Where and how would you invest $350,000 to make $1,000,000?
I will be moving to an emerging market within a year with this amount of money. I am curious how others would choose to grow it to $1,000,000 in five years or less. Thank you for sharing your thoughts!
Hey Anna,
I think having a goal of $1M within 5 years may not be the best approach.
I don’t know if you’re looking in Seattle or elsewhere but it seems like a goal of tripling your money in 5 years may lead you to force something. Also, that kind of return will need to be made on appreciation.
If I were you, I’d set a goal based on cash flow. That’s something you can impact directly. Seattle is a really tough market right now as cap rates are 3-4. I’d recommend looking south of Seattle in Kent or Olympia or even down by Centralia for better rates.
In Seattle, anything purchased in the last couple of years has exploded in price. There’s no telling what will happen in the next couple of years.
If you can find good, cash flowing properties, you’ll be able to get a more consistent, albeit lower return. That stable investment may or may not appreciate, but at least you will have consistency. I always look at appreciation as icing on the cake. Don’t calculate it into your purchase decision. If it happens it happens. Going out there and trying to force 650k in appreciation in 5 years when the market is already at all time highs is a recipe for disaster.
Hope that helps.
Thanks, Frank. I will be moving to an emerging market, as I wrote. Seattle is not the place for this kind of work!
Then maybe invest in the emerging market you're moving to?
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I would consider doing HML. If your state allows great interest, and you can operate legally without a license I think you should consider HML. I started five years ago and my only regret is not having started sooner. The beautiful thing about HML is no toilets, no tenants, no evictions, etc.
Originally posted by @Frank Manning:
Hey Anna,
I think having a goal of $1M within 5 years may not be the best approach.
I don’t know if you’re looking in Seattle or elsewhere but it seems like a goal of tripling your money in 5 years may lead you to force something. Also, that kind of return will need to be made on appreciation.
If I were you, I’d set a goal based on cash flow. That’s something you can impact directly. Seattle is a really tough market right now as cap rates are 3-4. I’d recommend looking south of Seattle in Kent or Olympia or even down by Centralia for better rates.
In Seattle, anything purchased in the last couple of years has exploded in price. There’s no telling what will happen in the next couple of years.
If you can find good, cash flowing properties, you’ll be able to get a more consistent, albeit lower return. That stable investment may or may not appreciate, but at least you will have consistency. I always look at appreciation as icing on the cake. Don’t calculate it into your purchase decision. If it happens it happens. Going out there and trying to force 650k in appreciation in 5 years when the market is already at all time highs is a recipe for disaster.
Hope that helps.
100% agree with this and this is great advice. Make your goals realistic and right now is a good time to focus on cash flow with the way that the market is sitting. There are tons of markets in the USA where you can find good cash flow.
I think you could probably turn $350,000 into $1 million by doing 3-5 high-end flips in my market and others like it. Depends on what your emerging market is. And you have to know what you’re doing in that range, of course.
@Account Closed Great question. One of the best ways to have that type of return is to get involved in value add real estate. For example, you could buy large apartment complexes @ 60-70 cents on the dollar and raise rents and in a couple of years do a cashout refinance. At which point you could have a million in equity or cash potentially.
We are doing one now, and here are the numbers for it....
Size: 60 units
Acquisition price: $800,000
Rehab: $700,000
ARV: $2.6 million (After rehab and raising rents)
You are likely to find these type of deals in midwestern markets. You could also go into it with a partner for a larger deal.
Thanks Sarah, John and Vish. The three of your are thinking along the same lines as me.
@Account Closed How do you eat an elephant? One byte at a time. First of all, you don't make 1M. You get it from people that give it to you. And it is unlikely that it will be only one person, or one asset. Having said that, think how you can de-construct that into smaller manageable chunks. It could be 4 stores that have a revenue of 250K each as an example. 350K->1M is a 35% return. Divide that by 4, and you get 8.75%. Can you do 4 similar things that yield 8.75% return for let's say 5 years? well number 1) The SPX500 that is about to go downward, has an average return of 9%. So you just have one covered. See? Remember the elephant...
Good luck.
Definitely value add and MF is a good opportunity. You can learn and team w/experienced folks in a more active pursuit or if limited on knowledge, time and significant dollars you could diversify into several value add apartment syndications that are in markets you covet. Couple ideas to get you started (links below). A good value add MF syndication targets a 2x in 5 years so it may get you closer although the kind of returns you are looking for may require a more active approach or you'll have to take on more risk.
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Originally posted by @Vish Iyer:
@Account Closed Great question. One of the best ways to have that type of return is to get involved in value add real estate. For example, you could buy large apartment complexes @ 60-70 cents on the dollar and raise rents and in a couple of years do a cashout refinance. At which point you could have a million in equity or cash potentially.
We are doing one now, and here are the numbers for it....
Size: 60 units
Acquisition price: $800,000
Rehab: $700,000
ARV: $2.6 million (After rehab and raising rents)
You are likely to find these type of deals in midwestern markets. You could also go into it with a partner for a larger deal.
while I get the premise there is a reason this is selling this cheap someone tried to run it .. it failed and now its next to worthless.. I have had friends from Portland try this and they lost hundreds of thousands.. never could get them performing again and never got that pie in the sky valuation to pull the cash out.. that is extreme high risk scenario you laid out there..
I'm going to sell my 10 sfh turnkeys and go liquid and be patient for some good Mfh syndications. Or even some other non real estate private placements. It would be good to diversity out of real estate with farm investments and life settlements.
Thank you, everyone! I love hearing what your ideas and strategies are. It really helps me while I decide how to focus.
I love the value-add, and getting other people to pay for it. OPM, always! However, I am tempted to make cash flipping, and bring more cash to the VA MF deal. Perhaps 350K is enough to put in, then I can look at 1million and higher MF. So many ways to eat an elephant.
@Jay Hinrichs Thanks for the response sir. I am a bit confused here. Are you saying that we cant buy a distressed property, put rehab dollars into it, raise occupancy & rents and get a higher valuation based on new stabilized cash flow? Yes, pulling cash out or choosing not to pull equity out of the property is a personal choice.
The fact remains, the new appraisal will reflect the added value in rents and renovations. I have plenty of investor friends who do this and so do I, in many mid western markets. I am just talking from personal experience and see no problem with the strategy.
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@Vish Iyer great in theory.. generally speaking apartments at 8k a door are in the HOOD.. and you will run huge risk doing this.. can it be done yes can you lose your @ss absolutely... what do you think happened to the owner that is selling it for 8k a door... run the history on it why are you better at it ?
@Jay Hinrichs I think you are focused on a particular deal than the strategy. In this specific deal, we are buying it @ $13,500 a door not $8000.00. Yes I agree, buying in the hood could have serious issues and we never do.
I was talking about the strategy of buying MFH @ 60-70 cents on the dollar ARV in C areas and making improvements and cashing out. No matter how you look at it, it works.
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@Vish Iyer got it... I guess its just my 20 years of lending in the mid west and seeing apartment after apartment in a city like Memphis boarded up someone lost those.. choose wisely is the motto.
@Jay Hinrichs Absolutely sir, couldnt agree with you more.
Anna Bernstein I would first buy a sfh rental to just learn. Then depending how much money you are earning after you expenses I would recommend getting into syndications as a passive. That's what I did.