if You Had $1 Million to Invest Today
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I often wonder when people say "I'm going to make a million dollars in RE and retire". Do they plan to work their properties themselves (that's not retired) or pay someone to manage them? There are few people I trust to oversee my finances (rentals, stocks or investments) and who would put my interests above theirs.
Well, I retired last summer and turned 57 last week. I have a decent pension coming in each month and a handful of debt-free SFRs and some first position notes. This allows me time to manage my properties and to pursue other interests and take a few trips each year.
If I had a million dollars, I would move it into notes, tax liens and other lending vehicles. At 9-12 percent interest, that would gross about 100K a year. I would sell my properties (buy more notes and with the pension clear around 10K a month and never touch the principal.
Would also consider moving to a warmer climate where the US dollar has more buying power. I would not buy a new truck, boat or motorhome. I would enjoy life, play with the grandkids and try to be a blessing to others.
For me, financial freedom is the means, not the ends of a life worth living.
28 Replies
I love this question, because I run through this kind of scenario in my mind to prepare myself for when I do have a million bucks, I know what to do with it.
In my situation, I focus on buy and holds. I have a great job that I intend on continuing, and I'm using REI as a vehicle for passive income.
I would buy multiple SFH or a few small multi-families (2-4 units) with cash for the time being.
I currently have 2 properties, and I want to take advantage of filling up 8 more properties that would qualify for traditional refinancing, in case I wanted to leverage it down the road.
IF I have exhausted my 10 cap on traditional financing, and if I had some money left, I would put a down payment on a large multi-family and use the money flow from the smaller units to pay off the large multi-family faster.
This is pretty much my 10-15 year plan, just expiated.
Just as a disclaimer, I am NOT a financial advisor, nor am I strategist in building a real estate empire. This is only my personal opinion of what I would do if I had 1 mil to spend.
What would you do?
What happens if the SFHs don't rent and lose value?
I ask this because I like poking holes in things.
I'm seeing a lot of over exuberance on maxing out leverage on rental portfolios, but not much consideration on what happens on the flip side when the market turns.
Consider this - your rental units are not the only rentals likely in your area. In fact, it's very likely that you are one of many rentals in your area. When the market turns, all of that plentiful rental demand may dry up. Then it becomes a game of supply, not demand.
The one trend I'm seeing a lot of likely is the desire to buy, rehab and airbnb. There are soooo many airbnbs. In economic downturns, travel slows considerably.
I can certainly see how multi unit complexes are a safer long term purchase, but SFHs seem like s terrible risk reward endeavor.My strategy is still evolving, everyday I tweak my investment thesis.
I've been looking very closely at markets that have seen steadier, less boom and bust cycles. I'm looking for more unique locations, builds and hoods with a more balanced rents to own %, if not more own.
These hoods tend to keep their value over the long term ups and downs, as foreclosures can be less frequent and community more responsive to wear and tear on infrastructure. They also tend to be more rich in culture, demanding more loyalty.
I'm continually weighing financing options as well. For now, I still think a fixed long term loan is the way to go. Sure you could save some money short term by taking an ARM, but the future is a fickle beast.
I'll update my progress as I continue my journey, although I'll likely start a different thread.
Guess people aren't interested in how to reinvest $1M in the real estate market...oddly enough.Let me know how you're doing as well. Always helpful to get additional perspectives.
- What if the stock market takes a dive? What if your cash in the bank is devalued by inflation? What if the Hamburgalar comes in and steals all your hamburgers? Investments come with risk. Real estate is no different. I鈥檇 buy small multi-families and solid single families in beautiful Indianapolis and have them managed by the best property manager. Me! Jokes aside, buying good rentals is just as good of hedge as anything else in my opinion. Don鈥檛 stop buying and have cash reserves to ride out the storms and at the end you鈥檒l have lots of paid off real estate worth something and throwing off cash each month.
With a million dollars I would not commit it to real estate. I would choose a passive investment.
Not because I do not appreciate the value of real estate but because 1M can generate enough return without the "work" involved in real estate.
@josh c. Great you used the stock market example. The only difference is you can ride things out with the market long term without flinching. a major industry leaves, natural disaster hits, leverage too high and you become that meat in the hamburger.
Don't get me wrong, real estate is a great investment, all I'm saying is that strategy and risk are key depending on the market environment.
This isn't 2009 anymore
- Investor 路 Easton, PA 路 Member since 2017 路 131 posts 路 102 votes8y
Originally posted by @David P.:
What happens if the SFHs don't rent and lose value?
I ask this because I like poking holes in things.
