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.
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.
@Kevin Si
I would use the $1 million as a down payment to finance much larger projects like apartment, buildings or triple net lease commercial property. You want to be able to manage the largest portfolio possible with the smoothest maintenance systems. Usually these larger apartment communities and triple net lease shopping centers are so well maintained and have such good systems in place , you can almost be hands off with a good management team. Let me know if you want me to send you some options to look at here in South Florida. Our market is doing pretty well if you can get something with at least a six or 7% cap rate, that’s up-to-date on its repairs and maintenance. I will call that a good day especially if you’re $1 million can get you $5 million plus in assets.
Thanks Khalid. I have been looking at South Florida market and the price seem to be totally out of line with cash flow. I am talking about mainly duplexes and quadplex where the mortgage payment(without PM fees) are higher than rent. How is it even justified? To break even a down payment of 20% or even 35% is required. I understand the appreciation is much better than other market but the question is for how long as I believe it has run it's vertical trajectory course mostly by now.
Hi Kevin just a quick note to connect and to say thanks for your thought provoking questions insights and analysis you bring to the forum.
Will be 59 soon and looking to give up active work and the 1M questions was indeed where my emotions has/have been wondering. Am comfortable with income from 1M 4d nxt 30yrs at fairly moderate return of 7% ...Once again thanks and am following ur post keenly.
Thanks for following this thread. Lot of people have contributed to this subject so far with varied and interesting opinions. Each with valid points. I am just soaking it in and hopefully will make it work for me, only to contribute later to help someone else in the future as a way to give back. Going to your response of 7% return, is that from REI cash flow?
You did. I was expecting 7% return from cashing flowing properties. Which funds are you looking at. Many of these high dividends funds especially closer to double digits (9-12%) dividends funds tend to loose value over time(downward trending). The upward trending funds/ETFs gives 3.5-4% at best. Maybe someone can correct me.
@Kevin S. there are so many funds of all different ranges. Yes, the higher funds tends to lose price value, especially just recently in the past few years. But, the total return for many are up. the bdc's actually have done very well even in price. There are even more to choose from in the 7%-8% range. That's the typical "high yield" range -- granted "high yield" can also means 3%-4%. Its all variable.
One strategy is the "barbell" strategy where, for example, you use a small portion of funds to do 12%, and leave the rest of your funds at 4%-6% (which now you can do with the "blue chip" stocks) so you capture the high income, but also have dividend growth stocks that both appreciate in value and dividend.
So, a million bucks.
This is Real Estate forum so I'm guessing you are looking for RE options.
If this million was for pure investment then I'd:
Look in the smaller markets from Western PA through Ohio, Indiana, Iowa, etc. In those markets you can get multi's for 100k or less and put like 50k into them. So a project would cost 150k without financing. I do 6 of those for 900k. That will provide me with 15 - 20 doors that are mortgage free. If you average 1,000/door that will be 15k - 20k per month coming in and you still enjoy the appreciation of the buildings. If you get around 25% appreciation over prject costs then your 900k is now worth 1.125 million and you are making 200k/yr in cashflow. So in 5 years you are flush again with the Million. Probably some where in year 4 you'll reach your breakeven. Now you have 1.2 - 1.5 million in free equity to refi as well if you ever need to but you shouldn't cause the cashflow should be more than enough to stay liquid and just keep going.
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.
i would flip in hawaii, converting 5 mil to 10 mil in 12 months.
@Kevin S. as others mentioned, it depends on a million different factors specific to the investor (such as their current cashflow, future cashflow needs, current debts, net worth, other investments, their level of experience in REI, whether they have a w2, their tax situation, how much risk they can tolerate, how active/passive they need to be in the investing strategy, their health status, whether they have dependents, what type of lifestyle they want to have in retirement, etc., etc., etc.). ...A great strategy for one investor might be a terrible strategy for another investor, depending on these types of factors...
You mentioned the option of buying a single property that would cashflow $65k/yr...for some folks, $65k/yr is more than enough to live the lifestyle they want, and for others, $65k/yr would be a drop in the ocean...
Another consideration: let's say they buy that property that cashflows $65k/yr. What grade is that property, what grade is the neighborhood, and how much effort does that property take to manage? $65k/yr cashflow might be great if it's an A grade property that attracts only the most qualified tenants, and only takes an average of 1-2 hours per month to manage...but $65k/yr to manage a D property that ruins your life? No thanks--I'm not interested in that type of hassle for any amount of money.
