How to invest $500k for maximum passive cashflow?

30 Replies

If we were to have $500k cash available to invest, what strategy could we use to get the maximum passive cashflow. Looking for ideas with and without leverage.

Three tier system I came up with.

1 - Setup an investment with part of the seed money (in this case $500k), that pays for the cost of the seed money and the investment.  This frees up the rest of the unused seed money to...

2 - Flip the rest of the Seed money over and over again.  Reinvest the profits from these flips until your seed money is tripled....then,...

3 - Take the profits from continued flipping to buy cash flow properties.

Repeat steps #2 and 3 until tired of making money.

Important points:

A - There is a special type of investment you need to do in Step #1 in order to accomplish what I wrote, and control risk.

B - In step #2, I said flip the cash.  I didn't say properties...although they still could be.

C - By the time you get to Step #3, you can spend the flip profits, but never spend the expanded seed money.  This allows you to repeat this to infinity.

D - The entire system costs $0 to execute.  No matter how hard you try, the system won't let you spend any money.

Originally posted by @Jen Pothilat:

@Joe Villeneuve Can you please elaborate on the special type of investment? Thanks!

Sure. The investment must have income to cover the cost of the investment, and the cost of the original loan. So, it must be a NNN

Hello Jen, What is your objective? Income or Growth or a bit of both? And what is your risk tolerance? The answers to those questions will help define what asset classes you should invest in and what markets you should choose. If you are chasing income, invest the money in a Mobile home park that owns the trailers and structure owner financing agreements with the home owners. 500K will generate a considerable amount of income in that asset class. I would steer clear of most types of commercial properties until the interest rates start declining again, unless I am getting commercial property at a steep discount. But again, if all you care about is income and not growth, there will be commercial properties that could fit your objectives. You can also invest in Assisted Living Facilities if you have the stomach for it (Very stressful, high staff turnover, liability magnet) and it will be a fairly profitable investment for a while yet with the aging population we have and while 500K won't get you up and running in most parts of California for the ALF business, you could quite possibly operate a 16 bed facility in Arizona without any debt with that money and usually net yourself six figures annually in returns as long as you are able to keep the property occupied. It depends on your risk tolerance, how passive really do you want to be and what ultimately your objectives are. Would be happy to talk more if we are ever doing business together.

@Jen Pothilat In the last 5 months I purchased 3 buildings and 26 unIts in Kansas City MO. I put down appox $700k and have 8k+positive CashFlow.

There’s a light rail system that just got approved a fre weeks ago and will break ground in two yrs finished in four yrs.

Bottom line I would invest in multi units, in the same area. I have teams looking all over the content but the cash on cash return in KS MO is hard to beat.

I also live in San Diego

@Tushar Radke We are mainly looking for cash flow and some Growth. We are thinking about multi family properties. What we don’t want is another job, so no flipping. I’m not sure we’re ready to dive into commercial yet. We are not big risk takers. We want to be able to sleep at night and have as much passive income as possible.

@Jen Pothilat I am not allowed to post my email address in this forum but should you connect directly, I will send you the opportunities I come across along with my market research so you can evaluate for yourself. I will need to get a thorough understanding of your risk tolerance before I suggest anything. You do have access to a substantial amount of money and so diversifying your investment is not difficult. You must be familiar with SDCIA and NSDREI and if not, please Google it and attend the meetings. You will find a lot of investors at both meetings.

@Jen Pothilat you asked for passive investments. A lot of ideas so far have been active. 

The most passive RE deals will be: 

1. investing in a syndication

2. Investing in a DST or TIC

3. Invest in a REIT

Next will be passive, but require some work:

1. NNN lease properties (Walgreens, Dollar Tree, etc)

2. Hard money/private lending

3. Buy a turn key commercial/multi-family property. 

You might want to be a private lender.  With rates at 10-12% for private money would be the easiest "cash flow" you could make.  Just find someone with a solid track record and put that money to work.  

RIF is a real estate closed end fund that trades for 80 cents on the dollar of real estate equities it holds and pays an 8% dividend.  It is truly passive, cash flows like a midwestern ghetto house and never forgets to pay rent or lets its pit bull go to the bathroom in your living room.  

Put your money in a REIT if you want passive real estate investing. No such animal as passive cash flow in real estate. There is absolutely nothing about real estate investing that is passive. It is hard work, high risk and often very high stress.

Passive low risk does not describe real estate investing.

Originally posted by @Eddie Werner :

You might want to be a private lender.  With rates at 10-12% for private money would be the easiest "cash flow" you could make.  Just find someone with a solid track record and put that money to work.  

How does one go about finding these folks with solid track records paying 10-12% interest?

Originally posted by @Jen Pothilat:

If we were to have $500k cash available to invest, what strategy could we use to get the maximum passive cashflow. Looking for ideas with and without leverage.

 Buy a $1.5m property with $300k down, put in $200k.  Cash flow for about a year.  Refinance.  Argue a $2m value.  Get a $1.6m loan.  This pays off your loan, your down payment, and most of your upgrade funds.

Now you own a property that's nicely upgraded, with little out of pocket funds, that cash flows.  Take the money you got back to do the same things over again.

That's what I do. 

Originally posted by @Jen Pothilat:

If we were to have $500k cash available to invest, what strategy could we use to get the maximum passive cashflow. Looking for ideas with and without leverage.

Sorry, didn't really see the part about fully passive. So really even being a HML is out of the question. You have to pretty good options. Invest in a REIT, or buy a NNN deal.

I had some extra $ with no home so I just bought a 6.1 CAP walgreens. 20 year lease. built in rent increases. Possible bonus from asset appreciation. Was able to leverage

Originally posted by @Jen Pothilat:

@Cody L. Sounds like NNN would be the way to go. How did you find your deal?

I've done a lot of deals, I find them in different ways. Loopnet, MLS, random cold calling owners, bugging brokers (there are only 8-10 that make up about 80% of the transactions), calling people I've worked with before, etc.

I found my NNN deal because I'm on some email blast. But they are everywhere. And unlike multifamily, there is a pretty tightly established 'market price' that doesn't vary much when it comes to NNN. It sort of costs what it costs. Not so with multifmaily. At least not class C where the market is not efficient.

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