I’ve Got $10K and No Job: How Do I Start Investing? (Rookie Reply)

What if your hesitation is the only thing holding you back from financial freedom? Today we're diving into three listener questions that could be the difference between paralysis and profit.

From breaking through analysis paralysis to deciding between flipping and buying and holding, to cashing out almost half a million dollars. This episode could be exactly what you need to make your next.

This is the Real Estate Rookie Podcast.

I'm Ashley Kerr and I' Tony J. Robinson. And with that, let's get into today's first question. Now, this first question comes from Andrew, and Andrew is a bit of a. I don't know, a bit of a poet, a bit of a comedic writer. So bear with us as we get through this question. But he says, I've dove deep into the realms of real estate wisdom, heard every guru spiel, and read more how to guides than I care to admit. Yet here I am, stuck in the bog of analysis paralysis, feeling more confused than when I started. Flashback to my glory days at 16, slinging pizzas and dream of real estate riches. Fast forward to Now, a fresh 24 year old recently booted from my cushy W2 job, paying 80k a year. Left to ponder the meaning of life and the potential of my bank account. Now I find myself in the trenches of self employment at my buddy small business lending firm with a 1099 in one hand and $75,000 in student loan debt in the other. Oh, the joys of adulthood. But as Frank Sinatra said, that's life. I'm determined to achieve financial freedom and live the life that I've always dreamed of. Now let's talk numbers. We've got expenses dancing around 2 to 3k per month and a modest $10,000 stash and a student loan payment of $725 a month the size of a small country's GDP. I also have $58,000 invested in an individual brokerage account and $22,000 in my Roth IRA. R. Although this may impress some, I feel so far behind. Now onto the multimillion dollar question. How does one embark on a real estate journey with pockets as empty as my social calendar on a Saturday night? Do I Burr? Do I do single families section 8 small multifamily large multifamily flipping sub 2 wholesaling, slow flips, storage facilities, car washes, laundromats. The possibilities are as vast as my confusion. But wait, I hear you say what about flipping Cash is king, right? Only if it were that simple, sure. I've scoured Zillow like it's my job. Which, let's Face it, it sort of is. But the only properties I find are nestled snugly in the heart of Midwest, a land as foreign to me as quantum physics. I think this is where I would get the most value and it definitely has the most opportunity. But again, as foreign as a flip phone. So what's a broke, bewildered aspiring real estate mogul to do? Do I gamble my last dime on a single family cash cow or do I roll the dice on a flip and hope lady luck is on my side? Even just reading through that, I felt like a lot. What do you think?

I just googled how much does a country songwriter make and they actually make around on average 103,000 annually, which is more than when he made it his $80,000 job.

There you go.

I would say country songwriter might be in your future.

Yeah, so, so to paraphrase Andrew's question here because I know it was a long one, but basically he lost his W2 job making 80, 80k a year, picked up a job with a buddy working in a lending firm, 1099. He's got student loan debt payments at 725 bucks a month, total debt at 75k. Between his different retirements account he's got it looks like close to about 70 or 80k there as well. And he's just confused on what to do next. Does he take this little bit of money he has, he has saved up, plop it into something like a long term buy and hold or does he try and maybe go after something more active like flipping a lot to unpack? I think the first thing that I'd say is in your position, I think my focus would be to try and build a little bit more capital to begin with or I would try and find a way to. And he didn't get into like his living expenses, he just said like 2 to 3k per month. But I would assume maybe a good portion of that is your living expenses. So I would either A go after something that's going to build up your cash like flipping, or B, I would go after house hacking where you can take maybe some of the money you have saved up, get the asset that's going to build value over time while also reducing that 2 to 3k per month that you're spending to kind of keep your lifestyle sustained. But I think one of those two options jumps out at me as maybe the best path forward. What are your, what are your initial thoughts for Andrew Ashley?

