If you have 1m, where you would invest and how would you invest?

37 Replies

I often seen discussion in BP that the house price is too high, there will be next crash coming. I am curious what people would do if you have $1m available at this time? Will you hold cash to wait for downturn so you could get deals? Here are the options,

1. Hold cash in CD

2. Buy bonds or notes.

3. Buy cash flow properties in midwest.

4. Flipping houses but be very careful and caculating in 10-20 percent market change

5. Put in some new construction, or large development projects so there will be enough margin

There might be other ways...

Invest in RE.  The specifics would depend on my overall plan, the market I'm investing in, and the strategies that are best to use in that market that would achieve the specific goal (at that time) of my plan.

25% into a ladder cd set up for the next couple years. 50% invest into brokerage account. 25% i would look for a House in the southeast, small college town with a couple big industry employers and probably do a small 2/4 plex there.

@Stephanie Yi

My personal strategy is to diversify 50% into traditional public markets. I don't recommend this for everyone. It's a threshold and exposure that I have used for years, and it works for my goals.

Assuming $500k is in that market, I would take the remaining $500k and put it into real estate syndications. $400k would go to equity projects and $100k to private debt.

I presume I would do 2-4 syndications, depending on the variety that is out there, and the kind of relationships I had built. This is very similar to a modern portfolio theory strategy in the sense that is has both a debt and equity component that is maintained in the ratios of the portfolio (80% equity, 20% debt).

Originally posted by @Linda Lovely:

Fun fact on 5 yr cds.  Used to be 6 month penalty for pre mature withdrawl.    Now its one year worth of interest.

If my scenario of sluggishness economy for a few years doesnt pan out i may be a bit sad cashing out a cd early.

there are some reg A offerings  ( don't need to be accredited ) that pay 6%  are the bottom of the capital stack ( safest) with 30 day calls.. I like that for short term waiting for deals to pop up.. 

@Stephanie Yi

I invest 50% of my capital in high yield mortgage notes I originate and notes I buy at a discount from banks. I obtain a weighted yield of about 17% annualized on this portion of my portfolio. The other 50% I invest in real property, both direct and through syndications. The property is leveraged 50%, thereby providing 100% inflation protection for my entire portfolio (theoretically). In the last 8 years the real estate equity portion of my portfolio has averaged wighted gains of 11% annualized.

One. Just realize that the period were speaking about for the equity portion is one of the best investment periods in history. The return on the debt investment portion is much more admirable as it includes the 2008-2010 recession.

I have the advantage of being the the private mortgage syndication business as well as syndication equity ownership in office/warehouse properties. Past performance is not always an indication of future performance LOL, my worst period as an investor was investing in Houston during the 1982-1986 oil price bust. Negative returns

Experience, expertise, and luck are required for success in the long run. But all of that is subjective. At what point do you have enough experience? Enough expertise? At some point you have to pull the trigger if you want in the game. When banks were paying 12% interest "investing was easy - buy a FDIC insured jumbo CD. Now it seems like it's another full time job for many people.

No matter what you invest in, you need to determine your goals, desires and risk tolerance.

For most investors who aren’t empire builders, I believe in a few hard and fast rules

1. Diversify over a number of different “bets”, I.e if you decide to invest in real estate syndications, invest $50,000 in 10 different properties with 5 different syndicators, not $500,000 in one deal.

2. Only invest in what you understand. If you are not cognizant about how a reverse option hedge works, don’t invest in it.

3. Invest only in investments that allow you to sleep at night, and don’t drive you nuts during the day.

4. Determine your interest level in investing, if it’s low find a good asset manager.

5. Always do at least the basic due diligence. Even a google search will yield some enlightening information.

6. Always plan for a worst case scenario and how you’ll recover. Never bet the rent money.

Good luck!

Originally posted by @Stephanie Yi :

I often seen discussion in BP that the house price is too high, there will be next crash coming. I am curious what people would do if you have $1m available at this time? Will you hold cash to wait for downturn so you could get deals? Here are the options,

1. Hold cash in CD

2. Buy bonds or notes.

3. Buy cash flow properties in midwest.

4. Flipping houses but be very careful and caculating in 10-20 percent market change

5. Put in some new construction, or large development projects so there will be enough margin

There might be other ways...

