Best use of large amount of cash

107 Replies

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

 I think the best use of your money would be to purchase real estate in Columbus, Ohio

Originally posted by @Mark Seery :
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

I was just at a meet up in Los Altos hills  last week..  The bay area is 9 counties its not just Santa Clara county and the uber high prices. I was suggesting 4 to 5 years ago to people to look at Richmond .. One of the investors at the meeting had invested there 6 years ago and is now selling a 4 plex for a 600k gain..  now you can still get deals in Richmond and many other areas of the bay area if you hunt a little bit.. Just sayin.. 

Originally posted by @Jay Hinrichs :
Originally posted by @Mark Seery:
Originally posted by @David Kyo:

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

The bay area is 9 counties its not just Santa Clara county and the uber high prices. 

Hey, thanks Jay, great perspective! Any county I could reasonably easily drive to, would provide a comfort level in terms of investing. If you have some areas / counties you would recommend, I would love to hear about it. Also, any suggestions on how to find meetups would be great as well.

@Mark Seery

I’m from Los Angeles and moved our family to Columbus Ohio in 2020. Sold our house in LA and netted $250k. Paid cash for a few rentals and now make over $3k net income per month. You’re starting out with 2.5x that. If I had $600k cash I’d get the largest value add multi family property I could safely afford.

For instance, this came my way a couple months ago in Columbus:

$700,000 down payment for this 60 unit property in Columbus that grossed $430,000 income last year, $250,000 net operating income before the mortgage and $110,000 profit/$9,200 per month after paying the mortgage and all other expenses - but rents are below market rate and projected to increase from $110,000 to $190,000/$16,000 per month after increases over a few year period.

OR I would invest in amazing smaller BRRRR properties that I could quickly rehab and refinance, get all or almost of my money back and go buy another and another…

There a LOT of opportunities for great cash flow in the Midwest!

Originally posted by @Mark Seery :
Originally posted by @Jay Hinrichs:
Originally posted by @Mark Seery:
Originally posted by @David Kyo:

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

The bay area is 9 counties its not just Santa Clara county and the uber high prices. 

Hey, thanks Jay, great perspective! Any county I could reasonably easily drive to, would provide a comfort level in terms of investing. If you have some areas / counties you would recommend, I would love to hear about it. Also, any suggestions on how to find meetups would be great as well.

Central valley counties plus   mendo county  Lake county  Colusa..  I like Willows ( neat farming town under the radar) 

@Mark Seery ,

Make a list of your options and you may have your answer. Are you organized and self disciplined enough to own multiple rentals? What size empire do you feel comfortable being responsible for? Set aside 10 percent of your assets in savings account as a safety net. Maybe buy two Single Family Homes, finance 70 percent, lease them for one year and then evaluate your cash flow and equity accumulation through principal reduction and appreciation. Pay off your own residence then Two, nice, paid for houses should net you enough money to live off for the rest of your life. As you get more experience and feel comfortable, buy two more SFH. Within a couple of years, you could have over one million net worth. Then in five years have two million net worth. In ten years, five million net worth and $200,000 passive income that will adjust upward faster than inflation.

@Dan Burstain , people been saying that in Texas since we forced out the Mexicans by illegal immigration of white Americans from the north about 200 years ago. Texas is truly the land of opportunity. Really study Texas history and you will know the future of this great state. You can still buy a brand new 2000sf house in a very nice neighborhood for under $500,000 in the DFW suburbs. Come one, come all. Get them while they’re cheap!

Originally posted by @Justin Gottuso :

@Mark Seery

$700,000 down payment for this 60 unit property in Columbus that grossed $430,000 income last year, $250,000 net operating income before the mortgage and $110,000 profit/$9,200 per month after paying the mortgage and all other expenses - but rents are below market rate and projected to increase from $110,000 to $190,000/$16,000 per month after increases over a few year period.

I don't know how much of a time suck that would be for an outofstater and/or if a 10% fee for a Property Manager would cover me there, but yeah, those kinds of numbers are attractive, putting aside all eggs in one basket considerations.

@Mark Seery

Things are about 35k to 70k per door for multi family properties. This includes property management. More of a mentality where in CA you can buy a few properties with terrible to zero cash flow, or in the Midwest you can buy 50-100 units that have great cash flow. Or a mixture of both. We own a condo in Los Angeles still too. No wrong way to start. You’ll learn a lot along the way whatever you choose to do!

@Mark Seery  

I think the lower equity into a larger investment is a better approach just depends on how you view it. If you are looking for a market to invest in since you live in San Jose, I would recommend investing in Columbus OH commercial real estate or residential depending on the strategy you prefer. Columbus has a lot of job opportunities and population growth! 

Maybe Vallejo, on the Benicia side? Possibly even Benicia itself. I'm not sure how eager I'd buy to buy right now though; the market is all squirrelly right, with values spiked through the roof due to short-term market forces (some driven by $, some by emotion). Look at the 100 year INFLATION-ADJUSTED Case-Schiller index to see how far current prices are outside of reality. At some point they will stabilize, though we could a have a serious inflation period before that happens. If you buy a larger house that you can rent rooms out or functionally split that might put you in the best position long-term (though be honest about how good you are with people -- landlording is a very people-oriented service business). 

