How would you invest $1 million?

General Manager, Publishing at BiggerPockets · Denver, CO · Member since 2017 · 463 posts · 642 votes

How would you invest one million dollars if it was given to you free? Why would you invest that way?

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Will Fraser

Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes

Howdy @Katie Miller! In that scenario I would use a construction loan to purchase a multifamily property around $4,000,000, seeking to be "all in" at that level, but achieve an appraisal value of around $6,000,000 within 18 months through the right value add renovations, stabilization through excellent management, and other strategies to add to the Net Operating Income "bottom line".

Then, I'd pull as much of the initial $1MM back out as possible, then rinse and repeat this a few times in the next decade.

It'd be a lot of hard work and many bumps along the way, but I would likely end up with about $25,000,0000 in real estate holding AND the $1MM in cash at the end of that decade.

#unBRRRRlievable!

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Mike Sowers
Member since 2019 · 4 posts · 3 votes
6y
5 F'S to FREEDOM!

Find, Fund, Fix, Fill, Financials.

I'd continue doing what I'm already doing. Create a fund and leverage it with other equity to raise $10,000,000 in equity and then leverage that with $30,000,000 in bank debt from a community lender to target value-add small bay warehouse in the midwest.

FIND

To find off market deals we execute a two part direct marketing sequence to brokers and property owners. Direct mail, ringless voicemail, text and email campaigns. We use skip tracing jobbers off fiverr or upwork and bots to generate contact data for this. We analyze the deal by determining the Max Allowable Cash Offer (MACO) per SF.

To do that we analyze what the buildings net rent rate would be and multiply that by the magic Multiple. Mine is 9.375. You can find yours by taking your desired cost to value ratio and dividing it by the market cap rate.

Maco/SF = NRR x Magic Multiple

Offers offers offers.

We secure deals and use a due diligence checklist to structure away as much risk as possible.

FUND

Then we fund the deal using our fund and debt partners. We pay our equity partners a preferred return of 10% on their funds plus 50% of the upside.

FIX

We fix the building using an internal project manager who manages a team of subcontractors. We track the work using buildertrend gantt chart software and process draw requests using the AIA forms.

FILL

We fill the vacancies using a hunting, fishing, farming strategy. We prospect (hunt) for tenants by using a bot that gathers google local business and Yelp data and employ a direct marketing sequence like we did to brokers and owners in the find the step.

We fish for tenants using online listings and signs. We farm for tenants using networking with brokers.

We screen for income, credit and business financials. We target multi unit building with 5+ tenants so any one vacancy doesnt impact is much.

FINANCIALS

We put 3rd party management in place. We achieve market rate occupancy at market rate rents once the building is fully renovated. We structure away unnecessary expenses by separating utilities or billing them back using RUBS, updating lighting and heating systems, eliminating wood on exterior and using materials that last.

FREEDOM

Result is a portfolio stabilized value of $60M, $10,000,000 of which is ours and our partners doubled their money too.

Having a system for deal flow is critical and a quick way to analyze deals and make offers.

The magic Multiple helps with that and a marketing strategy is key to getting deals done!

Cash flow is the end goal but we achieve a massive cash flow by creating value first.

