What to do with $1,000,000.00?
Most Popular Reply
Real Estate Investor 路 Unadilla NY 路 Member since 2017 路 418 posts 路 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 Agent 路 Santa Barbara, CA 路 Member since 2024 路 2 posts 路 1 vote2y
Hi Kevin,
Depends on where you are located. In my marketplace of Santa Barbara, where the median price for a home sells at ~$2M, I would use some of that $1M as a down payment towards a property, such as a duplex and house hack. Or, I would use that money towards a flip for greater profit.
In other marketplaces where home values are substantially lower and cash flow is higher, you can put that $1M towards buying multiple cash flowing properties, or even become a stakeholder of a larger apartment complex (also known as syndication).
If you're willing to assume more risk for greater return, going through the flip or live-in-flip route is a great option. For more stability, buy-and-hold is the way to go.
I hope this helps!
- Investor 路 Austin, TX 路 Member since 2009 路 58 posts 路 8 votes2y
There are a lot of good responses.
This is what I would do:
Buy as large a property as I can. A $4 million property is better than a $2 million property.
Why?
A $4 million property will give you a depreciation of $145,440. So any net income you make would be essentially tax-free. You become a real estate professional and you can carry over any losses to subsequent years.
Let the property appreciate a bit and cash out whatever you can while ensuring that you have all the expenses met and you have some money to live on. Then you either buy other properties or put the extra money into other types of investment vehicles, such as S&P 500 or treasury bills or whatever.
Now, if the $1 million is in a retirement account then you move it into a self-directed IRA and let your IRA buy the property. Then you only worry about taxes on the money you withdraw from your IRA. You may also convert your regular IRA to a Roth IRA and never have to worry about paying taxes for the rest of your life. :)
Above are just some ideas. Talk to a real estate-savvy tax/legal professional before you make the moves.
- 2yWale LawalBusiness MemberReal Estate Broker 路 Houston | Dallas | Austin, TX 路 Member since 2018 路 5k+ posts 路 2k+ votes
Deciding what to do with a significant sum of money, especially as someone approaches retirement, involves careful consideration of financial goals, risk tolerance, and lifestyle preferences. Here are a few options to weigh, along with their potential considerations:
1. Buy a Single Property with Cash:
Pros: Stable Cash Flow, Reduced Debt, Full ownership gives you control.
Cons: Illiquidity, Property Management, Concentration Risk
2. Use it for a Down Payment on a $4,000,000 Property:
Pros: Leverage, Diversification, Potential Appreciation
Cons: Larger Debt, Market Volatility, Higher Expenses
3. Leave it in S&P 500 ETF:
Pros: Liquidity, Diversification, Historical Returns
Cons: Market Volatility, Market Risk
Considerations:
Income Needs: Determine how each choice will fit into your projected income needs in retirement.
Determine your level of risk tolerance. Stocks and real estate have distinct risk profiles, so the choice you choose should be based on how comfortable you are with risk.
Diversification: Take into account how crucial it is for your entire portfolio to be diverse. Having a diverse portfolio of assets can aid in risk management.
To make decisions that are in line with your retirement goals and financial well-being, you must do extensive study, maybe with the help of financial specialists.
NETWORTH BUILDERS5236 Reviews - 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Lee Ali:
There are a lot of good responses.
This is what I would do:
Buy as large a property as I can. A $4 million property is better than a $2 million property.
Why?
A $4 million property will give you a depreciation of $145,440. So any net income you make would be essentially tax-free. You become a real estate professional and you can carry over any losses to subsequent years.
Let the property appreciate a bit and cash out whatever you can while ensuring that you have all the expenses met and you have some money to live on. Then you either buy other properties or put the extra money into other types of investment vehicles, such as S&P 500 or treasury bills or whatever.
Now, if the $1 million is in a retirement account then you move it into a self-directed IRA and let your IRA buy the property. Then you only worry about taxes on the money you withdraw from your IRA. You may also convert your regular IRA to a Roth IRA and never have to worry about paying taxes for the rest of your life. :)
Above are just some ideas. Talk to a real estate-savvy tax/legal professional before you make the moves.
Thanks for your advice, Lee. Is the tax benefit and tax sheltering (i.e tax rules) different in a SDIRA account owned property vs property bought after cashing out the retirement account?