 Buy a $4m property in Houston.

Originally posted by @Don Konipol :

@Stephanie Yi

I invest 50% of my capital in high yield mortgage notes I originate and notes I buy at a discount from banks. I obtain a weighted yield of about 17% annualized on this portion of my portfolio. The other 50% I invest in real property, both direct and through syndications. The property is leveraged 50%, thereby providing 100% inflation protection for my entire portfolio (theoretically). In the last 8 years the real estate equity portion of my portfolio has averaged wighted gains of 11% annualized.

One. Just realize that the period were speaking about for the equity portion is one of the best investment periods in history. The return on the debt investment portion is much more admirable as it includes the 2008-2010 recession.

I have the advantage of being the the private mortgage syndication business as well as syndication equity ownership in office/warehouse properties. Past performance is not always an indication of future performance LOL, my worst period as an investor was investing in Houston during the 1982-1986 oil price bust. Negative returns

Experience, expertise, and luck are required for success in the long run. But all of that is subjective. At what point do you have enough experience? Enough expertise? At some point you have to pull the trigger if you want in the game. When banks were paying 12% interest "investing was easy - buy a FDIC insured jumbo CD. Now it seems like it's another full time job for many people.

No matter what you invest in, you need to determine your goals, desires and risk tolerance.

For most investors who aren’t empire builders, I believe in a few hard and fast rules

1. Diversify over a number of different “bets”, I.e if you decide to invest in real estate syndications, invest $50,000 in 10 different properties with 5 different syndicators, not $500,000 in one deal.

2. Only invest in what you understand. If you are not cognizant about how a reverse option hedge works, don’t invest in it.

3. Invest only in investments that allow you to sleep at night, and don’t drive you nuts during the day.

4. Determine your interest level in investing, if it’s low find a good asset manager.

5. Always do at least the basic due diligence. Even a google search will yield some enlightening information.

6. Always plan for a worst case scenario and how you’ll recover. Never bet the rent money.

Good luck!

A good list. Picking up on number 2, Don, how would someone learn about an investment segment without investing before they are a master?

My take on the question is acceptable losses. That you need to pull the trigger at some point. So, you study or otherwise learn what you can. That mostly deals with known unknowns. When you invest the first few times, expect surprises. Do not invest initially for a return as much as a lesson. And be prepared to lose 100% when diving into new areas.

Is that consistent with your initial statements and number 2?

I understand what you’re saying, but my take is different.  I believe you can understand an investment by studying that investment, especially in this day and age with the availability of information on line.  Perhaps your first foray into that investment should be limited to a limited percentage of your net worth, and as you obtain more experience in that particular investment your financial participation can increase.

Many investment to today are indirect, i.e., instead of purchasing real property directly you purchase through a syndication.  This shield the investor from the decision making and management of the investment, thereby the investor obtains limited experience in real property investing, but more experience in syndication investing.  Although not ideal, it’s a workable scenario.  Ideally, the investor would be very experienced in direct property investments before investing in real estate syndications, but this is not practical for many mainly passive investors.  So an investor can do a lot of due diligence as well as educating himself by use of the crowdfunding forum on this site, as well as the expertise some very experienced syndication investors provide in that forum. 

Just joining this thread, @Don Konipol , and enjoying the dialogue.  

The idea that shielding oneself from 'decision making and management' as a benefit of investing in a real estate syndication through a crowdfunded deal, either via a marketplace or directly with a sponsor, is a novel idea.

Certainly, from a day-to-day perspective this is true; one need not spend time handling the general management of a project. 

However, as you know, a passive investor in a real estate syndication one must always maintain influence over the decision making and management process through the power of veto should things not go as originally planned.  

This is effected through the rights and responsibilities of both sponsor and investor as outlined in offering documents of any deal and the mechanism for leveraging these controls is through voting rights.  

It's a key component of any investment due diligence and one that, regrettably, is often only reviewed by investors when things do go south, by which time it's too late to realize they have no remedies.

Put another way; freedom from decision making and management responsibilities does not abdicate responsibility from monitoring and controlling the process.

Great responses so far. I think your first step @Stephanie Yi  is to educate yourself thoroughly on different passive investments that produce consistent income. From there you'll need to learn how to evaluate managers/sponsors of those types of assets. Doing this will greatly reduce your risk of losing capital. Mitigation of that risk should be your chief aim!