Mike
3 Reply
Aigo Pyles
Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
6y
is 1M tax free?
1 Reply
Serena Kim
Real Estate Agent · Orlando, FL · Member since 2019 · 59 posts · 90 votes
6y
@Katie Miller
30% in equities: favoring US and Asian equities as easy monetary and fiscal policy will continue for a very long time.
30% in real estate: favoring low-tax states like Florida and Texas. Money circulating in the economy is increasing through extreme levels of central bank purchases, while the number of assets in the economy remains fairly stable, meaning the need for income/yield will only increase, making cash flows very valuable. I still haven’t met a person that likes to pay taxes.
20% in gold: investing in gold is betting governments will keep borrowing at elevated levels, and hence depreciate their currencies, causing investors to lose trust. My personal view is that inflation will accelerate next year (this could be a whole post/topic), which is why I wouldn’t use government bonds as a hedge for my portfolio
20% cash reserves: liquidity is always there, except when you need it
0 Reply
Gualter Amarelo
Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
6y
@Katie Miller I’ve thought about this often and the answer always comes back about the same.
Buy $5,000,000 worth of real estate in Fall River or New Bedford, setup my property manager and move to a warmer city like Tampa or Dallas, lol
Who knows... maybe it would actually make sense just to buy a $5MM building in the city I retire in...
That’s a new piece to the plan, that I only just noticed now! Thanks for posting this one!
0 Reply
Gualter Amarelo
Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
6y
@James Hamling I love the detail! 💯 begins this strategy!
0 Reply
David Reo
Investor · Bay Area, CA · Member since 2019 · 44 posts · 17 votes
6y
I would invest the full million at a safe rate (4%), and I would only allow myself to use the resulting $40k per year while I learn real estate. At the end of five years, I would take out an amount of the principal that I deem appropriate to further grow my real estate investing venture.
0 Reply
Loren Oatman
Real Estate Agent · Syracuse · Member since 2016 · 35 posts · 15 votes
6y
I haven't thought about this for long yet here we go. I would invest for returns and growth which means. I would start a self directed Roth IRA that was investing the max amount in real estate buy and hold. Small and let it grow through management. I think the max is 19500 to start per year. Second. I would invest in some STR properties managed in places that I want go and stay. $300000 aprox (6) leveraged. Third I would create a private lending firm/Company to provide STL (short term loan to real estate investors with an expectation of 8-12% returns with the balance. Long term goal is to build multiple income streams from real estate investing for a better life and providing opprotunities to people.
0 Reply
Account Closed
Flipper/Rehabber · Alpharetta, GA · Member since 2020 · 2 posts · 0 votes
6y
@Katie Miller, first I would take my wife on a much needed vacation. I would also set up 2 college funds, 1 for my 2 month old baby girl, and 1 for my 3 year old son. Then I would invest in myself by starting up a house flipping LLC.
0 Reply
David Paul Westenberger
Member since 2019 · 62 posts · 23 votes
6y
BRRRR a home thats worth around 1Mil. - Buy a high end rehab home that is worth 600k-900k that has a huge ARV, live in it for one year while you fix it up with help from contractors/friends. Rent out the rooms or the whole house once your done, Refinance and repeat...
0 Reply
Kenneth Kussman
Investor · Irving, TX · Member since 2015 · 101 posts · 23 votes
6y
@Katie Miller
Carefully
0 Reply
Kenneth Kussman
Investor · Irving, TX · Member since 2015 · 101 posts · 23 votes
6y
@Katie Miller
As always another cost item even if you are a pro member.
I feel I’m being nickel & dimed to death....
0 Reply
Ty Patillo
Commercial Real Estate Broker · Columbus, OH · Member since 2016 · 20 posts · 11 votes
6y
Create a capital structure to use the $1mill to acquire properties.
0 Reply
Joe Kim
Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
6y
Wish I could answer anonymously. but I did exactly that.....a combination of accumulation of capital + converting real estate equity into buying a single stock over the last 2.5 years. I have more than doubled, tripled, quadrupled my investment.

I'll give you a hint. Red short shorts with a 3 letter/1 number on the back.....

I think as real estate investors it's key to remember other forms of super passive investing including 401k , IRA, automated stock investing (my favorite!) that passively grows wealth.

Not only can you grow your real estate portfolio but the capital you gain in real estate can be converted into paper assets (largely stocks) that is so wonderfully passive. (or not) All investing including stocks require some research to prevent your investment from evaporating away. The alternative is to do automated investing so that you are dollar cost averaging and accumulating a large positions poised for growth now and for the future. Equally, I plan to roll my paper assets into real estate when the right time comes and repeating this cycle a few times.

One powerful thread I see in the MOST successful real estate investors is not so much "diversification" but rather focused investing with expertise in one area combined with other unfair advantages (strong relationships, networking, strong team on the ground etc).

Similarly this concept of developing an expertise can be applied to the stock market. Not day trading, not chart trading, but investing in great growth company(s) for the long term.

Nothing like making your entire years salary in ONE day in the stock market.

The Strong Long Asset

0 Reply
Suzy Sevier
Rental Property Investor · Cambridge, UK · Member since 2020 · 123 posts · 64 votes
6y
@David Pere HA! Can I come join your party?
1 Reply
Shane Frazier
Real Estate Agent · Houston, TX · Member since 2020 · 1 post · 2 votes
6y
Personally, I would diversify those funds into a few different investment vehicles. See my breakdown below:
$500,000 - I would put this into a passive, fully managed multifamily deal; most likely an apartment syndication of some kind. I like this option because of the truly passive nature. Obviously some due diligence would be required on the front end, but I like this option.
$100,000 - I would use this as a 20% down payment on a home here in my market area (Houston Heights) to use as my primary residence for the next few years. This is a rapidly appreciating area, and I think this purchase could present multiple exit strategy options 5-7 years down the road. Not to mention it would be a very comfortable living situation for myself in the meantime (; ($500,000 gets you a lot in Houston).
$250,000 - I would put this into a mobile home park syndication or mobile home park that I would manage myself (or outsource property management). I like this move because as we all know, mobile home parks are a good bet to hedge against recessions.
$150,000 - I would allocate these funds to higher risk startup company investments, mostly emerging technology companies, that I have heavily researched and feel confident in. I like this option because it is exciting and has the potential for exponential returns.
2 Reply
Justin Bauer
Investor · Cannon Falls, MN · Member since 2016 · 150 posts · 55 votes
6y
The Eighth Wonder of the World

Albert Einstein called it the “eighth wonder of the world.” Warren Buffett says it’s one reason he was able to amass such a huge fortune.