I'm seeing a lot of over exuberance on maxing out leverage on rental portfolios, but not much consideration on what happens on the flip side when the market turns.
Consider this - your rental units are not the only rentals likely in your area. In fact, it's very likely that you are one of many rentals in your area. When the market turns, all of that plentiful rental demand may dry up. Then it becomes a game of supply, not demand.
The one trend I'm seeing a lot of likely is the desire to buy, rehab and airbnb. There are soooo many airbnbs. In economic downturns, travel slows considerably.
I can certainly see how multi unit complexes are a safer long term purchase, but SFHs seem like s terrible risk reward endeavor.My strategy is still evolving, everyday I tweak my investment thesis.
I've been looking very closely at markets that have seen steadier, less boom and bust cycles. I'm looking for more unique locations, builds and hoods with a more balanced rents to own %, if not more own.
These hoods tend to keep their value over the long term ups and downs, as foreclosures can be less frequent and community more responsive to wear and tear on infrastructure. They also tend to be more rich in culture, demanding more loyalty.
I'm continually weighing financing options as well. For now, I still think a fixed long term loan is the way to go. Sure you could save some money short term by taking an ARM, but the future is a fickle beast.
I'll update my progress as I continue my journey, although I'll likely start a different thread.
Guess people aren't interested in how to reinvest $1M in the real estate market...oddly enough.Let me know how you're doing as well. Always helpful to get additional perspectives.
I think you need to be objective in your investments to handle downturns.
With regards to SFHs:
For cash flow:
If you buy a SFH with a large margin of error and if it is conservatively financed you should be able to reduce rents and still make a profit in downturns. Just like any business, if you're inundated with debt, the downturn will end you.
For appreciation/market value of the home:
You only realize the loss if you sell the home. Ride out the wave.
The great Li Ka-Shing stated (not verbatim): "... when people are thinking of rapid expansion, you should be thinking of stability. when people are thinking of stability, you should be thinking of rapid expansion"
In any business, always, always, always, always manage your cash flow and you will survive :)
Separately, with regards to all of your questions, you need to harness your own niche and capitalize on it. This is how you succeed in any downturn and "pad" yourself for all conditions.
@Samir - you're right you want to buy with a large margin of error. That still needs to factor in neighborhood dynamics and macro ones.
Afterall, you could by with a large margin of error, just to get sucked in to a black hole of 2 miles of investment property around you, where there aren't many differences between your house and you're next door neighbors.
It's just gotten much more difficult to buy with that margin of error these days.
- Rental Property Investor 路 Honolulu, HAWAII (HI) 路 Member since 2011 路 4k+ posts 路 2k+ votes8yKuang H. Austin Davis Split up in 50k increments in private placements 500k in mfh class b and c apartments 200k in self storage/mobile home park 100k in assisted living 100k in life settlements 100k in hotel or high speculative developments
- Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes8yProbably invest it in bonds and the stock market with maybe one or two commercial properties.
Originally posted by @Lane Kawaoka:
Kuang H. Austin Davis
Split up in 50k increments in private placements
500k in mfh class b and c apartments
200k in self storage/mobile home park
100k in assisted living
100k in life settlements
100k in hotel or high speculative developmentsmy answer is similar to lane's
ladder into syndications across multiple locations, GP groups, and asset classes
spread your investments over time and distance and asset class so you are not overexposed to risk
I am currently doing this with my SD-IRA, using my rental income and contributions to buy into a syndication every year or so
I have an office park, a multifam, raw land, and self-storage, all 4 of them have separate GP groups (although the equity people are the same in the first 3)
- 8yJay HinrichsBusiness MemberReal Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
for me personally I would just put it in my business..
new builds in hot markets while it lasts
short term deals while flipping is still going and this insane appetite for rentals keeps going.
Pretty much exactly what Bruce Norris is doing !!!
I like the idea of syndication although being out of control for someone like myself who is used to running the company I find that a little too passive.. I have to in my IRA .
so I guess it depends on if you want to work or just sit back and clip coupons.
@Max T. I have no clue how as you age one can live on 5k a month .. I mean my health insurance for my wife and I alone is 1600 a month.. thank you Obama care..
and I don't buy gas anymore so that saves 400 to 500 a month but I guess if your retired and never do anything you can cut that down.. Just curious though how others as they age like my wife and are going to do it or are doing it.
- Investor 路 Singapore 路 Member since 2013 路 1k+ posts 路 3k+ votes8y
Originally posted by @Jay Hinrichs:
@Max T. I have no clue how as you age one can live on 5k a month .. I mean my health insurance for my wife and I alone is 1600 a month.. thank you Obama care..
