What would you do with a million dollars?
Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
What would you do with a million dollars?
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Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
11yHere'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.
141 Replies
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes11y
Originally posted by @Richard Dunlop:
I'd buy 1000 houses in Detroit and suburbs!
Would they all perform as well as the one I bought for $806 all in last December that was rented to a 3 1/2 year tenant for $650 per month? Probably not but it would still be an investment with returns you could duplicate NO WHERE else for the for seeable future. In BOTH appreciation AND cash flow.
That house double in value?
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes11y
Not that you are necessarily incorrect about individuals having a really tough time performing well in the stock market. The stats are clear on that one.
However, these conspiracy theories you are referring to have nothing to do with it. Yes there are super computers known as HFTs that trade the markets and can really hurt you if you trade massive volume or care about mark to market losses when they all try and sell at once. For the average investor though these HFTs shave a penny or a penny there. You would need a lot more than a million for that to matter in aggregate or be trading like crazy.
As for CFOs they are tightly regulated in terms of their ability to buy or sell their own stock. The CFO at many times CAN'T buy or sell the stock and when they do it can be for lots of reasons like paying taxes on a stock grant, etc.
That is not to say there aren't very real factors that make success difficult for individual investors including their own psychology, a large number of fund managers and research companies whose sole job it is to be smart about these kind of things and the ease of trading in the market. If you do want to invest into the stock market read the various studies and books on why individuals typically don't do well at investing.
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes11y
If it is self earned, I'd keep doing whatever it was that you did to get to the first $1M. The second M shouldn't be much further down the road. If it was obtained through an estate, well, you might not want to necessarily continue on that path.. unless you're not that close with your family.
Diversification is a lot like multi-tasking - it is just doing a bunch of things half-assed all at once. It is only the practice of doing it while drinking high caffeinated coffee that makes one feel good about the process and falsely productive. This is partly to blame on the downfall of the millennials. Too much caffeine, not enough focus.
Seeing as many respondents don't yet have $1M, getting suggestions from them is about as prudent as taking financing advice from a homeless man - Ain't much value in it. What they are essentially saying is, "I haven't figured out how to get $1M yet, but when I do, this is what I think I would do with it even though that thought process hasn't gotten me the $1M I seek. See the flaw in that logic?
Do you want to work a lot or a little? What's your risk tolerance? A better approach to this question would be along the lines of, "I have $1M and want to double it as fast as possible. I'm willing to work like a crab fisherman in the Arctic Circle 1 week before close of the season during a typhoon, and if I lose it all I still have my day job that got me the $1M in the first place. Go!"
An alternate version might sound something like this, "I've pinched and saved my entire life. My taste buds have only known the flavor of Top Ramen and my wallet is full of triple coupons. I finally have my $1M and letting go of one cent of it would be devastating. Where is the safest place to put it that will allow me to (choose your own adventure here) and get an acceptable return of XX%?"
Personally, I'd pay down high yield debt and keep doing what I'm doing because that is what I do, and I enjoy doing it and the maximum allowable ME time it provides... Plus, I didn't have to move to Detroilet to get there.
Reporting live from sunny California... and it 3 months it will still be sunny California - Good luck with your endeavors!
- 11yJo-Ann LapinPro MemberLoan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
I would take the majority of it to invest in long term trust deeds and then look for a mobile home park to invest in. I always believe that diversification is key so I would invest in other non real estate investments. The interest income would go towards my families nest egg but a percentage would be allocated to the charity I deem suitable. I would allow myself to take my family on trip aboard.
- Financial Planner · Las Vegas, NV · Member since 2015 · 66 posts · 19 votes11yAs a financial planner I would give general advice to a client to diversify depending on the age and risk profile. Personally, I would invest in rental property in an "a" class area. I would invest a portion in several etf's with long term investment time horizon. Another portion would be in precious metal. Lastly I would look into investing in notes.
- Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes11y
@John Arendsen I get introduced to some of the bigger players in a smaller growing market. Coming in with $1mil is a huge bargaining chip and allows you to be the money guy for deals up to about $4mil, more if there were some other investors or unique financing involved. Do your research and get to know a few and try to be a parter in 2 or 3 different deals not necessarily with the same person or group. Be more involved in one and more passive in the others. I would also suggest taking a look at some of the online real estate investing crowd funding sites. They seem like a great deal for the accredited investor.