The key to compounding is to let it work over many years.

Just look at the chart below… It shows the value of an account growing at 10% per year over 60 years.

I call this the “hockey stick” chart because the money grows slowly for several decades, then really picks up speed after about 40 years.

If you don’t interrupt it, compounding produces a fortune.Let me know if you know where you can put it and never stop the compounding?

Did you know that a properly designed life contract compounds even when you have all the cash out? Your cash has to go somewhere.Make it work as hard as you work.
-
--
Justin Bauer
0 Reply
Jai Reddy
Edmond, OK · Member since 2012 · 456 posts · 270 votes
6y
@Joe Kim TSLA?
I wish I joined that party when it was in the low hundreds. The runup since has been so rapid that I dont have the courage to invest now at all time highs.
1 Reply
Brian Ellis
Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
6y
Pay down my loans to remove PMI insurance and pay off any other debts.
Keep 100k in reserves. Quit my job. And invest the rest in Real estate and the stock market.
0 Reply
Billy Smith
Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes
6y
Put 25% into conservative investments .Take 50% and buy S.F.H in my area of knowledge .The last 25% into commercial properties .
0 Reply
Derrick F.
Rental Property Investor · Washington, DC · Member since 2020 · 18 posts · 4 votes
6y
RE: invest 1million.
100k rainy day fund in interest bearing account
150k small town rural acreage compatible to lease out to solar panel companies (may cost a little extra to pay off politicians to cut the red tape-energy monopoly:)
250k in oppty zone developments in small towns focused on healthcare clinics in urban/rural areas where hospitals have consolidated.
400k to buy about 5-8 low cost cash flow properties with tenants in small cities near larger metropolitan areas where large employers have operations/facilities in areas like Birmingham, AL or just north of Richmond,VA.
100k rainy day interest bearing account for when the financial markets tumble and/or the Federal infrastructure dollars start rolling, then seed monies for subcontractors making bids.
1 Reply
Joe Kim
Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
6y
Originally posted by @Jai Reddy:
@Joe Kim TSLA?
I wish I joined that party when it was in the low hundreds. The runup since has been so rapid that I dont have the courage to invest now at all time highs.

One HUGE valuable lesson I learned in 2012-2020. If you find a good company, still be cautious but go ahead and buy it.

BUT if you find a once in a generation company (apple, amazon, google). ATH (all time highs) are meaningless since there are going to be 100, 1000, 10,000 all time highs over time as the company grows and grows.

So jump in and buy TSLA at 1300, 1400, whatever the price is right now. I did. I buy every single week (twice - once on monday and once on Friday. This is a rather small portion of what I current hold since i only started at the beginning of 2020.

Honestly no amount of convincing can help you to understand this concept until you experience it yourself.

But ask yourself. if you had the same attitude towards a company like Amazon or Apple 10 years ago, and did not invest because ATHs? you would kick yourself. It's never too late. AAPL was like $100 just a few years when ALL of their innovative products were already fully out in multiple late generations - was it too late then? NO! AAPL today is $370+ that's almost 4X or 4000% increase.

2nd rule - do NOT sell. these growth companies stock are volatile. if you sell, psychologically it's hard to get back into the stock.

Here's my favorite personal experience. Bought TSLA at $30 in 2012 - super volatile stock. it "jumped" 10% in one day to $33! so I thought - awesome, I'll sell at 33! Zoom past 1 year stock is $100. I'm thinking, I'll buy backinto it when it goes down.

Zoom past 5 years later -tesla is at ATH at $360! That's when I got back in 2018! After I lost 10X opportunity, I got back in! Sold at $33 and did not get back until 360.

If you cannot have that discipline to HOLD and BUY more at multiple all time highs, then just stick with real estate or automated stock buying. I have a favorite automated stock buying brokerage that's free - no cost, no fees. PM me if you are interested.

Joe

2 Reply
Adryan Lado
Chino, CA · Member since 2017 · 6 posts · 1 vote
6y
Wow - this is an amazing thread. I have been operating my screen printing & embroidery business for 9 years. As soon as Covid struck, we pivoted to manufacturing cotton face masks. It was a blessing - In May, we were doing 1 million in revenue each week and our business grew 10x-15x.
Never did I think I would be in the position to have this much money. It's a bit nerve wrecking, but I decided I will be making my first investment into real estate. It's really cool to read everyone's responses as well - Here's what I'm planning on doing first million -
I am going to be buying my first investment property in Los Angeles at $430,000 in cash and spending $125,000 to rehab it. From there, my all in costs would sit around $575,000 and my ARV would be at $685,000 leaving me about $100,000 in equity. I am going to rent out the rooms individually and hope to break even on mortgage after I refinance out. I'm not concerned with positive cash flow as much as I am in building long term equity as I have my own business that makes me enough cash flow.
I like the thought of renting out the rooms in my investment property because I currently rent out my own 4/3 house and collect $2,800 in rent which leaves me to pay $400 + utilities. My plan is to continue to rinse & repeat.
Any local investors have any suggestions on what else I can do with my money?

