How would you generate $50K per month with $1M?

Question

Hey BP,

Let me just start out by stating that I DO NOT have $1M, nor would I disclose my net worth /cash on hand for a general post. Hopefully that eliminates the “really bright for you to post you have $1M in the bank to invest crowd (said jokingly, but I see it happen quite often lol).

That said, I was scrolling Instagram last night, and a “influencer” I follow was asked the following:

“How would you invest $1M at age 25?”

His response (not verbatim, but more or less):

“I’d buy rental properties. I’d be generating $50K/month and have the real estate worth $1.3-1.4 M in a year.”

My first thought is, smart guy. However, my instant reaction is to run the numbers in my head. $50k/ month revenue off only $1 M?....

Maybe it’s because I’m predispositinsed to California RE prices, but I don’t know if that’s possible anywhere in the U.S.

That’s:

25 units @ $2000/month ea.

50 Units @ $1000/month ea.

100 Units @ $500/mont ea.

And the single family numbers certainly do not add up....

So, my questions to BP are:

How much revenue could you generate per month with $1M?

What city/cities would you do it in?

Does anyone know a city where

“

Jaysen Medhurst · Answer

Account Closed, with $1MM cash you could reasonably buy a $4-5MM property. A property worth $5MM may very well generate $50k of revenue a month, that's the 1% rule. It may even generate a fair bit more. Of course, that means using leverage.

That, of course, is not what this "influencer" is describing. Since they will "have the RE worth $1.3-1.4MM in a year," they are talking about buying cash. Here's where it falls apart:

• A $1MM property that generates $50k/month in revenue is a 5% property. That would probably be something like a 30% Cap Rate. Those simply don't exist.
• Sure, you can invest $1MM and significantly increase the value of a property. Buy for $750k, put in $250k, and reposition the property. Not impossible to image you could do that if you're able to increase rents, decrease expenses, and compress your cap rate through the reposition. Not easy to find a property like that or pull off the reposition, but possible.

Bottom line: This person is a dope who does not understand how REI actually works.

Jaysen Medhurst · Answer

"Best returns" is a loaded question, Account Closed. Over what time period? Do you weight cash flow over appreciation or vice versa? How do you account for risk?

CoC ROI might be great in the midwest or down South. Appreciation in Austin, SoCal should be amazing. Defining that metric and risk adjusting it is the key. BP did just release a metrics service. I haven't played around with it yet myself. If you keep it simple and consider IRR and NPV over 5, 10, and 20-year timelines, I bet you come up with some interesting answers. Of course, no one can predict the future. Markets that have been seeing significant rent growth and appreciation over the last ~10 years, may not be as profitable over the next 10.

Chris K. · Answer

Account Closed

As @Steve Morris and @Jaysen Medhurst pointed out, you are probably not going to find an opportunity where you are looking for $600k in annual cash flow with $1 million invested. It would be a challenge --- albeit a doable one --- if you are looking at it from a gross revenue perspective.

Just note that returns and cash flow are related but different. A lot of "big boy" projects involved sacrificing cash flow during the early stages to get a bigger return at the end. So you need to first decide what your goals are.

Another way to think about it: do you want to use that $1 million to do something active or passive? If you go with the active route, you have to become an entrepreneur of sorts to make sure you get the best returns for your money invested. If you want to remain passive, you reduce your day-to-day involvement in exchange for lower returns.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Steve Morris · Answer

Well, if you're talking NOI = $50K/month, that's a 60% CapRate. Not going to happen.

If you're talking IRR stuff, then find a cheap place with upside, work like a dog to get the income up as fast as possible and then sell it in 5 years - Rather daunting task today.  However, if you can fix it quick and for $1M find a $4M prop you can sell in 5 years for $8M, might make it happen.

Then again, maybe buy 1M $1 tickets in a lottery?

Account Closed · Answer

@Jaysen Medhurst I would tend to agree, but it still has me thinking. What cities could you generate the best returns on $1M or even $500K?

Frank Hinck · Answer

@Quincy Lockett

Can I ask the math on that?   What’s the investment / leverage, and what would the # units and cashflow set up be?

Quincy Lockett · Answer

@Taylor Corder

As a rule you’d need at least 3.2 million dollars invested to see 50K a month.

Justin R. · Answer

@Taylor Corder it's relatively easy.

Step 1. 10x your money in six months with crypto currency

Step 2. Purchase a multi family asset at a 6% cap.

How would you generate $50K per month with $1M?

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