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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  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    4y

    I can't do anything with your $500K. I'm too busy doing something with my $500K. And that should really tell you something about what a lot of the advice you're getting here is probably worth.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    4y

    @David B.You're in a great position that provides you with a lot of options. Congratulations on setting yourself up so well. I agree with you about not selling the stocks off. You always want to diversify and depending on the dividend yield, you may not want to touch that. As far as the 3 options you outline, I like #1 best. I think it would get you to your goal the fastest and you have the capital to make it happen. We do a lot of medium sized (6-12 units) apartments in the Quad Cities, namely Davenport, IA and the returns are excellent. As far as option #2, I think you're overly optimistic on the cash flow and COC return. Even in some of the best cash flow markets like Indianapolis and Kansas City which I know well, your cash flow is going to be closer to $200-$250 on am SFR with operating expenses and debt service. COC return will be around 12-15%. STR can be very lucrative especially in vacation or resort areas but they are out of my area of expertise so I won't even try to offer advice there. The one thing to be careful is what the political climate toward STR's is in the local market. A number of cities are starting to put restrictions on STR's which would obviously hurt. If I were to consider STR, I would stick to markets that are business friendly with favorable landlord/tenant regulations.

    Good luck in whichever direction you go.

    3Reply
  • Hersh ShahBusiness Member
    Realtor · Atlanta, GA · Member since 2016 · 117 posts · 78 votes
    4y

    @David B.

    If these were my funds, I would go buy 4-5x bigger by getting $2M -$2.5M in real estate. I would go non QM and try to stick with 20% down and 30 year amortization.

    In Metro Atlanta, that could get you 10-25 units depending on how close you are to city center. In either case, that would provide the cash flow and appreciation that you are looking for long term as our market is expected to continue appreciating long term. Rents also increased 12% past year so they will keep up as well!

    Cheers to the success so far!

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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    4y

    To be honest @David B. it would just be another Tuesday at work for me, I would do business as usual just with another new client. And as @Jim K. touched on a bit, anyone who get's all that flipped out over $500k, or has nothing but time to focus on such, well it's really questionable if they are a steward for such, or advice on such. 

    What would I do, what I am doing now. Specifics? Well, that changes all the time, constantly, because the markets change, policies change, politics change, migration patterns and so on. 

    Too many think all they need is to be told what to do and where to do it, like a franchise, and don't think on how every REI franchise has model has failed epically, proving that being directed as to "a" strategy is not a road to success.

    If not capable to proficiently devise strategies of the time and market, and to deploy them than the answer is clear, partner or hire those who are. This has been true since the dawn of time. 

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

    @James Hamling Do I seem “flipped out” to you? I was asking for advice, not a mandate.  

    It appears you were baptized in the fires of real estate with nothing but success from day one. Bless you. But for the rest of us, who made our money elsewhere and are now seeking to expand into new ventures, we’re using these forums to expand our knowledge and trade ideas.

    You and Jim should team up if that’s so beneath you. 

    I find it interesting that someone who so easily punches down on another, presumably because they’re SO successful that my mere mortal questions are appalling, is the very same person who couldn’t offer a single piece of wise, compelling, or actionable advice? 

    Hmm…

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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    4y
    Quote from @David B.:

    @James Hamling Do I seem “flipped out” to you? I was asking for advice, not a mandate.  

    It appears you were baptized in the fires of real estate with nothing but success from day one. Bless you. But for the rest of us, who made our money elsewhere and are now seeking to expand into new ventures, we’re using these forums to expand our knowledge and trade ideas.

    You and Jim should team up if that’s so beneath you. 

    I find it interesting that someone who so easily punches down on another, presumably because they’re SO successful that my mere mortal questions are appalling, is the very same person who couldn’t offer a single piece of wise, compelling, or actionable advice? 

    Hmm…


     Interesting take David, because you managed to skip 95% of the content of my statement which did give specific advise, a considerable amount actually, and just got all butt hurt because I didn't drool and fawn over your statement of $500k. Just a curious tid-bit but as your profile is all but nothing, how sure are we that your not a 15yr old troll, in Mom's basement with $23 to your name???? 

    As there seems to be some significant difficulties in comprehension I will help you and draw things out in Crayola, will that help? 

    Advice and tip #1, don't jump into service/business with someone who think's $500k is a lot of money, or to whom it's a big deal, as that's a sign they are not a an experienced Pro in Real Estate. This isn't knocking you down or how much $ you have, it's an advisory statement, as advice to help you, for when you look at hiring or partnering with someone to help direct what you should and shouldn't do, and when hiring an agent/broker to execute on that. $500k is not some big crazy amount of $ to us, it's not. The "average" FT professional in real estate does $20million+ in transactions annually, that's residential. In commercial it's a lot more, a lot. So, in context of when hiring an agent, if $500k geeks them out, or looking to partner with someone, it's enough $ to say your are action ready but it's not really anything all the crazy. 

    Next tip and advice, don't call me or my team because we only deal with rational adults and i don't have the time, patience or will to put up with those who act in such a manner as you did here. And yes, this is an important lesson because I am a Deal Engineer, I am very good at what I do and very sought out for a simple fact, I make people a lot of $. Those who are good at it, like me, we get to pick and choose who we work with, so you must earn OUR time and efforts. Act in the wrong manner, as here, and find yourself ignored by those who matter, a lot. You need people who DO know what to do with that $, not the other way around, we have $ beating down our door night and day, seriously, there is an avalanche of $ out there, so check you ego would be some good advice. 

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    4y

    Hey @David B.  congratulations on your success so far and for thinking so clearly about your future! You are way ahead of where I was at your age. Speaking of which, I sold my company to a public firm at 33 and tried to start living off passive income at 34. I failed miserably because I did not understand the difference between investing and speculating. From what I can tell you will do much better than I did.


    I am almost 60, and I am also involved in the arts and have written three books. You may not be like me but if you are I think one day you will come to this conclusion. There is great joy in arts and writing if you are a creative type. Like I said, you may not share this experience, but my experience is that managing properties and managing managers has been a massive drain on my creativity, and thus on my joy and fulfillment in life.  It has dampened my ability to show up and do what I love to do. It has deeply cut into my time with my family. It has taken away years of my life, not to be too dramatic. :-). 

    So at some point in my 50s I realized I would be much happier focusing on what I love to do and allowing other people to manage properties, managers, etc. I realized I could get much more joy and free time out of life by allowing experts to manage all of that stuff so I can focus on what I love to do. For that reason, if you are similar to me, I would recommend finding opportunities that are passive or almost completely passive in nature. You will not get the thrill of the chase but you will also not have to deal with toilets tenants and trash and all the burden that comes with that.

    If your goal is to continue to have some involvement in management, then I would pick a very well-placed expensive Airbnb cabin, and I know of two cities that are perfect for this, and I would set up a management system to run those. They can be extremely profitable and take minimum management hassle from you.

    If you decide you want to go that path, I could introduce you to two people who are crushing it and that arena if you PM me. If you decide to go with a completely passive path and want to find syndications, I recommend you check out Left Field Investors and The Real Estate Crowdfunding Review.  

    I will conclude my rant with this comment from a lady I know who came to this realization. She was busy with her family and her career and trying to manage properties on the side, unsuccessfully. She said: “Why am I working harder than I need to, to make less than I could?”   Happy Investing!  



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