If he knows nothing of real estate but wants to invest in it, he should put ALL the money in some sort of savings or money market that generates a yield, and take the time to learn as much as he can in real estate.
If he tries to invest without proper knowledge, he will probably get a much lower return than what is possible. Yeah, 5% of $2 Million is $100,000 a year for doing nothing, but when it's 5% vs. 20% or even 30%, the difference is several HUNDRED THOUSAND dollars in missed profits.
The key to a great ROI is leverage.
Example: Say he takes only $1,000,000 and invests it into lower-end SFR rentals with a net return of 25% (which is actually kind of low for low income res.). That amounts to $250,000 a year in net profits. Let's assume he can get either Hard Money or better yet, Private Money loans for 50% of what he paid. So $500,000 at 12% interest only is $60,000 a year. He takes the borrowed $500k and reinvests it into more low income SFRs yielding 25%. That's an additional $125,000 a year. Minus the I/O payments, that is a total $315,000, or 31.5% ROI off of his initial $1,000,000 investment. That's an additional $65,000 a year off the same amount originally invested.
Once he's very familiar and savvy with real estate, he can invest the remaining $1,000,000 and use the profits to keep buying more and more properties.
Well, that's what I would do! (except the learning part) ;)
-Chris
