Judsonia, AR · Member since 2015 · 8 posts · 1 vote
I'm new on BP and joined after I started listening to Joe Fairless' "Best Real Estate Investing Advice Ever" podcast. It's very motivating to hear other investor's stories. Curenrly I work full time in mental health and I have a fairly considerable amount of capital at my disposal to start my real estate investing business. "Fairly considerable" is relative and vague, I know, but I'm hesitant to post a dollar amount. It's over $250,000. I'll leave it at that unless you want to talk personally.
I know that having funds starting out is a huge advantage when going into real estate investing but I'm new at this. It would be easy to rush into something and make poor choices. My families goal in a nutshell is to increase our cash flow and for me to be able to move away from full time mental health work.
Because I am inexperienced and my current knowledge is limited, I am looking to develop a plan for how to wisely invest my money so that it can grow and work for me long into the future. I'm interested in rental properties but I know that there are other ways to make money in real estate. I think ideally I would like to fund my own deals and use earnings to buy rental properties free and clear but I'm looking for sound advice on how to make my dream a reality. I'd love to find a great mentor.
Here's the big question I have: If you had $250,000 how would you invest that money?
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
11y
@Charlton , first, congratulations on being in the great position of having some money to invest. It's definitely a lot easier than people starting off with nothing. It may not be fair, but everything gets easier the more money you have.
At the same time, some of the advice given would be better to someone starting off with little funds. Unlike many of the people on this forum, I have a slightly different background and a different perspective. Real estate has many advantages, but like any investment it goes through cycles and will have its ups and downs. Diversifying to different real estate investments is crucial, but not enough. If you really want to count on your portfolio to generate income reliably over a long period of time, it needs to be diversified into multiple asset classes.
Most financial planners recommend 10% of the portfolio in real estate, however, since real estate is not considered a "traditional" investment by many,and not fully understood, I believe this is a fairly conservative number. There is a strong case to be made for 20%, since the Yale endowment (which is one of the most successful investing funds of all time) allocates that much. I know some high net worth individuals (meaning over $10 million in liquid assets) who allocate closer to 40 or 50%, because they keep close track of individual investments.
But you are a newbie, and you can expect that you will make mistakes. I would not recommend placing 100% of your portfolio into real estate. There are many other asset classes that can also generate income that will give you greater stability over the long term.
I would recommend that you consider putting 10% into consumer loans (such as the lendingclub), which historically have held up well in recessions and yielding about 7% now. I recommend placing another 10% into prime and super prime business loans (such as at Funding Circle) which have similar performance but even higher yields.
Consider putting another 20 to 50% in real estate. If you have more than $1 million in assets, you're considered an accredited investor. If so, you have many high-yielding opportunities available, that the typical person on BP does not. For example, you can invest in a diversified fund of hard money loans, which are very short term,but yield very well now, and you can wind down and get out of if the economy turns bad. That way if one property goes bust it, it doesn't hurt you at all. Compare this to the typical BP investor who has just a handful of properties and is exposed to much more risk.
You can invest in a fund of triple net leases, which yields very well, and also has protection if and when the economy has a downturn. Other areas that are good for income producing/defensive investing our mobile home parks, self storage and senior living. All of these will do well in a downturn.
Some other people have recommended that you use leverage. Just remember that leverage is a double-edged sword. It works great and helps you move quicker to your goals when times are good. And stabs you in the back and can wipe out your investment when times are bad. People without money are forced to use as much leverage as possible. People with money can use it when it makes sense, and avoid it when it's too risky. Above all, preservation of capital should be her ultimate goal. It doesn't make sense to reach out for a few extra points of yield, if you're risking losing 20% or more of your investment in the next downturn.
Another 20% should generally be invested in traditional markets (income-producing stocks with dividends, bonds). However, I would wait on this until the market volatility of the stock market dies down. That way, if we are in the start of a bear market, you will not have to wait 2 to 3 years before you break even. Or, if you are worried about missing out on the huge gains that typically follow the end of a bear market or correction, you can dollar cost average your investment over a year or two, to reduce the risk.