Yeah, so it also says like we've got expenses. So I'm assuming this is a two person household. So I'd also be. Unless he's just using weave as in part of his country song lyrics. But I've, I, I would be interested to see what the if you know, if we is another person, what their, you know, income is and what they're contributing to the household too and if there's some more stability there to be able to take a risk. And also as far as did it say if there's, if they're renting or if they actually own a property now.

Doesn'T say just they're they've got expenses but it doesn't say the, the breakdown of those expenses.

Okay. So the first thing is if there is an extra bedroom, whether you are renting or you are it's a property you own. I would look at co living and house hacking the property to bring in that extra money right away because there you are, you become an instant real estate investor by collecting rental income and you're increasing your income that way. So that would probably be like my first step to do. And then as far as like what's the, what strategy should you get into is to think about what are. Do you have an advantage or opportunity in anything? So like are you, do you have the skill set to do a rehab? Do you have, you know, a connection or a referral to a really great contractor you already know that could handle the, the, the flip for you and do all the rehab that you really wouldn't have to, you know, oversee a lot and you feel like you could trust this person. Do you know someone that owns a self storage facility that is already willing to be your mentor? What are these things? But I think like Tony, as you said, you have to save up a little bit more maybe. But also like identify one strategy. So in order to do that you need to know your why, what do you want out of it? Is it that so you never have to go to back to a number W2 job? Is it that you want to build wealth in the future and you're not so much worried about income right now, but really identify why you're investing what you want out of it and then you can kind of narrow things down. Like if you would prefer to have a steady W2 income job then maybe like flipping or maybe doing something like wholesaling isn't something you want to do because like wholesaling can be a whole job in itself. So I think you have to identify how much time you also have to put into the property and then what advantage or opportunity do you have in these different strategies and really narrow down your list from there. Because once you get your strategy and your asset class identified, then that's where you need to go down and be like, okay, what's my buy box? How much do I have for a down payment? What kind of financing is available out there? You know, are you going to only try to get seller financing on a property? And what does that look like? So I think from there you got to take these baby steps. Steps. I actually have a really great book that you could check out called Real Estate Rookie, and it literally goes through these steps one by one to really help you identify what strategy is for you. And then how do you find the market you're actually going to do this in? What kind of financing do you need? And it takes you through all of the great steps.

I. Yeah, I think being able to identify the why, as you said, Ashley, is probably the most important first step. Because it's easy for Ash and I to say, like, hey, here's the tactical piece of how you get your first slip or how you get your first rental or whatever it may be. But unless we know why you're actually doing this and what's most important to you, it's hard to really prescribe the right plan. But here's what I will say. I think once you've answered that question for yourself, Andrew, of like, okay, why am I doing this? What's most important to me? Is it the cash flow? Is it the equity build? Is it, you know, just big chunks of cash? Once you've identified that, I think being able to move to a point where you actually are taking action is the part where a lot of folks get stuck. And I think my, my general advice for Rickies who are stuck in that analysis paralysis is once you've gotten to a point where you're listening to the podcast, you're reading the books, you know, you're seeing the stuff on social media, and you know, most of what it is you're being told, you know, most of what's being discussed, that's typically a sign that it's time for you to jump in and take action. Because if you can listen to the majority of the Real Estate Rookie podcast at this point and say, man, I've actually heard that this strategy before, or yeah, I've heard this term. Or yeah, that that idea makes a lot of sense.

When we start to get boring.

When we start to get boring, right. That that's the sign that, that it's time for you to jump in and get started. So I I think that's my final word to you, Andrew, is knowing and knowing how to push past that initial fear of getting started and just jumping in and taking some action.

Yeah, I still think like the number one thing you should be doing besides like identifying that strategy is like renting out a room or like figuring out a way to house hack. Because you're paying living expenses anyways, you might as well use that as an opportunity to start being a real estate investor. Know what it's like to have a tenant collect rent, Things that can come up, but also you're decreasing your living expenses by having that offset set. And that will help you save more money because now you have somebody paying you 500 bucks a month or whatever it is to rent that room. That's more that you can save every single month as long as you can avoid that lifestyle creep. Get that 500 bucks in your pocket, take your wife out for your fancy dinner. That eliminates the whole thing.

