What to do with $1,000,000.00?
Most Popular Reply
Real Estate Investor · Unadilla NY · Member since 2017 · 418 posts · 297 votes
2yAsk 10 people and youll get at least 3 different answers. It all depends on what the individual would do with their risk tolerance. Each property is also different. You could buy a 1 million apartment building outright and make 65,000 or 30,000 depending how it performs and what market its in. You could put it down on a 4 million dollar property and make 120,000 or zero or negative. Every deal is different.
Personally if I had 1 million just laying around Id probably put some of it into real estate, pay down some existing debts, some of it in treasury bills, and some of it in an index fund.
140 Replies
- Real Estate Investor · Unadilla NY · Member since 2017 · 418 posts · 297 votes2y
Ask 10 people and youll get at least 3 different answers. It all depends on what the individual would do with their risk tolerance. Each property is also different. You could buy a 1 million apartment building outright and make 65,000 or 30,000 depending how it performs and what market its in. You could put it down on a 4 million dollar property and make 120,000 or zero or negative. Every deal is different.
Personally if I had 1 million just laying around Id probably put some of it into real estate, pay down some existing debts, some of it in treasury bills, and some of it in an index fund.
- 2yBenjamin AakerPro MemberRental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
It also depends on what that person wants to do with their retirement and at what age they are retiring. If it is early and they want to do some work, investing in a larger property would be good. Less work would mean an ETF. A 65 yo person who is looking to do a little work might hire a property manager and buy the place outright for the cash flow as in your first scenario.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Kevin S.:
I wonder what do someone approaching retirement do with $1,000,000.00? Buy a single property with cash and have about $65,000/yr in cash flow or use it for DP on a $4,000,000.00 property? Would the cash flow be the same? Or leave it in SP 500 ETF? The question is probably over simplified but a good starting point for feedback. Thanks.
where you getting the income to pay the mortgage payment if you buy a $4M property?
what if it does not cash flow?
If you have $1M it would be complete stupidity to invest it all in real estate or in a single property. Same would be said if you invested it in one stock.
7e investments53 Reviews - 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Chris. I don't mean literally one property or one stock. It's a hypothetical question for $1,000,000.00 with no reference that it is the only $1,000,000.000 on hand. I did reference SP 500 tho but I get your point. Question was assuming both properties (1M and 4M) has a 6.5% cap rate. First one, buy cash $1,000,000.00 and second one with 1M down and 3M loan. Person in question is near retirement which probably changes the equation vs someone in their 30s. Thanks.
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Benjamin Aaker:
It also depends on what that person wants to do with their retirement and at what age they are retiring. If it is early and they want to do some work, investing in a larger property would be good. Less work would mean an ETF. A 65 yo person who is looking to do a little work might hire a property manager and buy the place outright for the cash flow as in your first scenario.
Thanks Benjamin. You are saying it's better to buy the place outright vs putting that money as a down for a property 4x larger value?
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Most people nearing retirement would not be interested in active owned real estate and could simply stick the million in a bond ladder and get 4-5% risk free return. The government is paying people and companies a premium to not invest.
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
It just totally depends (as has been said) what your tolerance is for getting involved. I know I would dump that into distressed properties and start swinging a hammer!
Real Estate is too much fun and always a good safe place to stash your money...plus you're helping to provide quality housing for your neighbors.
So do you want to play it safe? Or have fun?
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Mike Dymski:
Most people nearing retirement would not be interested in active owned real estate and could simply stick the million in a bond ladder and get 4-5% risk free return. The government is paying people and companies a premium to not invest.
Thanks Mike. Someone once said that keeping money in retirement account (401k or otherwise) will cause you to be poorer every year as you live on it and withdraw $$ from your account every year. Where as putting it to work in RE will result you being richer every year. Wanted to put it out there and hear from RE investors who are walking the walk.
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Bruce Woodruff:
It just totally depends (as has been said) what your tolerance is for getting involved. I know I would dump that into distressed properties and start swinging a hammer!
Real Estate is too much fun and always a good safe place to stash your money...plus you're helping to provide quality housing for your neighbors.
So do you want to play it safe? Or have fun?