...so, as with anything in investing, it all depends...
Good luck out there!
Hi Kevin just a quick note to connect and to say thanks for your thought provoking questions insights and analysis you bring to the forum.
Will be 59 soon and looking to give up active work and the 1M questions was indeed where my emotions has/have been wondering. Am comfortable with income from 1M 4d nxt 30yrs at fairly moderate return of 7% ...Once again thanks and am following ur post keenly.
Thanks for following this thread. Lot of people have contributed to this subject so far with varied and interesting opinions. Each with valid points. I am just soaking it in and hopefully will make it work for me, only to contribute later to help someone else in the future as a way to give back. Going to your response of 7% return, is that from REI cash flow?
You did. I was expecting 7% return from cashing flowing properties. Which funds are you looking at. Many of these high dividends funds especially closer to double digits (9-12%) dividends funds tend to loose value over time(downward trending). The upward trending funds/ETFs gives 3.5-4% at best. Maybe someone can correct me.
I think prices in just about every asset class in just about every state are out of line with cash flow =)
Put it in a managed portfolio and get a SBLoC without liquidating. I have a financial planner in Oregon/US VI who can write these loans for up to 2% under prime (last we spoke about it, like 2 years ago), and the portfolio cashflows something like 10% per year.
I would agree with what @Mike Klarman said. Western PA is a great area. I would say the best strategy would be to pick up single family homes in the $80-$120k range, put $30-$50k in, rent and re-finance. You can pretty quickly turn this into $10million in more of real estate. Between the steady cash flow and appreciation you would be set.
@Kevin Si what to do with $1M? Give it all to me 😂
LOL. That wasn't the advice I was looking for.
If he can give you 11% annualized return why not ;-) I myself could return you 11.05% no problemoooo LOL
@Kevin S. there are so many funds of all different ranges. Yes, the higher funds tends to lose price value, especially just recently in the past few years. But, the total return for many are up. the bdc's actually have done very well even in price. There are even more to choose from in the 7%-8% range. That's the typical "high yield" range -- granted "high yield" can also means 3%-4%. Its all variable.
One strategy is the "barbell" strategy where, for example, you use a small portion of funds to do 12%, and leave the rest of your funds at 4%-6% (which now you can do with the "blue chip" stocks) so you capture the high income, but also have dividend growth stocks that both appreciate in value and dividend.
I looked into dividend aristocrats stocks with 10-12% dividends but most are now valued at almost half. Which is why this whole topic started. With 20% down 80% leveraged, the returns hoover around 20% even in the absence of cash flow in the current market (where I am at). Am I wrong?
LOL. That wasn't the advice I was looking for.
If he can give you 11% annualized return why not ;-) I myself could return you 11.05% no problemoooo LOL
And how so? Btw, I don't think I am getting anything back from Jordan :)
So, a million bucks.
This is Real Estate forum so I'm guessing you are looking for RE options.
If this million was for pure investment then I'd:
Look in the smaller markets from Western PA through Ohio, Indiana, Iowa, etc. In those markets you can get multi's for 100k or less and put like 50k into them. So a project would cost 150k without financing. I do 6 of those for 900k. That will provide me with 15 - 20 doors that are mortgage free. If you average 1,000/door that will be 15k - 20k per month coming in and you still enjoy the appreciation of the buildings. If you get around 25% appreciation over prject costs then your 900k is now worth 1.125 million and you are making 200k/yr in cashflow. So in 5 years you are flush again with the Million. Probably some where in year 4 you'll reach your breakeven. Now you have 1.2 - 1.5 million in free equity to refi as well if you ever need to but you shouldn't cause the cashflow should be more than enough to stay liquid and just keep going.
Thanks for your advice and I voted for it. You make a good case except for a few things. I am new to REI and hence would be very nervous to invest out of state. I prefer to have my first and maybe second property within state before I have the courage for out-of-state venture. If you can refute that please make your case again and I am all ears. Maybe other investors here on BP who made a straight dive out of state with their very first property (without family in that state to help, being the state you grew up, just sheer luck or other reasons that will skew the opinion/experience) can chip in. Also, how do I know where within those states you mentioned? I do see OH mentioned a lot in this forum tho.
Put it in a managed portfolio and get a SBLoC without liquidating. I have a financial planner in Oregon/US VI who can write these loans for up to 2% under prime (last we spoke about it, like 2 years ago), and the portfolio cashflows something like 10% per year.
