Best use of large amount of cash

107 Replies

Hello. Newbie...

I have $600,000 in cash. Just sold my primary residence.

Am i better off investing in one property and having a high % of equity or

investing in multiple properties and having a lower % of equity in each?

OR

If you had $600K in cash and nowhere to live, what would you do with the cash?

I live in San Jose CA, but not limited to investing there.

TIA

Updated about 2 months ago

********* Thanks to everyone who has commented on this thread. There was an enormous amount of helpful content. I happen to be the kind of person who loves synthesizing a spectrum of views, so I did not find it overwhelming, but very helpful. Obviously there is a journey ahead, with many lessons along the way. *******************

Updated about 2 months ago

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Buy the minimum equity per property and let the tenant buy the rest.  Maximize the cash flow and total property value this way.

Buying equity out of pocket (cash) doesn't save you money and doesn't gain you anything.  All you're doin is transferring the exact same dollars from free cash (your bank account) to jail (house equity)...you've gained nothing.  The way you see what your cost is on a property is what cash you put in.  The more cash you spend on a property, the more it costs YOU.  Total cost is irrelevant as long as you have positive CF since the tenant's rent pays for everything else.

If you use the $600k as a 50% DP, that means you just bought a property value worth $1.2M.  With a 5% appreciation over the next 5 years, that PV would now be $765,769.

If you use that same $600k as a 20% DP, that means you bought a property value of $3M.  With a 5% appreciation over the next 5 years, that PV would now be $3.828M.

Imagine what the difference would be in CF too.

First you will need a place to live, so factor that into the equation.  Find out how much you can borrow (both for your primary and a rental) and then look at what your options are.  I'd use it for the minimum down payments and borrow the rest-so for a rental 20% down, 80% mortgage.  Keep some for the unexpected.  Depending on your borrowing limit, you should be able to get a new primary and at least one rental.

The money you made is for a parcel of land with a shack waiting to be torn down in SC County. Many people are going to Texas like Houston, Dallas possibly buy 2 homes. Austin? You are several years too late. Needing often 7 figures now.

Originally posted by @Sam Shueh :

The money you made is for a parcel of land with a shack waiting to be torn down in SC County. 

Indeed. I had to split the proceeds with someone else. You can probably guess the circumstances. So I am looking to get back on my feet and move forward with a positive attitude.

Originally posted by @Joe Villeneuve :

If you use the $600k as a 50% DP, that means you just bought a property value worth $1.2M.  With a 5% appreciation over the next 5 years, that PV would now be $765,769.

If you use that same $600k as a 20% DP, that means you bought a property value of $3M.  With a 5% appreciation over the next 5 years, that PV would now be $3.828M.

Thanks Joe, very straightforward. It seems to be hard to find CF positive opportunities with 20% DP. But I appreciate the thinking, and will look to leverage it.

@Mark Seery You can buy quite a bit in Austin Texas. I know of a lender that is doing 15% down on sfh rentals in the metro with favorable rates 30 yr amortization, if credit and income is good. The best bang for your buck will be in the suburban towns. 

Originally posted by @Mark Seery :

Hello. Newbie...

I have $600,000 in cash. Just sold my primary residence.

Am i better off investing in one property and having a high % of equity or

investing in multiple properties and having a lower % of equity in each?

OR

If you had $600K in cash and nowhere to live, what would you do with the cash?

I live in San Jose CA, but not limited to investing there.

TIA

 The question is do you have any experience investing in real estate or business of any kind


Your answer will help determine the best way to go 

Well I’m a Scared investor 
I don’t like to borrow a mortgage for the max amount in one building  

 I like to spread  the risk 

Say you take the 600k get an 80% loan on a small Alt building you live in one of them 

And the Alpha variant of Covid comes along  no evictions allows for 2 years   So you fo for 2 years with no rent collected 

But if I have 2 houses I’m flipping and a duplex living in one side I can weather the storm a little better 

Will I get as wealthy as if I got a 20% loan on an apt busking maybe not maybe yes.  But I’d rather still be around if things go sideways 

Hi @Mark Seery , there is a lot of great advice here. If I can add anything, keeping it simple is what I'd say. If you're bound to the San Jose area, find a househack. Sorry if you're already knowledgeable on the house hack, but depending on your level of comfort, either find a home to rent out rooms, or even better if it has a separate entrance to a guest room or studio. I have clients here in the LA area that are finding single family homes to either rent out rooms or break up the spaces into 2 living areas. Since you'll be living there for a year at least, you'll be able to learn the process of being a landlord, gain equity (CA has nearly if not the highest in the nation), and have someone help pay your mortgage. Then your first purchase can become more of a business once you're ready to land the next property.

I hope this helps. Good luck in the process and I'm happy to provide more feedback if you'd like.

@Mark Seery

Nice topic!

Best use of a lot of cash?

Passed this thread by a few times and it hit me!