Have fun. And not loose too much in the process! Thanks for your input.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Quote from @Kevin S.:
Quote from @Mike Dymski:
Most people nearing retirement would not be interested in active owned real estate and could simply stick the million in a bond ladder and get 4-5% risk free return. The government is paying people and companies a premium to not invest.
Thanks Mike. Someone once said that keeping money in retirement account (401k or otherwise) will cause you to be poorer every year as you live on it and withdraw $$ from your account every year. Where as putting it to work in RE will result you being richer every year. Wanted to put it out there and hear from RE investors who are walking the walk.
Passive investments like bonds and index funds are not comparable or alternatives to active investments like real estate. It's comparing apples to orangutans. The right investment depends on goals. If an investor wants control, passive investments like index funds are a nonstarter. If an investor wants to be passive, most real estate is a nonstarter.
Most of us have retirement accounts (such as 401k) and real estate...and don't consider low cost tax deferred retirement accounts with an employer match to be a bad thing.
- 2yBenjamin AakerPro MemberRental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votesNope, it could be better, but it depends on your situation. Your question presumed 3 options - buy with cash at a 6.5% return or purchase a property 4x the size or put it in ETFs. Not everybody retires at age 65. Some want to retire earlier, but aren't ready to quit working. Earlier retiring would mean willingness to take more risk and play the long game - hence the 4x thought for that person.
Quote from @Kevin S.:
Quote from @Benjamin Aaker:
It also depends on what that person wants to do with their retirement and at what age they are retiring. If it is early and they want to do some work, investing in a larger property would be good. Less work would mean an ETF. A 65 yo person who is looking to do a little work might hire a property manager and buy the place outright for the cash flow as in your first scenario.
Thanks Benjamin. You are saying it's better to buy the place outright vs putting that money as a down for a property 4x larger value?
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Benjamin Aaker:
Nope, it could be better, but it depends on your situation. Your question presumed 3 options - buy with cash at a 6.5% return or purchase a property 4x the size or put it in ETFs. Not everybody retires at age 65. Some want to retire earlier, but aren't ready to quit working. Earlier retiring would mean willingness to take more risk and play the long game - hence the 4x thought for that person.Quote from @Kevin S.:
Quote from @Benjamin Aaker:
It also depends on what that person wants to do with their retirement and at what age they are retiring. If it is early and they want to do some work, investing in a larger property would be good. Less work would mean an ETF. A 65 yo person who is looking to do a little work might hire a property manager and buy the place outright for the cash flow as in your first scenario.
Thanks Benjamin. You are saying it's better to buy the place outright vs putting that money as a down for a property 4x larger value?
Assume cap rate is 6.5% for 1M or 4M property, assuming person retiring from work as the work 'retire' means(not working) and his age is 65. With all assumption cleared what is your thought on 1M with cash or 4x leveraged(1M down)?
- 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
Depends on how much you want to work during your retirement!
Unless you invest in a syndication, real estate is NOT passive.
If you DIY manage, you will probably average 2-4 hours/week. Yes, some weeks will be zero if no tenant calls. But others, may be a lot more if a furnace or ac unit fails and you have to get 3 bids and meet contractors at the property, etc.
Even if you hire a PMC, you need to spend a few hours monthly "managing the manager" and responding to questions and approval requests.
Logical Property Management4.9446 Reviews - 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Mike Dymski:
Quote from @Kevin S.:
Quote from @Mike Dymski:
Most people nearing retirement would not be interested in active owned real estate and could simply stick the million in a bond ladder and get 4-5% risk free return. The government is paying people and companies a premium to not invest.
Thanks Mike. Someone once said that keeping money in retirement account (401k or otherwise) will cause you to be poorer every year as you live on it and withdraw $$ from your account every year. Where as putting it to work in RE will result you being richer every year. Wanted to put it out there and hear from RE investors who are walking the walk.
Passive investments like bonds and index funds are not comparable or alternatives to active investments like real estate. It's comparing apples to orangutans. The right investment depends on goals. If an investor wants control, passive investments like index funds are a nonstarter. If an investor wants to be passive, most real estate is a nonstarter.
Most of us have retirement accounts (such as 401k) and real estate...and don't consider low cost tax deferred retirement accounts with an employer match to be a bad thing.