Thanks. Can you share contact info if you want to DM me?
definitely start in state.
I would agree with what @Mike Klarman said. Western PA is a great area. I would say the best strategy would be to pick up single family homes in the $80-$120k range, put $30-$50k in, rent and re-finance. You can pretty quickly turn this into $10million in more of real estate. Between the steady cash flow and appreciation you would be set.
Thank you Elise. From what I hear isn't it better not to use money to rehab, instead buy properties that doesn't need reno/rehab and keep the money for down payment of another house instead? I stay away from contractors and rehab as I have zero knowledge in that department. But your idea definitely sounds tempting. You are a realtor in western Pa?
@Kevin S. there are so many funds of all different ranges. Yes, the higher funds tends to lose price value, especially just recently in the past few years. But, the total return for many are up. the bdc's actually have done very well even in price. There are even more to choose from in the 7%-8% range. That's the typical "high yield" range -- granted "high yield" can also means 3%-4%. Its all variable.
One strategy is the "barbell" strategy where, for example, you use a small portion of funds to do 12%, and leave the rest of your funds at 4%-6% (which now you can do with the "blue chip" stocks) so you capture the high income, but also have dividend growth stocks that both appreciate in value and dividend.
I looked into dividend aristocrats stocks with 10-12% dividends but most are now valued at almost half. Which is why this whole topic started. With 20% down 80% leveraged, the returns hoover around 20% even in the absence of cash flow in the current market (where I am at). Am I wrong?
@Kevin S. (sigh) How long have you been looking at these public securities? Anywhere near as long as real estate? I can't refute "dividend aristocrat stocks with 10-12% dividends" since that list is generally 1% to say 5% (and this is supposed to be a real estate investing forum).... But for one example, look at ARCC. Its been going since 2004. Yeah, its had its down, but its been paying dividneds and is now well above its ipo. You know there are whole books written about debt and income investing, right?
Or, do private lending doing around 12%... very little, or less, price risk....
Your calc for 20%... I guess its right --- I think I've guessed at your ASSUMPTIONS... I'm not going to be able to find the post, but within say a month a poster talked about how he is watching his friend LIST a SFO area property for $1.8mil (and both doubt he will get it), but purchased its for $2.1mil in 2021... Figure out that return --- or, doesn't it matter since it didn't happen to oneself?
I do get somewhat miffed with the board. People talk about their great returns/appreciation, but say that they are unable or unwilling to pay the tax. Here is a "real life" example: https://www.biggerpockets.com/forums/48/topics/1169308-equit... (I was able to save the link to my post). Out of spite, the OP would rather not pay tax but keep going which is only a greater expense --- in my opinion as you can see.
I don't know about you guys, but I can't pay my bills with Title to a property. Just a few months ago, one of my properties was about to close at 15% above asking. A week before closing, it flooded out. I'm so glad that I have Title to a real piece of property that I can touch and can't go anywhere. What's the value at the time of the flood? And the value of the effort to deal with insurance and getting it put back together to sell?
Or, its okay to be like the thread from last night or the day before: some 70yr lady is asking for help how to sell her rental without paying any tax. She can't be a landlady anymore and I'm sure needs the money. .... Isn't that one of the lead generation techniques? Find a tired landlord and get their portfolio for a mini-steal? Basically like Buffett said, make sure you aren't the pansy...
Like I've said before, I'm not anti-real estate. I've been landlording for over 20years and did flips as well. I've had bad deals. I've lost money. Just lucky I was able to absorb it, keep going, and make more than I've lost. One needs to be realistic about investing, making money, and investing where the opportunities exist. Chops to becca for posting how its not all roses investing in that Ohio valley area: https://www.biggerpockets.com/forums/48/topics/1159104-overl...
I would agree with what @Mike Klarman said. Western PA is a great area. I would say the best strategy would be to pick up single family homes in the $80-$120k range, put $30-$50k in, rent and re-finance. You can pretty quickly turn this into $10million in more of real estate. Between the steady cash flow and appreciation you would be set.
Thank you Elise. From what I hear isn't it better not to use money to rehab, instead buy properties that doesn't need reno/rehab and keep the money for down payment of another house instead? I stay away from contractors and rehab as I have zero knowledge in that department. But your idea definitely sounds tempting. You are a realtor in western Pa?
Yes I am. My husband and i are investors and we also own a real estate firm that specializes in helping out of state and out of country investors for buy and holds, brrrs, and flips.