What would YOU do with my 500k?

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What would YOU do with my 500k?

David B.Pro Member
Member since 2022 · 77 posts · 56 votes

Hi all -

 
So this is a post that is essentially meant to generate thoughtful discussion about how I should start investing in real estate with the wealth I’ve been fortunate to generate. I have enough capital to do some cool things, but not enough wisdom to know what my best options are. So I’m humbly relying on all of you to help stoke the fires a bit, or maybe tell me if I’m heading in the right direction. Thank you so much for your thoughts in advance. I appreciate the guidance, and I apologize if I come across as a rookie for asking this.

First, some stats:

34 years old  

Job: artist/ entertainer (which means I don’t have particularly steady income, or predictable W2’s. That said, I make a fair amount of money)

Net Worth: 1.55 million. 

Available cash: 300-500k. 

Goals: cash flow, plus high appreciation over next ten years so I can 1031 exchange to bigger properties. 

Properties owned: I own one cash flow townhome worth 550k. I am also buying a new Single Family Home in May that I expect to appreciate significantly, and cash flow slightly. I will be able to force appreciation in this home by finishing a basement with 3 new beds and 1 bath. 721k. Salt Lake City market. 

I have about a 1 million invested in stocks, which provide dividends for me to live off when work is tough. the rest right now is cash. Due to inflation, and my growing hunger for real estate, I would like to invest at least 300k into multi family properties this year. But I could go as high as 500k for the right deal. Multi units that I could force appreciation into would be awesome, as I love the idea of refinancing capital out.

I should also mention that I expect to make about 425 k, in installments, from another business deal over the next 3 years, at a minimum. I would like to add that money directly to real estate investments. This would total 725-925k thousand that I could invest over the next 4-5 years.

Lastly, before anyone says I should liquidate the stocks and use that too, my goal (currently) is to not touch my stock portfolio for 30 years, and to develop enough cash flow in real estate that I could live off of that and leave my dividends to reinvest. This would exponentially increase that portfolios value over time. Also, because I’m an artist and I have tough years, I’m concerned about losing that dividend safety net that currently nets me 80-100k. 

OK! So all that said, I’m debating between…

1. Going big. Trying to find 8-20 unit multi family deals (maybe with a partner to scale quickly) in hot markets like Miami, Tampa, Houston, etc. Sort of “Grant Cardone Style”.

2. Buying smaller single family’s and multi family’s in areas like Lakeland Florida or the Midwest. Where I can put 30 -45k down, net a little over a 1k a month, and get some thing like 15-20% cash on cash returns. Then, once I’ve acquired quite a few of them, let’s them appreciate until I can sell/refi/1031

3. I have an idea about finding a luxury home in Miami that I could short term rent. I’ve seen a lot of awesome cash flow on those deals and I’d be interested in having a “second home” that I could Airbnb when I’m gone. Of course, I would continue to diversify with other properties as I had cash coming in (not just short term rentals. More traditional multi families.)

* My first cash flow goal is 5000k a month, but ideally I’d like 10k.

Thank you everyone for reading. I really appreciate any advice or guidance as I begin this new financial journey for myself. 

God Bless,

D


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Don Petrasek
Real Estate Agent · Westlake, OH · Member since 2014 · 186 posts · 165 votes
4y

The challenge you face with SFHs is that you're going to be competing with owner occupant buyers who are very willing to overpay.  In my market (Cleveland OH) there are also more cash buyers than you might think, even in the lower price ranges- who are also going to win out over your financed offer.  Its going to be difficult for you to lock down a property, never mind trying to get it at a price where it will cashflow.  The investor portfolios of SFHs will largely be C-D properties (at least in my experience) that will be more difficult to manage and won't appreciate at the near the same rate as a B property would. 

To me, the ideal structure would be to find 3-4 markets (probably Midwest) where you can buy a small multi family, get decent cashflow (e g 10% cash on cash) and then raise rents/improve to drive the value up.  Being in even 3 separate markets will dramatically decrease your risk vs owning a larger building in one market.  If you wind up liking the market, at some point you 1031 out of the smaller building into a larger one....if you don't you go to a different market with your proceeds. 

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  • Joshua JanusBusiness Member
    Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    I would use a DSCR or commercial loan and get a 10+ unit complex and team up with a great management team. The more doors that you own, the more you can spread and mitigate your risk. You can definitely achieve your goal of 5k/month with this strategy.

    [email protected]614-502-5316Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
    1Reply
  • Chris Levarek
    Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
    4y

    @David B. As this would be your third property, it just depends what you want to do. Do you want to continue being an artist or do you want actively participate in these real estate deals. Anything that requires value-add will require some engagment regardless of your options. At a fundamental level, it's time, experience, capital needed in deal, while risk/responsibility and location factor in as well. Finally passion, is the biggest decider on the whole thing.