Agreed. And agree that person had accumulated both apples and orangutans all his life. He has both in his basket and now need to make a decision. Let's assume the person is willing to do 'whatever' needs to be done for 'maximum' returns with the focus on the words whatever and maximum for either scenario. Mind you whatever doesn't means him physically renovating the properties but making deals, dealing with contractors and property managers, CPAs, attorneys, etc. Yes, you got all your match in 401k, tax deferred benefit, passivity and you are now near retirement. Is there truth in the claim that having retirement (taxed and tax deferred) account for retirement means you get poorer every year as you draw funds to live on vs get richer with RE every year with rent, mortgage pay down, appreciation and tax benefits? People say it's 'diversity' and I agree fully. But the purpose of my question is only to find out if there is truth to the claim. That simple. Thanks for your input Mike.
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Michael Smythe:
Depends on how much you want to work during your retirement!
Unless you invest in a syndication, real estate is NOT passive.
If you DIY manage, you will probably average 2-4 hours/week. Yes, some weeks will be zero if no tenant calls. But others, may be a lot more if a furnace or ac unit fails and you have to get 3 bids and meet contractors at the property, etc.
Even if you hire a PMC, you need to spend a few hours monthly "managing the manager" and responding to questions and approval requests.
I agree and thanks for your comment. The original question was : Do a person buy all cash (1M) RE or leverage his 1M for a larger 4x RE with either one 6.5% cap rate. Secondary to that question is the claim (by someone) : One become poorer with time as he draws from his retirement account every year vs getting richer with time if he hold retirement wealth in RE.
- Investor · Colorado Springs, CO · Member since 2016 · 15 posts · 10 votes2y
I've been investing in stocks for nearly 30 years. Real estate for 10 years in multiple markets. Both with great success.
My 2 cents...
Put the money in a dividend growth portfolio like VIG or FDVV, 70% US, 30% international, set it and forget it and go about your life.
Real estate takes a lot of time to find and manage properties as well as to monitor all the changing landlord laws. It's way more work and long-term (over 30 years) you're actual return from RE vs stocks won't be much more unless you're constantly selling and optimizing your RE portfolio and giving up your free time and your lifestyle in the process - 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Thanks for the advice, Rob. Good to hear from someone who actually did BOTH for a LONG time. Would your opinion change if all the RE was handled by professional PM company? This will remove all the factors you mentioned such as managing, keeping with the landlord laws etc? Thanks.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Hey @Kevin S.,
The question you need to ask yourself first is:
what is the purpose of this money?
real estate, stocks, bonds, corporate debt, private credit, ATMs, etc are all great investments. But these investments are tools in a toolbelt.
All of these people suggesting things are saying what they would do, and they are not you. What is your goal? Cashflow? Networth growth? Wealth preservation? Once you have the goal in mind, then you can choose the best asset for that. Take it from a guy who has blown 1M+ on assets that did not fit with my goals, because smart people told me they were "good investments" - Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes2y
If you're looking to retire and then manage rental properties, then moving that $1mm into a few properties may be a good idea. If you want to be retired and have passive income, then investing into real estate syndications, debt funds, oil and gas companies, hard money lending, etc are good options. Either way takes a ton of education on the front end.
- 2yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
Quote from @Mike Dymski:
Quote from @Kevin S.:
Quote from @Mike Dymski:
Most people nearing retirement would not be interested in active owned real estate and could simply stick the million in a bond ladder and get 4-5% risk free return. The government is paying people and companies a premium to not invest.
Thanks Mike. Someone once said that keeping money in retirement account (401k or otherwise) will cause you to be poorer every year as you live on it and withdraw $$ from your account every year. Where as putting it to work in RE will result you being richer every year. Wanted to put it out there and hear from RE investors who are walking the walk.
Passive investments like bonds and index funds are not comparable or alternatives to active investments like real estate. It's comparing apples to orangutans. The right investment depends on goals. If an investor wants control, passive investments like index funds are a nonstarter. If an investor wants to be passive, most real estate is a nonstarter.
Most of us have retirement accounts (such as 401k) and real estate...and don't consider low cost tax deferred retirement accounts with an employer match to be a bad thing.
Love the "apples and orangutans" Mike!
