end up losing everything they own in a market crash.
This type of real estate INCREASES in demand in a bear real estate market, at least in the markets I buy in. Why? Because when the engineer with the $325,000 house loses his job, he still needs a place to live. But now he makes only $37,000 a year. Affordable single family homes are the answer for his needs.
No overhead costs with owner financing, rather than renting out the property. As mentioned above, a key requirement for me is to sleep like a baby at night. That is difficult for me when I am a landlord. With owner financing (and doing my homework on finding a good end buyer!), I am secure knowing I will make my $800 per month with no expenses or maintenance headaches.
Relatively stable real estate prices. It is true that the asset will depreciate in value in a crash, however, the $55,000 house will likely only depreciate to $35,000 or $40,000. This was what happened in my city in the last downturn. And keep in mind that my goal is cash flow anyway, not appreciation. The lower prices allow me to buy more, cheaper homes for more cash flow.
A $55,000, 15.8% ROI Example
Here is a distressed property in San Antonio TX that I am going to acquire for $55,000, with an actual value of approximately $80,000.
It is located near the San Antonio Riverwalk, and requires only $1000 in rehab before I owner finance it. Here are the numbers:
- Purchase price: $51,500
- Closing: $1000
- Commission: $1500
- Rehab/clean up: $1000
- Total Cash Outlay: $55,000
Now I will owner finance this property to a buyer I qualify to ensure they have a steady job and documented income. A $5000 down payment is also required. Terms:
- $900 per month, including taxes and insurance
- Price: $89,900
- 10% interest
- 30 year note
- Taxes and insurance total $175 per month
- $8700 total income per year
- 15.8% rate of return in first year
- Maintenance costs: zero
And so, for me, investing in distressed properties under market value with owner financing really is one of the most sensible investments for $55,000 cash. It makes me an excellent return, I’m protected in a market crash, and I can sleep like……well…….
What are your thoughts about how I’m investing my $55,000? Please comment below.