Sorry for funny with so much information. I know this is a lot to digest, and before getting into any investment you should learn as much about it as possible. Investing a large sum of money is actually a full-time job, but it's also a heck of a lot easier than clocking in 9-to-5. I wish you the best of luck. If you have any other questions, feel free to reach out to me.
What you invest in will depend on your market. I'm in a high cost city so rentals for cash flow is hard to come by. However investors are making a killing flipping homes. So I invested in their projects via private money lending. If I were you I'd start out with rentals perhaps skipping single family and buying a small apartment building. It will teach you the real estate market firsthand and generate cash flow. As for 100% financing why not get a loan? Money is cheap right now. As for getting a mentor I think it's an excellent idea. However the caveat is being careful of people's ulterior motives. Your an easy target. A new investor with money. Assume the majority of people are there to take your money and you'll be ok. Nothing wrong with a small dose of paranoia.
Judsonia, AR · Member since 2015 · 8 posts · 1 vote
11y
Thanks for the feedback and you make a great point about borrowing money. Maybe financing properties and using my capital as leverage would make sense as well. I guess my main thought is that if I finance property, the cash flow won't be as good.
Buy and Hold · Leander, TX · Member since 2015 · 44 posts · 6 votes
11y
just remember, the more you have to start with, the more you have to lose.
I meet w/ a sucessful commercial broker that was into RV parks and storage units. He love investing his money in storage units. Would commercial investments interest you?
I would find a successful commercialy bussiness/residential building and set up a meeting w/ the owner and find out their story. They could probably be a good mentor.
Judsonia, AR · Member since 2015 · 8 posts · 1 vote
11y
That's great advice David. I really appreciate it. I am interested in that. There are so many niches and that's one thing that could potentially keep me from ever making a move. I'm trying to learn right now so I can feel confident when I am ready to do a deal.
Investor · Surfside Beach, TX · Member since 2015 · 3 posts · 5 votes
11y
If you have enough cash, you can make compelling, clean offers to get any sort of property at a discount. In other words, use the cash to help you buy right.
Then, after stabilizing and seasoning the investment, refinance it and extract as much of your cash (maybe even all of it) and start over on another project.
This is a good way to get a buy and hold property with little or no money down... If you have the resources to start with.
Manvel, TX · Member since 2014 · 309 posts · 127 votes
11y
@Charlton Thiede, using leverage can be very beneficial with interest rates as low as they are. You might consider buying properties with cash, then financing them, keeping a chunk of capital in reserve. That way, if the real estate market turns south, you'll still be able to make your payments and won't lose everything like so many did in the last downturn. You can ride that out until things pick up again.
@Account Closed is right about you being an easy target. Because we don't want to be targets, my husband and I have listened to tons of BP podcasts, done some reading, and used the spreadsheets offered on this site to develop our own spreadsheets to evaluate properties. When a wholesaler tells us how this property is going to make X% ROI, we put the numbers into our spreadsheet to see what it will really make. We don't take anybody's word for anything. We will not be investing in anyone else's project anytime soon, because we simply don't have enough experience to know if we're being scammed.
We're also looking at the real estate crowdfunding sites like RealtyShares. We would not put a lot of money into those investments initially, but are planning to put a minimum investment on one of the projects to see how it performs.
Investor · Whittier, CA · Member since 2010 · 33 posts · 21 votes
11y
Get as much education as you can about everything, pick one area, then start over and get as much education as you can in that one area. Read BP, listen to podcasts, look at the RE best books to buy, attend conferences. Only after doing that would I start to consider to invest. Education is everything in this business. I only stress this because in my experience there really are no bad people, no one is really trying to scam you and you can assume everyone has good intentions. I would never assume though that everyone has good information. A good heart doesn't mean an informed heart.
Specialist · Kiryat Motzkin, Israel · Member since 2014 · 266 posts · 159 votes
11y
Welcome Charlton,
I have been in a similar situation and my insights would be as follows:
1. Don't put all your eggs in one basket - this is true at any stage in the game. If all your savings amount to 250K - don't put them all in RE as a newbie. If not, and 250 K is what you have assigned out of your net value for RE- then don't put it all into 1 venture. Diversity is the name of the game. If you are holding 1 property and it goes sour you lose everything.
