$500,000 in cash. What to do.

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$500,000 in cash. What to do.

Mark H.
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.

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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Originally posted by Daniel Craig:
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.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    I would imagine that if Germany was a good place for cash flow, then our German friend Uwe S. would be putting more of his money to work there, rather than over in the USA.

    0Reply
  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    Don't know the gentleman, but different people have different goals, criteria and investment strategies. I don't know that there's a "good" or "bad" place to invest (aside from obvious war zones, and even in those places there are particular investor types who thrive)- it all depends on the individual. I know Japanese who invest in the US, got more than a few US clients who invest in Japan, and my mom (plus many others like her) won't look past Australia, even though you'd have better chances finding the proverbial needle in a haystack than finding a positively geared property anywhere but in mining towns down under (and these are here today gone tomorrow - not to mention you'd be hard pressed to buy one property for the price of five in the US these days)...and it goes on and on.. I don't judge anyone's criteria - just sharing information as I find it, for others to make their own choices, based on their own goals and comfort zones.

    3Reply
  • Mark H.
    OP
    flower mound · Member since 2012 · 6 posts · 1 vote
    13y

    For the most part, my objective is income. Then I would use that income to diversify more, or occasionally spend if I want to. I would prefer to buy one or two properties in cash, mainly for comfortability reasons. Once I have a base of income coming in, I can than finance other properties if I choose. Im not looking to make fortunes, but my overall goal is to clear at least $2000 a month after expenses. I wouldnt mind doing that, and possibly retiring overseas, or just having the option to. So that is my objective.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Daniel Craig:
    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.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    13y

    I'm in FULL agreement with Will Barnard.

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  • Uwe S.
    Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Thanks Steve Babiak to bring me in.

    If you want to park your money at very low CAP rates <6% but with actual almost no risk then take Germany. I agree Ziv Magen the tenants are almost frugal.
    Only problem is you need much more money to buy an propertie only one example in Berlin you must pay for an 11 unit at least 850k Euros with 5.7% CAP rate. If someone ask me to buy I would say: "Thank you, no. Nothing at all."

    -Uwe

    1Reply
  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    Uwe S., have a look at Leipzig and surrounds, it's been providing some excellent returns for foreign investors in the last five years or so (actually starting to baloon a bit too much now as a result). Completely agree about Berlin, like most internationally renown metropolis, returns are pitiful - I invest in Japan, but would steer clear of Tokyo, Kyoto, Osaka and the Hokkaido ski resorts, for the same reasons. I'm sure SF, LA and NYC, for instance, are the same in the US, aren't they?

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  • Uwe S.
    Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Ziv Magen, agree with your statement of Berlin and other big towns.
    Checked just Leipzig and found properties in need of rehabilitation from 42k Euro but for a nice rehab for an 4 unit in Germany you will have high requirements so I assume about 25k per unit for the rehab. Complete house price is 142k Euro then, to much for me.
    Found also an rehabed house with 6 units asking 198k Euro stated CAP rate of 8.5% located in a suburb.

    So yes you can get some decent deals but need a big pocket to buy it.

    -Uwe

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  • Uwe S.
    Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Forgot one opportunity in Germany against the US market, tenants in Germany pay all of her utilities. So if the rent is 400 Euro thats the net income for any investor only the PM marge should be subtracted and some maintenance reserves.

    Included in the utilitys of the tenants in Germany:
    - propertie taxes
    - insurance for propertie
    - water
    - heat (gas, oil)
    - janitor fees

    The investor or his PM make an utilities statement each year for the previous year and the tenants must pay these then. Mostly the tenants pay a firm utlities fee each month to prevent high additional payment for previous year.

    -Uwe

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  • Bryan Doan
    Lynnwood, WA · Member since 2013 · 6 posts · 0 votes
    13y

    Hello...

    Just like Mark, I'm interested in some kind of investments as well. And pretty much in similar situation, I'm currently oversea and have about the same amount of savings and would live to invest it wisely, so that when we are back to the US my wife does not have to work but stay home with the kids as is now.