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Okay, welcome back. Today's next question is from Mike in the BP forums. For some context, I purchased a duplex last August as a buy and hold with about $300 of cash flow per month. As I've been learning and developing some interest in the BRRRR method, I became intrigued with the possibility of flipping, but wasn't sure if one is better than the other as far as what you actually walk away with in, let's say, a year. The way I'm looking at it is If I flipped four houses a year with $25,000 profit each, I'd only need to flip four to get my first annual financial goal of $100,000 per year, which I'd obviously have to repeat annually to continue that method. With Buy and hold at $100 per unit, average cash flow, I'd need 84 units. Would love to hear your thoughts on the pros and cons of flipping versus buy and hold with or without the BR strategy. Okay, so the first thing that took me a long time to realize is that this is not black and white. There are a couple factors that come into play. Like that math is correct. Yes, that is the difference. You'd flip four houses a year or you need 84 rentals. So there is a difference. And first is time. Okay. So you got to look at your time, the value of your time. How much time would you put into doing each of these things? Buying and managing 84 rentals, flipping four houses every year. Okay. The next thing is the tax advantages. So this took me a long time to realize but like you're by really, really being intentional about your taxes and how you're filing and what deductions or strategies you're using legally. Of course, instead of making X amount additional income, you can just be strategic about your income for your tax return or your expenses so that you are keeping more of your money in your pocket. So for example, if I make $100,000 W2, but I own, I just bought a short term rental this year, Tony goes out and flips houses and makes $150,000 flipping houses. It could end up that at the end of the year after paying taxes, I could have more money in my pocket. Even though I pay, I got paid less. But the way he got more taxes taken from him because he didn't have the short term rental loss or the depreciation or doing a cost saying to actually offset any of his income. So even though he made more money on paper at the end of the day after paying taxes, I had a bigger lump sum than he did over the year. And that was like that. That takes less work than having to work harder to increase your income. If you can decrease your taxes, that's just more money in your pocket. And I think we get so overwhelmed of thinking it through as to like I need to generate more income or income more income. But if you focus on the tax strategies of some of the, you know, ways you can invest in real estate, you'll actually make out in the long run and you didn't have to do any more work except hire a tax planning cpa.

Yeah, the taxes I think actually are super valid point because you'll probably need to make, assuming you don't have any of the other tax tax benefits, you know, called 35% is what you're going to get taxed on whatever you make. So you need to add that on top of whatever it is you're actually making. But I think the other part of flipping versus buy and hold is that flipping is a cash intensive business. And unless you're in a position where you're getting your deals fully funded, you're going to need some amount of cash to cover your down payments. Even if you're getting hard money to Cover maybe floating your construction costs. So even if you're netting 100k, you probably need to net maybe 2 or 300k for you to personally have 100k to take home every single year. Because that other, you know, 150 to 200, you're just going to need to leave that set aside to cover EMDs, to cover down payments, to cover floating construction costs. So I think there's some more that goes into flipping than just like, hey, I'm going to net $25,000 on each deal and call it a day. I think the other piece too is, and I guess we can kind of say the same thing about the rental side as well. 84 units is a lot, you know, that, that, that is, that is a lot to manage. So in again, I think it comes down to how you choose to build your portfolio. But could you maybe go a slightly different strategy where instead of 84 traditional single family rentals, could you have 12, you know, co living properties? Could you have five sober living facilities? Could you have, you know, I don't know, the self storage? Right. The list goes on and on. But I wouldn't put yourself into just this box of, you know, I just want to buy single family homes, give me $100 a month in cash flow. Because managing 84 units, even if you have a PM, managing 84 units is going to take, there's going to be a lot that goes into that.

