How to Invest $600,000

28 Replies

Hi guys,

I’m pretty new to the community and I am so glad to have found this place for suggestions and feedback.

Here is our situation:

  • $600,000 cash on hand from inheritance
  • Desired return of 8-10%
  • Live in Greater Boston Area
  • 100% equity on home
  • Working full-time in public accounting and making roughly $50,000/year

I talked to some financial advisers and none of them suggested the real estate route. I was told that it was too risky and that I would be putting all my “eggs in one basket.” They said that if we invested in securities, I can expect 3-4% returns while being charged fees about 1.5% on total assets. So a return of 1.5-2.5% sounds really bad to me, which brings me to my question: What else can we do with this money? I should mention that it might be difficult to obtain financing. My credit score is 640ish on Experian but higher on the other two with a score of 700+. My age is 28 and the only income we have is my salary. We’re looking at properties in MA. We have no experience in running a business/being landlord. Also, we are very nonconfrontational and “soft” people. So I believe we will be using a management company. I read about partnerships that invest in RE but I’m not sure how to find them. I would appreciate if I can get ideas that would put us towards the right direction. Thank you!

-M

Hi Jack,

Welcome to BP. You´re going to get some people coming in and telling you how you shouldn´t be advertising your investable assets like that (and I agree with that), because you´re going to find people reaching out in a hurry to take advantage of you. Unless you really want to get involved with the active management of those investable assets, I´d encourage you to interview a few financial managers (not advisors, actual managers) and see what they can offer you. If you´d rather stick with real estate, there are turnkey companies that offer developed and rented properties for cash flow. These services vary and will absolutely require due diligence, but that may be a viable option for you.

@Jack Oregon

My advice start out like you have only a fraction of that and see how it goes. Put maybe some smaller amount to work into something that meets your goals and that interests you enough to learn about it. Maybe that is landlording and maybe its investing at a distance or maybe you find you like equities better which is fine. By limiting it to a much smaller or some other number it will mean you are forced to think about things differently, you won't make the mistakes with all the money at once and if you are getting loans you will have to meet certain criteria like having the property actually appraise for close to your purchase price.  Many times lenders will also tell you things you may not have known. 

@Jack Oregon the financial advisor is so wrong! You can easily achieve 8-10% on your money. I have some great contacts in the Boston are and would love to chat about a plan if you are interested. You have a great foundation and if you have any question please let me know, but I know whats it's like starting out at 28.

Originally posted by @Jack Oregon :

Hi guys,

I’m pretty new to the community and I am so glad to have found this place for suggestions and feedback.

Here is our situation:

  • $600,000 cash on hand from inheritance
  • Desired return of 8-10%
  • Live in Greater Boston Area
  • 100% equity on home
  • Working full-time in public accounting and making roughly $50,000/year

I talked to some financial advisers and none of them suggested the real estate route. I was told that it was too risky and that I would be putting all my “eggs in one basket.” They said that if we invested in securities, I can expect 3-4% returns while being charged fees about 1.5% on total assets. So a return of 1.5-2.5% sounds really bad to me, which brings me to my question: What else can we do with this money? I should mention that it might be difficult to obtain financing. My credit score is 640ish on Experian but higher on the other two with a score of 700+. My age is 28 and the only income we have is my salary. We’re looking at properties in MA. We have no experience in running a business/being landlord. Also, we are very nonconfrontational and “soft” people. So I believe we will be using a management company. I read about partnerships that invest in RE but I’m not sure how to find them. I would appreciate if I can get ideas that would put us towards the right direction. Thank you!

-M

 Welcome to Biggerpockets.com Jack!  It is a great place - especially for new investors - to get information, direction and possibly even mentorship.  Whatever you decide to do, please be patient.  You do not have to be in a hurry.  That is a surefire way to lose money.  You have an incredible opportunity so be careful, be patient and take some time to get advice from multiple different people.  The Boston area has several real estate investment groups that you could start to become familiar with.  There are a lot of resources you can turn to and many you will find right here on BP.

My advice is to just please go slow.  Ask lots of questions and connect with others here on BP.  You will begin to learn and find out that you do not know what you do not know....that in itself may possibly help you to preserve your capital first and foremost and then develop a good plan to build on that capital.

Best of luck to you as you get started.

Not sure what prices are like but if you learn how to analyze deals with their the BP rental calculator, or by plugging in your own numbers, know what the market rents are, you could do a lot with that money. You can buy a house for $100k in cash, and rent it out for $1,200 a month, and probably $800 of that, every month will be straight up profit, untaxable, and you'll get appreciation. Start small and then you can move onto duplexes, triplexes, and even apartments down the road. You can become a multi millionaire and be retired in 5-6 years if you learn enough about real estate from BP and use that money to buy quality rentals.

@Jack Oregon

You could Loan it to me. I'll pay you $4000.00 monthly interest payments(8%). Balloon in 36-60 months. 1st mortgage in SFR rentals as collateral for you.

