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What would you do with an extra $100k? I know what I’m planning.

                                                                                                    Photo by CHUTTERSNAP on Unsplash

2022 is looking to be a great year so far! The market gains over the last couple years for Real Estate has done nothing but good things for my small Midwest portfolio. I was able to take advantage of the extra equity in 3 of my properties and pull out a few down payments to continue growing my portfolio. I was fortunate enough with these properties that I haven’t done much work and no renovations at this point. The most exciting of the properties that brought me over $40k during the cash out had the highest expenses since ownership which total $3,400 to the tune of an AC replacement. My cash position this year for the business is in a far different position than when I paid out my last $3k for that AC unit, and I plan to keep it that way.


In total I pulled out $91k after taking care of a line of credit I used to purchase one of the properties, and I want to do things differently this time. Now with the full power of the $20k line of credit available for major expenses, I also put aside $10k of cash for maintenance to keep from going into immediate debt. With that sizable cushion I currently have $80k available to figure out how to project my business forward. Now to preface, this is the single largest amount of cash I’ve had in my life and with that came a lot of tough decisions.


Once everything was finalized and I had the money sitting in an account staring at me a lot of thoughts came in to mess up my plans. I could pay off my $32k car note and have a little breathing room in my personal finances. That would be a great source of instant gratification and from the outside looking in it would look pretty good to have a couple free and clear vehicles. Having that extra $580 per month cash flow freed up would make life a lot more enjoyable. Unfortunately, the hidden evils of an easy decision like that outweigh the benefit.


Weighing the Real Cost

For one, behavior. I could go into an entire series of articles around the behaviors surrounding my money, because it’s the single most influential aspect on any financial decision, just ask Dave Ramsey. Not even the best of financial experts can completely eliminate lifestyle creep. We want things to be easy. We want to stop looking at the budgeting apps every 20 minutes and just live. I know my tendencies and that extra $580 per month would disappear into the wind of nicer groceries, going out to eat, and a couple more amazon boxes a month. It happens quicker than you might think.


The Numbers

On the other hand you might be saying, “just be discipline and save that money toward another down payment!”. That all sounds good and nice until you really break it down. That $32k could easily be 2 entry level homes in my area each bringing in $150 per month on average profit. Paying off the car would give me an extra $280 per month over the houses, but I lose out on the $200 per month total principal pay down and ANY possible appreciation I would have gotten for owning 2 extra assets(cars are a liability and rarely appreciate). Without considering any of that, the goal is to purchase assets and build residual income. To recoup those 2 lost assets I would need to save the full $580 for 4 and a half years, OR in that same time period have the 2 houses making me a total of $16,800 without the extra consideration for principal pay down or appreciation. All in all I will end up with an extra property and the paid off cars, just by doing things in a different order and being frugal for a little longer.


Decision after decision, consideration after consideration. This went on for weeks, trying to find better uses for my money. At one point I even pursued renting cars on Turo, but my research proved futile as my area isn’t setup to succeed in that market currently. I also started looking into flipping properties to stretch my money, but that doesn’t currently line up with my goals to spend time with family and pursue passion projects. At the end of the day I’m sticking with passive investing into turnkey rentals as that’s what’s best for my situation. If you maybe don’t have a family or don’t have the extra income to continue investing flipping and the BRRRR method are very powerful options for building a successful business.


The Deal

The beauty of using a property management company comes in the form of having indirect access to thousands of properties and property owners that think very similarly to you. I currently use 2 different companies and sent a simple email asking if anyone was trying to offload properties. After a few days I got the info for a guy who had 8 properties he was looking to get rid of that were all currently rented. Having a PM is the best built in network you can find. If everything goes well with this deal and we’re able to close that $80k will turn into close to $800 per month in cash flow and $400k of assets pushing me over $1M (including my personal residence) with less than $50k of my own cash in the pot!


Thanks for listening

As exciting as the last few months have been for me, I’m not coming to you to brag about the windfalls of my life. I’m still a long way from my goal and this is just a stepping stone to get to where I want to go. My goal for this information is to give you something to compare your experience to and hopefully help you achieve your goals with Real Estate. If you have a deal you’re considering or you’re afraid to lose money, just dive in. That’s my advice and what I did 3 years ago to get me here with my life savings of $15k at the time. I hate to be a broken record, but it really is true that the market goes up over time. If you buy a cash flowing asset and it drops 30% in value, it still cash flows, just wait for the market to come back. Assets are the best hedge against inflation, and experience is going to be the only thing to calm your mind. Good luck and happy hunting!


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