Yeah, the asset management piece.

Exactly.

There's so much that a property manager does for you, but there's so much they don't do for you too. Like they could not quote out your insurance every year, you know.

Yeah, I think, you know, I think the last thing I'll add to this Ash, is that you, you don't necessarily have to choose. I remember one of the first books that I read on real estate investing. It wasn't a bigger pockets book, but it was still a foundational book for, but his whole strategy was flip 1, flip 1, flip 1, hold 1, flip 1, flip 1, flip 1, hold 1. So he would flip three properties, hold the fourth, flip three properties, hold the fourth. And that strategy gave him the best of both worlds because he was able to build up big chunks of cash but still make sure that every so often he was going back to add some passive income to complement the active income. And it's almost like, you know, working a traditional W2 job and saving in your 401k. Right. Like your, your, your paycheck is paying you today, but the 401k is going to pay you tomorrow. The flipping is going to pay you today. The long term rentals are going to pay you today and tomorrow. So maybe the best solution isn't choosing either or, but it's creating a plan that incorporates both. It's the end. How can I flip and get long term rentals?

And we just interviewed Tim Delaney. So this would have been episode 603 that, that just came out on Wednesday. So if you guys want to go back and, and look at it, he was doing that. He was buying properties to hold as long term rentals. But also he flips a couple properties and he's built his way up to 50 rentals. And still I think he said like he flips like maybe four houses a year. And he also does this while owning a wine and liquor store and running a business. So you can go back in and listen to his episode too.

I think the last thing that I'll add to this is there's a difference between active income and passive income, right? Flipping is more active, rentals are more passive. And you've just got to ask yourself which one of those helps you really achieve? And you know, we say this for a lot of the rookie reply questions, but which one is actually going to help you achieve your goal? Do you want big chunks of cash right now or do you want the steady drip of cash that comes with with rentals? So I think answering that question could help you also make a better determination on which one makes the most sense for you. All right, we're going to take a quick break before our last question, but while we're gone, be sure to subscribe to the real estate rookie YouTube channel. So if you're watching this on YouTube, hit subscribe. If you're listening on your favorite podcast player, just know we also do video versions of this. So if you want to see, you know, mine and Ashley's beautiful faces, you can find us at realestate Rookie. And we'll be back with more after this.

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So we are here with our final question of the day and this question comes from Colby and Colby says, I have an investment property that I bought as my primary home a while back in Bend, Oregon. I have $180,000 on the mortgage and the property has accrued a good amount of equity. I could likely sell for 700 to 750k, leave me with about $500,000 in cash. I'm considering selling the property to invest in an out of state market as the cash on cash return isn't great. I net about 1700 bucks a month in cash flow. My thought is that I could reinvest this money into a few other rentals in better markets to gain better cash flow. One kicker of the equation is that I have the loan on the property at 3.1% and obviously things have changed a lot since then. My goal is increasing cash flow with my investment property so that I can turn this into a full time gig. All right, first let me say how amazing of a position to be in to be staring down the barrel of half a million dollars in equity from a property that you bought less than a decade ago. I think that is a fantastic spot to be in. But to to answer your question, Colby and I think this kind of goes back to question two about not focusing on or but how can we focus on an and solution. Is there a way where you can keep this property and have funds to go invest into some of these other markets that you're considering? And I think the answer is potentially yes. You know, with, you know, you said it was a, used to be a primary residence. So I think going back and getting like a, a traditional HELOC on that one may be a little bit more difficult to do. A lot of banks want you to live in the property, but there are definitely kind of the smaller local regional banks who will entertain lines of credits on investment properties. And I think with the amount of equity you have, that's probably a proposition that a lot of small local regional banks in Bend, Oregon might be willing to take you up on. So my initial thought is, can you get a line of credit using that half a million dollars of equity? And maybe you don't get the full 500k, but maybe you get 250, you know, maybe you get 300. And is that enough for you to go out and buy some of these, some of these other properties in these markets that are maybe giving you better cash flow? So that's what comes to me first, Ashes is can you keep that property, keep that sweet 3% interest rate and still access those funds to go buy something else?

