$400k to Invest. What would you do?
Las Vegas, NV · Member since 2016 · 7 posts · 3 votes
$400k to Invest. What would you do?
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Orlando, FL · Member since 2015 · 76 posts · 35 votes
10yIf I had $400,000 to invest in Real Estate I would use the money as a down payment to buy a run-down apartment complex and fix it up. More doors, more cashflow, and with a good property management team in place, less work for you. AND when you have a commercial property, appreciation is based on the value in the property, not the comps in the area, so you could create your own appreciation to pull out in 2-4 years should you so choose.
Like I said, that's what I would do. :-) Hope that helps, and have a great day!
31 Replies
- Orlando, FL · Member since 2015 · 76 posts · 35 votes10y
If I had $400,000 to invest in Real Estate I would use the money as a down payment to buy a run-down apartment complex and fix it up. More doors, more cashflow, and with a good property management team in place, less work for you. AND when you have a commercial property, appreciation is based on the value in the property, not the comps in the area, so you could create your own appreciation to pull out in 2-4 years should you so choose.
Like I said, that's what I would do. :-) Hope that helps, and have a great day!
- Vendor · Chicago, IL · Member since 2016 · 137 posts · 9 votes10y
Congrats !!!
It's all on you want your really want to do,I believe you should do a lot of research on BP about different ways to invest that money.Apartemnt building its a great idea as long as you know your numbers.Levrege is good also maybe a flip few rentals or on a syndication investment.
- Houston, TX · Member since 2016 · 147 posts · 26 votes10y
If I had $400k, I would buy as many owner financed properties I could get my hands on. If you'd like, I know a company that rehabs, places a tenant, property manages a property before selling it. They have nice properties under starting at $55k. There are so many different and creative ways that you can make your money work for you and you bit work for it! :)
Good luck! - Real Estate Investor · Aurora, CO · Member since 2016 · 13 posts · 4 votes10y
This is an interesting topic, I am a brand new investor so these ideas are just my opinion not something I have done.
I think they're so many options to think about here. Single family homes limit your income potential while raising your maintenance base. Idealy I would want to buy/leverage multi family homes. Banks will finance you on up to 4 plexes same as if you were buying a single family home. Also I read somewhere, I think here (biggerpockets) that the banks have raised the amount you can have leveraged at any give time to 8-10 or 6-8 whereas it was much lower in previous years, I could be wrong, may want to research this. So if you had 400k, you could put down the minimum down payments and buy as many properties as you can. If you read the books Brandon has he explains a lot of this much more detail better than I can, but if you pay cash you are not leveraged and your roi (return on investment or cash on cash) will be really low in the long run, but you get more cash flow rents on a single rental unit, and more risk of lawsuit etc (if you own outright someone will try and take it, if you don't own because the bank has first mortgage you are much more protected) and you will own less properties with less cash flow in the end. If you can get long term low interest annualized traditional loans, I would buy as much as I could of only multi family homes. You get the benefits of great financing, your cash flow will be per unit not per house, your maintenance cost will be limited to one building vs two or three homes with individual cost associated to them. If you have single family home, you have to pay property manager per house or do it yourself, you have to pay higher costs for doing maintenance as its not leveraged with wholesale pricing and if your tenant leaves you have no income on the whole property also this once postive cash flow is added to debt and not positive income. If you have multi unit homes you save on expenses per unit, one roof, one driveway to shovel and one property to manage etc. If one is vacant you still have 1, 2, or 3 more rents in that one purchase. Your rents are compounded with more renters so that is an instant increase in cash flow. You collect on up to 4 units per building, all of which are paying your mortgage, interest, taxes, maintenance, upkeep, property manager etc. Your roi will based on your down payment and may be the only money you have invested. You literally will get more bang for your buck. While completely leveraged your renters cover the cost of everything, while you take advantage of depreciation, many other tax benefits, passive income, debt paydown, rental increases annually, you can force appreciation and get higher rents. On top of all that after a few years when there is good equity in our real estate you can pull it all out tax free. You get to pull the increase value for appreciation (assuming it appreciates), the equity from the paydown, and tax free as you are getting a loan vs selling. Then your renters pay down your new loan for you and you invest all the money you just got into more properties or better ones and again increase your monthly passive income. You could do a 1031 exchange and upgrade all your properties after a bit and buy a apt complex. Again, one roof, more rents, one property manager etc. Massive cash flow then. Keep in mind you have to buy right and do your homework. Just like Monopoly, trade in your green houses for the big red hotels.