+ 1 for Vallejo. id avoid Benicia, very pricey for only a few miles down the road. Depends on how long you plan to hold the properties for. If planning to hold for over 10 years i would highly encourage buying in an opportunity zones to eliminate the capital gains tax and buy in a historic district to significantly reduce your property tax (mine by 85%. value of house to land). with these combined in at a 17.5% COC return.

Nowhere near enough information to give you advice and I believe that these posts are completely pointless for 99% of the people that make them. What you should do vs what I would with the cash (or anyone else here for that matter) would likely be very different and based on our overall situations and experiences. Better questions to ask yourself is what you're looking to achieve and where do you want to end up in 5-10-20 years etc. Then dig deeper on what is the best strategy for you to get you there and then reach out to those that have expertise/experience in that strategy

@Mark Seery It really comes down to your goals and your needs. You didn't mention 'how' you ended up with $600k. Did you sell your primary residence and got that from the equity, which is why you now don't have a place to live? Or is it savings from your employment? If you need cashflow as your primary objective, then I would say buy multiple properties, or preferably a medium sized multi-family. If you don't care as much about cash flow but want maybe more appreciation or to be able to get a great return within a few years, you could look into syndications. You can often times end up about doubling your money in a few years with a good syndication deal. I am involved with a couple now, one is a new development in Idaho that will about double the invested amount in 2 years with some guaranteed interest, and then another in TX that will also about double but in 3-5 years. Looking at timeframes the 2 year one is a better deal looking at the average annual returns, but there is no cash flow since it is a new development, the one in TX has cash flow from an existing property, but takes longer to get the full return. I generally prefer shorter time frames to get money returned to then be able to more quickly take advantage of other opportunities as they come up and it feels safer since we never know what could happen 5 years from now. Feel free to contact me if you are interested in learning more about these or other opportunities. I'm happy to explain more.

Come to cincinnati. How a portfolio for sale here with a couple luxury apartments that you could live in one and watch your money grow. Definitely leveraging your money as best as possible vs paying cash is the way to go.

Originally posted by @Cheryl S. :

@Joe Villeneuve

Would you recommend newbies to consider turnkey properties, if they have a large amount of cash?

Cheryl

 How new?

What is the deal?

There is no blanket answer to "what's the best", proactively.  What is "the best" is based on the specifics of the deal in front of them.  That includes the type of strategy used to make that deal happen.

I am seriously surprise about the responses in this thread after all my posts regarding single family vs. multi-family investments. I don't understand why any person on this planet would torture their self with a single family home.

Guessing the OP's scenario, I need to tell another one of my short stories. When I divorced the 2nd of my 3 wives, my net worth if I cashed out at the age of 49 was about $2 million. I seriously loved my 2nd wife, but after dealing with her drug and alcohol addiction for 18 years I had no choice other that to stop being her co-dependent and I knew the only choice was to cut her loose.

So, I paid my divorce attorney about $9,000 total and she borrowed %60,000 from a step-sister to pay her attorney. We went to court only one time and the case was settled in about 15 minutes. Nobody but by wife's attorney discussed the case in court and my wife's attorney had a private conversation with the judge. The judge awarded my wife a $240,000 settlement, I kept (can't remember) 6 or 7 properties that were paid in full, but here is the strangest part you will ever hear about a divorce settlement. The judge ordered that I was to keep my wife's $240,000 and pay it to her, but did not provide any sort of payment schedule. The court did not provide my wife with any instructions in regards to where she would live nor payments to live on.

So, the day we left the courthouse I took my now ex-wife to lunch and I told her she should stay in our house and I would move to my office building and I paid her something like $600 per week to live on.

Now, we get to the best and most-amazing part. When I purchase three of my fairly large apartment buildings I spent a total of $180,000 of her money and I made her a 10% partner in 2 buildings and a 25% partner for another apartment building. It took my ex-wife two years to clean  up her act and for the past 24 years she had been clean. So, two years after our divorce I didn't want my ex-wife to stress out I had my attorney change the divorce decree and I gave her the house she was living in. Today, thanks to my investing my ex-wife's money her net profit from her $180,000 investments is about $2.4 million plus she keeps getting offers for the house I gave her for $1 million. A few months ago, I had an attorney draw up some papers where I am buying out my ex-wife's equity on the 3 apartment buildings by paying her $4,000 per month for the rest of her life. Overall, I think I will come out quite a bit ahead of her as far, but my goal was to reduce her stress in regards to having to worry about how my heirs will handle business affairs when I pass away and it is more important for her to know that she will get $4,000 per month for live rather than have to worry about settling for a lump sum when I pass away.

