I Have Access to $1,000,000, What Should I Do???

Investor · Quakertown, PA · Member since 2020 · 13 posts · 4 votes

So I am an absolute newbie. I'm in the Suburban Philadelphia area where the market is crazy right now and it's so difficult to find a deal to make money on. I'm sure I'm not looking in the right places because of my lack of experience so I could really use some help. I have an angel investor who is willing to lend me money at 12% interest. He has upwards of $1M that he's giving me access to but I have no clue where to start. I hate my job and want to begin investing in real estate ASAP. If you had access to this much capital, where would you start? I know this is an incredible opportunity and my lack of knowledge is the only thing holding me back. HELP!!!

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Jonathan GreeneBusiness Member

Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes

You don't have access to $1,000,000. This is like a beacon post to draw attention, but then it's just a candle. Some guy with $1,000,000 who will lend you money at 12% is just waiting for you to fail. Ask yourself, or the rest of the world this, why would some guy give you access to $1,000,000 to invest in real estate when you know absolutely nothing? What do you think he or she sees happening? If you want to quickly ruin the relationship, foreclose all future business, and probably end up with a bat on your knee, don't even think of taking a cent. Taking money at 12%, knowing nothing about a business just because you don't like your 9-to-5 job is recipe for disaster.

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Will Pritchett
Rental Property Investor · San Antonio, TX · Member since 2011 · 512 posts · 290 votes
6y
Hello @Andrew Rosenbaum. I would learn everything about the market and finding deals. I would not get too wowed by the amount of money. It's great that you have someone who will invest in you, don't get me wrong, but there is a lot of money out there chasing very few deals. If you find deals, the money will be available and possibly for even better rates of interest. If I were starting over, I'd do smaller deals to build my own confidence and track record before trying to utilize a million dollars. If you do BRRRR deals, or flips, you'll likely re-use the same funds over and over so you may not need that much.
I just started reading Raising Private Capital by Matt Faircloth. Pretty good points and a reminder of how serious the responsibility is to be entrusted with other people's money. We started by borrowing less than purchase price and funding the difference and repairs ourselves so that the lender's LTV was very low. Only later did we borrow the full amount of purchase and repairs.
Hope this helps a little.
Best of luck
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y
You don't have access to $1,000,000. This is like a beacon post to draw attention, but then it's just a candle. Some guy with $1,000,000 who will lend you money at 12% is just waiting for you to fail. Ask yourself, or the rest of the world this, why would some guy give you access to $1,000,000 to invest in real estate when you know absolutely nothing? What do you think he or she sees happening? If you want to quickly ruin the relationship, foreclose all future business, and probably end up with a bat on your knee, don't even think of taking a cent. Taking money at 12%, knowing nothing about a business just because you don't like your 9-to-5 job is recipe for disaster.
[email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
Originally posted by @Jonathan Greene:
You don't have access to $1,000,000. This is like a beacon post to draw attention, but then it's just a candle. Some guy with $1,000,000 who will lend you money at 12% is just waiting for you to fail. Ask yourself, or the rest of the world this, why would some guy give you access to $1,000,000 to invest in real estate when you know absolutely nothing? What do you think he or she sees happening? If you want to quickly ruin the relationship, foreclose all future business, and probably end up with a bat on your knee, don't even think of taking a cent. Taking money at 12%, knowing nothing about a business just because you don't like your 9-to-5 job is recipe for disaster.

