Advice on investment opportunities for $700k cash

24 Replies

Hi, BPers, 

   Happy New Year! I have been away from the forum for some time, busy with making my first pot of gold.

   Now I would like to get some idea from you about investment opportunities for $700k cash. Where and what type of real estate properties will be a good choice? It does not have to be real estate, but this is the area I have experience with. I am a Canadian, but I have been in Chicago/Indianapolis for about 10 years for school, and right now frequently travel to Los Angeles. 

   Any thought will be appreciated.   

Hard to say without knowing your individual goals and how active/passive you want to be.

Originally posted by @Joel Owens :

Hard to say without knowing your individual goals and how active/passive you want to be.

Joel, thanks for your reply.

I am targeting at a 10%+ annual return with minimum risk, if that is possible. I don't have much time right now, so may not be actively involved. But I would like to know the options. 

@Aaron Xie  as stated above broad question without any other details.  I would invest a portion and lend a portion to other investors at 5 point 15%.....

Ok, here are some places I have been considering for about 1 year:

1) A multi-unit in Logan Square, Chicago, IL. It might be a good area for rental investment, but looks like the price is already high there.

2) A SFH in suburban Los Angeles area, given the strong house price growth there. But looks like the momentum has came to an end there.

You can do that with commercial real estate on quality assets with national tenants. Typical is 25% down with a 10 year loan term and 30 year amortization.

Buy at an 8 cap and cash on cash return going in is 13 to 15% annually.

You could go multifamily but are more dependent there on management to make the property work.

You could also diversify and by a bunch of SFR type properties but then will have many sets of closing costs and also keeping track of various management companies.

Also you could invest in a REIT, or a group doing a syndicate for a set return being hands off.

Lot's of options but your exit down the road and time horizon will make a difference as well. Every investment has a positive and a negative to it no matter what anyone says. If someone tells you there is a perfect investment with a guaranteed return and no downside you need to run very fast from that person. 

Hi @Aaron Xie  You could:

  • Lend some money to reputable developers / investors (can be risky if you don't know who you are lending to nor understand the specifics of the deal)
  • Invest in a single apartment building with a 10%+ cap rate (risky if this is your first investment)
  • Invest in several properties through a reputable turnkey provider with a blended rate of 10%+ return (most diverse and least risky in my opinion for you)
  • Invest in a few notes via reputable p2p lending site (the most passive strategy of all, stick with debt vs equity investments)

I suggest looking in the Chicago and Indianapolis areas as both of them offer lucrative returns if you focus on investing in the right micro-markets and have a great property manager in mind.

I'm sure some folks from those areas would be happy to refer you some great contacts.

Aaron without reviewing your liquidity and net worth statement and end goal it's hard to give direction.

Any stabilized apartment building with a true 10 cap is going to be a rougher area. You are heavily dependent on management to perform. If not you could lose half your investment fast.

I like deals where the cap is lower but you increase yield through the debt being placed with a lower interest rate fixed, longer amortization, non-recourse, first two years interest only etc.

Better quality areas and increase the yield other ways.

Now why your balance sheet is important is if you are worth 1 million but want to place 700k I would not put it then into questionable multifamily for a high cap. Just doesn't make sense to do that on any level. If you are happy with 10% return and it gets risky at 15% for the asset you are buying it doesn't make sense.

Now if you are worth 10 million then 700,000 is only a 7% allocation to a high risk asset with an apartment building for location at a 10 cap. Years and years ago you could find a quality apartment building for a 9 cap etc. today the markets are too compressed for that in most areas. I am talking quality areas and not crap holes a lot people are selling to out of state investors. Those properties should go for a 12 cap so are overvalued in my opinion for what you get.

If you were worth 10 million but lost 350,000 or half of the original 700k investment you could regenerate the 350,000 fast with other investments. If you only had from 1 million and had 350k left over from your down payment of 700k and then 300k left for 650k total it would take much longer to recoup that 350k back you lost.    