Yeah. And I think I'd also like to know, what do you need cash flow right now? Like what are you doing? It's netting 1700 per month in cash flow. And you want to reinvest into other rentals to get better cash flow? Well, since this has appreciated so much, is it better to just hold this property, keep it as is, let the mortgage eventually be paid off and in, you know, in 10, 15 years when you want to retire, then you sell the property? Because if it is appreciated this much, yes, this is like during COVID time where we saw lots of appreciation. And you know, if you'd get the same amount of appreciation over the next 10 years, would that be possible? But I would look at, okay, what do you estimate this property will be worth in 10 years? If you kept it, held onto it, kept paying off the mortgage, how much equity would you have then? I would go and look at, okay, say you bought three rentals in a better cash flowing market. We're going to use Oklahoma City because that's where Tony is looking to invest. And I'm assuming you're looking to invest there because there's good cash flow. Actually you're flipping there, right?

Yeah, mostly flipping. Same idea.

A Midwest market. You know, they just did the cash flow roadshow. So the Midwest market you're looking to invest in and say you're going to take that $500,000 and you're going to buy three houses with it and you're going to increase your monthly cash flow using that. So I would look over the next 10 years, how much money will you make in cash flow and how much appropriate appreciation and equity will be built up in those properties over that 10 years. And after 10 years, which one has the higher dollar amount? So is it the property in bed in Oregon, just keeping that one property, having one property to worry about, you don't have to sell it, you don't have to go and find three other properties to acquire. What is that dollar amount it will be worth in 10 years. Okay, then look at the other thing you put in the work. You sell that property, you go and buy three other ones, you get a property manager in place, you, you know, have three properties now where you have three roofs, you have maybe, you know, two vacancies at one time, whatever it may be, what is that dollar amount that comes out after 10 years? And let's just say we're not factoring in capex vacancy, things like that. We'll just say we were not doing that. Just everything goes perfect. You haven't rented perfectly all of the properties over 10 years. No expenses, just your mortgage payments. Ideal situation, they become the best situation. What does that number look like after 10 years? Because if you, if it comes out to like even the clo, like pretty close as to what you're actually making, then maybe it's just worth sticking what it is. But then also factor in what are you doing with your cash flow. So with the cash flow from each of those properties, like if you're going to get more cash flow, are you going to reinvest that? And now we've got to take compound interest and as a factor being able to reinvest a higher amount every year and you start investing more now, that's just adding to the compound interest. So I think really sit down and do the math and use like 10 years as a metric or whenever you think it would be that you'd want to cash out of your properties or you know, in an exit strategy or just a game plan to see how they performed over the next five, 10, 15 years, whatever that may be. But I think sit down and, and run the numbers on each scenario.

Yeah Ash, we, we just interviewed Dean pinhas on episode 602 and Dean was actually intentionally losing money on properties but he was doing so because he believed in the asset and he had them on 15 year notes and he knew that by the time all these are paid off he's going to be netting 20 ish thousand dollars per month, every single month on these paid off properties. And that was his strategy. So I get that maybe you feel you can get a better return, but even still, I mean, you said you're netting 1700 bucks a month on a single property. That's pretty good. You know, for, for a single family home to net you almost two grand a month is a really good position to be in. But I get that you also, you know, your, your return on equity is probably sub 5%, right. You know, you got half a million bucks in equity making roughly 20 grand a year, give or take. Like return on equity isn't great. But what's more important to you, to Ashley's point, is it the peace of mind? Right. And saying like, I just have to worry about this one deal, don't worry about searching, managing all the headaches that come with scaling and I'm just going to do really well with this one deal, or is it how I just want the best return on the equity that I have available? And you've got to answer that question for yourself because could you deploy that capital? Absolutely. Right. I'm sure you could go out, take that half a million bucks and maybe end up with more than seventeen hundred dollars a month in cash flow. Right. But it's like, does that align with the goals you actually have?

