Another newbie!..Question:- If you had $400K how would you spend it?.

31 Replies

Hi Everyone,

This site looks fantastic and I've spent a lot of time already trying to suck up all the advise and information available that seems endless!:), its just great to have stumbled across it!.

I live in Seattle and currently have 2 duplex in buffalo and one single family in Lehigh Acres FL. One is paid off fully and the others have small mortgages of 40 and 60K.

As mentioned in the title I am very interested in how, on what and where experienced property investors would invest $400,000 if they were to go on a spending spree today?!. I am more interested in good positive cash flow but if you had $400K would that change the strategy?

Many thanks in advance for any advise.

Regards,

Andy Pillinger

I am one not to invest outside you have lived or know well. With that said evaluate those places you are familiar and analyze the price of property vs cash flow and go and invest there. I think you will find that Seattle area will not be as cash flow great as other areas.

@Andy Pillinger welcome to Bigger Pockets!

You may want to check out these other threads:

If you had $100 a month

If you had $8k

If you had $10k

If you had $15k

If you had $20k

If you had $30k

If you had $40k

If you had $65k

If you had $100k

If you had $160k

If you had $1million

If you had $10million

So no matter how much you have, there is a thread for you!

Andy,

The first thing I would do is throw out the word "spend" . If you want to spend your money, you can buy a Bently or a Rollex. I assume what you mean is invest. There are as many questions as there are answers and most have been discussed in these forums. Intially i would follow Jerry's advice and put it in the bank, if it is not there already. Next, what are your goals and requirements. Are you looking for cashflow, or equity buildup or both. Do you want to be active or passive in the investment? What is your risk tolerance and how aggressive do you want to be? What is your time line?

When you can answer those questions, you can look at the many ways to make your money work for you in RE. This can be done as passively as being a private lender for a hard money lender to actively fixing and flipping.

Once you answer some of those questions, then get yourself educated in the different options. I love buying MF properties from investors that had money, but had no clue how to run the investment they got themselves into. Don't be one of those.

Nice. research, Dawn. $400k is a good number though, since on your list there is a big gap between $160k and $1mm.

I'd buy 2 lots for $200k each, borrow $600k from a bank, build a duplex on each lot, and sell all for $1.3mm. Then I'd pay the bank back. And the tax man.

There is no one perfect answer that would fit all investors asking this ver same question. You must first decide how active or passive you want to be. Then pick a strategy that fits that selection and finally, pick a location to apply it.

For a one size fits all, I would invest it all in Barnard Enterprises, inc. projects, sit back and collect the returns. :)~

Jeff my goal is to make a living out of it and not have to work for a big corporation one day!. The penny only dropped a few days ago that i might be in a position to become alot more involved and serious about real estate investing.

I would like to mainly focus on cash flow but save a portion of the cash to try one short sale or foreclosure that needs 20-30K spent on it and then sell it on. However i am fully aware i have no experience in renovating and flipping at this point anyway.

Unfortunately i have to spend far more time thinking about my goals before i can answer some of your questions for you and myself.

Thank you for taking the time to respond , it was much appreciated. That goes for everyone who has answered my thread so far.

If I had $400k, I wouldn't put it in real estate as I invest in real estate with other peoples money/financing. Working with a financial adviser/investor, I would put it in oil wells. If was to put into real estate, would try to spread it out. Use $400k for the down payments on positive cash flow rentals, duplexes, maybe couple multi's. Spread it out.

I'd invest it into developing a real estate project in Orange County! We moved here because we knew it would be one of the first places to rebound, and it has a very broad based economy, with low unemployment of 5%. It hasn't disappointed. Though real estate prices in areas like this are high, they also hold value very well, and there's always a good demand. We are builders/developers, so it's what we do, build! There's a saying in construction "measure twice, cut once" meaning don't do things without thought. And... if you happen to come into some money like that, an it's unexpected, tuck it away for a year while you figure out what you're doing... THEN implement your well thought out plan :)

Hi Andy,

It's all in how you want to invest. Some of my clients are high level executives where their job keeps them traveling around the globe. They want to reduce tax base with depreciation and get a decent return.

So they might go for a 7 to 8 cap and then with tax equivalent yield hit double digits. They tend to go for turn key triple net leased properties or multifamily with a scale and size where they do not have to be actively involved day to day.

I find with some of my other clients that are doctor's and attorneys that even though they do not travel much they need more passive investments.