@Aaron Xie  i agree with @Joel Owens   on Commercial or multifamily real estate.  I prefer these more than other asset classes due to the physical nature and the fact that if you're not in a coastal market then price fluctuations tend to be stable.  

The best part, in my opinion, is the leverage and equity buildup that real estate offers.  You can borrow money to buy an asset and have someone else (tenant) pay it off for you. 

While more management intensive than other asset classes you can outsource this and be relatively hands off.  

@Aaron Xie  

I think the commercial properties with national tenants as @Joel Owens  

would be the safest Real Estate investment. Also look into some multi family props in Chicago, Indy, and Los Angeles if possible because you are familiar with the areas, find great property manager key to your long term success.  

@Derrick Craig with that amount of money you can control up to $14,000,000 in RE if you leverage the money. Let's say you buy multifamily buildings in the North Side Chicago and the cap rate is only 7%. 

7% at $14,000,000 is almost a million/year, exactly $980,000. 

If you get 10% cash on cash return, you'll make around $70,000.

Not a hard choice! After that, all you do is manage your portfolio, and by having management companies in place, it might mean that you are reading your monthly Reports. 

Let me know if you need help in Chicago!

@Joel Owens  

When you reference Commercial Property do you mean commercial housing like 30 or 40 doors or business space like an office building or strip mall?    

Hi John,

30 to 40 doors for multifamily simply doesn't work for passivity due to economies of scale.

Maybe a class A product with really high rents of 1,500 to 2,000 a door might support it.

140,000 a door for class A product is 5,600,000. Tough to finance a deal at the level with 500,000 and 200,000 in reserves for his 700k.

Conversely you could nab a national tenanted strip center with a few mom and pop sprinkled in for a good cap rate in the 2 .5 to 4 million range. If the leases are NNN then there is a base rate per sq ft and the CAM re-imbursements to pay for almost all the landlords expenses including property taxes etc. Usually these buildings are managed by large PM companies that only focus on retail and manage millions of sq ft in the portfolios for a variety of investors and groups.

The higher yielding multifamily will be older buildings and really require a lot of doors say 100 or more to have a full time repair person and PM on staff. Those can be profitable but take a ton of work to keep them going.

Kind of like the difference between a 20 year old and a 75 year old person. The 75 year old person can do well if constant maintenance is maintained but if things start slipping everything goes downhill fast.... lol

Just like an old building or car in that much more to keep maintained. Once you make one new part and replace then others go down. So a management company can make or break you on those.

This is why it all goes back to liquidity and net worth weighing risk assessment.

If the person truly wants to remain passive they can just invest in a fund but must vet the operator for experience and a sound business plan to pay out anticipated returns and keep the asset performing.  

I am also looking for investment of 1.2 to 2m in multi family. I live in Los Angeles and will invests anywhere in the US where I can get a 5 to 7% cash on cash from day one and a CAP rate no less then 7%. My 30 years of experience tells me that multi family (apartments) are the only way to go. If you want to partner up and get a bigger building I would be open to that. I have done that with success in the past. The hardest thing is to find property that makes sense.

@Aaron Xie  

I think everything @Joel Owens  said was spot on.  But I disagree with that being the best course of action.

If your goal is truly minimized risk, then leveraging up to buy a commercial real estate property is not going to be the best use of your money in my opinion.  When ever you take on leverage you open yourself up to more risk not less risk.

My opinion would be private lending through a fund.   With private lending, you have collateral.  The collateral is worth more than what you lent against it.  You are unlevered.  And you can still hit your 10% returns.  

There is good leverage and bad leverage.

Bad leverage is putting minimal down at the height of an asset classes market.

Everything is on a different cycle at a different point in time.

You minimize risk by purchasing just at the bottom when it starts to go up.

If you underwrite a property correctly and buy at the right time in a cycle then leverage can be really good for you. It gives you more cash to acquire additional properties for upside.

