You have $50k spare....

[cd34]

Originally posted by Spw Guru@Jan 25 2005, 09:04 AM
Invest in real estate!

That assumes that you can find properties that aren't overly inflated due to low interest rates. The 20% annualized gain you see in many areas is only 20% because low interest rates made it possible for buyers to overextend. I don't think interest rates will continue to hover at their current rates for long and that probably won't eliminate the capital appreciation, but, might stagnate values for a while.

Then you need to find something that is more passive than active in real estate. $50k leveraged properly might get you a $500k property if you have good credit and are ready to sign a personal guarantee. Don't want to encumber yourself? Until you are proven, 20-25% down is required.

$50k doesn't do much in real estate -- might earn you $200/month in somewhat passive income with the potential upside % of any capital appreciation in the property. This goes for commercial or residential and assumes an 8% vacancy/repair reserve. Commercial properties tend to sign longer leases, so, you could say $400/month.

The rule of thumb in real estate investing is to shoot for an 8% cap rate -- 8%. Deals that have a 15%+ cap rate are usually $500-$600k down, $3-4 million. Stodgy old men and Joe Homemaker are happy to earn 8%. Being in the adult world, 8% is rather depressing.

If you have 50k, find some of those 'we buy homes for cash' people -- they will usually pay 12% and you can't get much more passive than that.

What would I do with $50k?

For now, I'd find a $250k commercial building or duplex and shoot for that 8%. With aggressive deal finding, I do believe you can turn $50k into $7m in 8 years. (Actually, my numbers started with $40k and made the assumption of only a 5% annual appreciation rate) $13m if you believe the current trends in real estate of 10%+ gains per year will continue.

Why real estate?

Do you want a cash cow, (well, until Shell mucked things up) buy a gas station. Gas stations cannot be finananced through SBA, most banks won't touch it. Want to buy a business? Buy a dry cleaner drop-off -- requires 1-2 employees and is based on the location. Want to finance buying a drop-off store? can't talk to a bank, they won't do it. SBA MIGHT touch it. If you can find a laundromat that has marked up their FF&E, you might be able to finance a laundromat.

The banks understand real estate -- they understand 2nd homes. They don't understand how to loan money on a business that could disappear overnight if you mismanage it.

I've spent the last 25 months repositioning myself after figuring out the game. After Feb 1 (I hope), I'll have things on the right path. Its been a long journey, but, I'm seeing the light at the end of the tunnel.... and this time it doesn't look like an oncoming train.