What would you do with $600k cash to retire in the next year?

Question

I have about this much cash to invest into real estate. I have extensive experience with property management and also some project management/rehab experience. I live in San Francisco and am hoping to retire in the next year after getting the money into the market. What strategies would you use to retire with something greater than a 15% annual return? Would love to hear BPs suggestions! Thank you.

Ian Ippolito · Answer

I shuddered when I read your posting and had to reply. You really need to know/understand that there never has been such a thing as a risk-free 15% plus return (and in today's low interest rate environment, returns are even worse than they have been historically).

A relatively safe investment like a bank CD will get you 2%. Every percentage point you try to achieve above that increases the risk that you will lose your money. So it's a really long way from 2% to 15% plus.

If you have a big portfolio, and/or if you have other sources of income, you can afford to take higher risks. However, when you're in a situation of living off your retirement money, it's completely different. You have no more income coming in and are using the returns to eat and live. If a real estate downturn hits, you can lose significant capital, and then you would be in dire straits.What I really recommend is taking a step back and talking to a financial planner who understands alternative investments like real estate. Such a person can construct a portfolio for you that will put a small portion of your savings into high-risk investments, but the majority of it in safe investments. It won't be anything near 15% plus return, but it would actually have a very good chance of lasting your entire retirement.Another alternative would be to delay retirement and continue to work. If you are pulling in income from another source, then you can afford to take risks to push a performance up.I hope this helps, and if you have any questions about it just let me know.

David Thompson · Answer

Julie,

I think it depends on whether you want to be active or passive w/your investments.  You mention what you can bring to the table (capital and some skills sets from past RE experiences).  Do you have the time and interest to pursue active investing?  Where is your heart?  You probably then will answer your own question.  If active, get involved locally w/meetup groups and start finding the players that are making it happen, you bond with and have good credibility w/n the groups.

If active isn't your path but you believe REI can get you where you want to go, then yes, I like Ruth's ideas.  Whether you are accredited or not would depend on looking at opportunities w/syndications or crowdfunding.  Do your homework, what areas / niches make sense ?  Couple suggestions, multi family large apartment communities w/syndicates are still achieving 10% CoC returns and 20% IRR over a 5 year hold period.  These are good strategies if you want cash distributions say on a quarterly basis.  There are storage, mobile home parks and student housing niches that still perform well to criteria you are looking for.  I would ensure you vet the sponsors well, track records, credibility, clean; are in markets that make sense to you (pop/job growth, diverse industries, other catalysts), projects make sense (value add approaches, conservative assumptions in underwriting, etc).

Ruth Bayang · Answer

Syndications. Crowdfunding (see sites like Patch of Land, Holdfolio, Groundfloor.us)Companies that do hard money lending

Rosston Smith · Answer

1. Try crowd funding. 2. Or use you money as a down payment on a large multifamily property.OR3. Become a hard money lender.

Joey Budka · Answer

All depends on your current financial needs, your future financial goals, and risk appetite. If you're ok with management and a little risk, I would find an off-market apartment deal (you'll need to network with apartment brokers) in the East Bay in C+ or B- neighborhood, lock in 10 year debt, and stabilize the property to maximize the pro forma potential. Or, if you're more risk averse, you can buy a NNN deal with a strong investment grade tenant, with 10-20 remaining on the lease, and cashflow stress free. You can do hard money too, make some quick profits, and wait until the market softens to buy better priced apartment assets for the long term.

What would you do with $600k cash to retire in the next year?

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