    So, if you look at your options :

    1 : Do you want to manage a big property, or manage the manager or would you rather partners play this role and you are the passive investor or capital? IF the passive route appeals, go bigger. IF active medium sized multifamily(4-20) appeals, make sure you want to grow in that area and are passionate about learning it.

    2: Sounds like active investment. Do you want to grow your skills here, is this your passion? You already will have two, at some point, especially in value-add small residential, you will have to engage and manage the manager at the very least, not to mention contractors.

    3: This is very active investment. Great cashflow, but mgmt intensive. STR's require day to day management, until systems are built or va's are used. Again, do you have the time, passion, etc to go this route?

    Returns and cashflow are just a piece of the puzzle of an investment. Make sure it works for you lifestyle and ambitions is my suggestion.

    0Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    @Joshua Janus thank for the idea Josh. I would love to get a property with a DSCR. Do you have any tips for finding a great management company? Also, what price range do you imagine a property like what you're describing goes for? 1.5 - 2 million?

    1Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    @Chris Levarek hi Chris! 

    Simple answer is I want to be hands on at first, then develop a portfolio where I can simply manage the managers. 

    I’ll never stop doing what I do for work (actor/writer), but I typically have a fair amount of downtime. Even when I’m working on a film, I typically only have to come in for five days- 2 weeks max. And as for writing, I can do that half my day and manage property the other half. 

    I’d like to be able to be involved in value add play as I think I have an eye for making properties look good for cheap. 

    Since I'm still young, I don’t mind working hard to make sure my portfolio grows exponentially over the next 5-30 years. 

    That said, I would need good management firms for bigger investments. Or partners with some experience.

    I tend to think that by buying a bigger multi family, that’s probably the move that will grow long term wealth better. So that may be the best option if I can find a deal. Even though there will be some tough learning lessons attached. 

    Still interested in STR out of Miami, but recognize that systems would have to be built to streamline the process.

    0Reply
  • Joshua JanusBusiness Member
    Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    In my markets (Cleveland and Columbus, Ohio), you can get 5+ unit commercial buildings between 40,000-80,000/unit which of course depends on the neighborhood class, location and other factors. It is common to break the One Percent Rule and many of them are rented below market so there is plenty of unrealized cash flow potential. 

    If you were looking for a a management team in my markets I'd be happy to send you references. In general, reach out to an investment friendly realtor and they should have a rolodex of contacts they have used in the past.

    [email protected]614-502-5316Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
    3Reply
  • Joshua JanusBusiness Member
    Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
    4y
    Originally posted by @Joshua Janus:

    I would use a DSCR or commercial loan and get a 10+ unit complex and team up with a great management team. The more doors that you own, the more you can spread and mitigate your risk. You can definitely achieve your goal of 5k/month with this strategy.

    [email protected]614-502-5316Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
    0Reply
  • Dillon Cook
    Realtor · Greater Tampa Bay · Member since 2014 · 218 posts · 130 votes
    4y

    I have found that it's hard to get appreciation and cash flow immediately. Invest in an appreciating market and you'll cash flow well a few years when rents have time to appreciate. The last thing I would do is invest in a high cash flowing but stagnant market.  Look for states and cities that have positive population and wage trends.  Consider red states and blue cities. 

    Go 5+ units or takeover a SFH portfolio. I like SFH a lot, but it's easier to deal with multis if you are spending that much money

    1Reply
  • Jibu V.
    Investor · Philadelphia, PA · Member since 2014 · 133 posts · 49 votes
    4y
    Originally posted by @Dillon Cook:

    Consider red states and blue cities. 

    Interesting - what’s the logic behind this?

    0Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    Hi @Dillon Cook!

    I tend to agree that blue cities/red states is the way to go, as that’s where I think the markets have space to grow and make excellent returns. I love florida and have been looking there intensely. I’m also purchasing homes in Salt Lake City.

    Can you elaborate on “taking over SFh portfolio”? Would this simply be an acquisition of someone else’s properties? Would it not serve me to grow this for myself? 

    Instinctually, I like the idea of building a portfolio of SFh as I could rent them, let them appreciate, get more experience, and then eventually exchange them for bigger properties. But then I wonder if I’m thinking too small and should aim for bigger. 




    0Reply
  • Dillon Cook
    Realtor · Greater Tampa Bay · Member since 2014 · 218 posts · 130 votes
    4y

    Yes, taking over an investors SFH. Maybe they're ready to retire or emergency popped up and don't want to offload one at a time. There tend to be small discounts for buying in bulk. Less competition for sfh portfolios than say a 10-20 unit multi.