If you have 400k and you need 35k to live on annually then you can hit that with a 10 cap on a property. If you want a job then you do flipping. Rehab and flip is a job you have to put a bunch of time and energy into. As you get bigger with it you can systematize it and take yourself out of the process as much as possible. I have friends who flip constantly. You do not get the tax benefits of buy and hold so some still do flips but eventually go after some buy and holds for the long term.

I would take $150K and put it into a Margin Account with a Stock Brokerage, earmark $150K for real estate investments and put the remaining $100K into savings.

Because both the stock and real estate funds can be margined, you would have buying power of about $300K in the stock market, and $600K in real estate. Coupled with the savings give you Million Dollars to control. If I am able to clear even 3% on that (after all expenses including interest and loan payments) that gives me $30K income which being single, with my house fully paid for and no debt currently is more than my current annual expenses.

Likewise, my answer would depend on you goals. Seems like you’re not opposed to out of state; however, I like to be within 1-2 hours (total travel time) of investments to keep an eye on them. Next thing we'd need to know is what timeline are you looking to hold it for and what asset classes are you interested in?

To answer your question though, if I had 400k in cash to spend I would look into either B-/C+ small retail center on high traffic / high density areas next within a vicinity to a big box retail center (some place that might have an pho eating spot, mini-mart, whatever – I find these typically stay full and aren't hard to lease because you can afford to keep rents slightly below market). Or I would go for another multi-family. I like multi-family a lot and that is the primary concentration of my investments. If you have the knowledge for development, building small multi-family which can obtain FHA / owner occupancy financing like Jon mentioned is a great idea. If not perhaps consider areas that are "path of progress" and take advantage of low interest rates and cheaper properties than investing in areas such as core Seattle which potentially will be overbuilt with the large amounts new development in the pipeline. We're seeing a shift in Seattle where individuals cannot afford rent downtown Seattle and are having to move outside the city to seek lower rent, respectively the development hasn't been as intense in these areas so vacancy rates are low (well currently, they are low everywhere!).

And then there is everything everyone else has suggested. Tons of options!! I would not keep the money in the bank though, personally - and I don't like paper assets that could potentially have no value. Real estate is great, it's tangible.

Hi Brandon, what a great site this is for eager Real Estate investors. Once again thanks to all who have taken the time to respond.

After spending just 4 or 5 hours reading posts about an array of different topics there is no doubt the help and advise found here is second to none.

Andy -

I would focus on diversification. you already own cash-flowing properties, so that is great. You discuss potentially a flip or two, not a bad idea. But since you don't have the experience, you just need to ensure that you deal with someone reputable and that can do the dirty work for you.

There are also a number of very solid real estate investment funds that pay double-digit returns with very low risk. Go with a proven manager with a proven fund. That will supply you some additional cash in case the properties start having problems (and eventually they all do!).

Andy- imo, Joel was the winner on the answers. One size does not fit all. As many threads have discussed this subject in the past as Dawn pointed out, I keep trying to point out the same thing. Not enough info in your original post for anyone to tell you how to use it. Age, strategy, stress level, need for cash flow, need for growth, need to retain what your comfortable income already is, retirement needs/desires, significant other/wife desires, area bound, nervous about economy, willing to manage properties, willing to move, etc etc etc...

This would be a good START in your thought process. Screw up any one of those and you'll have a challenge you didn't want.

Remember when you think of investing:

NO one will ever take as good of care of your money as you will. Good luck. Rich

p.s. I hope you aren't counting on much of that 400K from the Fl property.....

Assuming non-IRA funds - if it were me I would open a Fidelity account, transfer the money there, arrange for margin, wait for the next Market correction of 15% or so, and then use about 90% of the cash to invest in Timber REITS paying 5-6-7%. Although maybe I would also spread it around a bit and add some big dividend Oils, say RSD.b as well as some Big Tobaccos to the mix. I would not buy any shares on margin - but borrowing out the cash on margin makes for a nice instant credit line for cash if something piques your Real Estate interest.

Then I would casually look around for some properties which suit your personal interests. I personally think that the future of Real Estate is 2/1/1's and 2/2/1's - so that's what I would buy.

You can collect the dividends while you wait, take the capital appreciation when it comes, and then patiently look for fat RE pitches. I would want to engineer in about 25-30% ROI - or you may as well just stay home and let the Stock Market companies do all the work for you.



Originally posted by @Andy Pillinger :
. . . . I am very interested in how, on what and where experienced property investors would invest $400,000 . . . .

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