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
First, figure out your strategy, goals, level of involvement, etc. I think further educate yourself. Trying to compare the S&P to purchasing an individual rental property, which people keep doing is ludicrous.
Hmm... Why do licenced/fiducary advisers keep recommending a broad based etf? Risk diversification, don't pick a sector, don't time the market, no leverage, etc.
However, what is real estate investing? Picking a particular sector... picking a particular market... in some ways timing the market, etc.
S&P etf isn't the only way to go. if you want income vs growth, get any of the various income producing securities or funds that have been putting out dividends for years, if not decades. Many are now doing 10% and even 12% yields. Some are even tax free. Its completely hands-off (other than monitoring your account), very liquid, no additional expenses (like a leaking toilet, new roof, new flooring, etc.), and not deferred tax liability (which automaticlaly happens with a rentla).
Oh, and you still get a step up in basis --- don't know why it keep being sold "as-if" real estate is the only asset that gets a step in basis on death... And the transfer is really easy, no probate (just assign a beneficiary), and you don't even have to re-record a deed...
But back to your question about one property all cash or leverage? Generally, if you leverage you'll have reduced cash flow. So... go back to step one and figure out your end goal. Are you really in dire need of cash/income to live on? or trying to leave a legacy?
Hope this helps. Happy to chat. Good luck.
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Account Closed:
Hey @Kevin S.,
The question you need to ask yourself first is:
what is the purpose of this money?
real estate, stocks, bonds, corporate debt, private credit, ATMs, etc are all great investments. But these investments are tools in a toolbelt.
All of these people suggesting things are saying what they would do, and they are not you. What is your goal? Cashflow? Networth growth? Wealth preservation? Once you have the goal in mind, then you can choose the best asset for that. Take it from a guy who has blown 1M+ on assets that did not fit with my goals, because smart people told me they were "good investments"Thanks Zach. The goal is obviously both if possible, cash flow and wealth preservation. Growth too if possible. If someone take RMD on 1M from 401k he/she would get about $80,000 for 26 yrs after which it is zero. If he cash out 401k(@ 60 y.o), pay tax and buy RE with remaining cash, he/she will get less, about $45,000/yr (assuming 6.5% cap rate). After about 10-12 yrs the cash flow will be about $70,000/yr (5% increase in rent annually). Needless to say it increases every year in perpetuity besides the appreciation and other tax benefits. Now, of course I don't know if this hypothetical scenario is true which is why I am here seeking comments from those who have done it or failed at it. Thanks all.
- 2yKevin S.Member since 2024 · 400 posts · 240 votesOP
Quote from @Todd Dexheimer:
If you're looking to retire and then manage rental properties, then moving that $1mm into a few properties may be a good idea. If you want to be retired and have passive income, then investing into real estate syndications, debt funds, oil and gas companies, hard money lending, etc are good options. Either way takes a ton of education on the front end.
Good advice Todd. Thank you.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @Kevin S.:
Quote from @Account Closed:
Hey @Kevin S.,
The question you need to ask yourself first is:
what is the purpose of this money?
real estate, stocks, bonds, corporate debt, private credit, ATMs, etc are all great investments. But these investments are tools in a toolbelt.
All of these people suggesting things are saying what they would do, and they are not you. What is your goal? Cashflow? Networth growth? Wealth preservation? Once you have the goal in mind, then you can choose the best asset for that. Take it from a guy who has blown 1M+ on assets that did not fit with my goals, because smart people told me they were "good investments"Thanks Zach. The goal is obviously both if possible, cash flow and wealth preservation. Growth too if possible. If someone take RMD on 1M from 401k he/she would get about $80,000 for 26 yrs after which it is zero. If he cash out 401k(@ 60 y.o), pay tax and buy RE with remaining cash, he/she will get less, about $45,000/yr (assuming 6.5% cap rate). After about 10-12 yrs the cash flow will be about $70,000/yr (5% increase in rent annually). Needless to say it increases every year in perpetuity besides the appreciation and other tax benefits. Now, of course I don't know if this hypothetical scenario is true which is why I am here seeking comments from those who have done it or failed at it. Thanks all.
So now it depends on how much work you want to put in. Real estate property is the better call for those who want to do the work
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