Happy Hunting!

I would invest with an experienced apartment syndicator whom I've asked what measures they've put in place to reduce the deals risk should a housing crash occur during the business plan.

@Stephanie Yi    I have over $1M passively invested in about 35 MF deals.  Each should last 3 to 5 years. Three that sold in the last 13 months, each returned about 35% (annualized), but I expect the returns to decrease a bit for the next couple of years as the CapRate moderates.  Conceptually a bit similar to a ladder of bond when interest rates were above the floor.  I describe it as a Ladder of MF and the returns have been much better than bonds.

I am a long-term Brad Sumrok student, which gives me access to many deals from many sponsors, who he has trained, in his "eco-System" (I call it Sumrok Institute of Multifamily).  For me it is very easy to meet and get to know these sponsors.  When a sponsor gets a deal under contract, he/she lets their contacts know, there is typically a web based presentation, and I have the opportunity to invest. Most of the deals have been Reg D 506(b), so one has to know the sponsor, but one could be sophisticated (knowledgeable) and not accredited (rich). To date I am part owner of properties in TX, OK, AZ, OH, FL, & LA - states that are more landlord friendly. 

As to your list of choices, I have no CDs, few bonds, no notes, I have only one SF where I live (never owned a SF to rent or done a Flip), and no construction.  I do have a fair amount in Wall Street (trying out a financial manager who is the reason for above bonds!).  I feel that my limitations in market focus me in mutual funds.

Regards,

Charles LeMaire

Originally posted by @Stephanie Yi :

I often seen discussion in BP that the house price is too high, there will be next crash coming. I am curious what people would do if you have $1m available at this time? Will you hold cash to wait for downturn so you could get deals? Here are the options,

1. Hold cash in CD

2. Buy bonds or notes.

3. Buy cash flow properties in midwest.

4. Flipping houses but be very careful and caculating in 10-20 percent market change

5. Put in some new construction, or large development projects so there will be enough margin

There might be other ways...

That question is impossible to answer without knowing your goals and vision. 

First, I would invest in education, so that I could turn my $1mm into $2mm and beyond. After that I would come up with a road map and action steps. Then you can decide which plan is the best. 

If you want to be active, then in my opinion investing in value add MF or commercial rental properties is a great option. 

If you want to be passive then investing in syndication or Triple net is a great option.

There are so many other options available, so decide where you want to go, understand your strengths and then choose the path 

Stephanie Yi

You have a pretty good list. I'd say a lot depends on how well versed you're in each area stated. I'd say go with the known beast rather than unknown. If you need to pick something to learn, then pick one and study it inside out prior to taking action. If need help concentrating on a single effort, then check out "One thing" by Gary Keller.

My best!

Originally posted by @Stephanie Yi :

@Cody L.

Why Huston?

Because I've been successful there.  All places will have various rents to purchase ratios depending on what the market has determined to be appreciation upside and risk.  Some of results I disagree with. i.e., I think Cali is overpriced for the risk and upside I see.  And I think Houston is under priced for the risk and upside I see. 

I've seen a TON of property value increase in Houston (though to be fair that's been national) and it's been an area I can keep buying more and more deals that make sense. 

If you intend to invest to weather a coming recession, you should focus on assets that historically perform well through a recession.  My favorite is mobile home parks because the have the ability to produce stable cash flow while everything else is in chaos.  They may not be the most beautiful assets, but the way they can perform in times of difficulty is about as beautiful as it gets.  

If you are an active investor and want to buy a park yourself, you will want to gain an education before you buy one.  MHPs are a unique asset class and require a whole different asset management perspective and property management style.  Because residents will own the homes, you will be moving homes, renovating homes, selling homes, carrying paper, so there are specific contractors you will need to find, and licensing and regulatory requirements that you will need to know.  

If you would prefer to be a passive investor in parks, consider investing in a syndication or a fund that focuses on MHPs.  As mentioned by several folks above, you will want to get to know sponsors that specialize in that space and can demonstrate a track record of experience.   

"Will you hold cash to wait for downturn so you could get deals?"

How much of a downturn would it take for someone to think it is time to buy? No one can predict a bottom? 

If you can buy at a specific level of discount now, why wait?