How would you invest $1 million?
Katie MillerPro Member
General Manager, Publishing at BiggerPockets · Denver, CO · Member since 2017 · 463 posts · 642 votesHow would you invest one million dollars if it was given to you free? Why would you invest that way?
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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!
Don't think its a bad time to look into more innovative real estate models such as AirBNB (still a great model, but going through bad time = good value here) & Coliving (newer model - but more stable than AirBNB/STR.
Buy an apartment complex or two, many doors, lower cost per square foot.
It depends on when. When COVID first hit, Carnavil cruise stock went from $50 a share to $8 a share. I actually put a few hundred dollars on them and their stock rose. Since this was a company I'm familiar with, I knew that their stock wouldn't falter. I would put half of it on carnival at that time and invest the rest in 3 to 4 properties in my area.
@Katie Miller 100k to charity (store up treasures in heaven!), the rest of the 900k in 4 paid-for SFHs @ $225k each with reserves
After donating 100K to get into "heaven" and buying 900K of paid off real estate, you have no money left for reserves...
1m Cash
My goal would be 10% or 100k per year in growth. This would allow me to quit my W2 and live a more balanced work/life balanced. This growth would have to be passive income.
Honestly 100k in savings. No CD's Markets or anything that would prevent fast access to cash
the remaining would be loaned out as hard money or invested as a limited partner.
@Jack B. You missed it, man. It’s not to get into heaven.
@Katie Miller I would mix it up keep 50k in account to supply with how I spend probably 2 to 3 years worth of expense. Use about 250k to buy two house recently foreclosed use 25 k on each for remodeling and cleaning, then rent both those out at a reasonable cost to build a way of income there.
Next I would use 150k in 5 different dividend stock on the safer side so like at&t and companies like that to create a solid secondary income.
Now I’ve spend technically half of it obvious I’ll haven’t actually spent it but I’ve set it aside to create future income. My net income now should be about 2 to 3 k a month extra off of dividends which I would probably end up reinvesting in other stock sense I wouldn’t need it and rent.
I would place about 100k into dream cds to create a more safe income there.
Then I would probably use 100 k to travel and give and assist lower societies and people classes and pretty much donate it but have fun doing it.
Then I’ll probably use 200 k to pay off my parents debts with what they’ve done for me in my lifetime. And the other 100 k I would use to get solar panels and try to make my house as cheap on utilities as possible.
This would set me up with about 3500 dollars a month in income, 50 k as an emergency fund, cheapen my house bills so I can make less and still live good, and lastily it would set my parents up so they can retire and go with me in giving back to people who need actually help with getting food and stuff like that.
I would set aside 10% for reserves, and purchase four STR or Short Term Vacation Rentals ($3,000,000 total cost) with the rest as downpayment of 30% and commercial blanket loan representing 70% LTV on all four. This would generate a the following return and investor advantage (estimates):
- $248,000 in free cash flow annually after expenses and debt service
- $1,150,000 in bonus depreciation from cost segregation study (Year 1), more depreciation in years after year one
- $31,000 in principal pay down annually
- Realize a better than 25% cash on cash return
- The market I would invest in has a track record of about 3% appreciation annually or $90,000 on this portfolio of four STRs.
This would yield a return of capital in less than four years tax free with the bonus depreciation. Then I would have no cash in these four by the end of year four. I would take the cash generated and purchase an additional house each time I had enough returned to down 30% down purchase. At the end of ten years, you could potentially be free cash flowing nearly a million a year.
I really appreciate your point of view here, David.
Given the Covid Landscape, where would you focus on your STR strategy right now?
Personally I have 2 STRS, one in Talent, OR - wherein Covid is so low in numbers they are doing active contact tracing ( as of today ), and
One in Superior, CO, near Boulder. Both had to be converted to long term, by the room, to still generate net income, but they average $400 net per room, which is still high.
Would you even try your strategy right now with the rate of acceleration of Covid?
If so, where would it feel safe to do so?
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
Yes. Don't break even on your mortgage. Instead, turn a 3BD house into a 4. Take the mortage payment, divide it by 4, and double it. Thats what the rooms are. That's your target. Furnish it well. Pull up Pinterest on interior design and aim for that. Don't pay retail for expensive furnishings. Search Craigslist for "Moving Sale" and pay 40% of the retail value for a whole house of Furnishings. Hire a housecleaner, and pay him/her well, but hourly, to come 2x/week. Hook up fast internet. Buy all linens new, but inexpensively. They need regular replacement.
