flower mound · Member since 2012 · 6 posts · 1 vote
I have yet to purchase any rental property. I have made my money overseas from savings. I do like owning some stocks, but I now want to diversify into real estate. I have $500,000 in cash. I do not want to rush in to getting any properties before I understand alot more than I currently do. With that being said, if you had $500,000 in cash, would you buy properties in cash, or finance? I am mainly looking for income. I am currently in the DFW area, but wouldnt mind looking in other areas for rentals. Thanks in advance for any responses.
Instead of investing in an actual house which would take your entire 500k investment and more, you should try to buy some real-estate commodity stocks. These ETFs will increase if the housing market increase just like a normal house would during good times but is a lot cheaper.
To each is his own, but I would disagree with this. For one, buying into an ETF, you must pay the going market value rate when you buy (you can buy RE or a note secured by RE at a discount), the ETF does not provide any tax benefits or shelters like RE, and when RE goes up, you may see appreciation in both, but you have many more advantages with the actual RE. The only advantages I see in the ETF are the ease of liquidity and the fully passive nature it is.
Ziv Magen - Regarding zero leverage, while we all are entitle to our opinions, I personally believe ignoring the advanatge of leverage is not the wise thing to do regarding RE, just as abussing leverage is not a wise thing to do. Some of the people you mentioned who lossed their life savings over "speculative assumptions" are not wise investors in my mind. You have so many options in RE including the ability to buy at discount, apply leverage responsibly (keeping adequate reserves and cash flow) and retain additional advantages through leverage such as tax deductions and increased cash on cash.
Again, I do not support complete speculative assumptions in RE investing nor do I support poor choices in leverage.
1) How comfortable are you with the idea of investing in real estate? Will you be doing work yourself? Are you familiar with what needs to be done? Be very careful. There's an adage in the world of off-roading: Four wheel drive just means you get stuck farther from the road (with much bigger tow bills). More money in real estate (without proper planning) means you can get stuck with a lot more problems.
2) Don't pay cash if you don't have to. Look for deals with financing that still give you positive cash flow.
Would you rather:
a) buy a $500,000 property with cash and have cash flow of $1,000 per month (just a random round number - not an indication of a goal), and not have an interest deduction for your taxes; or,
b) use your $500,000 as leverage to buy multiple properties (let's say 7 as an example) that are financed, but still get you positive cash flow of $500 per month (again, just a random round number), and you get a tax write-off for your interest payments?
[Please note - the numbers I used are just to demonstrate a point - not to be actual expectations of performance.]
You can never learn too much.
Leveraging can be what makes or breaks you. So, to take advantage of leverage, without leverage taking advantage of you, learn about it.
Whatever you end up purchasing, SFH, Condos, Duplexes, Fourplexes, Apartment Buildings, you might not win your first bid, or your first dozen or 50. Don't overpay by being in a rush.
We are building our real estate business via leverage. We are working with big and boring banks who give long terms at low rates. But that depends on your income, not just how much cash you have saved. We have made numerous purchases with cash and then have received HELOCs to purchase more property. If you have the patience, that is one way to go about it.
Welcome to BP Mark. I'm in Dallas as well. Fairly close to Flower Mound. A search will reveal many similar threads like this one, although the numbers may change. Taking it slow, learning and thinking it through (as you mentioned) is the best course of action, especially if you don't have experience in real estate. Feel free to give me a shout if you want a quick rundown of folks looking for private lenders, some wholesaler leads, where to get comps to do your own due diligence, etc.
And tell us a little bit more about yourself in your profile.
If cash flow is your goal I would leverage it to buy a small apartment. I think buying something outright is more risky because it is like having all of your eggs in one basket, using financing is having the banks eggs in there with a couple of your eggs.
and with looking at macro economic factors inflation must pick up in the next few years making that cheap bank money payoff faster. Prices are all over the place for the DFW area. I did a quick search and found http://dfwincomeproperties.com/. Then clicked on Apartment All Areas 5+ Units. You will have a better idea of where the properties are located since this is not my area. Find out what rate of return you would like, then start evaluating different properties. Also evaluate how involved you want to be. Do you want to be part of the property management or out source it to a professional. Lastly do as you are now and keep educating yourself. good luck
Mark Heath if you intend to invest in a commercial property such as an office building or apartment complex I would definitely contact several local commercial real estate brokers and mortgage brokers to better assess your options. You will be able to learn alot just from talking to some people who are well versed in the DFW commercial arena who may have pocket listings or know of bank owned properties not yet listed.
