What would you do with a million dollars?
Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
What would you do with a million dollars?
Most Popular Reply
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10yHere'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
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
Example:
Property payed for and worth 1,000,000. Gross rents are 48,000 a year. Take away 1/2 to allocate for property repairs, vacancy, PM, etc.
24,000 NOI off of 1 million is a 2.4% annual return. Each year inflation hits and that money is trapped and devalued year over year if you are not doing anything with it. Now some like no leverage and others are okay with 75% leverage on quality properties. Others stick at 50% although cash on cash suffers with the down payment.
If you buy at a high cap versus the low debt and get it fixed for long term on a quality asset then I generally do not see anything wrong with 75% ltv for a property. Another thought is also that if for instance Cali has topped out its cycle then why not take out all of that money and place into another asset class at the bottom of the cycle and going up? You get equity growth all over again by timing the market in a different sector of real estate.
Everything cycles but at different times in the market. It's not a "one and done" for all asset classes and areas of the country. If people are local they might not be aware of opportunities elsewhere in other states and where those cycles are at currently.
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes10y
Donald Trump has 9 billion of trapped dead equity:).....but it is not really trapped or dead is it. I don't totally buy that investment take. Some call that wealth or net worth. Someone retiring might want as much trapped as possible to untrap.
- Insurance Agent · Phoenix, AZ · Member since 2014 · 148 posts · 66 votes10y
I love this question and it comes up regularly in my life. It is a vague question and I am not sure if it means if I finally earned a million or if it was given to me. If I was given a million dollars outside of family inheritance I would give 100% away!! It isn't the money that I am after in life but success and the right to say that I accomplished something great through hard work and innovation. We see it all the time in the real world when folks are given large sums of money and how they don't know how to handle and manage the wealth. Many lose the money just before ruining their future. One of my bucket list items is to have a million dollars in equity (and a LOT of debt) by 40 years of age. I have 9 years left to accomplish this and I am on track! Great question.
- Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes10y
If I had a Million Dollars?
Well take $30K-$50K do something really reckless and absurd, get it out your system.
With the other $950K...I would load up on distressed properties in the Detroit Suburbs, stuff in decent neighborhoods that go for 125K at market rate but foreclosed are at about 85-100K. We had a really bad flood last year that basically damaged an area of middle class housing. They yield 1100-1300 a month in rent, I would hold them for 7-10 years they would probably go for 150K-175K for the sale.
So 9 houses would give me about $1.2M in revenues I walk with 850-900K over 10 years, then I sell my $950K investment for about another $1.2M with just about 3.5% appreciation per year.
Nothing crazy, I would be 41 with a nice little windfall. Then I would just stick half my money in the bank start getting interest, then take the other half and try to make a riskier move, maybe try a "high end flip", open a Subway.
I of course would still keep my day job no matter what because everyone needs liquidity right lol.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Joel Owens Thanks for such a thorough and concise answers. If I were about 20 years younger I'd be all over the USA because I do see a lot of value in rebuilding run down cities i.e. Detroit and gentrification overall.
However, at 70 and 64 respectfully we're not at a pointin our lives where we want to spend a lot of time managing our investment so actively. We'd rather spend our time traveling for pleasure.
I do think your principals can be applied in Cali and in some good non leveraged REITS, NNN's and multi-family types. Just my thought.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes10y
Originally posted by @John Arendsen:
@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".
Most of the "crowd funding" information I've encountered so far states clearly that only accredited investors can invest. So, for us - "the little guys" - it's not an investing option.
It MAY be a FUNDING option, but real people who only have $5,000 to invest and are willing to risk it in the private money market are locked out.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Christian Hutchinson, I love your answer, youth and ambition. You remind me of my own 5 children who are all successful entrepreneurs and never came home after going off to college.
But as I've answered on other comments on this thread, at 70 and 64 yrs old respectively I'm not to keen on placing money in areas that require lots of busy work and hands on management.
I'm all in for the areas throughout America that are in dier straights, in need of gentrification. However, that's for the young whipper snippers with pockets full of doe, rey me and a lust for adventure.
I'm just looking at soft landings with a minimum of high risk to moderately mild risk to lots of low risk investments that I can still manage with minimal effort.
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes10y
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.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Aaron Mazzrillo Great rant! I love your passion and buy into it wholeheartedly. A bird in the hand is worth more than two in the bush.
- Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes10y
Originally posted by @Joel Owens:
Example:
Property payed for and worth 1,000,000. Gross rents are 48,000 a year. Take away 1/2 to allocate for property repairs, vacancy, PM, etc...
No 2% rule in Georgia
No 1% rule in Georgia
No 1/2% rule in Georgia
Glad I'm not trying to make a living in Georgia!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
Hi Richard,
Sorry I should have been more clear. That example is based off of some clients in California.
