I'm brand new to this and am interested in what you guys think the best way to invest this money would be. I'm leaning towards paying cash for a rental property or two. What is best low risk option to invest so I can quit my job asap? Thanks for the help.
@Casey Caspers Welcome to the group. There is a TON of info here on BP. My recommendation is to spend 1 month researching the major ways to invest in real estate. Pick which one you want to pursue and then spend 6 months - 8 months researching that way to invest. After you have chosen your investment strategy, and while you are researching 6-8 months on how to do it, also research your market. Finally, find a local Real Estate Investment Association and start going to their meetings and asking questions. Finally, notice how I did not mention spending any of that money yet? New investors with high amounts of cash is a very bad combination that can quickly lead to failure. Please make sure you do your research first before taking action.
Well if you want to quit your job, you want to maximize your cash flow. The biggest way to maximize cash flow is by leveraging-- rather than paying cash for a property or two.
Check this out-
In there it breaks down the math differences between paying cash and leveraging.
Just food for thought!
As Ryan said it isn't a quick process especially if you want to have a low risk option. Going out and buying a property or two in cash likely wont get you very close to being able to just quit your job. If you were getting 10% on your investment (all cash) that only comes out to 25k a year. However, in real estate you can take advantage of leverage and if you take your time and learn you can make that 250k go a lot further.
Another quick thing that many people will add is having a W-2 job makes a ton of things in real estate significantly easier, like getting loans from banks.
Ali beat me to it :)
It depends on what your current regeneration of capital is monthly and what your burn rate number is.
For example if you make 600,000 a year and use your 250,000 to put down on some investment properties then with your job or business income you can regenerate that 250,000 in a shorter amount of time to invest again.
Your burn rate is what you need minimum to pay the bills each month and be comfortable. Is it 4,000,7000 a month?
If it's 7,000 a month for 84,000 a year and you invest 250,000 for a 10% cash on cash return you are only at 25,000.
So it varies if this 250,000 is a one time windfall you received or you make ongoing high amounts of money. If a windfall trapping the 250,000 into properties for 10% return isn't going to have enough cash flow likely to quit the job. Instead the goal might be to take the money and try to grow it quickly through shorter term real estate plays like hard money lending, tax deeds, flips,etc. Then take some of that money each time and put that down on a long term hold for appreciation and cash flow. This way you keep regenerating capital.
If you trap all of your money for a 25,000 return off of 250,000 and it would take you 5 or 10 years to save that up again it doesn't make sense versus doing it in under a year.
The goal is to get financially free with your burn rate number and then separate out your portfolio into tranches with various levels of risk and timelines versus returns. The money that keeps you from having to hold a job might be in the safest tier and then the riskiest amount in the smallest tranche.
Example you are worth 1 million and the riskiest tranche is 25,000. If you win you win big but if you lose some or all of it then it will not take you under and the other investments can regenerate that capital back in a reasonable amount of time.
This is just an hypothetical example. You might want to get with a financial planner.