Loan that cash out to fund or partially fund a deal! We seek to use credit to buy stuff and sell it at higher value for a profit.

So, having cash, I think it best to secure collateral, and then fund a deal or two!

Let that cash work for you!

Did I win? I think so!

Originally posted by @Daniel Smyth :

@Mark Seery

Loan that cash out to fund or partially fund a deal! We seek to use credit to buy stuff and sell it at higher value for a profit. 

Thanks Daniel!

I guess I would probably need to find a deal for short-term cash in order to get an return / interest rate that is better than alternative investments?

I could be bias but I also am about to buy my 7th property here in Austin.  If you don't need a ton of cash flow and just want to maximize your return on investment then it is hard to find a better city to invest than Austin.  It is not too late.  People been saying that for 40 years and 40 years of data shows just a continuous steady climb up.  You can still buy a great 3 bedroom house 20 minutes from downtown for $300K.  I am guessing in a 3-5 years that number will start with a 4.  

Have you thought of investing in commercial real estate?  If u are single, buying a small sfh for yourself is sufficient

and use the rest for investment in apartment complexes with 100-200 doors.

Or as someone else suggested, house hack and use rest of money plus rents to buy more real estate.

Originally posted by @Mark Seery :

Hello. Newbie...

I have $600,000 in cash. Just sold my primary residence.

Am i better off investing in one property and having a high % of equity or

investing in multiple properties and having a lower % of equity in each?

OR

If you had $600K in cash and nowhere to live, what would you do with the cash?

I live in San Jose CA, but not limited to investing there.

TIA

Definitely multiple properties to leverage your Return on Equity. Good luck!

@Mark Seery sorry to hear you had to split the profits, but glad you're moving on. I'm also from the Bay Area so I'd ask if you want to stay in the area or move and if you have any other circumstances that limit what you'd want. Numbers are hard to make work in the Bay Area, but if you're staying and need a primary I think house hacking is a great approach. This allows you to leverage that 600k most efficiently since there's no rent dragging down your DTI ratio. I think someone else mentioned it, but a 600k leveraged with appreciation should also help you grow your NW and you should be able to rent it out later. If you're moving away your options really open up.

Feel free to ping me if you want to chat more about it since it's basically what I did with my old primary in Santa Clara. I understand house hacking is not for everyone (I started off house hacking, but wouldn't do it now that I have kids, etc), but I think it has a lot of merit in our area.

Originally posted by @David Kyo :

@Mark Seery Numbers are hard to make work in the Bay Area

Hi David. Thanks for saying this out aloud. That had been my impression from doing analysis, but I had not yet seen someone else say that. For the next few years at least, maybe a decade, the bay area is probably where I will stay. My work is in the Bay Area, and even in the era of COVID, face to face can make a difference to some people. I will connect, let's discuss more.

Mark

Originally posted by @Paula Orty :

...use the rest for investment in apartment complexes with 100-200 doors.

Hey, thanks for the suggestion Paula. Have you done investments in apartment complexes before? How does someone get started. IDK if I would have enough to purchase an entire complex or where to find them. Suggestions welcome.

Mark

Originally posted by @Dan Burstain :

I could be bias but I also am about to buy my 7th property here in Austin. 

I've heard at least one Biggerpockets host say he tends to stay away from TX because of the high (relatively speaking) property tax. I guess you are not finding that an issue for you. Thanks for the suggestion.

Mark

There are higher than usual property taxes in Texas because we don't have a state income tax. There has been talk of putting in a state income tax and dropping property taxes but I don't see that happening. That all being said, when we run cash flow numbers and when we look at total ROI, we are taking into consideration the higher property taxes. There are still some places around here that have low tax rates in the 1% but most are around 2 to 2.5%. Now don't multiply that to the price of the house. It is multiplied to the assessed value which is much much lower than market price. Austin is not for everyone. BP is a fantastic site and community but the one big problem with BP is that you have investors who will tell you that you shouldn't invest in say Austin because it doesn't fit the model they use in say Cleveland. I know people on BP who would never invest in Austin because it doesn't meet the 1% rule. That is fine, but just understand a model that works in the Midwest doesn't always fit in other areas. If you didn't listen to these people and invested in Austin in any year of the last 40, you made very good money. I will take 40 years of consistent appreciation with a little less cash flow every day but that is the model that works for me.

Mark anyone telling you to spread the risk over multiple properties or multi-family/small apartment building is giving you good advice.  With $550k (20% down) you could buy a $2.75mil multi-family/apartment and have $50,000 left for improvements to get your rents up some early on. You could buy 7 nice houses in Central FL with 20% down.  Read as much as you can on Bigger Pockets and watch podcasts related.  Best of luck!

The real risk is that you seem to be new to real estate. That means you will make white a few mistakes. If you spend big, your mistakes will be big. If you start out small, your mistakes will be small.