Defining what the goal is with this money is the first thing. Do you want income for the rest of your life like an apt building that would just throw off 5k a month or are you looking for a project to go in and out of say fix up an old lake home and put 400k into it renovate and sell for 700k and make 300k on your 400k. It might be a 6 month project from start to finish with exit in mind at end of 6 months.
Lot of ways to handle this but the key is knowing your goal with the money. The obvious goal is to maintain the moneys value and not have it locked up in something that is too illiquid. By definition real estate is considered an illiquid investment. Some real estate is much easier to sell then other.
The lack of experience here would have me attempting to ask you to hammer your local library on the matter of real estate investing so we dont make any monumental mistakes. Coming in here is a good idea you can pick the brain of the most experienced investors.
Welcome and wish you the best of luck! I think you picked the best place to park your money personally.
I am currently overseas, so I cant do too much from here. Once I am back in the states I can take time to decide what I want. I would prefer a multi unit over SFR. I have alot to learn for sure. Thanks again for the insight. It is 1228 am. Time for sleep. I will be checking this site alot. Great website.
With money like that to start with the sky is the limit you can even be a hml
Thats also a viable option, but alos somewhat of a job and without appreciation. If it works out, he could do both. use some of the funds to buy a small multi family, perhaps live in one unit (or not), use leverage (conventional) and the remaining funds to lend on. Any funds borrowed for the purchase should be at a lower rate than what you lend out at, thereby creating the arbitrage.
Ah, there is one bit of advice missing so far - don't advertise how much money you have on the internet, unless you want lots of scoundrels offering to "assist" you with (mis)managing those funds ...
I only mention it so that people here have an idea of what I am working with. Believe me, I have worked way to hard to let a scoundrel peel me away from my money. I have been around the world and back. I am guarded, but thanks for the info.
With money like that to start with the sky is the limit you can even be a hml
Can someone tell me what is hml? I too have some savings that I can't decide how to invest.
My goal is to have a passive or semi-passive income stream for life, and I am risk averse.
I don't mind being a landlord although I am starting to have doubts if I really want to deal with tenant issues for the rest of my life. I am open to other passive or semi passive investment ideas too if someone has a good idea, it doesn't have to be real estate.
I have checked many options already, including annuity that promises a lifetime of income at age 65 or 70 with a lump sum investment now. By far, this is the only option I found that is truly passive and relatively low risk but I do not feel comfortable with the idea that I will lose all my initial investment the moment I die.
Of course many suggest putting the money in large cap dividend paying stocks or ETF, but I consider the stock market extremely high risk.
Hey Mary Joe - a HML is a Hard Money Lender - someone who lends out money at a higher interest rate (usually 10-15%) and usually has some "Fee" attached (2-10%, depending). While this isn't quite "passive" - it doesn't require dealing with tenants, but you do have to do your due-diligence in only funding good deals.
Jeff Brown is a good guy to ask about private lending for passive income.
Hey Mary Joe - a HML is a Hard Money Lender - someone who lends out money at a higher interest rate (usually 10-15%) and usually has some "Fee" attached (2-10%, depending). While this isn't quite "passive" - it doesn't require dealing with tenants, but you do have to do your due-diligence in only funding good deals.
Jeff Brown is a good guy to ask about private lending for passive income.
Mark H. Welcome to BP! You're on the right track getting educated. Also, you might want to listen to the Biggerpockets Podcast if you can. There's a lot of very experienced, investors that are great at educating on here, @Rich Weese @Joel Owens and @Bill Gulley are three that come to mind, and have a wealth of information to share. (for some reason their names didn't come up when I did the @ sign)
Don't hesitate to ask questions, as you can see, there's a pack of investors ready and willing to answer!
I don't think that we answered several questions. What is your goal is for the money? Will you be working another job or will investing be a full time commitment? Do you have any background in construction or rehabing? Do you need cashflow from this money or do you have another income to live on.
Not having those answers makes it difficult to provide you with good suggestions.
