(Beginer) How Can I Invest $1.7M Inheritance in Real Estate

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(Beginer) How Can I Invest $1.7M Inheritance in Real Estate

Lindsay Hemsley
New to Real Estate · London, United Kingdom · Member since 2020 · 1 post · 0 votes

Hello, my name is Lindsay and I am a graphic designer for a UK-based publication, and this is my first post here.

I have recently acquired a sum of around $1.7M USD and based on my thorough research, I've found Real Estate is the best (possibly safest) option for me. I have outlined a potential plan, and will certainly be discussing it with both legal and financial advisors before making any drastic decisions. As a beginner however, I am creating this post, hoping to benefit from some expert advice so that I am confident and prepared before moving forward.

Roughly, I have decided I would like to purchase five properties in London (averaging $275K per property) in cash, and rent them out. I understand location is everything, and will be looking at properties in areas where appreciation values are constantly rising (3% per year).

The idea is to rent these out at approximately $1400 per month (each), and eventually sell these properties within three to five years when I'll be able to gain between 9% and 15% profits from each property. I am aware that there are risks and countless fees (including taxes, management, etc.) that I have not mentioned here, and that this is all easier said than done, but this is roughly the overall strategy in mind.

As an experienced real estate agent, do you feel this approach is realistic? Would you recommend it? Or, do you feel there are better ways I can go about investing, for better ROIs in the long run?

On a side note, I am 34, currently own my own flat (fully paid) and I am not looking to move.

I have also considered leasing a small serviced-apartments building to the tune of $100,000 for a period of three years. The broker is due to send over legal documents to prove annual revenue and net profits within the next couple of days. Is this approach something you would also recommend as a way to diversify? Or do you suggest I stick to the above strategy only?

As I am only just starting out, I know I have a long way to go, but would truly appreciate any advice/suggestions I can get as to how best you see fit.

A million thanks in advance to everyone. I very much look forward to hearing your thoughts.

Best,
Lindsay

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  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    6y

    Hi @Lindsay Hemsley, first let me extend condolences for the loss of whomever you are the benefactor of this inheritance.  I commend you on wanting to be prudent with the money and making the best use out of it for your future! 

    I know less then zero about real estate (and real estate investing) in London unfortunately, but I will say that your planned rent vs property price would fail a common test in the US called the 1% rule.  It states that rent should be about 1% of the purchase price of a the property you are acquiring and is a VERY high-level GUESS on a getting a decent return on your money. The fact that you are not even close though would raise some concerns for me a little on that plan. 

    There are cashflow investors and appreciation investors and your current return analysis sounds heavily waited on the appreciation side.  Since we cannot predict the future, and you said you want to be safe with your money it sounds like;  I would personally not invest based on speculative appreciation, but that's just me and to each their own.  :) 

    You are also putting all your eggs in one basket by investing in on particular real estate market.  If for some reason the market in London collapses you have no diversification of your investments to offset those losses.  If you are going to use all the money for Real Estate then I would think about diversifying at least into some other strong (non-correlated) markets.  I would also consider not investing all the money in just real estate personally, or if you must then perhaps split it up between debt notes, commercial REITs and other real estate investment classes on top of your actual real property investments.  

    Best of luck to you and once again, I'm sorry for your loss.

    Best wishes

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  • Charlie CameronBusiness Member
    Investor · Niceville, FL · Member since 2017 · 450 posts · 366 votes
    6y

    @Lindsay Hemsley - I'm sorry for your loss. :(

    Like Jon, I know nothing about UK real estate.  However, I buy multifamily apartments for cash flow, not for natural market appreciation.  I consider the 3% long term property appreciation to simply be a hedge against inflation and that's all.  Think about it, your money is worth 3% less (US Dollar anyway) every year.  So if you only plan to gain 3%, it's a wash.

    I'd suggest getting really good at analyzing properties for both cash flow and for value add opportunity.  Value add is where you FORCE the appreciation up (rehab, update, increase rents, decrease expenses, etc.).  

    So you'd be paying for those houses in cash?  Even if you had no taxes, insurance, repairs, and management to pay for, $1400 a month is a 6% return on your money invested.  Not bad, not great.  For me, if I can't get to 10% cash on cash return, I don't do the deal.  

    I highly recommend you diversify your money across different investments/markets/etc.  You could use some of it to go out on your own, but I'd also consider investing some with a professional investor (or multiple).  

    The other thing to think about is leverage.  You could buy things in cash for sure.  But you lose out on leveraging your money.  With $500,000 you could buy a (roughly) $2M apartment building by putting a down payment on a loan.  I don't know what your market is like so I wont assume any particular rate of return.  But you could be netting a cash flow plus the tenants pay down the loan.  So over 20-35 years those tenants are paying down the remaining $1.5M.  You still get natural market appreciation over time and you can raise rents slowly, improve the property, and those things all increase the sale value (assuming the market is in a similar state).  

    Hope that helps.  I can talk about apartment investing day and night.  

    Condolences again. 

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