My typical deal right now I am closing for most clients is a retail strip center at an 8 plus cap in a great area putting 25% down hitting 15 to 17% annual coc.
The tenants typically are smaller units from 1,200 to 3,000 sq ft in size. 10 tenants makes breakeven occupancy at about 64%. So even with 3 vacant you have enough to pay the mortgage. If the centers leases are below market with a high cap and location is amazing you are insulated against market shifts.
The junk properties on the fringe areas at highly inflated rent per sq ft when the national tenant leaves and rents trade down is the ones taking a beating. When investors call me about retail they look at 3 things when I look at 100. I do it everyday and review hundreds of properties a week. Out of those I only like a few for my clients.
I am into being passive these days and I do not like SFR no matter where it is but that Is just me.
The great thing about life is everyone can do with their cash what they like............ : ) What some love for an investment I just can't stand. That is what keeps things interesting. I am 40 but I have no plans for doing intensive type of investments.
- Retail Manager/Beginner Investor · Rochester, NY · Member since 2015 · 4 posts · 0 votes10y
I would flip houses and get some buy and hold properties here in Rochester NY and in Columbus Ohio, until I have multiplied that 1 million dollars.
- Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes10y
12% in RE rentals in major cities
8% In russian markets
8% Chinese markets
8% US markets
8% Swiss markets
8% Saudi markets
5% Gold
5% Silver
5% Platinum
5% palladium
5% Lithium
5% Copper
3% Cattle
3% Sheep
3% Wool
3% Beef
3% Water
3% Oil
1% Russian Currency
1% US Currency
1% Chinese Currency
1% French Currency
1% Swiss Currency
1% Danish Currency
1% Mexican Currency
1% Canadian Currency
1% Peru Currency
1% British Currency
Fully diversified into multiple markets, multiple currencies, multilpe sources of residual income, majority of residiual. Id forfeit my US citizenship to avoid taxes, leave the country to the bahamas, from there, Id be between a Russian Citizen, and a Citizen of Singapore.
Id incorporate my holding companies in Singapore, and the Shanghai Business park.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Logan Hicks Lot's of spread there but I'm not seeing much in the way of passive income return with all the currency volatility a and confusion in the Russian and Chinese economy. Additionally, I don't have any intention of renouncing my American citizenship or leaving the Country. Especially at 79=0 years ole with 5 children and 14 Grandchildren I'm quite comfortable right here on the beaches of North San Diego County.
- Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes10y
The first 100K I would spend on my wife.
Frank - Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Mike BargettoInteresitng perspective. We're pretty generous givers ourselves and have always doled out lots of $$$ for causes we believe in. However, I'm not quite sure I could go along with just giving a million dollars away just because you didn't earn it unless you had several more to go go along with it.
Besides, I don't think it's important how you obtained it as long as it was legal, above board and didn't hurt anyone else along the way. I've worked very hard all my life for what I've built, saved and invested and have had nothing handed to me on a silver platter so wheter a million dollars was given or earned income is immaterial as far as I'm concerned.
- Lender · Roseville, CA · Member since 2015 · 10 posts · 0 votes10y
Id pay down a few consumer debts, restructure my personal tax returns, get my fico >740, buy 3 or 4 duplex/triplex and my own SFR then get an equity line to buy two more pieces of property. Lean out for 3 yrs and sell them all and liquidate. Shoot for 25-30% ROI
- Melbourne, FL · Member since 2015 · 99 posts · 42 votes10y
Hello @John Arendsen,
I used to be a proprietary trader for major Hedge fund in NY. If I had a million dollars I would use $200k to open a margin account at interactive brokers. They would lend me $1million at around 1.63%. I would invest the money in high yield under valued companies and collect dividends. Basically this is an interest spread strategy. I would purchase Put options to protect my downside.
I could make $90k annually off the million which would be close to 50% return on my $200k.
The remaining $800k I use to purchase value added apartment complexes here in Texas. Basically I would use it as down payments for hard money loans to finance purchase and rehab of large apartment complexes then refi into lower rate longer term while pulling invested capital out. I hold on to these properties for long term.i would just repeat this process.
Thanks!
- Investor · Rock Hill, SC · Member since 2015 · 52 posts · 6 votes10y
Short-term lending; turnkey tenant filled rentals with a good history, occupancy rate, and maintenance record (well managed and maintained by both the manager and owner); performing mortgage notes with a solid pay history; cash reserves for both unexpected issues as well as opportunities.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Watson Hilaire, Thanks for the great advice. We actually have had a pretty good chunk invested in a spread of blue chip stocks we bought back in '08-'10. You didn't have to be a rocket scientist or expert stcokbroker to make $$$ inthe market during the past 7 years. All you had to do was fog a mirror and the rest was ching ching. But I feel like those days have pretty much peaked and you're going to have to be a bit more cautous in the market today.