I am going to mention one more thing that is critical to this thread and this is because I can't understand why any sane investor with half a brain is still talking about single family homes when even small 4+ unit properties make 10, 20 and 30 times more money than the average single family home and I presented the math over and over and it irks me to think that someone with $600,000 burning a hole in his pocket is getting advice about single family homes. Sorry, but to get my point across I have to tell you how much money I earned by selling my stinky 6 single family homes and changed my investment model to multi-unit properties and I learned simple 5th grade math that I am going to explain for the 1,000th time that should blow your mind from here to the moon and back. 

I've written posts several times stating that I earned $34 million since 2001 by investing in multi-unit properties and that is what I personally earned, but I never mentioned that my ex-wife was a partner in 3 of the apartment buildings I purchased and she earned about $2.4 million making the total earned $36.4 million. Sure, I had about $2.1 million in cash plus the $180,000 I used from my ex-wife's settlement, but with $2.4 million in investment capital even back in 2001 you could still purchase only about 3 or 4 single family homes and after 2008 I don't think the the value of those homes recovered to what they were in 2002. 

So, if you invested $2.4 million in 2002 you would have earn just about nothing and I earned $36.4 million with the same amount of money. 

The serious difference between single family homes and multi-unit properties is SINGLE FAMILY HOMES DO NOT INCREASE IN VALUE WHEN YOU INCREASE THE RENTS. Let's see! Lets make believe we are in school and write that 100 times so is sinks into your brain.

SINGLE FAMILY HOMES DO NOT INCREASE IN VALUE WHEN YOU INCREASE THE RENTS

MULTI-UNIT PROPERTIES (EVEN 4+ UNITS) INCREASE IN VALUE ALMOST EXPONENTIALLY WHEN YOU INCREASE RENTS

MULTI-UNIT PROPERTIES (EVEN 4+ UNITS) INCREASE IN VALUE ALMOST EXPONENTIALLY WHEN YOU INCREASE RENTS

MULTI-UNIT PROPERTIES (EVEN 4+ UNITS) INCREASE IN VALUE ALMOST EXPONENTIALLY WHEN YOU INCREASE RENTS

Now that that is burned into our brains lets talk about the reasons and the math. When you own multi-unit properties the 5th grade math goes like this.

You purchase a 4-unit property for whatever price you pay and each unit gives you a $150 per month cash flow

So, now how do you get filthy with with 4 units vs a stinky single family home that sucks you dry.

You earn 4 x $150 per month = $600 per month = $7200 per year positive cash flow you can put in your pocket and spend it going to Disneyland one time as $150 per ticket to get into one theme park where I think a small popcorn is now $7.

Apartment units are in high demand and the Gross Multiplier is an average number being used today.

You raise the rents for each unit only $50 the day you close escrow and you just made more money that most people can bank in 1 or 2 years and the math goes like this.

4 units X $50 - $200 per month more positive cashflow x 12 month = a lousy $2400 per year.

Now, your positive cashflow is $7200 + $2400 = $96,00 per year. Still not a lot of money, but watch the amazing math that is about to happen.

When you increased the rent you immediately increased the value of the property. YOU CANNOT DO THIS WITH SINGLE FAMILY HOMES! YOU CANNOT DO THIS WITH SINGLE FAMILY HOMES!!!

You manually increased the value of your 4 unit like this. You raised the rents $50 per month and you increased your ANNUAL GROSS INCOME by a lousy $2400 per year, but the amount your building appreciated in value is calculated like this:

INCREASED GROSS ANUAL INCOME X GROSS MULTIPLIES = $2400 X GROSSS MULTIPLIER 18 = $43,200.

That means if you paid $200,000 for the 4 units last month you can now easily put the property on the market for $243,200 this month because the value (sale price) for multi-units is base on the GROSS INCOME, CAP RATE, ROI and whatever math investors prefer and the price for multi-unit properties is no based on COMPS like a single family homes where two identical homes sell for the same price.

There can be two identical apartment buildings side by side, but is one of those properties has twice the Annual Gross Income and the profits are double then that building will sell for significantly more money.

YOU CANNOT DO THAT WITH SINGLE FAMILY HOMES

Look at the following two charts and if someone has $600,000 to invest I would love to argue with you in a boxing ring, and I am pretty good at boxing even if I am 71-years old. So be careful before you take me up on my offer.

Just imagine and dream about how much money you make every year after you review these charts.

Hello Cheryl S. Hold onto your Cash if you can and wait six months to see how the end of this Real Estate Cycle plays out. Did you know that just buying a house is not a way to make Money? "Your Home is not an Investment." Reading BP will make you think that you can buy a property and it will make you Money, just like buying a Stock and it won't. You have to know the numbers involved with running a Real Estate Business, even with just one Rental. The numbers have to work and you have to be willing and able to Manage your property. You could watch this youtube video from www.Reventureconsulting.com and he can explain how, "Buying a Home in 2021= Financial Ruin? Find out Why 

Lots of great information and analysis of different investments and locations. To keep things as simple as possible the question you need to answer is how much time and energy do you want to put into the investment? And what kind of financial return are you seeking, whether cash flow, appreciation, etc, and at what risk. The answer will help direct you to the type of asset or invesment you should begin researching.

Then focus on locations with economic growth and a growing population.  You will be well on your way to taking action and buying your first real estate invesment.