Cheers
1 Reply
Jai Reddy
Edmond, OK · Member since 2012 · 456 posts · 270 votes
6y
@Joe Kim
Thanks for taking the time to explain your lesson-learned and approach going forward
0 Reply
Robert SchulmeistersPro Member
Member since 2019 · 35 posts · 29 votes
6y
Am I the only one who would consider buying an island someplace warm, Belize to Phillipines $100-$200k
Build a small hut and hammock on beach $25k, maybe $50k if I wanna be fancy.
Buy a local distillery $100 k
Spend a couple months drinking on the beach until I get rested, bored or liver fails.
Then walk into a jungle with a good knife and roll of duct tape and build a shopping mall.
Spend the rest $ to build a resorts for tourists.
If you build it they will come.
or
One of the before mentioned plans.
But that is just me.
0 Reply
Michael Haynes
Investor · Tampa, FL · Member since 2016 · 681 posts · 288 votes
6y
I have been a landlord of a small portfolio of rentals in S. Tampa for 30 years and what I learned from the 2008 Collapse in the Economy and the last three Bubble Economies collapsing is that it has to be Simple and Liquid. I am running out of the one thing you can't buy...Time, to learn half the things that were suggested to Invest $1 Million and I would emphasize...Safely. In Tampa we had a Stock Investing Club for ten years called Cornerstone Investors Network. We had 500, mostly older, retired guys who had a Million Dollars each. I was younger and wanted to learn how to Trade with my money. It took me a long time to figure out that all the old guys and gals were looking for was a "place to park their Cash and make 20% a year." The beginning of actually having a Million is the only thing I ever wanted from an Education of any kind...How to Make Money. The second step is...How to Make your Money, make Money. The third thing that no one ever talks about is Where to put your Money, Tax-free and Tax-deferred so that you work Smarter, Not Harder. There is a difference in Passive and Active Investing your Money according to the Tax rules and Active Investing can make you more Money. The most important factor that no one teaches you concerns the Economic and Business Cycles. "A rising tide floats all boats" and if you are investing your Money on the wrong side of the Stock or Real Estate Market Cycle, you will lose, lose, lose until you wake up and say "Ouch" and get out...if you can. When you fall for the "Buy and Hold" Method of "Cost Averaging Down with Stocks" and thinking that you will be Compounding your supposed Gains over the long term, which for Warren Buffet is 25 years or more, the thing that is not mentioned is that the Markets have to be going UP not Way UP and Way Down. The problem with Real Estate Investing is that it is not Liquid. When times turn bad, you can't get out! The Economic Collapse in 2008 took us 11 years to get back to Break Even and Profits in Tampa, if your were able to hold onto your Rentals etc. We are now at All Time Highs here in Tampa and with all the huge construction projects going on, this place looks like a Gold Rush Town. Does that sound like a Time to Buy, Buy, Buy? I actually have the problem with having a Million in Cash and Rentals that I am selling and the question is "What to do with all the Cash?". The last thing is to learn that the first Rule of Investing is Daily Cash Flow. You have to learn how to think like a Farmer...you have to plant and raise or "invest" in things that produce Daily Cash Flow in order to pay the bills every 30 Days. If you have a JOB you can also fund a Roth IRA and Invest through your Tax-free, long-term Retirement Plan. From there is does not matter where you put your Smart Money as long as you can See the Big Picture of where you are in each Cycle. It is important for you to know How to Think and not What to Think. Bigger Pockets can show you the different Methods to making Money with Real Estate Investing, but, can YOU MAKE IT WORK FOR YOU? The thing that makes Money is Sales and you can Sell pencils to cars to houses to heavy equipment and Stocks and Futures etc. With the Internet you can Buy and Sell things online. I also Scalp trade ES Futures and Directional Options on the SPY every morning for MY Daily Cash Flow. The Rentals I had for 30 years were my Buy and Hold Investments which I am Selling off here at the Market Highs of this Cycle. You can't go wrong with Buying a Fixer Upper ane make it your Residence for two out of five years and Sell it Tax-free...everybody needs a place to live and food to eat. Did you ever hear, "Keep it Simple, Stupid?"
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