Maybe you just want the passive income and not all the work studying and learning how to do all of this? With that kind of money and the fact you don't need money right now, you could be a lender. By law regular people can't just lend large amounts of money and for good reason. With the money you have I do believe you make more than you need to be an accredited investor. Meaning you can loan your money out at higher interest rates higher than that of a bank say up to 12-20% depending on what you are loaning on, plus you can get points (more money and insurance) all backed by real estate, if the borrower defaults, you keep payments made (if any depending on the set up), points and the property itself and all the work done on it. It's a safer an very easy way to make money just like the banks do. In reality the borrower is not going to borrow 100%; more like 70-80% of total as-is value so they have lots of skin in the game which decreases your risk on the investment as that is instant equity in the property. Usually they get the property under contract with 30% or more in equity built in before they come to you to borrow and the arv (after repair value) is based on the the neighboring real estate values. ARV values can dramatically increase the value of the property if your borrow buys distressed homes or just in the right area.
You could borrow more money for your investments from the bank at a low interest rate, then lend at a much higher interest rate, now you are really leveraging as your borrowed money is free, you make a constant income on both borrowed and lended money, and you have created through more investments more passive income that you never really paid for and is yours to keep.
After all of that maybe you can't borrow any more the traditional way because of the imposed limits. So with lots of cash I would, if you can I have never heard of what I am about to say, I just thought it up, you buy with cash your properties, then you sell owner finance at a little higher interest rate than that of good credit borrowers bank will lend to people that can't get a loan the old fashion way but can afford to buy a home. You are providing them with a service they can own and not waste money in renting, you still get the monthly cash flow per property and if they are buying under contract you may be somewhat protected from lawsuits as it's harder to take something you don't own all on your own. They would have to take from you and the other owner which is harder to do.
Now you have all this cash that needs to be invested because if its not working for you, you are actually losing money through depreciation of the value of the dollar. The value of money has gone down so much it's basically worthless. Leverage as much as you can now and pay back with other people's money/renters with cheaper future dollars, you have a fixed loan so payments stay the same as the value of the dollar goes down; you make more money. Rents still increase, property value still goes up, equity still increases. When you buy now and the value of money keeps going down you create more wealth, in the future it will take a lot more cash to do what you can right now, but everything you buy now is locked into today's pricing, thus increasing you return on investment. Your investments should always keep up with current inflation and pump out all the cash you need regardless of what the economy is doing.
I really just wanted to throw out a few ideas but went on a bit of a tangent. These are things that I am learning and practicing now for my future. Education is key to wealth building and success. I truly hope someone gets some value out of this post... I work 13 hours ***** overnights, so I am a bit tired and heading to bed, sorry for all typos, redundancies, and anything else caused from my tiredness. LOL
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
If you don't want to be a hands on investor for a while consider doing HML. Returns can be excellent with very little work. If you choose that route, you will have to read your state statutes and make sure you stay legal not only with those but Dodd-Frank.
- Investor · Mason City, IA · Member since 2015 · 32 posts · 17 votes10yIf it were me I would probably keep $100-150k in liquidity and use the rest as a down payment on a $750k apartment building.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
I want to expand a little on HML if that is an interest. Almost all my private loans have paid off in less than a year. Most of my borrowers are flippers and 3-6 months time frame is pretty common. So, generally now worries about having capitol tied up for lengthy times.
- Investor · Alabaster, AL · Member since 2016 · 280 posts · 88 votes10y
I'd like to get more info Serena.
- IA · Member since 2015 · 304 posts · 152 votes10y
I would do exactly as your first impulse suggested, 50% down on a few good B+ homes. If you decide later that you want to borrow more, you can always pull that equity back out with a refinance.
BUT, before doing anything at all, I would park that money in a savings account dedicate a few months to educating yourself on buy and hold real estate investing (if you haven't already). A pile of cash can be a dangerous thing if you don't know what you're doing.
