Let’s try something a little different in today’s blog post. Instead of me giving you guys the content, let’s see if I can crowdsource some interesting stuff.
The scenario is simple. Your rich aunt Hortense passes away, leaving you with $100,000 and some ugly old people figurines. But it isn’t no-strings attached cash. She’s left you with some rules, which she will somehow enforce from beyond the grave. DO NOT screw with Hortense’s ghost.
The rules are:
- You can’t invest it in the usual stuff — stocks, bonds, ETFs, mutual funds, or anything like that.
- You can’t use it to buy a conventional real estate investment. Real estate is fine, but use your imagination a little.
- You have to invest it, you can’t just use it to buy hookers or fund your dream vacation.
- No paying down debt.
That’s about it. I want to open this up to all non-conventional ideas. There are a million blog posts out there that tell you to invest in the usual stuff. There are far fewer that look at things like this.
Here are my two ideas:
OL’ NELLY’S GONNA BE A SLUMLORD.
Nobody wants to own trailers, especially those that look like they’re out of an episode of Trailer Park Boys. But there’s a subsection of the population that’s very willing to live in them. They provide affordable housing for families, and succulent returns for investors.
Just how succulent? Here’s an actual real life scenario I’ve seen play out on trailers that cost $10,000.
Rent: $800 per month
Lot rent: $400 per month
Taxes & insurance: $75
Total expenses: $575 per month
Gross profit: $225 per month
Return of 27% annually
There’s actually enough profit in that to hire a property manager, assuming you could find one that’s cool with managing a trailer. Most are, provided it’s not a dump inside or the trailer court isn’t particularly bad.
For $10,000, you can actually get a half decent mobile home. Sure, it’ll be 25-35 years old, but it’ll still be very inhabitable. Mobiles don’t last as long as houses, but they can still last a long time if you maintain them.
I’ve talked about this before on this here blog. I’ve personally invested in private mortgages before. I even have a couple that I’m currently invested in.
People go to private lenders because a) the bank rejected them or b) they need money fast. By having a firm set of lending criteria and experience in the business, there is money to be made from borrowers who are willing to pay a little extra to not have to deal with a bank.
The typical deal goes down like this. The borrower needs cash, and you get the call, either from a broker, bank, or friend who knows you’re in the business. Don’t worry about starting up, if you get in the business and get the word out, the calls will eventually start to come. You examine the equity in the house, the borrower’s ability to pay, and any other important details. Usually you’re concerned primarily with the equity.
Somebody who owns a house outright is a good credit risk. Somebody who has 5% equity in an overpriced Toronto condo isn’t. I’ve never lent anyone more than 75% of the value of their house, and I usually only go up to 50% or 60%. I’m conservative.
These are the better deals of the private lending world, so the going rate is usually 6-10%, depending on your market. Riskier borrowers will pay anywhere from 12-18% annually, and lenders will usually demand they re-qualify after a year.
Those are my two ideas. What are yours? Fill up my comment section with your words. And if you could, share this post on the Twitter, Facebook, or Reddit. The more eyeballs that see this the more interesting the answers will become.