My nephew, Tommy, had been working hard for years. He was a pipefitter, just like his old man, and took a lot of joy in talking to other contractors about how they did their jobs. Tommy saved his money, just like he saved knowledge, and one day he came to me to say he wanted to be his own boss.
It seems he had a pretty sizable savings and he really wanted to get into real estate investing, just like his favorite uncle. And, while there might have been a little bit of flattery going on, it turns out I’m a sucker for flattery. So, I decided to give him the fruits of my wisdom.
2 Options for How to Invest 100k in Property
Tommy had about $100,000 saved up and was ready to start investing it. That’s a good, tidy sum, but it isn’t a fortune, and so he had to be extra smart. He had few margins for errors here. So I told him he had basically two options:
1. Buy a house or two and hope for the best
2. Buy a proven business model
Both are options with upside, and I’ve done them both. Here’s what I told him about how to invest 100K in property.
Option 1: Buying Property
The dream of jumping into buying, rehabbing, and selling houses has persisted for a reason: a good amount of people find success doing it. And, they like to write about it, make YouTube videos, share podcasts and all that. I can’t count how many TV shows there are about attractive people who turn run-down homes into super-mansions or whatever.
Those are obviously the success stories, but there are risks to property investing and the glamour behind it masks how challenging this career can be. One of the main challenges is finding a house that meets your budget. And, the way many new investors go about this is through risky foreclosures sales.
All foreclosure auctions generally have one thing in common: the lien holder wants to get the most out of the sale. They aren’t just going to say “We’ll take $5 for this house since it is kind of run down. Who wants it?” If a home is in pretty good shape, the price will be higher. If it is in worse shape, the price will be lower. And, this is the heart of the investment challenge.
Here, let me put it on its own line:
The less you pay for a house, the more likely it is you’ll have to pay for repairs.
This almost-inevitable rule is pretty intuitive. A bank isn’t going to just give away a house in great condition, so what seems like a bargain really isn’t. The problems come from a few main issues. Often, the foreclosed owner did not have the means to do repairs for years. Sometimes, the house had been abandoned during the lengthy foreclosure process and suffered weather damage while unprotected.
Your “great deal” is only a deal because the house needs a lot of work. For Tommy, physically, that was no problem. But, it costs money.
So, with his $100K, he could potentially buy a decent house for around $80,000 and put maybe ten grand of repairs into it, and try to turn it around. He’d lose his margin almost entirely and has to hope that real estate market conditions are such that he can build his nest egg back pretty quickly.
The other option is to buy a cheaper house—maybe two—and put more work into them. Say, buy one for 35K, put 20K of work into it, and hope to sell it for 75-100K. That’s not impossible. But, it is a gamble—especially if you are just dipping your toe into the business for the first time.
Tommy liked playing cards, but only with small buy-ins. He didn’t like gambling for no reason. So, he wanted to know the other option.
Option 2: Buying a Proven Business Model
Tommy wasn’t really sure what I meant by “buying a business model.” He pictured having to open up some brick-and-mortar building, with a sign out front and a huge logo plastered on the wall. I explained that not all real estate investing businesses are like that.
Quite a while ago, getting tired of coming up with dead-ends on finding leads, I became an independently owned and operated HomeVestors® franchisee. In a nutshell, the nationally-known and trusted “We Buy Ugly Houses®” advertising gets me qualified leads from people before their houses are foreclosed on. This lets me talk to the person, inspect the house, make an offer that makes sense, and not go through the rat race of the auction process.
This didn’t immediately satisfy Tommy. He didn’t understand the benefits other than qualified lead generation (which he admitted was huge). I explained to him about HomeVestors’ resources and tools, mentorship, thought leadership, and, of course, solid reputation.
One especially valuable benefit is the proprietary valuation tool, ValueChek™, which helps you immediately understand approximately how much you’ll be spending on repairs, taking into account everything from the cost of materials to labor costs in your area. It’s how you know that the steal at $35K is not going to end up costing you 80 large. This stuff is good to know.
Now the light was beginning to click. After paying his franchise investment fee, Tommy would not just have money left over to buy property: he’d have the means to make smarter decisions.
How to Invest 100K in Property is Up To You
I get why people might want to stick with the auction route. It’s exciting, it’s competitive, and it can be fun. Even if you end up paying way too much, which given the competition and the adrenaline happens all the time, at least you have the thrill of knowing you won.
Me? I find a bigger thrill in buying a house at a smart price and understanding exactly what the costs will be. I find it pretty exciting to make better decisions—and have the support I need to make them. I think it is pretty fun to be able to talk to experts and my local franchisee network, and learn more every day, too.
Buying a HomeVestors® franchise is not a purchase: it’s an investment in yourself and your business. It’s an investment that spurs your other investments. It’s a way to be your own boss and help you to make the best decisions.
If, like Tommy, you want to learn more about being a HomeVestors® franchisee, request information today.
Each franchise office is independently owned and operated.
HomeVestors of America® is the nation’s only real estate investing franchise, providing business opportunities to real estate and investment professionals across the nation.