    I'm sure I'm leaving out a lot of key details, but simply red states are usually more landlord friendly. Blue cities tend to appreciate a little faster due to the more limited supply of new housing caused by.. "blue" regulations.

    1Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    @Dillon Cook last question - how does one shop or find SFH portfolios?

    0Reply
  • Dillon Cook
    Realtor · Greater Tampa Bay · Member since 2014 · 218 posts · 130 votes
    4y
    Originally posted by @David B.:

    @Dillon Cook last question - how does one shop or find SFH portfolios?

    MLS under the income producing section. I've seen some on Crexi and similar listing sites.

    1Reply
  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    I think you can't go wrong with learning the fundamentals and growing a steady foundation. The Midwest cheaper route is a great way to go. Columbus, OH is a great market for this.

    [email protected]614-363-2787
    Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews
    WebsiteView Page
    1Reply
  • Andrew HoganPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2016 · 559 posts · 463 votes
    4y

    @David B. I would keep getting educated until you no longer need to ask others what they would do with your cash.

    Then do what you're good at and have confidence and fulfillment doing.

    All the best

    3Reply
  • Joseph Tjader
    Investor · Milwaukee, WI · Member since 2016 · 20 posts · 15 votes
    4y

    @David B.

    Right now I'd say screw all that and buy Growth stocks and crypto. There's some great deals out there if you can be patient and wait out this bear market.

    0Reply
  • Gian Cuffaro
    Contractor · Orlando, FL · Member since 2019 · 12 posts · 5 votes
    4y

    @David B. Hey David. Im in Florida aswell with 300-400k trying to either buy a big multi or various single family homes. Currently own 2

    1Reply
  • Daniel Sanchez
    Real Estate Agent · Houston & College Station, TX · Member since 2020 · 47 posts · 27 votes
    4y

    It seems that you are positioning yourself for great financial freedom. I commend you for that! As with all portfolios, diversification is the greatest bolster against general market risks so I would agree with not selling equity positions but still increasing exposure to real estate. In general, the best ROI is Multi-family due to the economies of scale.

     With the current economic backdrop, capitalizing on fixed low rates would be ideal as they are projected to rise in the coming months and years. Using leverage and cheap money is a huge advantage when you have the time horizon and significant downpayment. 

    In terms of markets, there are tons of good markets but focus on those with resilient economies and growing populations. As you stated Texas and Florida are currently those growing the most within the US. 

    1Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    Hey @Gian Cuffaro! What part of Florida you interested in? I’ve been looking in Polk County, Orlando and Miami. I’d like to dig into Tampa as well, but haven’t got feet on the ground there yet. Definitely an exciting market.

    @Daniel Sanchez appreciate the thoughtful response Daniel. Definitely trying to scale real estate opposite my stock portfolio so that in the future they'll both be powerful assets. I definitely want Multi family units, however I am considering a quality SFH or two so that can cash flow and appreciate in some of these hotter markets (Texas or Florida)

    To be clear @Andrew Hogan, educating myself is exactly what I’m doing by opening up this discussion to more seasoned investors. I have my own opinions and goals, and I’ll need to make my own decisions based on the market or deal I happen to find. There is no one right away. That said, learning from others experience is invaluable while trying to formulate a course of action. If you have a better way of educating myself rather than videos, conferences, networking and speaking with more experienced investors, I’m all ears… no, seriously. :) 

    Thanks everyone for your responses! Definitely considering all the feedback. This is what’s so wonderful about this community.  

    2Reply
  • David B.Pro Member
    OP
    Member since 2022 · 77 posts · 56 votes
    4y

    This might be a more helpful and specific way to phrase my question.

    Given 300-500k to invest now, in this market, would you prefer to A) take that capital and try and pour it into one (or maybe two) big multi family units or B) spread that amongst smaller, less expensive SFH and Multifamilies @ 30-50k down payments a piece.

    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    4y

    Buy as many units as you possibly can. No really. :)

    GO GET EM.

    1Reply
  • Don Petrasek
    Real Estate Agent · Westlake, OH · Member since 2014 · 186 posts · 165 votes
    4y

    The challenge you face with SFHs is that you're going to be competing with owner occupant buyers who are very willing to overpay.  In my market (Cleveland OH) there are also more cash buyers than you might think, even in the lower price ranges- who are also going to win out over your financed offer.  Its going to be difficult for you to lock down a property, never mind trying to get it at a price where it will cashflow.  The investor portfolios of SFHs will largely be C-D properties (at least in my experience) that will be more difficult to manage and won't appreciate at the near the same rate as a B property would. 