I would buy SF homes at around $100k with 20% down that cashflow around $200 a door.

20 Homes x $30K each ($20k down + $10k reserve) = $600,000.

Cashflow: $200 x 20 = $4,000 /month or $48K /year

That is almost your current salary.  You could quit your job or keep working to payoff the mortgages faster.


I talked to some financial advisers and none of them suggested the real estate route. I was told that it was too risky and that I would be putting all my “eggs in one basket.” They said that if we invested in securities, I can expect 3-4% returns while being charged fees about 1.5% on total assets. So a return of 1.5-2.5% sounds really bad to me,

 Open an account with Vanguard. Put it in S&P 500 index fund. Over the long haul should produce returns of 8-10%, with a fee of 0.05%. This route also is 100% passive income. Landlording has much more headaches, comparably speaking. Putting your money into the stock market I'd advise to never check the balance till retirement, you may be likely to freak out and sell low. It is best to just let it ride, even when 2008/9 happens again in the future. The dividends should automatically reinvest. 

At 8% per year your $600,000 should be roughly $10,000,000 by age 65...with literally no work and no additional money put into the account.

Jack Oregon I cannot stress enough what others have already said. Be patient! Now that you've advertised how much money you have people will come out of the woodwork to ahem "help you", it would be better to be tight lipped on the amount of capital you have to invest. My first "deal" I almost got taken for 350k. The guy is in prison now. I would first define your goals and work backwards. Do you want to stop working and eventually live off the income the 600k throws off? Do you want to continue to work and have the 600k supplement your current lifestyle? That will determine your strategy. I live in a high cost city so I private money lend in Southern California and other than the first deal it's gone well. However I can't tell you the number of people that have reached out to me from bp to "fund thier projects that are guaranteed to make money". Whatever you do make sure you have a real estate attorney you trust look over the deal. Even if you spend 10k it will be money well spent! Good luck

Stick it in the bank. Spend the next 6+ months networking and educating yourself. 8% is out there, the risk is too. Be extra careful as some might not have your best interest and would gladly take your money to make a buck. You fit that profile now, with 6 months of networking and learning, not so much. You will have many well thought out REI options instead. Good luck!

That is a nice nest egg to start off with.  I would have to agree to take your time and get smart before you do anything with it.  The temptation would be to do something now.  I would read (Real estate and business books), listen to the BP podcast and the AskBP podcasts all the way through and get engaged on BP to figure out your strategy.  Take a 30,000 foot view of the general direction (real estate) and start to whittle it down to 20,000 and 10,000 foot until you finally get to a laser focused niche view of how you want to proceed.  I would probably figure out the best tax advantages.  Maybe look around to find a CPA (one smart with tax and real estate investment) and an attorney (Tax and real estate) in order to start building that relationship.  Do the leg work and figure out the numbers and how to find a good deal.  You could probably for the moment dump the money into a couple Money Market accounts so that it is still liquid but also earning a little interest (more than savings account).  Figure out goals and figure out very next actionable steps to get there.  Dream big!

@Jack Oregon

Dont forget : CASH is also a position. A rather good one in current deflationary (or atleast non-inflationary) times. 

I also recommend the book 'Richest Man in Babylon'. Your post reminded me of one of the stories in there.  

@Tom Smith

My plan sounds similar to yours. The only problem is where do you find those deals in current markets. :) Feel free to post an example deal if you like. 

Have you spoke to any fee based financial advisors? Hopefully I got the term right. You pay them a fixed fee for a consultation. This way you are not putting any assets under anyone but you still get a fair financial assessment / advise. Look around your area and ask around for referral. I feel that most financial planners will lead you to the stock market and related. They might allocate % into REIT funds to diversify. Like many before me posted, take your time to figure it out. Good luck!

Hi @Jack Oregon ,

You got some great advice from everyone here.

I would recommend you read a book i just finished recently: 

Tony Robbins - Money, Master the game

I believe the book will help you tremendously with the amount of money you have to invest.

I agree that maybe you shoudln't invest it all in real estate but if you do, the buy (3+ units) and hold strategy would probably be best.

Good luck

Jack - there are a few of reasons advisers don't recommend RE:

1. Most don't know it

2. There is no way for them to make money on you

3. They have seen people get burned very badly in RE, and they understand that only those with a lot of knowledge make it.

#3 is the key for you. Why - cause they are right! 

Now - some will tell you that you can just put the money into someone else's deals one way or the other; the implication being that you yourself don't really need to know that much. What do you think about that?

Keep your money for now. Study :)

If you're trying to get 8-10% on your money, good luck without much risk. If I were in that same position, I would do what Warren Buffett told Lebron James to do with his money: http://www.cnbc.com/2015/03/02/warren-buffetts-adv...

Low-cost index fund like the Vanguard 500 Index Fund (VFINX)... I would also give some to charity, but that's just me.

The typical cap rate in Boston is around 4.5% right now, so making 8-10% in this market is tough unless you partner with somebody who absolutely knows what they are doing. 