Nicely done. I agree with this all the way (although I think $1 mil probably gets you worse than a bat on the knee :D ). You can do a lot of damage with someone else's money when you have no idea what you are doing, and hatred of your current job is really a poor long-term motivator.
If you think you'd like to get into RE then I would start by learning before spending.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y
I would have loved to be in your shoes when I first started out. I would have probably blown it all, (LOL) but if I knew then what I know now, I could have retired in less than 5 years. You have just fell into the greatest situation any REI could have fallen into. You have just been given $1M of free (yes I said free) money, and you shouldn't need to buy money ever again.
My first recommendation would be to learn the conceptual difference between spending money and using money...and then NEVER, under ANY circumstances, EVER, spend this money. You should use it to infinity, but NEVER, ever, spend it.
Next, you need to learn the three most important knowledge bases that exist in REI:
1 - How to analyze Markets (not properties), and why Market Analysis is so important.
2 - How Money Works. This is really just another way of saying you need to build your arsenal of knowledge around as many different strategies for using (notice I said using and not spending) money. This is where the true power lies. This is what will give you the ability to stand out from the crowd of other REI's, all competing for the same morsels...trying to buy low and sell high. This will allow you to pay equal to or greater than the asking price on some properties, and make more money (and cost you less), than those that are trying to buy for as little as possible. It's not about how much the total cost is. It's all about how much it costs "you".
3 - How to design, and stay with, a REI Plan based on your financial needs, and designed by using reverse engineering.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y
Originally posted by @Jonathan Greene:
You don't have access to $1,000,000. This is like a beacon post to draw attention, but then it's just a candle. Some guy with $1,000,000 who will lend you money at 12% is just waiting for you to fail. Ask yourself, or the rest of the world this, why would some guy give you access to $1,000,000 to invest in real estate when you know absolutely nothing? What do you think he or she sees happening? If you want to quickly ruin the relationship, foreclose all future business, and probably end up with a bat on your knee, don't even think of taking a cent. Taking money at 12%, knowing nothing about a business just because you don't like your 9-to-5 job is recipe for disaster.

If you ever come across someone willing to sell me $1M for 12% simple interest, let me know.
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Zachary Ray
Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
6y
Agreed be sure to learn the business before even thinking about borrowing someone else's money. Real estate is risky enough.
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Dwayne L.
Rental Property Investor · Atlanta, GA · Member since 2020 · 16 posts · 8 votes
6y
@Andrew Rosenbaum 1st thing is that if you want to avoid the scammers, theives, and all the other evil villains of the RE world, never announce your financial position! People will figure out what to do with your money if you don't!
3 Reply
Louise Cornell
Wholesaler · Philadelphia · Member since 2020 · 45 posts · 72 votes
6y
@Will Pritchett Will made a great point regarding starting small. REI can be very overwhelming to jump into, especially when you are so liquid and a newbie.

As others have mentioned on this post such as @Joe Villeneuve, knowledge is power. Every investor doesn't care about the price unless "the deal makes sense." In terms of getting started in the Philadelphia area, there are a ton of hot pockets right now. Obviously you have the capital to start out anywhere you'd like, however, in some pockets you can spend 70-100K and acquire a great property that will rapidly appreciate. I would recommend starting on a wholesale deal that you could buy for less and add value to.
Good luck on your real estate endeavors.

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y
Above all, do NOT start buying up hold properties with this money right away. Learn how to use it...not spend it, and when you so start buying hole properties, don't buy all cash. That's spending it...and the worst kind.
You have been given the key to the Emerald City, and Dorothy and her friends might be calling you any minute. In order to use her friends you need the following:
Friend #1: You need to have the "brains" to learn how to do this right...and not just plunge in.
Friend #2: You will need to have the "heart" to love what you are doing, because it is fun. Friend #1 will make living with this friend easier.
Friend #3: You will need to have the "courage" to stay with it when things appear to not go smooth. Friends #1 and 2 will help you here.

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David Ziccardi
Appraiser · Bensalem, PA · Member since 2015 · 32 posts · 5 votes
6y
I would echo Jonathan Greene's sentiment.
I'm also an appraiser in the Philadelphia area so feel free to reach out if you want some guidance on a particular transaction.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Andrew Rosenbaum that is a fairly hefty interest rate considering you can get real estate loans in the 3-4% range right now. If you find the right deal, you could make it work, but be careful. Excessive debt interest can destroy cash flow. One option is to acquire at the high rate and refinance into a lower rate. Debt is like any tool, it is only good if you know how to properly use it.
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Erik B.
Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
6y
Originally posted by @Joe Splitrock:
@Andrew Rosenbaum that is a fairly hefty interest rate considering you can get real estate loans in the 3-4% range right now. If you find the right deal, you could make it work, but be careful. Excessive debt interest can destroy cash flow. One option is to acquire at the high rate and refinance into a lower rate. Debt is like any tool, it is only good if you know how to properly use it.