2. I would disagree with @Ken Martinez. Dont assume everyone has good intentions. I believe in "defensive driving " - in other words when on the road assume the other driver may not be proficient, may shoot the light, may overtake where they shouldn't, etc.- Not all drivers are bad - in fact most are not, but when you do come across one, you won't be surprised, and hopefully will brake in time. The same goes for investing always and especially when you have the capital - not everyone out there is scamming you,( but some are ) - if you assume they may be- then when it happens you won't be surprised.
3. When doing something for the first time you will make mistakes and they will cost you money. There is no other way to learn anything. Budget for it in your first deals and look on it as tuition fees. You shouldn't make the same mistakes again.
4. Every deal is different. In RE there is no fool-proof recipe or auto-pilot. I have designed hundreds of projects and been involved in many real estate ventures in various parts of the world. None of them were the same, on every single one I learnt something new and on every single one I made some mistakes. Generally not the mistakes I made on the previous one, but new ones. The secret is to know how to contain those mistake and learn from them going forward.
5. Networking- One of the things that has really boosted my ability in RE is networking. Search for RE meet-ups in your area and go to them. The people in your network are the ones that will bring you the good deals, the recommended attorneys, pm's, contactors, suppliers- even leads to tenants or buyers. They are the ones who will help you out when you hit a problem- and you will hit problems. The value of a good network cannot be exaggerated.
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
Everyone has their own opinion. How much do you need? When do you need the money by? When are you trying to move out of the mental health procession? How much interaction/work do you want from your money?
My husband and I are buy and hold investors. We currently have 7 houses with another 2 in the process. Our goal is early retirement at 44 and 42 respectively with me being able to quit in less than a year to tend to our investments and our family.
The thing to remember is that investments can be work. I was high on cough syrup and instead of sleeping during my lunch break as I was hoping so I could survive the rest of the afternoon at work. I was dealing with a problem child tenant.
I am doing everything I can in order to be able to do this full time it is lots of work!
Still if I had 250,000 and a great W2. I would buy as many rentals as I can fully leveraging gthe money. Than over time the tenants are paying everything off, increasing your cash flow. Well that's at least our goal. If all goes according to plan, When I quit next year we will have 10 houses 9 rentals, investment of less than 200,000 bringing in a little of $3,500 today. With the goal of $9,450 a month in 15 years from just those investments. Since I love this field I probably will have way more than 10 houses lol.
That why those questions in the beginning are so important. Everyone has different style/goal. So look around, figure out what you want to do and than put together a real estate plan that fits your style. I am not flipper but tenants don't bother me. Well not more than anything else, I really enjoy it actually :)
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
11y
@Charlton , first, congratulations on being in the great position of having some money to invest. It's definitely a lot easier than people starting off with nothing. It may not be fair, but everything gets easier the more money you have.
At the same time, some of the advice given would be better to someone starting off with little funds. Unlike many of the people on this forum, I have a slightly different background and a different perspective. Real estate has many advantages, but like any investment it goes through cycles and will have its ups and downs. Diversifying to different real estate investments is crucial, but not enough. If you really want to count on your portfolio to generate income reliably over a long period of time, it needs to be diversified into multiple asset classes.
Most financial planners recommend 10% of the portfolio in real estate, however, since real estate is not considered a "traditional" investment by many,and not fully understood, I believe this is a fairly conservative number. There is a strong case to be made for 20%, since the Yale endowment (which is one of the most successful investing funds of all time) allocates that much. I know some high net worth individuals (meaning over $10 million in liquid assets) who allocate closer to 40 or 50%, because they keep close track of individual investments.
But you are a newbie, and you can expect that you will make mistakes. I would not recommend placing 100% of your portfolio into real estate. There are many other asset classes that can also generate income that will give you greater stability over the long term.
I would recommend that you consider putting 10% into consumer loans (such as the lendingclub), which historically have held up well in recessions and yielding about 7% now. I recommend placing another 10% into prime and super prime business loans (such as at Funding Circle) which have similar performance but even higher yields.