Best of luck with the inheritance and let me know if I can be helpful!

- Josh

@Jack Oregon

You may be able to qualify, especially given all of your assets. Boston is a great location and you having a mortgage history already, you can have 75% of the rental income considered. Here is some more information that you may find beneficial,

You can borrow for up to 10 conventional mortgages. You have the option of a 15, 20 or 30 year term.

For A Fixed Rate Purchase, Investment properties, Mortgages 1-4;

  • A SFR requires a LTV of 85%
  • A MFR requires a LTV of 75%
  • A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 5-10;

  • A SFR requires a LTV of 75%
  • A MFR requires a LTV of 70%
  • Minimum credit score of 720

Here are some answers to FAQ as well;

1. For all 1- to 4-unit investment property transactions, cash reserves equal to six (6) months PITI for the subject property are required.

Cash Reserves Required For Other Properties Owned by Investor;

  • If the borrower has 1-4 mortgages, an additional two (2) months for every other SFR investment property and second home is required and additional six (6) months for every other 2-4 unit investment property and second home
  • If the borrower has 5-10 mortgages, An additional six (6) months for every other investment property and second home.

2. Gift funds are not allowed on Investment property transactions.

3. Escrows for taxes and insurance are required unless otherwise approved by the underwriter.

4. Loans for investment properties are not eligible if the transaction includes non-arm’s length and/or at-interest characteristics

5. Investment property transactions cannot close in trust.

6. Maximum 2% sellers concessions is allowed!!

http://www.biggerpockets.com/blogs/5110/blog_posts...

I will second @Kurt K advice.  A nonconfrontational person will get eaten alive in real estate.  What good is having a manager that you can't/won't control?  

Originally posted by @Jack Oregon :

 I was told that it was too risky and that I would be putting all my “eggs in one basket.” They said that if we invested in securities, I can expect 3-4% returns while being charged fees about 1.5% on total assets

Did you tell them that you're extremely risk adverse or something?  Those numbers don't make any sense.  Any Joe can go open up an account with Vanguard and throw money into an index fund (VTSMX comes to mind) and easily expect to make 7% or more in the long term.  

Not to mention over $800 in dividends a month, at the current stock price.

Oh, and plus a 0.5% expense ratio.

The only way 3-4% returns make sense is if you told the advisors that you're very afraid of risk and they suggested something that's heavily in bonds or money market or something similar.

@Jack Oregon , first don't advertise how much you have.  You will get a lot of offers of "lend to me, I will pay you X, you will be secured by real estate"

Don't do it, you need to be very real estate savvy, (and scammer savvy) to evaluate these opportunities, and you are not.  Can you make 8-10% returns in real estate?  Yes, and then some.  Can you do it without knowing what you are doing?  Highly unlikely.  Much more likely that you will lose your $600K and have lots of stress while doing it.  

I like these suggestions:

  • Start with a small part of it while you educate yourself.  You can find lots of real estate investors who will want to borrow your money, or have you "invest" in their projects.  But do you know the difference between providing unsecured downpayment money, or second position, or first position acquisition funds, or working capital, or...on and on?  Not to mention the relative risk of each.
  • Network with people and get lots of references before placing your money with any one house flipper or lender, and even then, do a small deal to start.  You need to find someone who you trust, by finding someone who others trust.  
  • Leave most of it in cash while you learn, since there is not much inflation, you are not losing much while you learn, but you can lose a lot if you don't know the difference.
  • If you are looking for a financial planner, find one that is fee only, not fee based.  And preferably one who is also a real estate investor, so he understands what you want to do.   Fee only planners will consult for a fee, and charge a percentage of your portfolio rather than commission on a purchase.  Fee based planners do both. 
  • Park a chunk in Vanguard 500 Index fund and leave it alone.  But not all of it.  
My plan sounds similar to yours. The only problem is where do you find those deals in current markets. :) Feel free to post an example deal if you like.

@Hersh M.  

I am currently doing market research myself right now.  So far I have been looking into TX, TN, MO, and AL. 

Jack Oregon I would highly recommend you first look at passive real estate investments - see PatchOfLand.com or RealtyShares.com (there are many others if you search for crowd funding real estate). Park the real estate portion of your capital there and let them deal with the diligence and paperwork details. You'll earn around 10% while you observe and learn and decide if active real estate investing is right for you. There are a lot of benefits to letting your capital work and letting others deal with the riskiest part of real estate.
Originally posted by @Justin R. :
Jack Oregon I would highly recommend you first look at passive real estate investments - see PatchOfLand.com or RealtyShares.com (there are many others if you search for crowd funding real estate).

Park the real estate portion of your capital there and let them deal with the diligence and paperwork details. You'll earn around 10% while you observe and learn and decide if active real estate investing is right for you.

There are a lot of benefits to letting your capital work and letting others deal with the riskiest part of real estate.

hi Justin, Never heard of those sites before. Have you used them? What are the pros/cons? Thanks. 

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