To invest $500k cash

[David Smith]

Best way ?

Buy 1 $2M  multifamily as 25% down ? 

or 2 $1M buildings 

Like to invest in around PA / MD  

[Michael Ealy]

Originally posted by @David Smith:

Donot wanna partner with anyone.  Need full control.  The key is lender leverage.  Or just buy in cash if the deal is good enough and refinance 

 The lender will not only look at your cash and credit. He will also look at your experience and net worth.

If you have no rental properties before, even if you have the money, I doubt it if you will get approved for a loan on a 100-unit apartment building for example. This is why, you can partner with one with experience specially for bigger deals.

If having a partner is absolutely out of the question - then keep most of the money and start small. Buy a 4-plex that needs work and pay cash for it, then do BRRR. Doing that helps you with 2 things:

1. You gain the experience;
2. You build a portfolio of properties (and therefore build equity)

You can then 1031 exchange to do a bigger property.

For example, I actually have a property one of my partners is selling. It's a half-finished 6-unit. Acquisition price is $125,000 and repairs is $125,000. The 6 unit will rent for $5,000/month total and the area is about a 9 cap.

So you can use $250,000 to buy and renovate the place.

Then rent and collect the $5,000/month income.

6 months later or once the building's income is stabilized, you can then refinance to pull some of your money out. Without going through the details, the building will probably be worth $333,3333. You can refi 75% or get a $250,000 loan - meaning, you get all your capital out.

Do that enough times and now, let's say you have 10 of these 4-6 unit buildings with, let's say an average equity of $80,000 each or $800,000 - plus the $250,000 you started with or over $1M total that you can then put down on a $5M building (although typically for bigger properties you need 25% downpayment but there are ways to reduce the cash needed at closing).

Bottomline - having money does not automatically mean you can invest in a bigger deal because the lender will look for experience. You can start small, do BRRR then do bigger deals through 1031 exchange or short cut the process and partner with someone with the experience at least on the first couple of deals.

Makes sense?