List on Airbnb, monthly only, with the first line "seeking long term housemates". Make sure your photos look 4 x better then the average. Use the airbnb photographers. Your asking price on Airbnb will be 85% of your target price. ( they will charge the other 15% and keep it. ).
Screen everyone. Be picky and let rooms sit empty for a while. Remember 50% occupancy is break even at this point. Within 3 months you will have raving reviews, seldom occupancy, and be earning double your mortgage payment - utilities. When you get a dud ( leaves dishes, disturbs others ), airbnb will deal with getting him out under the "your not obligated to have anyone in your house that your not comfortable with" clause. Once you have confirmed they are stellar, rebook direct and keep 100% of your target rate funds.
Then, figure out the financing to repeat. Thats why Im here, Im learning the financing to start buying.
Without a lease in hand you can't show the property is cash-flowing at 1.3x the mortgage payment to a bank, which is what BRRRR would use to offset the income requirements to get another house.
My best idea on this ( feedback definitely wanted ).. form an LLC. Let the LLC Run the business and sign the lease to me to do so at 1.3x the mortgage payment. Use that lease to offset like any other lease, the expense to qualify for the next house.
Even better, form a trust, let it hold the house, and earn the bulk of the income to pay taxes legally at 15% instead of 28%, and to pad the investment from frivolous lawsuits. ( this is what I am learning about now ).
Hope that gets the ball rolling. PM me and Ill send links of my current projects wherein I am doing exactly this if you want some inspiration.
For me, a 3BD house costs about 15k to fully prep, furnish, initiate, and then generates about 2.5k/m net, so break even is typically about 6m on those funds and then its just cashflow.
House rules. Lots of them, reasonable ones, that protect them from each others negligence.
Automate all your communications through Smartbnb ( cheap and the best ), and dont be fooled by the expensive con artists competing with them.
If you are a bad *** host and create a space without weird "landlord in the house" power dynamics, nobody will want to leave. Folks will come for 2 months, stay for 8.
I would set aside 10% for reserves, and purchase four STR or Short Term Vacation Rentals ($3,000,000 total cost) with the rest as downpayment of 30% and commercial blanket loan representing 70% LTV on all four. This would generate a the following return and investor advantage (estimates):
- $248,000 in free cash flow annually after expenses and debt service
- $1,150,000 in bonus depreciation from cost segregation study (Year 1), more depreciation in years after year one
- $31,000 in principal pay down annually
- Realize a better than 25% cash on cash return
- The market I would invest in has a track record of about 3% appreciation annually or $90,000 on this portfolio of four STRs.
This would yield a return of capital in less than four years tax free with the bonus depreciation. Then I would have no cash in these four by the end of year four. I would take the cash generated and purchase an additional house each time I had enough returned to down 30% down purchase. At the end of ten years, you could potentially be free cash flowing nearly a million a year.
This is a brilliant answer, all the way down to the bonus depreciation. Brilliant.
What market are you investing in?
Are you actively engaged in this type of investment?
If so, hows it working so far?
I believe I will put 1 mil in diversified well established market funds,that beat s&p year and year out (The next time covey 19's second wave decimates the stock market I jump in close to that bottom). Invested properly I believe I could get up to a 15% return annually pay my taxes and have 10% every year for life. However that would be boring!
But when I found the optimal real estate deals deal or deals, I would pull the funds from the stock market. I invest in large apartment complexes in the best cash flow markets in the US. Diversified in a few different states to cushion any single natural disaster (fully insure) or unforeseen acts of God..
Nahh I'm playing, who am I kidding I'd invest in myself and expand my local NYC area holdings with creative real estate, with as little down in each deal as possible, into a smartly brick by brick built residential real estate empire!!!
I'd put it $800,000+ in an irrevocable trust for five years at 2% interest and spend time studying, reflecting, learning and listening before making any rash decisions. More important to make the right decision than act quickly!
I would buy an apartment complex in a opportunity zone or a few distressed properties and hold them for about 10 years and cash out.
These days a million dollars is really not all that and a bag of chips, you know?