    My hometown is Seattle and I have a house there currently for rent. We bought it back in 2006 and rented (with a negative cash flow) when leaving to live oversea as the housing market was down and I did not want to sell the house for a loss. Seattle is an expensive place and I don't think it's a good idea to invest in rental properties there. By the way, my house was bought for 470K in 2006 and currently rent for 2050 a month which gives me a negative cash flow after mortgage/taxes/property management fees etc.

    Where would be the good location that I should look into buying rental properties in the US? I think if we buy out of state rental properties we can have property mangers to manage them...

    Thank you for any inputs/advice that you may have...

    -Bryan

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Bryan what you can do is all about the money you have to start with.

    Recommendations would depend on your goals and cash levels.

    If you by little houses you deal with tenants, toilets, and termites. If you use a management company you still have to watch over them and protect your investment with controls in place. The benefit to houses and small duplex, tri's, and quad's is the rent bumps are usually hefty each year.

    The downside is the hands on is usually more. Not every investor is meant to own houses as a landlord. More passive investments such as triple net appeal to certain investors. Rent bumps are not as much and cap is lower on purchase. For that you are getting a quality investment with mailbox money paid for by corporate tenants. Downside is you have to have a few hundred thousand to buy into the smallest price triple net asset class to get started UNLESS you partner with someone else and combine funds.

    Most rent bumps in triple net go to 2% bump a year in the primary term. A few are at 3% but you are talking usually a franchisee of a well known brand guaranteeing the lease and not the corporate company that controls all 1,500 locations for example so you are taking on much more risk of default to land that extra 1% a year.

    Everything in real estate is a trade off. I have clients that love something and then another client doesn't like it but loves something else for different reasons.

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  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    @Will Barnard - yes, some folk leveraged themselves to the gills and got burned for being stupid - others, however, only sinned in that they've taken a mortgage that suddenly became unaffordable and unsustainable, purely due to market downturn, and through no fault of their own. To think that "can't happen to me" is a bit optimistic in my view, therefore (and this is just my own personal preference, as mentioned above) - I prefer to do it the slow, safe, old fashioned way, and only use the money I actually have. Sure, it takes longer to expand - but it's always sustainable, no matter what happens to the market - which I can't control, so I prefer not to depend on to that degree. Not judging anyone who does, just stating my personal preference.

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    13y

    Mark H. First off, this is a great thread! I think the single best piece of advice for any investor is to get to KNOW the market you want to invest in, the area and the type of property. In your case, since you aren't in the locale where you will most likely invest, there's plenty of people that have given you ideas as to where you might want to start doing research.

    It's fascinating to me seeing people investing in foreign countries. I personally would never feel comfortable doing that, as there's so many local and political factors that are at play and I don't know how or if that would affect the market. Also local regulations, etc. Here in America though each state is a little different, it's all relatively the same. It also seems that as far as bang for your buck, you get so much more and of better quality in America, but I may be biased.

    Personally, I think THE best investment in America as far as real estate, is in medical office space, not SFR. Everyone has their own areas of interests, management style, investment goals, etc., and there's as many types of property and areas as there are people on BP.

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  • Robert AdamsBusiness Member
    Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
    13y

    Will Barnard well said!

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Thanks Robert.

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  • Mary Joe
    Investor · Brooklyn, NY · Member since 2013 · 254 posts · 28 votes
    13y
    Originally posted by Karen M.:

    Personally, I think THE best investment in America as far as real estate, is in medical office space, not SFR. Everyone has their own areas of interests, management style, investment goals, etc., and there's as many types of property and areas as there are people on BP.

    Hi Karen, can you tell me why you think medical office space is the best? I like the concept and I was thinking about medical office space at one point, but after seeing many medical office space go vacant for years before they are rented out makes me worried...

    appreciate any feedback or advice you have,

    thanks
    MJ

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