Now if it were my money I would go buy up some larger multi family buildings in a small growing market from older investors looking to get out of the game. Listen to the most recent BP podcast.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Aaron Mazzrillo:
Reporting live from sunny California... and it 3 months it will still be sunny California - Good luck with your endeavors!
You're a funny one. I love CA and I'm with you on this, even if I lived in Riverside instead of Santa Barbara. Even if I lived in Modesto. Hoping it will be rainy CA soon though.
- Cashier · Panama City, FL · Member since 2015 · 14 posts · 6 votes11y
I would use the money to repair my mom's house.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes11y
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'd make the bulk of it available as a private lender for 12% to 20% or so. The rest I'd use to do my own deals. Of course, a small slice of it would be helpful in clearing up my own "consumer" debts.
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes11y
Originally posted by @Account Closed:
Reporting live from sunny California... and it 3 months it will still be sunny California - Good luck with your endeavors!
You're a funny one. I love CA and I'm with you on this, even if I lived in Riverside instead of Santa Barbara. Even if I lived in Modesto. Hoping it will be rainy CA soon though.
I'm not overly fond of Riverside. I just ended up here right before the melt down and it turned out to be ground zero for all the foreclosure activity in the IE so I didn't leave. Tonight I accepted a cash offer on my vacation home up in Big Bear so I'm thinking it is time for a change of scenery, and I'm hoping to use the funds as a down payment somewhere in an OC beach town once I snipe the right opportunity.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes11y
Originally posted by @Hugh Ayles:
I would keep $100k in a money market.
I would take $500k to use as a private lender. I would hope to turn the money at least twice a year.
I would set aside $200k for BRRRR (did I get the letters right?)
I would invest the remainder in the stock market.
Ah! A Gambler!
- Real Estate Agent · South Richmond Hill, NY · Member since 2015 · 2 posts · 0 votes11y
Invest most of it into real estate.
- Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes11y
Originally posted by @Rob K.:
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.
That's a good point about rehab loans not being passive! I've been doing them for a few years now and am finding you have to put a lot of work in to keep the high interest rates flowing. Vetting rehabbers, loan servicing, drawing notes, filing nod's, tax returns, lending attorneys, bankruptcy attorneys, REIA meetings, escrow officers, title officers, appraisers....and on and on. I do like the part where rehabbers drive me around and show me their properties, buy be beer and tacos, and I learn things I never thought of before. Now I know what it looks like when somebody tries to impress you, kind of silly in a way.
I've tossed around the idea of throwing in the lending towel and buying income properties ... but ... they aren't passive either.
To my mind, neither are passive, so the question becomes which type of non-passive activity do I prefer. Lending with a banking flavor, or income property with property management flavor. One is vanilla, the other is chocolate, but both ice cream. I like lending ... so far.
Oh, and there is the ROI issue. Let's see, SoCal income property at 3% or HML at 14%...hmmm, don't have to think about that long.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
Lot's of very astute comments from some very intelligent and experienced investors. This has been a very interesting and diversified forum. I've really learned a lot.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
@Joel Florek, I've been meaning to look into crowd funding for awhile. I'm hearing more and more about it.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
@Aaron Mazzrillo, I'd also look at some of the North San Diego County beach communities. I'm originally from Newport Beach and have been in the Oceanside, Carlsbad, Leucadia, Encinitas, Cardiff, Solana Beach, Del Mar, La Jolla and inland areas for the past 35 years.
It's a much better play if you like the beach and can get used to several months of coastal Eddy's and overcast mornings which you'll get in OC as well BTW. But the values, lifestyle tempo, less traffic if you're local, surf if that's your passion (it's mine) and just a more laid back and down to Earth mindset with San Diego overall is certainly worth a look.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
Having read every comment on this thread, several more than once and even multiple times, I'm really impressed with a lot of answers, ideas and suggestions.
I've been in the stock market for several years and have done pretty well. But then anyone who bought in and could fog a mirror in '08 had to do pretty well as the only way the market went was North.
But that joyride is strarting to slow down big time. Yes, you can still make money in the SM if you're positioned with lot's of good dividend growth stocks or buying inot IPO's that you've got an inside track on. But It's going to be a lot more of a risk nowadays than it has been for the past several years so you better know what you're doing or have a good broker that does.