I think your health insurance costs are a result of a corrupt system that is bought by corporations from hospitals to insurance companies to pharma companies. Obamacare was a well intentioned effort to provide basic care to people like other civilized countries do but was corrupted and hampered by the same special interests. To blame it for your health care costs is like blaming the fireman who comes to save you and falls short because he doesnt have a ladder or a hose for the fire itself.
- 8yJay HinrichsBusiness MemberReal Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
Originally posted by @Account Closed:
Originally posted by @Jay Hinrichs:
@Max T. I have no clue how as you age one can live on 5k a month .. I mean my health insurance for my wife and I alone is 1600 a month.. thank you Obama care..
I think your health insurance costs are a result of a corrupt system that is bought by corporations from hospitals to insurance companies to pharma companies. Obamacare was a well intentioned effort to provide basic care to people like other civilized countries do but was corrupted and hampered by the same special interests. To blame it for your health care costs is like blaming the fireman who comes to save you and falls short because he doesnt have a ladder or a hose for the fire itself.
OK I retract the Obama care comment I usually do not post anything political my bad :) but I still don't know how one can live on 5k a month .. unless of course NO debt and no travel and stuff that we all WANT to do in retirement or I think we all want to... but don't want to get off track on the thread.. I love these what would you do if you had 1 million threads when they are asked on a real estate based forum website.. its logical that each and every answer will pretty much be real estate related.. and there are only so many ways to invest in real estate.
I have never been on a forum like this for folks that only play the stock market.. I wonder what kind of opinions folks would have in that realm.
- Multifamily Syndicator 路 Houston, TX 路 Member since 2016 路 1k+ posts 路 2k+ votes8y
@David P. Fascinating thought, isn't it?! 馃槂
I'd invest 500k in the multifamily asset class (with some value-add component) and then I'd actually deploy the remaining 500k in well-evaluated tech start-ups (or biotech startups).
Investing in startups is an extremely risky proposition for many but it could be very profitable in the long term.
- Investor 路 Indianapolis, IN 路 Member since 2015 路 764 posts 路 953 votes8y
At this point in the cycle I think it's best to focus on cash flow with underlying long term financing (via agency or HUD debt).
We're sticking to workforce housing we can acquire below replacement cost that cash flows at 8% COC net to our investors starting day 1. Also expanding into new markets where there's still value, rising rents and high physical and economic barriers for new competition.
- Investor 路 Greenville, SC 路 Member since 2016 路 5k+ posts 路 13k+ votes8y
Most investors don't think this way but whether you have $1M liquid or $1M invested (or pick your number), the question remains the same...how do we best deploy that personal capital and should we pivot with the market.
I have both cash flow and value plays and am pivoting to more cash flow plays. Also, deal flow is king in this market; so, I am investing more with others who have mature deal flow pipelines at favorable prices.
- Realtor 路 Charleston, SC 路 Member since 2016 路 229 posts 路 159 votes8y
That would be my strategy as well. I would let someone else do the heavy lifting while i helped to fund the deal. I just wish I was accredited already so I could pour money into those type funds..... I have a few more years until I become an accredited investor.
- Rental Property Investor 路 Louisville, KY 路 Member since 2008 路 342 posts 路 123 votes8y
IMO, the way I think currently, I would put about 75% in to all cash C+ or B SFH rentals that I buy distressed and rehab then rent for great cash flow. The remaining 25% goes into the house rehabbing business to grow it faster, provide more security etc.
Once that was all said and done it would provide a good amount of extra cash every year to continue the same strategy and grow more, or possibly put the extra money in large multi's if the market will support it.
My first goal would be to secure the capital in the safest investment and IMO all cash SFH's can weather a LOT of ups and downs in the market short of a total local economic collapse, like company A provides 90% of the jobs in your town and they go out of business over night.
- Investor 路 Los Angeles, CA 路 Member since 2012 路 1k+ posts 路 500 votes8y
Generally I'd say i'd put about Est. 45% into index funds, and maybe some stocks. 5% more speculative play. Est. 250-300k in most areas and then tie up the other 200-250k in a multi unit or two.
Or use that million to grow the business and rehab quality projects until you have two mil. Then tie up one mil more passively and use the other mil for the business + rehabbing.
- Investor 路 Taylor Mill, KY 路 Member since 2016 路 2k+ posts 路 964 votes8y
@Chris Armstrong There are ways to potentially get in on the GP side if you bring a deal, or enough capital (accredited investors) to a syndicator. Those are two ways to get into syndication here are some more. https://www.biggerpockets.com/blogs/4430/72253-6-ways-to-creatively-get-into-the-multifamily-syndication-business
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