Consider putting another 20 to 50% in real estate. If you have more than $1 million in assets, you're considered an accredited investor. If so, you have many high-yielding opportunities available, that the typical person on BP does not. For example, you can invest in a diversified fund of hard money loans, which are very short term,but yield very well now, and you can wind down and get out of if the economy turns bad. That way if one property goes bust it, it doesn't hurt you at all. Compare this to the typical BP investor who has just a handful of properties and is exposed to much more risk.
You can invest in a fund of triple net leases, which yields very well, and also has protection if and when the economy has a downturn. Other areas that are good for income producing/defensive investing our mobile home parks, self storage and senior living. All of these will do well in a downturn.
Some other people have recommended that you use leverage. Just remember that leverage is a double-edged sword. It works great and helps you move quicker to your goals when times are good. And stabs you in the back and can wipe out your investment when times are bad. People without money are forced to use as much leverage as possible. People with money can use it when it makes sense, and avoid it when it's too risky. Above all, preservation of capital should be her ultimate goal. It doesn't make sense to reach out for a few extra points of yield, if you're risking losing 20% or more of your investment in the next downturn.
Another 20% should generally be invested in traditional markets (income-producing stocks with dividends, bonds). However, I would wait on this until the market volatility of the stock market dies down. That way, if we are in the start of a bear market, you will not have to wait 2 to 3 years before you break even. Or, if you are worried about missing out on the huge gains that typically follow the end of a bear market or correction, you can dollar cost average your investment over a year or two, to reduce the risk.
Sorry for funny with so much information. I know this is a lot to digest, and before getting into any investment you should learn as much about it as possible. Investing a large sum of money is actually a full-time job, but it's also a heck of a lot easier than clocking in 9-to-5. I wish you the best of luck. If you have any other questions, feel free to reach out to me.
Investor · Whittier, CA · Member since 2010 · 33 posts · 21 votes
11y
I guess Saul and I will have to agree to disagree. To live life with an expectation that someone is scamming you is a terrible way to live. In real estate and in life, Hanlon's razor seems appropriate "Never attribute to malice that which is adequately explained by stupidity". Like I said, there are certainly stupid people thus education is priority #1. If I find myself attracting the wrong sorts of people, I don't look outward for solutions. I look at myself in the mirror and see if I can start improving myself to become more "attractive".
Lender · Hot Springs Village, AR · Member since 2014 · 274 posts · 92 votes
11y
Welcome @Charlton Thiede. You have receive some excellent advise above and I would only add this. Being in AR puts you in a unique position to dabble in many different aspects of real estate. Prices are relatively low and very stable. Buy a rental and see if you enjoy being a landlord and if not flip it and see if that works. Be a lender. There is a real gap in lenders who will lend less that $100k. Try it. In fact I have loaned on a property in Judsonia myself. Finally, get with the REIA in Little Rock. As I am in Hot Springs I do not go but I have heard great things about it. Have fun.
Investor · Lexington , KY · Member since 2015 · 8 posts · 1 vote
11y
Some great info on this thread! One question I have that I keep seeing everywhere and don't quite understand is the concept of leverage. I assume this means that he would take the money and for example put down 20% to get a mortgage on a house. That way with 100k he gets 5 houses instead of 1. Then as he mentioned the spread is less because you have mortgages. So my question is why everyone comments about being worried about the downturn and that affecting the situation I mentioned. Assuming the rates are fixed what could change? Rental rates don't typically go down in a bad economy right? Or at least not much. So maybe the spread gets a little tighter each month, but that shouldn't be a problem that would cause you to lose a house unless your spread is already so thin and you just got into bad deals.
That sound fair? I use this strategy and I'm looking to use it more so if you guys could help me avoid any future land mines that would much appreciated. Thanks!
