@Eric Mayer do you believe it would be wise to put all your eggs in one basket vs spreading it out over multiple different acquisitions to lower your risk? This isn’t necessarily a hypothetical question. I’m coming into some money and trying to figure out the best strategy to go with.
@Jonathan Trimboli Congrats! That’s a once in a lifetime opportunity. Go big or go home! I don’t see it as risky personally if you get a good deal. Property should rent for $100k+ a month and appreciate over time (faster if you renovate/raise rent.) There are benefits like cheaper property management, 1 insurance policy, 1 roof, etc. Best of luck!
@Jonathan Trimboli I wouldn’t admit on a public forum that you’re about to receive 3 million dollars. Good way to get scammed by someone or get flooded with messages about “investments”.
You need a financial advisor who is fee only to help you with this. You want a well diversified and broad portfolio of stocks bonds, and real estate. Depending on age and goals the risk can be adjusted up or down.
@Caleb Heimsoth i appreciate the advise but i never stated i was getting $3 million. I stated i was coming into some money but only used $3 million as an example.
@Jonathan Trimboli just read a quote from Andrew carniege on this.... “you should put all your eggs, focus, and attention into one basket. You only lose and break when you have too many baskets and you start to drop them.”
@Jonathan Trimboli hi, I will hire a nurse to take care my mom, then buy a new 2020 GMC SUV, then I will buy allot of apartments complex and set up a trust fund for my kids and future grandchildren. And pay off my house jijijijiji.
Some more information on your life, goals, skills, existing assets, liabilities, income, and related would be helpful. Anyone answering this question without a broader set of context is unlikely to give you a truly helpful answer.
@Nick Rutkowski Thanks, now I'm going to have that song stuck in my head all day.
@Jonathan Trimboli, I would probably put 50% down on a large $6MM complex or 2 $3MM complexes. Keeping leverage lower than your typical 70-80% LTV should help with higher cashflow and keep you safe in case of a downturn.
@Eric Mayer do you believe it would be wise to put all your eggs in one basket vs spreading it out over multiple different acquisitions to lower your risk? This isn’t necessarily a hypothetical question. I’m coming into some money and trying to figure out the best strategy to go with.
Jonathan,
Although I like Eric's answer of putting $3M in a $10M apartment building, the reality is this:
1. To get a loan on an apartment building, your net worth has to be equal to the loan amount. So, if you're getting $3M and it bumped up your networth to $4M, the maximum loan you can get is $4M.
2. Even if you have the net worth requirements, the lender will look for experience, which I assume you don't have experience in owning and managing, say a 100+ unit apartment complex.
So, to answer your question in more detail, it really depends on your:
a) Goals - do you want slow and steady income or do you want rapid growth? b) Risk Tolerance c) Time you can put into this - do you want to be completely passive or active d) Skills - what business skills do you have that can translate to real estate investing e) Your local market - for example, is apartment investing profitable in your market or maybe houses work better?
Below are some ideas, arranged based on risk (low to highest):
1. Apartment investing - as GP 2. Buying rental homes 3. Fix n flipping 4. Buying non performing notes 5. Developing land/ new build
I agree with you that it will be wise to diversify that. Maybe split it 1/3rd to passive apartment syndication, 1/3rd to active real estate investing and 1/3rd to private lending.
Hope that helps. Let me know if you need further info or help.
I would split the money probably half in SFH and the other half in Multifamily. If there weren't any deals for Multifamily than I would go all SFH. From there I would decide if I pay cash for 8 properties and wait 10 to 12 years to get my money back, do HELOC reinvest, or put a down payment on 30 houses. If it was something that was going to be a family business I probably would opt for 30 houses and a few apartment buildings for the rest.
@Jonathan Trimboli - invest small amounts across a range of sponsors, asset classes and geographies. Keep some powder dry to take advantage of deals when the market turns and to double down on the sponsors that perform on your initial investments.
@Jonathan Trimboli As many others have said, it depends on your goals. $3MM is a boatload of money. Personally, I would invest in in numerous apartment, self storage, and MHP syndication deals. That's me though, as I lean towards the more passive route at this point. As @Ronan Donnelly said, be conservative in initial investments with various sponsors then double down on the ones you like in the future.
You should certainly save some cash for rainy days and maybe put some in a conservative index fund as they are liquid whereas most real estate investing is not.
However, to give an example of what $3MM could do for you in syndications, many syndications have an 8% preferred return, meaning $3MM would net you $240,000 a year or $20,000 a month. More than likely that is tax free income early on given cost segregation, bonus/accelerated depreciation, etc. Could you live on that? I certainly could.
You also have the $3MM principal still, hoping your deals perform and that $3MM becomes say $4.5MM in 5 years. Reinvest the $4.5MM and your cash flow increases again. There is certainly risk and finding the right sponsor is critical, but this is the route I would take.
@Jonathan Trimboli I would echo what @Aaron Bonne mentioned above. It really depends on your goals and the level of risk you are comfortable taking. If you like the idea of investing in real estate, you'll first want to decide if you want to be active or passive. You can go figure it out on your own and gain the experience, or you can align yourself with people who are already experienced and partner with them. The luxury of partnering with experts is you will save time, pain, and potential losses. You'll also gain access to better deals with an experienced sponsor.
If your goal is cash flow, you'll want to consider a few key questions:
- What type of assets produce the highest cash flow? It will make sense to focus on asset classes that can achieve a higher yield from income.
- What type of assets produce the most stable cash flow? Depending on how long you intend to be invested, it will be important to understand the dependability of the cash flow.
- What type of assets are the most recession resistant? If you intent to invest long term, you will want to focus on assets that have the ability to weather an economic downturn.
Personally, I focus on recession resistant cash flow and believe mobile home parks are the best solution, particularly when you plan to be invested long-term.
I love these "what if.." questions as this is where I shine.
1. Set aside money for your Uncle - he can smell money miles away
2. Donate to your favorite charity or start a non-profit for something you're deeply passionate about
3. Jump in as an LP or KP on a few Multi-Family Deals
4. Find a trusted advisor and enhance your stock portfolio
5. "Say no to drugs" doing them, not "growing drugs", legally of course
6. Jump into the Foreign Exchange
7. Buy precise metals, arts and other items that will be worth something in the future. I would buy all my childhood toys, Transformers, Go-bots, He-man, Voltron, Thundercats, Gi-Joe's.
@Jonathan Trimboli I'd start a financial planning firm focused on helping real estate investors while also investing in active real estate and in somewhat passively managed funds/ETFs.
As everyone has said, it just depends on your goals. What are you leaning towards?