Good luck!
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Carlos first off congrats on a nice wind fall pay day !!!
BP is generally a buy and hold group of folks however there are many other avenues in real estate.
I can list a few for you to consider. here are 10
1. the tried and true rental properties in any configuration your comfortable with
2. mobile home park ( I have owned a few of these and the right ones are quite nice)
3. Self storage this is a niche but can be pretty nice in the right location buy one large enough to have on site management though.
4. private lending were its legal.. in Nevada you would need a license just FYI.
5. if you don't need cash flow for many years and want huge up side and NO real work.. then you may want to buy a Ranch in the northwest that has significant 35 to 40 year old Doug fir with a mix of cedar. these will return 12 to 20% annually... One of my all time favorites .. and the reason John Hancock and the Harvard endowment are the largest funders and owners of timber land in the US.
6. There are some really GREAT syndicators out there but choose wisely its all about the sponsors ( there are a few great one's on BP) but also many beginners on BP so cautious there.
7. NNN lease with national tenants..
8. existing PERFORMING NOTES... ( I personally am not a fan of NPN thats a job and a tough one)
9. Strips centers in solid suburbs .
10. partner with really quality fix and flipper there in Vegas... ( again choose wisely there are some real bad actors that troll BP and work in Vegas)
there you go some alternatives to think about other than HEY go buy an apartment LOL
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
Great response with alternative ideas. One size does not fit all.
- Las Vegas, NV · Member since 2016 · 7 posts · 3 votes10y
Well, there’s certainly a lot to consider here.
I guess I’m a newbie to RE investing but it’s something I’ve thought about quite a bit and have read some of the BP books. I’ve just never taken it to the application stage and gone after it.
Of all of the great ideas people have mentioned, here’s the ones I tend to like most:
Buying an apartment building - I was thinking multiple SFRs would give me better diversification but I think some good arguments were made for consolidating costs and liabilities.
Self Storage - To be honest, I don’t know a whole lot about this niche but I’ve heard that people have made some decent returns here. Something I’ll have to dig a little deeper into.
HML - I guess I would have to investigate the laws for Nevada on that and get a license. The only thing that makes me hesitant is that I would still need to seek deal flow. I wouldn't necessarily want to have to keep turning the money over again and again, reviewing deals, etc.
When I decide to give up my day job, there's a good chance I won't stay in Nevada and just as good a chance I may not even stay in the US. HML might be too much like running a business which would restrict me geographically.
I guess I'll have to talk with a few folks and see what real returns are possible. I also recognize that being in a role like a HML might also create new opportunities seeing deals few others are privy to leading to more potential so I'll have to give this one a bit more thought.
Performing Notes - Another area where I’ve had an interest. Just much more difficult to find good quality information and deals.
- Las Vegas, NV · Member since 2014 · 732 posts · 137 votes10y
Welcome here to B/P. Great place to network her I have made some great connections and keep up with what is going on in the market. I started in real estate in 1984 and found a mentor that taught me the land game so I go spoiled no tenants or leaky toilets. I broke into the business in Sandy Valley of all places. I do know of some wholesale connections in the Midwest that are getting above average returns, if you have not found that here on B/P let me know and I will connect you.
- Las Vegas, NV · Member since 2014 · 732 posts · 137 votes10y
Watch what you say about the Vegas reputation lol. Guess it has its black eye and has always been a boiler room, telemarketing hub for years. There still are a few of us doing the right thing there. For all its worth and a plug here for Vegas as the real estate market is back and is as hot again as the desert sands.
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes10y
I'm partial to apartment syndications. Most folks go into real estate to learn and grow. If you get an instant nest egg, I advise putting some of your money in large apartments where you can get forced appreciation and scale. To do that wisely, the best strategy is to find an experienced value add sponsor and go passive. You can still learn a ton by being in these deals if you like, but you don't have to, just sit back and collect a quarterly check then a nice profit on sale in 3-5 years, repeat. I'm more than happy to recommend a few including our deals that you can take a look at once we have determined suitability via understanding your goals and achieving accredited investor status.
- Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes10y
Hi @Carlos Simmons, if you are an accredited investor, you can buy into institutional grade $50-125M projects with as little as $100,000 and diversify. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. This is the world of Delaware Statutory Trusts. Feel free to connect with me here on BP let me know if I can help. Leslie
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes10y
The chum is in the water ... just a matter of time before the sharks show up to feast ...
It's not a good idea to publicly post on the internet that you have a substantial sum of money available - that sort of thing tends to attract all sorts of (possibly questionable) characters.
- 10yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
400K cash,
Well i would buy a seaworthy $20K sailboat. Then I would be anchored off a tropical island for the next 20 years eating fish and drinking rum....
Just kidding I think you have some good advice going here.
- 10yGordon CuffePro MemberInvestor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
@Carlos SimmonsYou can buy houses for cash at a price of 65k that need 35k in work and that have a after repair value of 135k to 145k or more in the Kansas City market. You can do that in a few midwest cities also. You will then have equity and cash flow then were that gets boring and you are looking for larger investments, you can sell one at a time or all 4 at once to buy an apartment building. I like the note idea also. easy and hands off.
- Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes10y
2nd @Natalia Collini I'd leverage on a fixer-upper apartment complex, rehab, get it filled, refi, pull all the cash out that you can, get a solid PM company to run it, and relax.
- Realtor · Los Angeles, CA · Member since 2016 · 73 posts · 39 votes10y
It all depends on your freedom number. How much monthly cash flow do you need to live off of? (Housing, car notes, travel, etc.)
I would be more concerned with the 2106 taxes. You could have more than $400K to play with. Can you split the buyout with $200K in 2016 and $200K in 2017? If not, you should try and close on as many apartment buildings in 2016 as you can to write off the closing expenses. Or try to have the buyout delayed until Jan 1st, 2017 and then buy your properties. You'll have the maximum tax writes offs with deprecation, mortgage interest, closing cost, and other related expenses.
- Real Estate Broker · Kansas City, MO · Member since 2014 · 7 posts · 1 vote10yWith the 400k Kansas city would be a great market to launch into I would use 100k to purchase rentals and flip a higher end home with the remaining amount that is a good way to max you money and still have a cash flow setup
- Rental Property Investor · Hong Kong, Hong Kong Island · Member since 2014 · 188 posts · 114 votes10y
It depends on the investor involvement, background, etc.
SFH market is very simple, people have a good idea of the kind of yield to expect, liquidity is deep. You can try a flip and improve your procedures on the next flip. You have enough funds do do many smaller deals even if the smaller ones are not perfect. So you have a margin of safety to learn.
For a fixer-upper apartment complex, you need a team that is battle tested. You don't want to be the novice buying something he does not know about, with a team he never worked with, and hoping for profit. It is about building the right contacts with contractors, knowing what a given apartment building potential is, and who is selling.
The latter style is more traditional, you have to leverage local knowledge. Now, if you live in San Francisco, it is going to be harder to end up with a better yield than with SFH in Kansas City, so you also need to be in the right place.
With more units, you may get higher gross yield, but possibly lower rent per unit. Each unit still needs a kitchen, bathroom with all the maintenance that it entails. Remember you need the rent to be high enough to make the maintenance cost comparatively low.
- Real Estate Investor · Las Vegas, NV · Member since 2016 · 399 posts · 260 votes10y
Hi Carlos. Congratulations. Just thinking out loud here but instead of asking the internet what would you do, why don't seek a couple of good real people and ask what have you done with $400k. And what return have you realized? There are a lot of theories and a million different opinion but the proof is in the actual returns. I flip houses to buy apartments. Having managed large apartment communities I understand how this vehicle work and am very comfortable with it. There are very good alternatives, but I am not familiar with them. It does not mean they don't work it just means I haven't made the decision to focus in that area. A confused mind says no. Find your niche and go with it until you decide to expand. Like I said just thinking out loud. Let's grab a coffee sometime. Take care and good luck!
- Investor · Buffalo, NY · Member since 2009 · 18 posts · 5 votes10y1. Pay down high interest debt or any past due bills. 2. Invest most in B-C multi family homes near blue collar college town near you (or apt bldg) to generate 12-15%+ cap rates for cash flow. Fix up as needed to max your cap. 3. Flip a small SF home or condo to get experience in development and valuation.
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