Without seeing balance sheets and net worth it's hard to give any additional comments for the original poster. 

Originally posted by @Aaron Xie :

Hi, BPers, 

   Happy New Year! I have been away from the forum for some time, busy with making my first pot of gold.

   Now I would like to get some idea from you about investment opportunities for $700k cash. Where and what type of real estate properties will be a good choice? It does not have to be real estate, but this is the area I have experience with. I am a Canadian, but I have been in Chicago/Indianapolis for about 10 years for school, and right now frequently travel to Los Angeles. 

   Any thought will be appreciated.   

 Don't put all your eggs in one basket.  Diversify:

1.  Consider being a private lender (1st position only).  

2.  If you qualify as an accredited investor you can then choose from investments that meet your criteria from one of the crowd investment companies or invest w/ a company that does hard money lending

3.  If you want to own the hard asset yourself, but don't have much time,  then consider a Turn Key solutions, including property management.   There are a few companies like this in Chicago.  

4. Hire a realtor to search for a property that meets your ROI criteria in Chicago. They exist (Focus on multifamily & commercial)

It completely depends on what you want to do and what you want to accomplish. You could easily do high capital flipping for high profits (but high risk too). You could buy rental properties for passive income ($700k will get you enough in passive income to be able to live off if you do it right!). Or, whatever you want. Capital obviously isn't your problem, so your first thing should be figuring out what aligns with your interests and goals. Then, whatever field you pick, get mega educated on it before you jump in so you don't lose that $700k. After that, sky is the limit!

Not sure if this will help, but it's a starter to get you considering what avenue you want to go...

http://www.biggerpockets.com/renewsblog/2013/10/26...

Become a lender - banks have it figured out right :)

@Aaron Xie  - all good advice above.

IMHO-I'd lend out a portion to local investors as a private/hard money lender secured by a note and mortgage and never go above 65% LTV.

The rest I'd leverage to pick up several SFH here in Indianapolis and maybe a small commercial unit as well.

I'm surprised you mentioned a few out of State locations when you already live in one [if not the best] areas to invest on the planet!

I would echo with what @Shawn Holsapple  indicated.  Why would you go outside one of the best back yards possible?  Two or three units in one of the other locations vs. ten or twelve units in Indianapolis?  I would recommend Indianapolis.   Probabaly get double the cash flow here.  

@Shawn Holsapple and @George Helms , I have a SFH under management in Indy. I am in canada now but fly to Chicago from time to time.

How do you compare the SFH, multiunit and commercial real estate market? Is any area I should focus on or avoid? I used to be familiar with the Indy SFH market but that was about 3 years ago.

Shawn Holsapple and George Helms , I have a SFH under management in Indy. I am in canada now but fly to Chicago from time to time.

How do you compare the SFH, multiunit and commercial real estate market? Is any area I should focus on or avoid? I used to be familiar with the Indy SFH market but that was about 3 years ago.

Originally posted by @Aaron Xie :

Shawn Holsapple and George Helms , I have a SFH under management in Indy. I am in canada now but fly to Chicago from time to time.

How do you compare the SFH, multiunit and commercial real estate market? Is any area I should focus on or avoid? I used to be familiar with the Indy SFH market but that was about 3 years ago.

 IMHO - ranch homes built post war [1950-up] in decent neighborhoods [near the I-465 Loop] are the "work horse" of the Indy rental market.  One can still pick them up for about $60k, rent ready, and they are easy to rent for $750-$800.

@Aaron Xie  Prices have appreciated since three years ago, but Indianapolis has a relatively stable market.   I've found the cash flow excellent in good times and bad.  Real estate is a relatively stable and conservative investment, particularly in this city.  I stick to residential and enjoy both the SFHs and Duplexes personally.  I prefer rent range of 700 to 1400 range myself.  I stay out of the rough areas for the most part, but even those can work with the right PM.  Select an excellent PM and they can help you navigate areas that will work the best.

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