Hypothetical question. If $2 million showed up in your mail box, how would you invest it?
Where do you think you can achieve the highest risk-adjusted return in today's marketplace? Very open ended here...property styles, debt vs equity, locations, commercial vs residential....anything is game
I simply want to see if there's anything out there that I should be learning about.
(Background: I own 2 small commercial rental properties and have working interests in a few Bakken oil wells)
First things first, get your money management right. Traditional money management rules state not to put more than 5% of your total investable money into a single investment, and probably more like 1%-2% based on your risk tolerance.
Next, develop an investment model that suites your risk tolerance and expected ROI. You model should take into account odds of winning (%), maximum loss ($), expected return (% & $). So for example, if you bet $1 flipping a coin and if it lands on heads you win $1, but if it lands on tails you lose $1, then your winning % = 50%, maximum loss is $1 and expected return is $1. Your win/loss ratio is (50% x $1) / (50% X $1) = 1.
If your numbers were different like winning % = 90%, maximum loss = $3,500 and expected return was $1,700, then your win/loss ratio is (90% x $1,700) / (10% X 3,500) = 4.37. You want your win/loss ratio to be greater than 1.0. The greater it is than 1.0, the better the model.
You determine your winning % by either actual experience (which can be expensive) or by back testing (putting historical data into your model and seeing the results).
As long as you employ investment models that produce win/loss ratios greater than 1.0 and don't put more than 5% into any single deal, you will always make money.
God Bless You!
Nice response @Michael Evans. We work with some high end DC companies. There returns are very nice. Most of their equity deals ranges from $500K-$3M. I would definitely put some of that money into one or more of those deals. The rest would be diversified into some long-term investments and for my kid's college savings. I'd also look to maybe start a portfolio of some rental properties as well. Its nice to have streams of income coming in from multiple locations. Your question really has me thinking...."I wish I had this problem" LOL.
In regards to RE.
First trust deeds ,,, start a fix and flip with a very trusted contractor and Realtor for bigger hits. NNN lease properties if you want Real property with Grade A tenants. really depends on what goals you would set for returns as you know the higher the return the greater the risk. Personally I am not a fan of any investment that I am pooled with other investors and a manager is managing the funds.. They are and can be great but if they have a problem its pretty hard to extricate yourself with out a lot of pain and usually costs.. At the end of the day with a little bit of work you can find the same returns as most of the managed funds and not have the pooling issues. IMO
also less than 5% into anyone deal makes no sense at all... with 2 million you would be looking at finding 20 different deals... YOu could do that in First trust deeds over time. And many of my clients have those kinds of portfolios in first Trust deeds. ONe of my clients has about 40 of them... they rolled out of rentals and now only buy TD's. one of the nicer passive investments if you can find the right TD's in the first place... BAd tds are like bad rentals though and have the same risks.
I would invest half into hard money/private funding deals. The other half I would invest in a solid triple net with a corporate lease, with at least 20 years remaining on the lease.
If I had to use it for just RE I would invest enough in cash flow properties so that I can live comfortably off of just that cash-flow. Then I would do fix and flips with the rest of the money.
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