Mary Joe,
I can more easily answer your question of passive/semi passive investing. Depending on how much money you are talking about, my suggestion is this. First I would spend time getting educated on how to properly evaluate the type of investment you are interested in. I would not become a hard money lender, but I would provide private funds for an established successful HML. Let them do all the hard work and return you 10-12%. There are HMLs that will take the points up front and give the equity partner the full % return. Your job would be to double check the investment after the HML has underwrote the deal and holds the deed to protect your investment. You could also invest in fix and flippers, but only established ones with strong track records.
I would not suggest small MF that cannot afford property management. Your time is better spent finding more deals to fund, not as a property manager. If you like the comfort and security of low risk MF, find a syndicator with a good track record and be a passive investor.
As a passive/semi passive investor your job is to find projects to invest in. All of your time should be spent checking out the deals. No it does not have to be real estate, diversification is good.
Instead of investing in an actual house which would take your entire 500k investment and more, you should try to buy some real-estate commodity stocks. These ETFs will increase if the housing market increase just like a normal house would during good times but is a lot cheaper.
Sorry to be the naysayer, but I'm a firm believer in zero leverage. Seen too many good and clever people lose their life savings over speculative assumptions that never took place or backfired on them. "Getting the banks eggs in with yours into the same basket" is nice advice, except that the bank has far more backup than your $500k, and far more bailout options when the **** hits the fan - whereas all you have is those properties or whatever's left liquid of your cash.
You say you've lived overseas (still are), and plan to use PMs, so I'm assuming you're not planning to be hands-on. You're also saying you plan to invest mostly for income (monthly cashflow). Just bear in mind that there are many places around the world that'll generate far better returns on a monthly basis, with far less of a hassle than dealing with USA-based property managers and tenants. You're an internationally savvy dude, from the sound of things - I'd advise reading a bit about other countries as well before defaulting automatically to your place of birth.
Instead of investing in an actual house which would take your entire 500k investment and more, you should try to buy some real-estate commodity stocks. These ETFs will increase if the housing market increase just like a normal house would during good times but is a lot cheaper.
I have some of my savings in ETF-reits, but I prefer not put all my savings there.
While it is true that REITS/etfs hold hard assets and properties, they too can go bankrupt overnight and all we will be left with is a piece of paper. There were indeed REITS that went bankrupt during the recession.
Also REITS these days are trading at unbelievably high multiples, it is hard to justify paying such a huge premium to invest in real estate via reits.
To play reits, go with the ones that have very strong balance sheet with little long term debt. There are a handful out there that pays about 3-5% dividends. I would stay away from those that over-leverage their balance sheets.
You say you've lived overseas (still are), and plan to use PMs, so I'm assuming you're not planning to be hands-on. You're also saying you plan to invest mostly for income (monthly cashflow). Just bear in mind that there are many places around the world that'll generate far better returns on a monthly basis, with far less of a hassle than dealing with USA-based property managers and tenants. You're an internationally savvy dude, from the sound of things - I'd advise reading a bit about other countries as well before defaulting automatically to your place of birth.
Ziv, I too am investing for a steady cash flow or income, can you give me a few places overseas that are worth looking into? Are you talking about investing in rental properties overseas or some other types of investments?
Mark H. There are some "Sticky" posts at the top of the Starting Out forum that give some advice for people starting out. Also I started a thread that begins with some questions you can ask yourself to help us understand what you like and don't like to do. Things like - I don't like to negotiate, or I like to do hands on work, or I don't like being a landlord. That thread is here http://www.biggerpockets.com/forums/12/topics/80218-what-type-of-real-estate-investing-should-i-do-questions-to-determine
MJ, as mentioned in another post, I deal mainly in Japan, simply because I love the safe, hassle-free business environment (nobody screws anybody, tenants never harm a property intentionally and are rarely late, and tend to stay 4-5 years on average, with 15-20 year tenants not uncommon too) - but I hear if you spend some time researching and building connections, China's just as good cashflow wise (not nearly as hassle free, but also has growth potential, which Japan is severely lacking in). Europe also has some excellent deals available these days, although the risk factor tends to be much higher as far as tenants are concerned (Spain, Italy, France). Germany, and in particular the northern areas, in and around Leipzig, seems to offer a good balance with excellent tenants as well (although not nearly as high on the rental yields as Japan and china, nor nearly as affordable).