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Wale Lawal:
Deciding what to do with a significant sum of money, especially as someone approaches retirement, involves careful consideration of financial goals, risk tolerance, and lifestyle preferences. Here are a few options to weigh, along with their potential considerations:
1. Buy a Single Property with Cash:
Pros: Stable Cash Flow, Reduced Debt, Full ownership gives you control.
Cons: Illiquidity, Property Management, Concentration Risk
2. Use it for a Down Payment on a $4,000,000 Property:
Pros: Leverage, Diversification, Potential Appreciation
Cons: Larger Debt, Market Volatility, Higher Expenses
3. Leave it in S&P 500 ETF:
Pros: Liquidity, Diversification, Historical Returns
Cons: Market Volatility, Market Risk
Considerations:
Income Needs: Determine how each choice will fit into your projected income needs in retirement.
Determine your level of risk tolerance. Stocks and real estate have distinct risk profiles, so the choice you choose should be based on how comfortable you are with risk.
Diversification: Take into account how crucial it is for your entire portfolio to be diverse. Having a diverse portfolio of assets can aid in risk management.
To make decisions that are in line with your retirement goals and financial well-being, you must do extensive study, maybe with the help of financial specialists.Thank you Wale. I did consider all the bullet points you listed. I wanted to see if there is anyone here on BP (since this is a REI forum) who chose one over the other and can vouch for it, especially RE over SP500 and why. And share their journey.
- Member since 2024 路 1 post 路 1 vote2y
Hi Kevin,
I think as everyone has said so far, it depends.
I personally have built a large portfolio over the past decade and love passive income. That being said I have also been very active and doing rehabs through the last decade to support my growth even more.
By your question, it looks like between a property (or properties) and staying in the SP you want to be hands off.
I think you you already have experience in the markets maybe keep some of your cash there and diversify into a few passive income homes.
That way you get the best of both worlds. I personally am all in on real estate but I think depending on tax benefits, and ease of use for you that's the best fit for you. But if you have not been in real estate so far putting so much in al at once may or may not be a fit for you as stocks and the market are much more flexible when you want to get out of something that is not working.
Wishing you good luck on your decision.
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Sara Bannister:
Hi Kevin,
I think as everyone has said so far, it depends.
I personally have built a large portfolio over the past decade and love passive income. That being said I have also been very active and doing rehabs through the last decade to support my growth even more.
By your question, it looks like between a property (or properties) and staying in the SP you want to be hands off.
I think you you already have experience in the markets maybe keep some of your cash there and diversify into a few passive income homes.
That way you get the best of both worlds. I personally am all in on real estate but I think depending on tax benefits, and ease of use for you that's the best fit for you. But if you have not been in real estate so far putting so much in al at once may or may not be a fit for you as stocks and the market are much more flexible when you want to get out of something that is not working.
Wishing you good luck on your decision.
Thanks Sara. I think you are the first person who is 'all in' on RE. I don't want to be involved in rehabs. That may be due to unpleasant stories I hear so often or simply lack of knowledge and experience. It may change once I get started. Appreciate your input.
- Investor 路 Austin, TX 路 Member since 2009 路 58 posts 路 8 votes2y
Disclaimer: I am not a tax professional. I am just discussing ideas with fellow investors. 馃檪
Yes.
If you keep your real estate holdings in SDIRA any tax consequences are at the time of withdrawals from SDIRA depending on your age. It's like stocks appreciation or dividends. They aren't taxed in the year they are earned either. The depreciation is not used because it brings no value. It just simplifes your property income and tax calculations.
If you cash out and then you lower the money to play with because you need to pay taxes in the year of withdrawal of the funds and penalty if you are under 59 1/2 years old.
But in this scenario depreciation and real estate professional status can work wonders if you are making a decent amount of money outside of real estate.
- Lender 路 United States 路 Member since 2020 路 1k+ posts 路 499 votes2y
depends on the life you plan to live in retirement. In my opinion, buying homes all cash with no intentions of refinancing them isn't the way to go. You have dead equity that you never plan to ever tap into, which is arguably one of the best advantages of real estate.
Assuming you have $1M and are nearing retirement, I'd keep $250k in the bank and put $750k down on rentals with 80% financing. This depends on how connected you are for investment opportunities , of course.
The mortgages offer tax advantages and allow you to leverage your capital. Pay a management company to avoid having to come out of retirement.
There's no right or wrong. It's what works for you.
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Timothy Hero:
depends on the life you plan to live in retirement. In my opinion, buying homes all cash with no intentions of refinancing them isn't the way to go. You have dead equity that you never plan to ever tap into, which is arguably one of the best advantages of real estate.