Sorry I hope this doesn't come across as condescending. I don't know how many real estate transactions you've done or in what capacity. I'm in the business of lending private money. When you're a new investor and have 350k to invest and don't have the experience you're an easy target. How do I know? Someone tried to defraud me off all my hard earned money. I don't know about you or your income bracket but to me 350k was a lot of money for me to lose. I had to hire an attorney to get it back. And you know what my attorney and his team were busy with numerous other cases involving real estate fraud. It cost me a 100k just to get my principal back. The guy was arrested by the FBI and is facing federal jail time. Please do not speak to things that you are unaware of. @Charlton Thiedeindicated he has similar funds that I have and is a rookie. I'm trying to prevent him for making a similar mistake! I had lunch with a developer last week who got scammed 3 times once for 25MM. If you're in this game for any length of time you're going to run into unscrupulous unethical people. I would heed @Saul L.advice be careful who you trust!!
Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
11y
If I were trying to turn $250,000 into something that could support my family, with relatively low risk (not none), I would get an SBA loan and purchase an existing self-storage facility in the $2 million dollar range.
I was going to respond but @Account Closed has said it all for me and more.
If you have something that other people want, there will eventually always be someone who will try and take it. I am not saying live your life like everyone is trying to scam you, but definitely be aware that someone might, and if so you may see it coming and avoid.
Ken, you are one lucky individual if it has never happened to you, and if so, I hope it never does.
Investor · Whittier, CA · Member since 2010 · 33 posts · 21 votes
11y
Saul and Jeanette,
Appreciate the talk, although I think there was some misunderstanding. Whenever I deal with people, I verify everything every single time, I just follow the "Trust but Verify" rule. My father earned a living working for a large publishing company whose only job was to fix every shipping bill from shipping companies who always overcharge. My dad made them fix every single bill, never let them get more than they were due, ever. When I asked them why they would do this, he just said those "nice men aren't very good in math."
Judsonia, AR · Member since 2015 · 8 posts · 1 vote
11y
Thanks so much for all the feedback thus far! I must say, it's overwhelming but helpful to hear from other, more experiences professionals. Just because it's been brought up many times, I understand the potential to be taken advantage of. I'm the polar opposite of trigger happy and I think my tendency would be to never make a move out of fear, rather than jump at any opportunity. I appreciate all the tips about being careful! Like Ken, I try to believe that people are inherently good and not looking to scam anyone, but I also know that some people are looking to do just that. I am a very cautious person. It was hard for me to even make this initial forum post because of that but I really need to quit twiddling my thumbs and take some action, even if that means just getting more information and knowledge for now.
One thing I would like some opinion on, is buying homes with cash vs. financing. Obviously, people have different opinions and I was wondering if some of you would be willing to expound of your view points a little more. If I spent my capital to buy homes, I would have more cash flow. What would be some of the other advantages/disadvantages?
If I elect to buy properties with say, 20% down, I would have less, immediate cash flow, but what would be some of the other advantages/disadvantages of doing it this way? if I elected to finance rental properties, how would you recommend doing that? if I bought homes with cash, could I finance more properties using the equity I have in the homes I purchase free and clear?
For those who discussed other niches, I appreciate those opinions as well. I am interested in learning more about wholesaling, flipping, and potentially owning storage units. I will say, I would be hesitant to invest all my capital as a down payment in 1 big deal for something like a fairly sizeable storage facility. I think I would feel way in over my head, although I could probably quit my current day job if I went down that path. Thanks again and if you have additional feedback I very much appreciate it! You guys rock! I am investing in central Arkansas by the way, if that helps anyone as they respond.
Real Estate Investor · Grass Valley, CA · Member since 2014 · 124 posts · 85 votes
11y
Hi @Charlton Thiede I'm currently in a similar situation as I'm in escrow on some apartments I'm selling, and I'm trying to figure out how much leverage to use in my next deal(s). Like you mention, using leverage is a very subjective thing. With the rates the way they are right now I personally like leverage, just not TOO much of it. It will likely bring down your cash flow versus paying strictly cash, but if you look at the overall ROI including principal pay down you'll usually have a higher rate of return with leverage. It depends on the deal of course, but generally speaking you are leaving money on the table if you don't use at least some of the bank's money. And of course you can always write off the interest against your rental income so it should help with your tax bill.
