What Would You Buy in Real Estate If You Had $1 MM in Cash Today?

28 Replies

This was an article I found online but it was a SPAM ARTICLE which means it was written by someone likely overseas who doesn't speak English. However, I thought the question being posed in the article was a good question so I decided to re-post it here for discussion.

If $1 MM was available to you right now for investing in real estate, what types of properties would you purchase? To some of you, this may seem like a trivial sum of money, but not to all of you.

Would having $1 MM change your point of view? Would you still focus on and buy the same types of properties? In the same areas? Or would you use the $1 MM to invest in something larger and earn bigger return on investment?

Or would you give up real estate investing altogether and become a private money lender? Being a landlord or flipper is tiring.

What would you do with $1 MM today?

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I suppose it would be nice to buy 12 houses for around 60K that rent for around 1000/month (possible in my area. Then I'd buy myself a nice place with some land for around 200K and have an 80K reserve. I'd probably hire someone to manage the properties and keep my job, but I'd enjoy it a lot more knowing I didn't need it.

I would personally follow the advice of Buffet and buy SFRs for rentals and hold them....But where? ha ha ha. So many choices...

I would also lend half of it on hard money loans for a return.

Originally posted by Corey Dutton:
In downtown Austin? I think that's a good area to by SFRs to use as rentals for the university no?

Yes, professors are stable high pay jobs. :-)

The university is only a small fraction of downtown. And I should say close to downtown, instead of downtown.

First off, you have just listed my absolute dream scenario.
i.e. If only I had a million dollars to invest in real estate.

For me, I would take that to a bank and try to leverage it as best I could. I would try to get a bank to give me another million in credit to be secured by real estate at LTV's of 50% or better.

Then I would start buying SFH's with the same target criteria I'm buying now. I tend to be all-in at about 80k on my deals but could probably get in a little cheaper if I wasn't having to pay for the hard money loans to purchase and the refi fees to refi. I'd be looking to be all in at 75k.

That would technically allow me to buy 26 homes - which I'm sure I could do in about 18 mos working full time - or 12 if I quit my job. :-)

Since half of the 75k for each house would be paid out of the 1mil in cash, I'd only owe about 38k per house and the cash flow should be roughly $500 to $600 per month. Added to the 15 houses I have today at $300 a month or so and I'd be golden.

Then I'd live off half the profits and take the other half and continue buying more houses or save up and look to get into multifamily big enough that the management was built in to the costs.

How's that for some dreaming...... :-)

A

I would find a few other people with hypothetical millions and get a big complex going, value add type (doing these in Texas, but with many partners as I don't yet have 1m$). Using the cash to get more SFRs is not the point of having that kind of money, I think. I would try to get in with the big boys and learn as much as I can.

This is a tough question. For me, $1M would not be enough to go passive, even with me investing in notes at 20%+ yields, that would only be $200k per year. Thus, my decision would be to use it for my active flips, combining it with what I already have along with my investor funds and likely do more multi-million dollar deals at once.

The other option I would consider would be to do some more land devlopment/spec building in areas that would make sense, combining the capital with that of my private investor funds.

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I actually had a similar situation in June of last year. I liquidated some LP holdings and found myself with about $1.5 million I wanted to invest.

I invested $830,000 in high interest private mortgage loans secured by commercial property at 50% LTV or less. My average interest rate is 16.2%, and I received an additional 6 points on origination, and will receive 4 points with each additional one year renewal.

I have purchased three condos in class A high rise residential building in the Phoenix area paying an average of $155 per square foot. Two of these I was able to get cheaply because the condos did not qualify for financing. Less than 3 weeks after purchase of the first condo and 3 days after purchase of the second the building qualified for financing, and subsequent sales have been in the $240 per foot range.
The third condo was the last unit sold by the sponser and he accepted my crazy low ball offer which was about 25% less than I would have been ultimately willing to pay. All units were rented out very quickly, providing a moderate return of about 6.5% after all expenses, including property management fee.

I utilize the note investments for income (cash flow), I consider the cash flow a bonus on the condos which I hold as a hedge against inflation and for potential capital appreciation above the inflation rate (hopefully!). By seperating investments for cash flow from investments for appreciation I hope to achieve a higher overall rate of return on my investments.

I still have prox $200K left from the original $1.5 million and are making offers on other properties. I already keep about $300K in cash as a backup, though because I utilize no leverage is probably alot more than needed. I used to be lots more aggressive in my investing using as much leverage as feasible, but have become much more conservative as I approach 60 years of age.

Originally posted by Don Konipol:
I actually had a similar situation in June of last year. I liquidated some LP holdings and found myself with about $1.5 million I wanted to invest.

I invested $830,000 in high interest private mortgage loans secured by commercial property at 50% LTV or less. My average interest rate is 16.2%, and I received an additional 6 points on origination, and will receive 4 points with each additional one year renewal.

I have purchased three condos in class A high rise residential building in the Phoenix area paying an average of $155 per square foot. Two of these I was able to get cheaply because the condos did not qualify for financing. Less than 3 weeks after purchase of the first condo and 3 days after purchase of the second the building qualified for financing, and subsequent sales have been in the $240 per foot range.
The third condo was the last unit sold by the sponser and he accepted my crazy low ball offer which was about 25% less than I would have been ultimately willing to pay. All units were rented out very quickly, providing a moderate return of about 6.5% after all expenses, including property management fee.

I utilize the note investments for income (cash flow), I consider the cash flow a bonus on the condos which I hold as a hedge against inflation and for potential capital appreciation above the inflation rate (hopefully!). By seperating investments for cash flow from investments for appreciation I hope to achieve a higher overall rate of return on my investments.

I still have prox $200K left from the original $1.5 million and are making offers on other properties. I already keep about $300K in cash as a backup, though because I utilize no leverage is probably alot more than needed. I used to be lots more aggressive in my investing using as much leverage as feasible, but have become much more conservative as I approach 60 years of age.

Thats awesome!!!

Originally posted by Corey Dutton:
Joe,
Would you lend in Ohio area then only?

No, i'd move back to SE Michigan (where i grew up) and do the loans there while i traveled for a while.

Head to North Dakota... deposit the funds into a local bank, obtain a line of credit for $4MM, by land, build apartment buildings at $80K a unit... sell half of them at $130K a unit and keep the remainer... just about debt free.

Or... something close to that!

I would never quit real estate investing so if I had that kind of cash I would continue to flip houses (but do it on a much bigger budget.) Then I would invest about half of it into Chicago multi family units mostly. These types of properties are at all time lows now and will, without a doubt, appreciate big time in the long term. Then I would pocket about 200-300K for reserves.

Love the question, and the answers. I particularly like @Don Konipol 's answer. I am pondering a somewhat similar question, as I just inherited an IRA. I think the answers change relating to age and experience, too, as Don pointed out.

Since I'm in both the income property and the lending business, I'll probably lend it out, since it's easier to lend from an IRA than to buy property, and I'm getting lazy.