We're thinking about some tax free munis though. However, to date we've never considered leveraging capital to purchase undervalued companies for dividends but it sounds interesting albeit somewhat risky as your using OPM which to date we've been trying to avoid. But then we're not the most sophisticated investors onthe street today. We're just seeking risk averse passive income at our station in life.
All that stated, we have been looking at some home grown (Cali) apartment or multi family investment opps recently which have certainly piqued our interest. But thanks a bunch for your keen insight and contribution to this conversation. I've sure been learning a lot from a lot of very knowledgable, astute and experienced inv
- Melbourne, FL · Member since 2015 · 99 posts · 42 votes10y
Thanks @John Arendsen. I hope you land the multi family investment.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Jimmy CampbellJust curious. What happens to all the investors who are vested in all the rain related damage from this past hurricane? Just curious. Hope they were adequately insured. What happens to all the displaced tenants? Are they temporarily put up somewhere by the Red Cross or your local Office of Emergency Services? Then when repaiarations are made on their damaged rentals do they come back or do the property owners look for new tenants?
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Jimmy Campbell Also curious to know what the eventual investment opps might be what with so much devastation in South Carolina. In Cali we've always found some pretty good investment opps after a major earthquake, flood or fire as so many folks just abandon their properties because they were underwater, under or even un insured. Hate to sound so cold about exploiting such losses but one mans trash is definitely another man's treasure.
- Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes10y
Originally posted by @Logan Hicks:
.... Id forfeit my US citizenship to avoid taxes....
... leave the country to the bahamas, from there, Id be between a Russian Citizen, and a Citizen of Singapore.....
Really? The original poster is complaining that his $1,000,000.00 invested as he is now only earns him less than $10k a year in income. If he were to triple that(He might do better) That would still be less than $30k a year. You would give up your citizenship to avoid part of the taxes on a less than $30k income.
Diversifying as you suggested I doubt he would earn even 3% on his money.
- Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes10y
@Richard DunlopRichard,
I said this :
"12% in RE rentals in major cities :: 8-10% Con. Gains
8% In russian markets:: 14% Treasury notes as of less than 6 months ago
8% Chinese markets:: Double digit gains for a while now
8% US markets:: 8-12%
8% Swiss markets:: Depends on the year, 4-14
8% Saudi markets:: Same as above, 4-18
5% Gold:: For holding on international market dips
5% Silver:: Same as above
5% Platinum::same
5% palladium::same
5% Lithium:: Major spikes in value year over year
5% Copper:: Same
3% Cattle:: Cant eat gold. Reproduces
3% Sheep:: Cant eat silver either. Reproduces.
3% Wool:: One of the most popular textile based material in the world
3% Beef:: Literally grows itself at the rate of 3 per 2. (1 female makes 2-4 generations per lifespan)
3% Water:: Cause you cant drink oil
3% Oil:: Cant cars dont run on water
1% Russian Currency:: Fluxuates vs the US market, Can leverage 1:50 in foreign markets
1% US Currency: Can leverage 1:4
1% Chinese Currency: 1:25
1% French Currency: 1:8
1% Swiss Currency: 1:3
1% Danish Currency:: One of the most stable currencies in the world at the moment.
1% Mexican Currency:: guaranteed spikes and drops every 7 years, predicative with presidency change.
1% Canadian Currency:: Value tied to oil, hence why when you buy oil, you buy CND, Vice versa.
1% Peru Currency:: currently tanking due to the US will rise shortly following new world bank, which is made up of China, Russia, and several other world powers at this point.
1% British Currency:: Because the british pound is seperate of the Euro, and should the EU Collapse, and thus be nullified, Britain, still using the pound, will observe a substantial spike in value of the pound.
"So lets do the math here. 52% Is your market and real estate based dividends and incomes.
Internationally diversified, which means you dont have to do a US based brokerage or trade firm.
52% of 1MM, is 520k.
Assuming,a nd this is excessively conservative, that the mix ONLY DOES 10% per annum, thats 52K, and thats assuming you NEVER grow, you NEVER compound, and that the other 48% just sits on its ***, which the Chinese, Russians, Peru, and Swiss are doing anything but.Hell even gold beats inflation. Beef LITERALLY makes more of itself, so do sheep, and thus increasing your wool holdings as well, naturally with your sheep population increase.
So yes, the value per million per year is at least 52, conservatively calculated, and guaranteed to compound, so yea, forfeit that **** in a heart beat.
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