Some have said buy with cash and then do a cash-out refi at some point down the road. This can definitely work, but also be aware that many lenders don't like cash-out refi's as much, and so you may pay a price for doing that- i.e. less optimal loan terms or lower LTVs than if you purchased in the beginning with a mortgage. So if you plan to go this route I'd recommend researching your options for cash-out refi's before the initial purchase. But even then, just remember that banks are likely to change their lending rules with the economy and nothing stays the same. Ever...haha.
Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
11y
Don't let cash burn a hole in your pocket. Real estate is an amazing investment vehicle for several reasons: It can be income producing, you can depreciate buildings in the eyes of the IRS, you build equity as someone else pays your debt, it appreciates over time, and you can leverage it.
I know what your thinking. Damn, that's awesome.
Look into various niches and go talk to established people. Money is a good resource to bring to the table. Buying storage units sounds like an absolute nightmare if you've never had to deal with tenants before. Cap rates may be good but that is not passive investing. Great podcast recently about that from BP.
This is just me but I'd go find a fee builder and start building some small multi families. Move into one for awhile to get the homeowner capital gains tax exemption up to $500k if your married when you sell it, and then do it all over again while you go out and find different strategies and build another duplex.
Lastly, learn to appreciate the powerful force of leverage.
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
11y
If I were in your position I would work to find someone who has been investing in your area and poses the skills and experience of managing properties, dealing with tenants, and trying to build their business. You can then let them keep doing that work but become a financial partner. What I have found is the people digging to make it to a loftier goal have deals lined up with aging investors who are looking to get out of the game. If you come in with the money and partner you have an opportunity to not be responsible for all of the pieces of the real estate game. Depending on how you want to structure the deal the partner you bring in could manage, get a portion of the equity, and have some sort of incentives or bonus for increasing the financial performance.
To give you a real world example one of my close friends and someone who I hope to work with has a deal for a 46 unit complex that he has been offered in the near future. Its an aging investor looking to get out of the game and wants to see someone he worked with get an opportunity before going to the market place. My friend and I both own properties that we scraped to get but we dont have a significant piece of capital to work with to make a deal that big. A person like you is needed in our case. We know the rents, we know the market, we know how to deal with problems and evaluate properties.
Monterey Park, CA · Member since 2014 · 157 posts · 80 votes
11y
Lots of people shared their opinion and experience and I only wished I knew of this site before I started investing in real estate.
A few things I didn't read (or maybe I missed) from all the great posts -
What is your end goal and what is your risk tolerance level? What other investments do you have and what types and how does real estate fit in the overall strategy? How much involvement are you looking to put into it? What is your time frame? These questions will likely guide you to decide how you want to invest the $.
If you are borrowing $ to buy real estate, make sure you save $ for cash reserves. Based on 20% down $250K can get you $1.25M worth of properties - but you will need to have cash reserve for the properties in case of any unforeseen situation.
If you decide to go with turnkey investments, make sure you know what you're getting into and your exit strategy... You can search the forums for some heated discussion on turnkey. :)
Talk to your accountant / CPA and set up a spreadsheet to track your expenses if you decide to buy properties. It's a great tax write-off strategy if you don't own a business.
Get as much education as you can about everything, pick one area, then start over and get as much education as you can in that one area. Read BP, listen to podcasts, look at the RE best books to buy, attend conferences. Only after doing that would I start to consider to invest. Education is everything in this business. I only stress this because in my experience there really are no bad people, no one is really trying to scam you and you can assume everyone has good intentions. I would never assume though that everyone has good information. A good heart doesn't mean an informed heart.
Agreed 100% Ken - and this is my response and advice to, surprisingly, a lot of the "victim" driven comments on this thread. And Furthermore, I Clearly support investing in Self- Storage; it's made me $ Millions. Plus, if you Look at the Trends in the industry. It's Inflation Proof, as we Americans buy more "stuff" in good times, and need a place to store it, and It's also Recession Proof as businesses and individuals downsize during lean times, and there is less development activity.