Recently I've been starting to feel that way about RE as well. The same thing happened for the past several years (in Cali). If you were vertical and investing in RE you were making $$$. But I'm starting to see some bubbles looming on the horizon and it ain't as easy making $ in RE as it was when there was a flood of distressed and foreclosed properties to pick through.
Presently and personally I really liked @James Park's idea about cooling your jets for awhile and parking the 1m in that <1% money market spread out at 250k chunks in order to play it safe with FDIC limitations or be in a bank you trust with a sweep.
I think, and it's just my personal humble opinion as a 70 year old that's been through several downturns, that we've reached another pinnacle in our economy. Friday's employment, or should I say unemployment and jobs growth outlook coupled with the FED's inevitbale interest rate hike looming, problems with China's economy, the EU, South America and elsewhere including the USA is worrisome at best.
Lot's of major players are moving into cash as well and that should be a very good sign that it might be time to play it safe, stay in cash and get ready for the next feeding frenzy and there will be one I strongly believe.
It get's back to that age old adage, when you start getting tips from the cab driver and shoe shine guy about how to invest your doe, rey, me it's time to Park it. No pun intended @James Park
- 11yCharles A.Pro MemberRental Property Investor · Jacksonville, FL · Member since 2015 · 208 posts · 282 votes
I don't know if anyone else has suggested this because I didn't read all previous comments.
But strictly based on where I am today with my investment portfolio and needs,I would put the entire $1m down as 20% deposit on a grade B/C $4-5m apartment complex in the strongest rental areas in North or central Florida.
I would then refinance in 3-4 years after astute value added efforts and take my entire 1m$ out while still keeping the apartment complex as cash flowing asset.
Then I'd come back to this thread to see which of the above smart ideas I could spend that 1m$ cash out on.😎
I play with house money.
- Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes11y
Originally posted by @Aaron Mazzrillo:
Originally posted by @Richard Dunlop:
I'd buy 1000 houses in Detroit and suburbs!
Would they all perform as well as the one I bought for $806 all in last December that was rented to a 3 1/2 year tenant for $650 per month? Probably not but it would still be an investment with returns you could duplicate NO WHERE else for the for seeable future. In BOTH appreciation AND cash flow.
That house double in value?
Not sure I'm understanding your question.
It was worth about $20,000 when I bought it for $806 (that is not that unusual l turn down similar houses for $2000-$2500 because I can only buy so many)
It is worth about $25,000 today so up about 25% in one year.
It is still rented to the same lady for $650 per month.
Does that answer your question.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes11y
Originally posted by @John Arendsen:
@Joel Florek, I've been meaning to look into crowd funding for awhile. I'm hearing more and more about it.
The only issue I've seen with that so far is that it seems to be limited to accredited investors only - us "little guys" (real people) are still left out of the game.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
Hi John,
To give you an idea I have 7 clients from California right now doing 1031's into commercial property in other states.
California has great equity growth through appreciation speculation but like you I believe that last for only so long. The rents owners are getting for the trapped dead equity is a crappy annual ROI.
You have to make a choice to keep the property or sell. If keeping it makes sense to refi out up to 75% of that money at the current value with low debt and re-invest for a higher gain elsewhere or 1031 all of it and move into another property entirely.
If you just leave the equity there and do not refi or sell then when the market appreciation shifts again you will have lost equity until you wait for the next cycle run up again. A lot of buyers for this stuff are foreign. They want the money out of their countries that have civic and economic unrest and some have plans to eventually become citizens over here and get out entirely. So they are willing to accept small returns on a property going in.
Our worst times in the U.S.A still looks like a treasure island compared to standards in other countries.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
@Joel Owens I relly buy into the foreign investment movement albeit it's not a new phenomenon. They've been doing that for centuries. That in part is hour our RE market has thrived.
When you say "The rents owners are getting for the trapped dead equity is a crappy annual ROI." What do you mean by "trapped dead equity". I think I get it but I'd like to hear it from you.
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
@David Dachtera, What specifically are you referring to with your statement "it seems to be limited to accredited investors only - us "little guys" (real people) are still left out of the game."? I'm not seeing any comments eluding to "accredited Investors".
- Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes11y
@Charles A., Not being a sophisticated commercial investor I'm not sure what a "grade B/C $4-5m apartment complex" really means. Please feel free to enlighten me.
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