    To me, the ideal structure would be to find 3-4 markets (probably Midwest) where you can buy a small multi family, get decent cashflow (e g 10% cash on cash) and then raise rents/improve to drive the value up.  Being in even 3 separate markets will dramatically decrease your risk vs owning a larger building in one market.  If you wind up liking the market, at some point you 1031 out of the smaller building into a larger one....if you don't you go to a different market with your proceeds. 

    5Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    4y
    Originally posted by @David B.:

    Hi all -

     
    So this is a post that is essentially meant to generate thoughtful discussion about how I should start investing in real estate with the wealth I’ve been fortunate to generate. I have enough capital to do some cool things, but not enough wisdom to know what my best options are. So I’m humbly relying on all of you to help stoke the fires a bit, or maybe tell me if I’m heading in the right direction. Thank you so much for your thoughts in advance. I appreciate the guidance, and I apologize if I come across as a rookie for asking this.

    First, some stats:

    34 years old  

    Job: artist/ entertainer (which means I don’t have particularly steady income, or predictable W2’s. That said, I make a fair amount of money)

    Net Worth: 1.55 million. 

    Available cash: 300-500k. 

    Goals: cash flow, plus high appreciation over next ten years so I can 1031 exchange to bigger properties. 

    Properties owned: I own one cash flow townhome worth 550k. I am also buying a new Single Family Home in May that I expect to appreciate significantly, and cash flow slightly. I will be able to force appreciation in this home by finishing a basement with 3 new beds and 1 bath. 721k. Salt Lake City market. 

    I have about a 1 million invested in stocks, which provide dividends for me to live off when work is tough. the rest right now is cash. Due to inflation, and my growing hunger for real estate, I would like to invest at least 300k into multi family properties this year. But I could go as high as 500k for the right deal. Multi units that I could force appreciation into would be awesome, as I love the idea of refinancing capital out.

    I should also mention that I expect to make about 425 k, in installments, from another business deal over the next 3 years, at a minimum. I would like to add that money directly to real estate investments. This would total 725-925k thousand that I could invest over the next 4-5 years.

    Lastly, before anyone says I should liquidate the stocks and use that too, my goal (currently) is to not touch my stock portfolio for 30 years, and to develop enough cash flow in real estate that I could live off of that and leave my dividends to reinvest. This would exponentially increase that portfolios value over time. Also, because I’m an artist and I have tough years, I’m concerned about losing that dividend safety net that currently nets me 80-100k. 

    OK! So all that said, I’m debating between…

    1. Going big. Trying to find 8-20 unit multi family deals (maybe with a partner to scale quickly) in hot markets like Miami, Tampa, Houston, etc. Sort of “Grant Cardone Style”.

    2. Buying smaller single family’s and multi family’s in areas like Lakeland Florida or the Midwest. Where I can put 30 -45k down, net a little over a 1k a month, and get some thing like 15-20% cash on cash returns. Then, once I’ve acquired quite a few of them, let’s them appreciate until I can sell/refi/1031

    3. I have an idea about finding a luxury home in Miami that I could short term rent. I’ve seen a lot of awesome cash flow on those deals and I’d be interested in having a “second home” that I could Airbnb when I’m gone. Of course, I would continue to diversify with other properties as I had cash coming in (not just short term rentals. More traditional multi families.)

    * My first cash flow goal is 5000k a month, but ideally I’d like 10k.

    Thank you everyone for reading. I really appreciate any advice or guidance as I begin this new financial journey for myself. 

    God Bless,

    D


    Lots of Cocaine........Errr, I mean rental properties. Lots of rental properties.

    3Reply
  • Lee Yoder
    Rental Property Investor · Lebanon, OH · Member since 2016 · 220 posts · 228 votes
    4y

    @David B., based on what you've shared, I would say that you should purchase a small MF or a SF and rent it as a STR (Airbnb). BUT, I would make sure you get some mentorship/coaching before jumping in. You have the money to get started. That's great, but you can lose that money just as easily as you made it. Managing properties is very difficult, especially when you've got a new renter coming in every couple of days. Even finding a decent deal in order to get started is incredibly difficult these days, as I'm sure you know. SO, regardless what you do, I would get plugged in with some guys who are more experienced than you and are doing what you want to do.

    1Reply
  • Daniel Holden
    Member since 2019 · 6 posts · 1 vote
    4y

    @David B. Look for a value add for around 200k. Rehab and then go to bank for financing. Take the 80% to they give you and do it again... Cash is king.

    1Reply
  • DongHui Patel
    Member since 2021 · 95 posts · 30 votes
    4y

    @Joshua Janus would like to hear more about multifamilies in OH. Can you ping me

    0Reply
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