Learning all you can about the various asset classes, and then partnering with a seasoned individual with integrity, and or obtaining a mentor in your chosen path will pay HUGE Dividends going forward.
And not to sound like a broken record but many people on this thread talk about buying rentals and "retiring". Take it from someone who has had 80 Single family rentals and over 400 apartments - That form of investing is NOT Passive - It's VERY active, and it'll drive you to the Looney bin. Plus the fact that it's not as profitable as the GURUS make it out to be. Just look around Bigger Pockets and your local REIA - the Carnage is everywhere. 9 Failed Businesses to every one Success (this is well documented, simply poke around the internet)
However, I would guess that of those failures, 90% of them didn't seek the proper education or mentor before they decided to jump into the business. I've seen it happen hundreds of times as a professional Real Estate Mentor and Coach.
So Get Educated, Get a Coach/Mentor, and choose an asset class that has a higher success rate than the single family rental biz simply Because EVERYONE appears to be doing it!
First of all, I wouldn't tell people on a public forum that I have over $250,000.
Secondly, I wouldn't put it all in one investment. I'd diversify into several different investments.
Thirdly, I've said before that if I had $3million in cash to invest, I'd consider 1/3 Tax Free Municipal Bonds, 1/3 gold and 1/3 Berkshire Hathaway stock (at todays price that buys only 5 shares). That would cover taxes, appreciation, growth, and hedging.
But since I'm a real estate guy, I'd buy some real estate. I would not spend all the money leaving plenty for reserves and contingencies, but would buy some property that produced a good return for the amount invested. If it's a large amount like 7 figures, I'd consider a Triple Net deal where the tenant pays all expenses including taxes, insurance, utilities and maintenance. A recent deal here was a NNN for $5m including a national casual dining place and a large gas/convenient store with a 5% cap rate. No fuss no muss, just collect your $250,000 a year income for decades to come with cost escalators.
Investor/Syndicator · Downers Grove, IL · Member since 2014 · 80 posts · 78 votes
11y
@Ian Ippolito Great post for investment allocations in the New Economy. While I think your suggestions are a solid plan for either a person with a substantial amount of cash (far more than $250k) or someone that is looking to generate a modest but safe return on their investment, there is no way the OP will be able to quit his day job (in the next 15 years) on 7% returns that your allocations suggest (maybe 9-10% depending on the specific real estate investments). Again, not a knock, as I feel your allocations make a good conservative portfolio and may in fact allow one to preserve capital and generate a modest return in a bear market / recession. Plus, generally your suggested investments have the added benefit of being passive and readily available (for accredited investors) so it is truly "investing" and not "working" to create returns.
Bravo, I voted for your post and would love to get your sources for yields / loss ratios for the peer-to-peer lending sites.
However, you gloss over the real estate portion which is the primary inquiry by the OP. I'm a bit surprised you made no mention of crowdfunding since that seems to be your main area of expertise. I think you can expect returns around 10% for debt and 15% for equity in crowdfunded deals.
Investing in syndications is another area that you didn't mention. These private deals are harder to access because they generally are not advertised (but this is changing due to JOBS Act). You can find returns from good sponsors in the 15-25% range net of all fees and costs. When you add compounding you can really move the needle on your total wealth. At a 20% annual return you will increase your original investment by 150% in 5 years vs a return of 40% at a 7% annual return. You give up most control and liquidity but you can get a very good return as a passive investor.
I will not address the whole active real estate investor arena (flips, buy & hold, notes, liens, subject to, wholesaling, etc) that has been touched on by other posters and is prevalent on BP. These deals are by far the highest risk (especially as a newbie) and involve the most effort but can generate the highest returns. Some can generate 100%+ returns on a 4-month flip. Certainly you have to have the stomach for this because these same folks can get wiped out on a single deal.
As a general rule higher risk investments = higher return / lower risk = lower return. You can increase risk-adjusted returns (ie. have lower risk for a given level of return) by diversifying your portfolio. You need to determine your goals for wealth and/or cash flow, time frame to meet those goals, effort your are willing to expend and your risk tolerance to determine the best way to allocate your funds.
