What would you do with a million dollars?

Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes

If you had a million dollars and it was the only million you had sitting in a money market account drawing less than 1% per year how would you invest it?

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Aaron Mazzrillo

Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes

10y

Here's a great (and real) story about dead equity;

4 very astute investors were invited to speak on a panel back in 2008 when the real estate market was in a free fall.

An extremely well connected and respected hard money lender, the California king of REO properties, a syndicator and a landlord / wholesaler.

The moderator asked each person "what are you doing now to make money?"

The hard money lender went on and on about buying properties at auctions, REOs and short sales and then dealing with low appraisal values, fighting banks trying to get their buyers loans funded and all these other problems.

The REO King had just as long of a story. He was out hustling every day looking at foreclosed homes, writing up and submitting offers, dealing with agents and banks.

The syndicator also went on and on about struggling to discover the true value of inventory he was considering buying and then fighting appraisers on the resale side.

Finally, about 30 minutes later, we get to the landlord. The moderator asks, "And what are you doing to make money in this market?" He holds the microphone close to his mouth, glances to the side at the other three panelists, sits up straight, and says, "Collecting rent."

It was my rental portfolio that got me through those lean years as well. Values were sky high, even when I bought some of those houses, but I held on. I dug my nails in and held on. Values plummeted and rents went down a bit too. I kept hanging on. Then, the market calmed. Things started picking up. Values slowly creeped up and rents went right along for the ride too. I still own every house I bought pre-2008. They are all worth more than what I paid for them back then. My rents are higher. I was able to refinanced several into better 30 year, low interest fixed rate loans and now my cash flow is much better.

The market will surely hatchet my equity again in the future. Does it make sense to cash them all out and try to rebuy back in at a lower price? Maybe. Will I be able to get the same quality in the same neighborhoods and lock up the financing I have? I doubt it.

So, in my opinion, there is nothing wrong with some "dead equity" on the side as long as that equity is producing enough income to meet your needs. Think of it as an insurance policy. You might be getting a low return, but if you can spend every day doing exactly what you want to do and not have to think about it, is a double digit return necessary? My ROE on some of my properties is horrible. But, that money shows up month after month after month. If I take that money out, I am risking it no matter what I do with it. Locked up in a well located property is a pretty safe place regardless of what the economy is doing.

Every person on the planet needs three things to survive: food, water and shelter. Well, I don't have much of a green thumb and I think people can find water if they really need it. So, I don't mind being in the shelter business even if the returns aren't all that great. I can always do other things to make bigger checks.

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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
11y
I might be tempted to take the easy way out and lend it all doing HML. If you can compound at an average over 12%...more than likely much higher, you can live off the interest. The downside is...no appreciation or tax benefits. The upside: no tenants, broken AC units, evictions, etc.
1 Reply
Pavel Sakurets
Investor · Minneapolis, MN · Member since 2014 · 332 posts · 74 votes
11y
Depends if you want to be actively involved or not.
If not actively involved, lend it to somebody at your desired interest rate secured by a 1st mortgage.
If you want to be actively involved, buy a commercial property on auction (It's going to be small property, improve it, rent it out, refi, pull cash out, repeat).
1 Reply
Darren SagerPro Member
Investor · Tampa, FL · Member since 2013 · 2k+ posts · 1k+ votes
11y
After I bought a house, and furniture for that house, I'd buy a K-car, a nice Reliant automobile.
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Justin Fox
Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
11y
I would find decent performing funds and maybe a few stocks that are turning dividends, hope I get 5-7% return, use Schwan's and sit on my front porch everyday.
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Alfredo Perez
Investor · Coral Springs, FL · Member since 2015 · 1 post · 4 votes
11y
Originally posted by @John Arendsen:

@Luka MilicevicThanks for the HU! Those are some great fundamental ideas.
There's a lot of doubt when it comes to stock market I lost thousand of dollars my first year cause I didn't have the right amount of knowledge to survive in this world full of predator! Today I make money regardless market conditions I actually average 18% of my capital now that market is not that great versus 7% when market was at its "best" there are so many ways to invest (stocks, options, mutual funds, futures, mini futures etc) ways to protect your money in case anything happens (insurance for your money)
When it comes to real state there are ways to increase you purchasing power to at least 500% percent. I would find a hard money lender ( I can recomend you few) and all you have to do is have 20% of the real estate you trying to get in and they'll put the rest! Imagine how many properties you can buy (50? Why not more).
Finding your tax advantages would increase your income and protect your profits to not be bullied by Uncle Sam (I have a tax office)
Diversify your investments the "right way" diversification within the diversified! (Confusing?)
1. Diversify stock accounts:
-stocks, options, mutual funds, futures, binary options, long and short term investments
2. Real estate
Flips, buy and hold, rentals, cash deals, wholesale, tax deed opportunities, financing options and also promissory notes to people needing money to buy (you finance them 10% a year for 30 years) if they don't pay you re-sale the house at a bigger fee (hope they don't pay)
3. Physical Busines investment that doesn't require your precense (lots of them waiting for you)
4. Perfect time to buy an oil lease (100% ROI or more)
You can join venture with somebody else! Actually there's an opportunity now (30 barrels per day, 7 days a week at an avg of $ 40 per barril = +300k a year per lease)
Bottom line: DIVERSIFY YOUR MONEY!!!!
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James Park
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
10y
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J Scott Hamilton
Entrepreneur and Linguist · Braddock, PA · Member since 2015 · 70 posts · 40 votes
10y
In California I would do the following:
1) Find a piece of undeveloped land close to the end of a municipal bus line that runs very frequently and on weekends.
2) Use the 1 million to raise another 4 million in investor capital for a LLC structured as a limited partnership.
3) Build low income housing as an apartment building. Make sure the development qualifies for any and all tax credits. Make sure the passive investors get their share of the tax credits on the Schedule K-1.
4) Get a native Spanish speaking property manager. Allow one of the tenants to get a rate reduction for maintaining the landscaping.
5) Once the property is fully leased out and seasoned, sell off to a REIT.
6) Rinse and repeat.
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Account Closed
Investor · Los Angeles, CA · Member since 2015 · 53 posts · 34 votes
10y
I agree with James - diversify! Aim for a certain ROI on your money, based on your risk tolerance, and figure out how to make that by diversification. Are you ok with 10%? Or do you want more like 12-15%?
Besides everything else mentioned, multifamily syndication deals are one way to get a really good return (8-20%) and you could ladder your time frames so you have 3, 5, and 7 year deals to provide liquidity if needed.
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Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
10y
I would put $100K in a safe liquid investment, then I would approach Brian Burke about investing $500K with him. He is amazing. I would take the other $400K and spread it out between hard money lending and buy and hold/fix and flips.
2 Reply
Shankar raj Adhikari
Engineer · pokhara, kaski · Member since 2015 · 6 posts · 1 vote
10y
You all are most welcomed from Nepal !
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Doug McLeodPro Member
Investor · Cypress, TX · Member since 2014 · 496 posts · 205 votes
10y
@John Arendsen - I would find 2-5 syndicators of apartment deals (in the 50-100 unit range) who can run a killer value play and let them double my money every 2-5 years while paying me 6-20% cash flow.
1 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
It's all about what life you want. I certainly wouldn't buy a bunch of dumpy houses that are massive headaches.
I would take a 15% return living the life I want everyday of the week over working your tail off for 20%.
People that have 100k growing to 1 million tend to need maximum yield and usually take higher risks especially if they are younger.
When you get to millions most want passive or minimal involvement with a decent return.
25% return for a headache on 100k is still only 25,000. 1,000,000 at 15% is 150,000. Big difference because of the size of the funds. Living off 150,000 is pretty easy but 25,000 not so much.
A lot of people say diversify because they are not an expert in a particular investment strategy. Most experts get farther staying in their wheelhouse and only doing that. Do they throw a small percentage into other things? Sure they might throw a little but most is in their field of expertise. Where others see risk they see opportunity because they have a deeper level of understanding and what to look out for with their choice of investment.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
@John Arendsen, there are quite a variety of answers to your question, which isn't unusual when this question is posed on the forums. This is a really tough question to ask and get useful responses because most respondents will answer with what they would do (which makes sense) but many of them have never been in the position of having $1MM to invest. Even those who posed viable answers might change their answer when the rubber meets the road and they are putting their money where their mouth is.
If you are posing the question of what others would do, there are lots of answers posted...if the hidden question is what YOU should do, a response outlining what someone else would do doesn't do you a lot of good nor provide a lot of practical guidance. If what you should do really isn't the question, then ignore the following which I'll post for the benefit of others reading this thread that want answers to what they should do.
To determine what YOU should do, you have to consider three key factors.
1. What is your objective? Income, growth, or safety? If the answer is all, you have to decide the order of priority. The strategy you select should fulfill your objectives in the right order. (Of course having a diversified program with differing objectives is a good idea too...some $$ allocated to growth, some to income, some to safety).
2. What is your core competency? What are you NOT good at? Buying a bunch of houses in Detroit if you know absolutely nothing about buying houses in Detroit is a certain way to lose $1MM (for example...not picking on Detroit!).
3. How active do you want to be? Do you want to work all day sourcing property and managing rehabs, acquisitions, financing, dispositions, and tenants/toilets/trash? Or, do you want to spend your day on the beach and receive a quarterly statement and distribution check?
If you add up all of the potential combinations of answers to these three questions, you'll find that there are a lot of different specific scenarios, which is why there are so many different ways to invest $1MM. That said, if you add up all of the different ways to LOSE $1MM, you'll find not only more ways, but easier ways...so be careful out there!
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6 Reply
Account Closed
Wholesaler · Beverly Hills, CA · Member since 2015 · 1 post · 0 votes
10y
Originally posted by @John Arendsen:

If you had a million dollars and it was the only million you had sitting in a money market account drawing less than 1% per year how would you invest it?
I would reinvest. Method depends on current and future outlooks at the time.
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JASPER OGBONNA
Real estate consultant · Lekki, Lagos · Member since 2015 · 1 post · 0 votes
10y
Quite an enriching session.
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Derek Tippins
Investor · Blackshear, GA · Member since 2015 · 1 post · 1 vote
10y
I would drop 300k in a whole life insurance policy that pays a 5%. Then I would take 300k and buy up some notes that have been seasoned for a few years at 50 or 60 cent on the dollar. 200k I would make some hard money loans with against real estate. The last 200k I would put in a safe at the house and finish reading the Book The Richest man in Babylon.
1 Reply
Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
10y
Originally posted by @John Arendsen:

@Richard Dunlop, @Account Closed, Wow! these are some really great ideas. However, I live in California and don't know anything about the Michigan RE market other than it's very depressed as you have indicated.
Additionally, I wouldn't feel comfortable about investing in an area that I couldn't readily manage myself on a day to day basis and I don't know anyone in that area that I would trust to partner with at this time.
You're smarter than you look :)
2 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
@John Arendsen I am not exactly experienced enough or qualified to professionally answer this but I will chuck in my two pesos anyways:) Put one million down on a 3 million NNN somewhere in Cali. Or some insane returning apt syndication at one of the universities in SoCal. Good luck!
1 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
Originally posted by @Elliot Lamson:

I would buy properties in San Diego & Miami with the purpose of turning them into AirBnB rentals.
Be sure to keep current on City and County of SD regs for vacation rentals (short term stays). Many munis in CA put limitations or prohibitions on the airbnb vacation rental model starting this summer (City of LA, Berkeley, Santa Barbara, SF and others). While "home sharing" via airbnb is still viable in many places, the straight vacation rental model is not. Some munis will treat short term rentals as hotels and regulate and tax as such. Hence most SFHs and apts will not qualify as they are not zoned for that type of activity. In CA communities with housing shortages the munis are just saying no.
I've seem a few resales in CA where the price was tied to cash flow generated by airbnb type income. I think those owners got out at the best price just in time.
2 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
Originally posted by @Derek Tippins:

I would drop 300k in a whole life insurance policy that pays a 5%. Then I would take 300k and buy up some notes that have been seasoned for a few years at 50 or 60 cent on the dollar. 200k I would make some hard money loans with against real estate. The last 200k I would put in a safe at the house and finish reading the Book The Richest man in Babylon.
Can you share where/how you would find seasoned, performing notes at 50% of UPB? I know lots of people with more than $1M who can't find any supply of such notes.
2 Reply
Jeff Morelock
Rental Property Investor · Marianna Florida · Member since 2011 · 357 posts · 169 votes
10y
Buy and flip what we call "high priced" bank owned waterfront property in the Tampa Bay area.
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Rob K.
Encinitas, CA · Member since 2011 · 191 posts · 252 votes
10y
While investing in notes is a sound strategy, the strategy is not nearly as passive as one without experience doing this might think. My experience has been that these investments frequently get paid off in less than a year or even months, especially with rehabs, and then you are back in cash earning 1% again looking for a home.
With a good long term rental, income comes every month, as long as you own it and you have control of when you get paid off.
4 Reply
Todd Campbell
Investor · Mc Lean, VA · Member since 2015 · 75 posts · 48 votes
10y
As others have suggested, it comes down to where you want to go, and how much risk would you like to take. Personally, I've never had 1,000,000.00 to invest, so my first steps would be seeking out others who HAVE invested that amount of money. Also, it might depend on how I came to acquiring this money. Maybe I would need to consult a tax attorney and an accountant who have advised people in similar circumstances, so that I can avoid some future pitfalls.
What would I do? I would diversify, and not because I don't have expertise in an area, but because I want to maximize my profits and mitigate my losses. How would I diversify?
I wouldn't start a chicken shack, or something I know nothing about. I would diversity in the areas I know, Options trading, Software startup companies, and real estate.
In each of these areas though, I would build some teams. People who can disagree with me, people who have different areas of expertise. I know you said you didn't trust anybody to become a partner, I get that. Have you considered employees with creative pay structures? People who win when you win.
Like I said before, if I had come into the money I would ask these questions:
- Who has been in my shoes?
- Who can help me protect my money?
- How much do I feel comfortable reinvesting? (Do I need to put more away for retirement? Do I need some for my son's college fund?)
- How much needs to be reserved for my "rebuild my world" fund?
- Who can help me grow my money in accordance to my comfort and risk profile?
- How can I maximize the good (Do I give money to a charity? Do I setup a scholarship? Do I pledge a portion of net profits for an investment sector? )
- How much can I afford to "treat" myself? (I'll be honest, might buy a newer car instead of having my transmission fixed)
These days, especially in California, $1,000,000.00 goes fast. Good luck with your problem, I hope you are happy with your results.
-todd

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
Air BNB, vacation rentals ( cabin, beach, etc. ) are WORK for yield plays and not passive.
The question still remains how hard do you want your money to work and how hard to you want to work for that return??
Example:
I looked into buying a Steak-N-Shake. I have decades in the food business before getting into commercial real estate.
The offering circular has you keeping a minimum of 100 employees per location on staff. You have to run the specials of half off shakes etc. when corporate says so. Companies make money off of gross royalty fees charged to franchisees. So you could make zero profit but as long as sales are increasing with more royalty money to the parent corporation they are happy.
The bottom 30% of stores had a gross profit of about 8%, the middle stores about 12%, and the top stores in the remaining 20% made the larger dollars in the 20% percent range.
The way I look at it is a business has to be throwing off 25% to 30% gross margins because of the tax rate and watching over employees etc. to even start to be worth your time.
Otherwise you can be on the beach with passive investments bringing in 15%. So I decided against it. I just really like real estate as an investment vehicle but more of the passive variety.
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Pavel Sakurets
Investor · Minneapolis, MN · Member since 2014 · 332 posts · 74 votes
10y
Not in stock market for sure unless you want to compete with super computers which hold an average share in the entire US market for 0.008 seconds.
For those that think you ''invest'' in stock market, read the best truthful book that describes how stock market works ''Why genius failed'' and think who would know more about any given Co's stock you or CFO of that company and what would they do.
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