I would play it safe looking for the best returns; loan money @ 6-10%, go into etf's, play a little in govt subsidized housing, a little in securities, maybe play on some crypto markets and of course agriculture lands
This is what I had few years ago and I will repeat the same
1) Purchased 11 unit for $170K
2) Increased the value of the property by rehab, replace with better tenants
3) Had a gross revenue of over $5000 every month
4) Enjoyed the cash flow for 3 years
5) Sold the property for $400K (please feel free to calculate the return)
6) Invested the money back in a commercial land (approximately 12 acres)
7) I believe I can sell the land for $1.1M
Without questions in multiple syndication deals. If you asked me 3 months ago I would say the stock market....everything I bought is up 150%! One of the few times real estate wasn't as lucrative!
100% would invest in syndication deals that reached out to me on BP, they are all so amazing and the smartest most brilliant investors that never loose money or make bad investments....just do "innie minnie, minee moe" and the one your finger lands on is where you should put all your money!
In our area the fixer upper duplex look attractive again. 1200sf 2 X(1/1) near Google Village is going through development. 4.5% cap. Start at $1.2M, 4 plex near downtown C neighborhood starts at 2.3M
1 million dollars cash looks bleak unless there is a mortgage.
@Katie Miller I’ve thought about this a lot and had an opportunity to do something similar. However, it was not a gift, but rather insurance money from a tornado! Due to having the proper insurance with “rent loss” for 12 months we were able to place it into a diverse aggressive stock market portfolio. The market was hot at the time, but this can be risky. From there, we leveraged a credit line against the investment account and were able to draw 80% out at 4%. The investment account continued earning on entire amount as along as thresholds were not crossed with market
We stretched the rehab across 12 months because we had rent loss, so why not. The leveraged money was used to fix and flip. Fix and flips were funded by our lenders at 90% LTC and 100% rehab, so we only needed 10% down. Several of these were completed and those funds were used to purchase multifamily after credit line and rest of principal was paid back.
Large rehab was completed and we were 100% occupied at 13 months!
Some funds were also used to purchase development land in which we sub-divided and sold off to developers for new build!
@Katie Miller $1 million is not much in many markets around the country such as California and South Florida. That being said, it can grow fairly quickly if invested properly.
My strategy would be to split it 40/60 between rentals and flipping.
I would use 40% to purchase duplexes to have a regular flow of cash. The reason for 40% is based on the current economic climate, I’m anticipating many who can’t pay their rent and therefore relying heavily on asset appreciation in the long run.
I would use the remainder to purchase extremely run-down properties in good neighborhoods to flip. They take longer but offer higher returns if you buy them right. My most recent completed project just sold in the Orlando area. I bought it in 2016 for $46k cash and sat on it for a couple of years. Invested another $65k cash in renovations and just sold it for $192k.
The source for either type of purchase would be from panic sellers looking to liquidate due to uncertain economic times and the aging population who are liquidating for retirement. Cash is king for buying these properties as leveraging them could eat up any and all gains.
I'd buy 15+ acres of land near one of my surrounding towns and build a simple house along with extra garages and storage sheds. I'd live on the back of the property and have the storage up front where I rent out to people in the community. I'd pay cash for everything so it is all owned outright and I'm debt-free.
Based on prices around me, I could accomplish this and still have around $250k leftover. I'd use some of that to ramp up my marketing and get a higher deal flow going.
The rest would be split between real estate deals, stocks, private lending and btc.
I would invest a million in MF, on an average with 20% down you can get a 5 million dollar property. In a market like DFW you would get close to 50 units. Get a good property management company to help manage it.
Get a cost seg study to get a good write off on your taxes.
@Katie Miller
I’d pay off the $350K in loans I have on my current portfolio of SFHs so all my properties would “pop” and cash flow would increase exponentially. Obviously one could earn higher returns leveraging the $350K, but I’m 34 and have time to play the long game and create staying power. I don’t need to be one crisis away from bankruptcy.
I’m fairly conservative and risk adverse so having the increased cash flow would provide a sound foundation to move forward with leveraging the remaining $650K to acquire out of state multi family. I would like the 5-30 unit buildings to avoid competing with institutional money.
I’d avoid the stock market as I already invest enough of my money through my employers Retirement programs. Real Estate helps round out the risk long term in my opinion. Plus owning things keeps things fresh.... at times, jobs like mine can get boring and turn into a grind.