I’m interested in getting more into rental real estate investing (and potentially investing in notes). My main goal is to make sure I generate enough cash flow to cover my family’s needs which are around $80k per year in expenses. What would be the best way to invest $1M to generate that type of income? I’m newer to rental real estate investing so I’m not sure what type of cash on cash return is considered too conservative vs too aggressive. 8% seems more on the conservative side especially since I would be very active in this and not a passive investor. But I’d love to get some input from the bigger pockets community.
I would start an investing business :) If you have a million to invest and aren't approaching retirement why cash in and take you 8% returns now?
@Elliott Elkhoury what types of assets would you invest in?
To grow your seed fund I'd recommend selling something, or putting a group of people together to seek out a large value add opportunity. Because of the phase of the market we're in, though, if you're looking to generate revenue I would prefer a short term hold. Flip something/things. This is time consuming and very much so a business, but more profitable than being an owner.
If you must buy and hold because you strongly prefer this strategy, I like nonvolatile markets. I'm not chasing appreciation, those markets tend to depreciate very well too when things shift and it's-a-comin. They also don't cash flow as well as what I like to call "commodity housing". If you've got that much to invest and this isn't just a hypothetical, I would skip straight to the 20 unit mark so that you can at least take some advantage of scale. I would also develop a stringent pro-forma and set a high standard for cash flow. 10-cap is a must.
We could go on about this forever! Lol
@Kusha Karvandi - There are also crowdfunding options that could work for you. Groundfloor, Holdfolio, Crowdstreet, Fundrise to name a few. It would be an easy way to diversify into different asset type and markets.
To generate max profit , use half to buy $2M income properties; use half to flip houses/ buildings.
@Greg Scully looks really interesting. Have you used one of those? What has your experience been?
Like @Elliott Elkhoury was suggesting, you need to invest with the downside risk in mind. Try to mitigate that risk as much as possible by:
- Partnering with someone that has experience (either in multifamily or flipping, whichever route you take)
- Be very conservative in your pro-forma numbers
- If possible, try to buy flips where if the market shifts and you can't sell, then you can at least rent and weather the storm.
There are still areas and deals where you can get a house for 30k put 25k in and then rent it for $700 or flip it for ~100k
How hard do you want to work and how much time do you want to put into it. Real estate investing is far from passive. As a base consider that 1M invested in a moderate risk mutual income fund should average 10% + return long term. At least mine have. Time wise about 2hrs 4 times per year meeting with financial advisor.
Real estate investing is a job, if that is what you desire then I would be a money partner investing in a single large property with a proven investor. You do not want 20 small multi units scattered around. You will be chasing issues every day.
I would diversify it into an apartment complex and do some lending. I agree, there are more active/passive techniques and you need to determine your level of involvement and risk tolerance.
That answer really depends on you. You can actively invest in rental real estate (apartments, houses, office, warehouse, retail, storage, etc), you can passively invest in syndications that buy apartments or real estate, you can invest in notes, you can flip houses, become a hard money lender and/or buy businesses.
There are so many ways to get started. Think about what you want to achieve, your skill set and the amount of work you want to put in. One you decide on a strategy, then educate yourself and get started.
I was able to use $772,000.00 (that was the down payment) to buy a self storage facility that generates $250,000.00 in cash last year. While this is incredibly high I would think you would be able to at least generate 1/2 the cash flow. If you are interested in the story of how I was able to do this deal I think you can click on my profile and find the my post about the investment it has alot of details in it. I am also working on another deal redeveloping a shopping center that is right at 1 million that when phase 1 is 80% full will have a 13% cap rate.
sounds like you want to be the Capitan of your own ship,, You may want to layer these dollars like a pyramid.
base is ultra low risk then middle is medium risk and top is aggressive risk growth.
Notes done right can be very good and passive..
there are any number of good syndicators out there.. suggest ones that have worked through a crash or been at it a decade or more.
And of course there are other types of business's you can buy.. like the @Joshua Watts mentioned the storage business its a business not really what I consider just a real estate investment. but can be real good.. @Scott Meyers has a really good school for this.. you want to get that kind of training before you launch into that space I think.
I am partial to lending money and doing value add and new construction.. some of this you can work into .. others you need some experience in the space
If you love profit then startup business will more profitable more money in your banks right!
@Kusha Karvandi . NOT buy cheap crappy properties in Indianapolis or Jacksonville from a guy named Clayton Morris
@Kusha Karvandi - I have a small short term investment with Groundfloor and a longer term/larger position on a multi family through Holdfolio. Both experiences have been good, neither one has concluded yet (6 months and up to 5 years) but so far so good. Very passive, each one has an online dashboard and both send regular updates.
@Greg Scully nice! What type of cash on cash return are you seeing with each?
@Kusha Karvandi as others have mentioned it all depends on what your goals and interests are. With $1M to invest there are lots of options. I'd research and decide what type of investment you would like best since you mentioned you want to be active. I'd also look at partnering up with someone more experience to begin your journey.
What would I do with my million for me?
Or what would I do with your million for you?
I know exactly what I would do with mine.
What I would do with yours, is give it to me :)
8% is very doable. 8-12% is typical. A little more is possible.
If you want to get involved, the margin can go up.
We need to be friends first.
After that, is what contracts are for.
First rounds on me my new bestest friend ever!
Seriously though, there are as many possibilities as you have dollars of what you could invest in. I'm sure you will find something to your liking. Great problem to have.
keep it secured by real estate , or consider it gone...
100k townhouses, low hoa, all same city, .....give to property manager
1m / 10 into 100-125k 2/2 or 3/2 townhouses,
pay off cash
$1 million is not a lot in real estate. But using leverage, it is. I'd suggest starting slow if you're a new investor.
buy an apartment complex
As others have said, you have lots of options in real estate. Easiest ways to invest passively are through crowd-funding sites or real estate-based funds. Easiest way to invest actively would be to pay cash for a bunch of rentals and have a property managers take care of them for you. Personally, assuming you want to go bigger, I'd start off by investing passively as a limited partner on a deal or two with an experienced syndicator to learn the ropes and build relationships. Then start looking for your own apartment deals. Bring in other investors to stretch your capital as far as you can. With $1M, you could invest with others on 10 or more deals and generate a lot more value for yourself. And don't forget about the sweet tax benefits of running an active real estate business. Check out Tom Wheelwright's book, Tax Free Wealth, for a detailed run-down. Good luck!
@Kusha Karvandi If I was in your situation I would evaluate apartment syndicators that you can invest alongside to earn a monthly preferred return (this will help cover your $80k annual need) and participate in upside equity appreciation with a value add multifamily property.
Build unique houses. Very few people doing that.
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