And I love the idea of not being over leveraged too. You know, like what, what was your plan for that 500,000? Was it to go and use that as down payments across five different properties where you're putting 20% down and now you have 80% debt on each of those properties where not like on this $700,000 property, you only have $180,000 of debt and 500,000 of equity. So it really changes, you know, how much you are leveraged in your portfolio too. So like what helps you sleep at night? But going back to Tony's original idea of how can you use the, and, and tap into maybe getting a commercial line of credit on the property that maybe is only for $200,000 instead. So you still have $300,000 of equity or something like that in the property. You're taking that line of credit, you're going to use it to purchase a house in the Midwest, you're going to rehab it, you're going to add value to it and then you're going to do a cash out refinance, pay off the line of credit and you've got the mortgage on the new property and then you use that line of credit to just keep deploying it to add more rentals. So back to Tony's original idea. I think that after you run the numbers, that probably will be your, your best bet and go to small commercial banks or small local banks and their commercial side of lending in Bend, Oregon where that property is and ask about, you know, how can you tap into the equity on an investment property without having to change the, you know, current debt that's on it? Because you want to keep that 3.1 interest rate.

And just to highlight or to maybe drive home the point of what Ashley just said, I think it would be best to deploy that capital on a short term basis. So what I wouldn't do is go pull this line of credit. You get 200k and you plop that 200k as a down payment on turnkey rentals because then it becomes a little bit more difficult to repay that line of credit. Now you've got to use the cash flow from these new deals to pay it down. But if you're burying, if you're buying one property at a time and your burry and you're burying these properties, well, now every time you refinance, you can pay the line back and then re. Go and then go redeploy that capital onto the next deal and redeploy it into the next deal. So just a small distinction or nuance of what Ashley was saying that I want to make sure we, we highlighted. But either way, I mean, what a, what a unique and a problem that I'm sure a lot of rookies wish they had was, hey, what's the, what's the best way for me to deploy this half a million? And obviously we know that for a lot of you who are listening, you're not on the, the same position as Colby to, to have that much equity. But I think the, the thought process we're talking about for however much capital you have, it still applies, right? He's just maybe doing it with a, with a slightly larger number.

This something I thought of while we were talking about like interest rate, like how he has a 3.1% interest rate is like, you know, they, for April Fools one year they made a joke that they were starting like a dating matchmaking website for real estate investors. Like it was an April Fool's thing on bigger pockets, whatever. But people are super into it. Like, yeah, let's do that. And it just like made me think of like how me and you even get so hyped when someone has a low interest rate. Like, oh, that's so exciting. Is like the dating profile for real estate investors. Like, one of the key things you put like on a dating app is to like, I have a 3.1% interest rate. Like one of the things that there's a billion dollars.

We, we need to, we need to create the tender for real estate investors or for entrepreneurs.

BPCON this year will, will set up some little, you know, hacky app or whatever, so. Well, guys, thank you so much for joining us for this episode of Real Estate Rookie. Reply. If you have a question, you can join us in the real estate rookie Facebook group or you can post in the Bigger Pockets forums. I'm Ashley. He's Tony. And we'll see you guys on the next episode.

Rookie listeners, are you on the sidelines right now planning your first deal but not pulling the trigger? I get it. Making the leap into investing is hard at the best of times, and right now it's paralyzing. Invest in real estate in this economy. What if you make the wrong deal? And how do you know who to trust? If you're ready to get unstuck and start building wealth through real estate, join us at BPCON this October. You'll leave with more clarity on your strategy, insider knowledge to help you make the right move and relationships with people you can trust. It's time to get unstuck at BPCON. Get your tickets before they sell out@biggerpockets.com rookie conference. That's biggerpockets.com rookie conference.