Agreed. Even when factoring less hassle and fees from conventional loan 12% is high.
1 Reply
Erik B.
Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
6y
What are the terms of borrowing? I get better rates on HML (with more fees/expenses)
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Doug Pintarch
Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes
6y
Originally posted by @Jonathan Greene:
You don't have access to $1,000,000. This is like a beacon post to draw attention, but then it's just a candle. Some guy with $1,000,000 who will lend you money at 12% is just waiting for you to fail. Ask yourself, or the rest of the world this, why would some guy give you access to $1,000,000 to invest in real estate when you know absolutely nothing? What do you think he or she sees happening? If you want to quickly ruin the relationship, foreclose all future business, and probably end up with a bat on your knee, don't even think of taking a cent. Taking money at 12%, knowing nothing about a business just because you don't like your 9-to-5 job is recipe for disaster.
Yeah. All of this.

1 Reply
Account Closed
Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
6y
Originally posted by @Andrew Rosenbaum:
So I am an absolute newbie. I'm in the Suburban Philadelphia area where the market is crazy right now and it's so difficult to find a deal to make money on. I'm sure I'm not looking in the right places because of my lack of experience so I could really use some help. I have an angel investor who is willing to lend me money at 12% interest. He has upwards of $1M that he's giving me access to but I have no clue where to start. I hate my job and want to begin investing in real estate ASAP. If you had access to this much capital, where would you start? I know this is an incredible opportunity and my lack of knowledge is the only thing holding me back. HELP!!!

It depends on the terms.
If the investor will only provide 65% of a flip, it's up to you to come up with the rest. On a $400,000 purchase, you have to provide $140,000 plus closing costs, plus carrying costs, plus rehab costs.
That's very different than an investor that will provide 100% of the purchase costs, the carrying costs, the rehab costs, etc.
And for what length of time will they provide the money? On a "project by project" basis (You pay then back when the project completes and you sell)
or is it long term money and you can pay them back in 30 years? Do you have to make payment during that time?
You can't know what to do with real estate investing until you know the answers to those questions.
12% money that you can access within a week to ten days for 100% of the project on an ongoing basis, is awesome power, but 12% money and 65% LTV of the purchase is good but you'll need to scramble to make it work.

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Andrew Rosenbaum
OP
Investor · Quakertown, PA · Member since 2020 · 13 posts · 4 votes
6y
@Account Closed Thanks for your reply! The terms are super lose. He will fund every single penny of the purchase, rehab, closing costs, etc. I don't have to pay him 12% until after the rehab is done. My plan is to do a few flips, keep all of the profits after paying my investor 12%, and then use my own money to fund BRRRR deals. Would love your input if you have any additional advice based on that info. Thanks again.
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Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
6y
If I had $1mil to lend, and my chosen person posted this... I’d be running far far away from said person.
Like @JD Martin said.. you better educated yourself before you take dime 1.
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Bonnie LowPro Member
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
6y
Hey, Andrew - I don't know you but I'm a firm believer in giving people the benefit of the doubt and operating from a position of helpfulness when someone reaches out asking for help. That's great that you have an angel investor - many of us know people who have the access to that kind of capital whether it's a successful business person, a wealthy family member or a friend with resources so I've got no reason to doubt this opportunity exists, despite what other people here have suggested. Despite the naysayers, there's been some good advice on this thread. Specifically, start small. Just because you have access to $1M doesn't mean you need to figure out how to spend it all at once and, in fact, you shouldn't. Start small, get a few wins under your belt and then you'll be in a much better position to do bigger, riskier deals. Buy a SFR or a duplex or do a BRRRR to get your feet wet in the rehab space. Spend the time to develop a business plan for you and your investor before you do any bigger deals. That $1M will come in handy if the market crashes so you want to be prepared to take advantage of it. Getting a few wins under your belt will help you be better prepared to be successful. Best of luck to you!
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
Originally posted by @Andrew Rosenbaum:
@Account Closed Thanks for your reply! The terms are super lose. He will fund every single penny of the purchase, rehab, closing costs, etc. I don't have to pay him 12% until after the rehab is done. My plan is to do a few flips, keep all of the profits after paying my investor 12%, and then use my own money to fund BRRRR deals. Would love your input if you have any additional advice based on that info. Thanks again.