Assuming you have $1M and are nearing retirement, I'd keep $250k in the bank and put $750k down on rentals with 80% financing. This depends on how connected you are for investment opportunities , of course.
The mortgages offer tax advantages and allow you to leverage your capital. Pay a management company to avoid having to come out of retirement.
There's no right or wrong. It's what works for you.
Pretty good input and I voted for it. I see you are a mortgage broker not a lender. What is your take on choosing between a mortgage broker vs lender? I am told broker can shop for better rates, has more choices(of lenders) and use one credit hard check vs more than one credit pull if shopping between 2 or 3 lenders. Thanks.
- Real Estate Consultant 路 Cleveland 路 Member since 2020 路 6k+ posts 路 3k+ 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.
Buy anything, as long as you get about 10% NET per year. Who cares if 10 SF, or one MF, money is money
- Lender 路 United States 路 Member since 2020 路 1k+ posts 路 499 votes2y
Quote from @Kevin S.:
Quote from @Timothy Hero:
depends on the life you plan to live in retirement. In my opinion, buying homes all cash with no intentions of refinancing them isn't the way to go. You have dead equity that you never plan to ever tap into, which is arguably one of the best advantages of real estate.
Assuming you have $1M and are nearing retirement, I'd keep $250k in the bank and put $750k down on rentals with 80% financing. This depends on how connected you are for investment opportunities , of course.
The mortgages offer tax advantages and allow you to leverage your capital. Pay a management company to avoid having to come out of retirement.
There's no right or wrong. It's what works for you.
Pretty good input and I voted for it. I see you are a mortgage broker not a lender. What is your take on choosing between a mortgage broker vs lender? I am told broker can shop for better rates, has more choices(of lenders) and use one credit hard check vs more than one credit pull if shopping between 2 or 3 lenders. Thanks.
Being a broker, I may sound biased, but here's the reality: when you call a lender, they are going to sell you that they are the best option, because nobody is going to sell you on using their competitor.
But as a broker, there's no reason to be biased. If i quote you with 8 different lenders, I get paid the same amount regardless, so there's no reason for me to play a favorite.
To add, if you're working with an experienced broker, he or she will know the smoothest lender to work with. - 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Bob S.:
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.
Buy anything, as long as you get about 10% NET per year. Who cares if 10 SF, or one MF, money is money
Thanks Bob. That is a true but simplified solution. Because I am new to REI and have all assets in the market I was seeking a more in depth answer especially from seasoned RE investors who beat SP500. Isn't the return in RE more like 20% because it is leveraged? I understand RE is more involved as part of the deal.
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Timothy Hero:
Quote from @Kevin S.:
Quote from @Timothy Hero:
depends on the life you plan to live in retirement. In my opinion, buying homes all cash with no intentions of refinancing them isn't the way to go. You have dead equity that you never plan to ever tap into, which is arguably one of the best advantages of real estate.
Assuming you have $1M and are nearing retirement, I'd keep $250k in the bank and put $750k down on rentals with 80% financing. This depends on how connected you are for investment opportunities , of course.
The mortgages offer tax advantages and allow you to leverage your capital. Pay a management company to avoid having to come out of retirement.
There's no right or wrong. It's what works for you.
Pretty good input and I voted for it. I see you are a mortgage broker not a lender. What is your take on choosing between a mortgage broker vs lender? I am told broker can shop for better rates, has more choices(of lenders) and use one credit hard check vs more than one credit pull if shopping between 2 or 3 lenders. Thanks.
Being a broker, I may sound biased, but here's the reality: when you call a lender, they are going to sell you that they are the best option, because nobody is going to sell you on using their competitor.
But as a broker, there's no reason to be biased. If i quote you with 8 different lenders, I get paid the same amount regardless, so there's no reason for me to play a favorite.
To add, if you're working with an experienced broker, he or she will know the smoothest lender to work with.Thank you. What about credit check? Do broker need credit pulled multiple times when shopping with multiple lenders?
- Morris County, NJ 路 Member since 2020 路 5k+ posts 路 2k+ votes2y
@Kevin S. If your lenders pull your credit within the same time period, it counts as one pull. Say about 2 weeks, maybe three. So, wise lenders will ask first,and if they understand you are shopping, they will wait until you tell them. Basiclaly, you reach out to a bunch of lenders, give them your info, situation, etc. Once you've contacted whom you want, then you tell them to pull your credit say one particular week.