If this guy is not your father or uncle, then he must be psychotic or delusional. I'm being facetious, but not really - 12% is a high interest rate but not when the downside is huge and the upside is only 12%. People with real money to lend don't have "super-loose" terms - they want to know when and how they will get their money back, and their recourse if (when) you don't repay said dollars. Otherwise there is a very real risk that they will lose that money.
The only reasonable advice I think anyone could give you is to go out and learn your area - and I mean really learn it - and then if this money is still available, start small. Don't believe the "go big or go home" BS. That's just a good way to lose a huge chunk of money instead of a small chunk when you have no idea what you are doing. When you are starting anything like this you are going to make mistakes, and mistakes cost money.
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Account Closed
Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
6y
Originally posted by @Andrew Rosenbaum:
@Account Closed Thanks for your reply! The terms are super lose. He will fund every single penny of the purchase, rehab, closing costs, etc. I don't have to pay him 12% until after the rehab is done. My plan is to do a few flips, keep all of the profits after paying my investor 12%, and then use my own money to fund BRRRR deals. Would love your input if you have any additional advice based on that info. Thanks again.

The National Association of Realtors states that the average flip takes 6 months and grosses $67,000 and after expenses nets $15,000.
What happens when you lose money on a deal? Some deals, you *Will lose money.
Is the debt forgiven or do you just try to do another one to pay it off?
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David Vitarelli
Inspector · Voorhees, NJ · Member since 2015 · 104 posts · 47 votes
6y
@Andrew Rosenbaum, my knee jerk reaction was....if you are asking "what to do" with access to $1MM, you probably shouldn't be investing a cent of it until you have a solid plan with tried and true experience. When I was getting started, I made many mistakes with small sums of money...I shudder to think of the mistakes that could be made with $1MM. My best advice, start small and build from there. And to answer your questions of "what to do OR where to start", that is completely a personal preference. In real estate, you can make money in numerous ways....without experiencing them first hand, you wont know where to dig in.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y

The National Association of Realtors states that the average flip takes 6 months and grosses $67,000 and after expenses nets $15,000.
What happens when you lose money on a deal? Some deals, you *Will lose money.
Is the debt forgiven or do you just try to do another one to pay it off?

Averages are made up of highs and lows. Why would anyone base any decision on the average return?
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Account Closed
Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
6y
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Andrew Rosenbaum:
@Account Closed Thanks for your reply! The terms are super lose. He will fund every single penny of the purchase, rehab, closing costs, etc. I don't have to pay him 12% until after the rehab is done. My plan is to do a few flips, keep all of the profits after paying my investor 12%, and then use my own money to fund BRRRR deals. Would love your input if you have any additional advice based on that info. Thanks again.
The National Association of Realtors states that the average flip takes 6 months and grosses $67,000 and after expenses nets $15,000.
What happens when you lose money on a deal? Some deals, you *Will lose money.
Is the debt forgiven or do you just try to do another one to pay it off?

Averages are made up of highs and lows. Why would anyone base any decision on the average return?
LOl. Because 1/2 of those people made very little money (minimum wage) after taking great risk. For someone just getting into the game, with no experience, I'm willing to bet you a crab louie he isn't going to make money on the first project unless he has someone with experience and wisdom helping him. Maybe you're available to guide him along the way, for a proper compensation of course. Both you and I know that you can make a ton of money without needing much money and many times people who have much money falsely think that money cures dumb decisions. Heh heh
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y
The National Association of Realtors states that the average flip takes 6 months and grosses $67,000 and after expenses nets $15,000.
What happens when you lose money on a deal? Some deals, you *Will lose money.
Is the debt forgiven or do you just try to do another one to pay it off?

Averages are made up of highs and lows. Why would anyone base any decision on the average return?
LOl. Because 1/2 of those people made very little money (minimum wage) after taking great risk. For someone just getting into the game, with no experience, I'm willing to bet you a crab louie he isn't going to make money on the first project unless he has someone with experience and wisdom helping him. Maybe you're available to guide him along the way, for a proper compensation of course. Both you and I know that you can make a ton of money without needing much money and many times people who have much money falsely think that money cures dumb decisions. Heh heh

Hard to argue with any of your points, but I still wouldn't base any investment decision I made, or anyone else could make, on the average.
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