A credit check here and there doesn't kill your credit, and it recovers relatively quickly.
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @David M.:
@Kevin S. If your lenders pull your credit within the same time period, it counts as one pull. Say about 2 weeks, maybe three. So, wise lenders will ask first,and if they understand you are shopping, they will wait until you tell them. Basiclaly, you reach out to a bunch of lenders, give them your info, situation, etc. Once you've contacted whom you want, then you tell them to pull your credit say one particular week.
A credit check here and there doesn't kill your credit, and it recovers relatively quickly.
Thanks David. Btw I read another post here by Beth Johnson (lend2live) whom you referenced before and certainly piqued my interest. I will be checking that out too.
- Real Estate Consultant 路 Cleveland 路 Member since 2020 路 6k+ posts 路 3k+ votes2y
Quote from @Kevin S.:
Quote from @Bob S.:
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.
Buy anything, as long as you get about 10% NET per year. Who cares if 10 SF, or one MF, money is money
Thanks Bob. That is a true but simplified solution. Because I am new to REI and have all assets in the market I was seeking a more in depth answer especially from seasoned RE investors who beat SP500. Isn't the return in RE more like 20% because it is leveraged? I understand RE is more involved as part of the deal.
I am basing the 10% net on a cash purchases. Sure, you can leverage and buy more, and your COC will be higher % wise. I prefer not to have any debt.
All the best
- Investor 路 Arlington, VA 路 Member since 2021 路 50 posts 路 28 votes2y
@Kevin S. This amount of net worth would generally make someone an Accredited Investor, meaning different types of investment options are available to them.
They could put some or all of that money into private real estate deals - like syndications - and make 14-20% Average Annual Returns.
This is what I'm focusing on right now!
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Louisa Davis:
@Kevin S. This amount of net worth would generally make someone an Accredited Investor, meaning different types of investment options are available to them.
They could put some or all of that money into private real estate deals - like syndications - and make 14-20% Average Annual Returns.
This is what I'm focusing on right now!
How do you vet these deals so as not to loose money or end up holding properties you never intended to own? How risky is it? Thanks.
- Investor 路 Hopedale, MA 路 Member since 2021 路 321 posts 路 212 votes2y
when you say 'approaching retirement,' how long are we talking? one option would be using it to BRRRR enough properties to generate the desired amount of monthly profit in the end. as far as cash vs down payment, if you want to build more wealth over time, i would definitely use debt so that you can buy 'more' ($) real estate. leaving it in index funds isn't a BAD idea, but if you have the resources (time/knowledge) to invest in RE & do it wisely, you will likely come out so much farther ahead. another question here is, how much monthly income are you looking for this nest egg to generate in retirement?
- Investor 路 Arlington, VA 路 Member since 2021 路 50 posts 路 28 votes2y
@Kevin S. That's the key question! The most important thing is to vet the General Partners, and then the deal, and the market. Personally I look at their track record and I also do background checks.
I started by passively investing as a Limited Partner, and now I play a role as an active General Partner. Happy to share my experiences 1:1.
- 2yDennis S.Pro MemberInvestor 路 Chattanooga, TN 路 Member since 2013 路 17 posts 路 2 votes
@Kevin Si
Here is another option out of many already mentioned so far:
Do both - real estate + diversified stock market via low fee dividend ETFs. Split your funds to invest accordingly. Use some leverage to buy the property for tax advantages... At the same time retain access to most of your capital via a line of credit to the properties equity. Structure the entire thing as if you get a pay check every month (from LoC) so its consistent and predictable and let the cashflow from the property pays off the line every month. Let the ETF grow via dividends and use as you need them via the 4% rule...
- 2yKevin S.Member since 2024 路 400 posts 路 240 votesOP
Quote from @Jessie Dillon:
when you say 'approaching retirement,' how long are we talking? one option would be using it to BRRRR enough properties to generate the desired amount of monthly profit in the end. as far as cash vs down payment, if you want to build more wealth over time, i would definitely use debt so that you can buy 'more' ($) real estate. leaving it in index funds isn't a BAD idea, but if you have the resources (time/knowledge) to invest in RE & do it wisely, you will likely come out so much farther ahead. another question here is, how much monthly income are you looking for this nest egg to generate in retirement?
How much monthly income can 1M generate in about 9-10 yrs in RE (leveraged)? Try to leave 'it depends' out. LOL. Guesstimate based on normal, average, median, 50% percentile. Thanks.
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