500,000 cash windfall?

[HighPoint]

I'm currently a REI in a small way, as a hobby and to supplement my income from my other business.

Soon I'll be receiving a cash "windfall" of $500,000 or more.

If this were you, what course of action would you take in the real estate market to increase that money to $1,000,000 or more and make sure you never had to "work" again?

[mw]

Congratulations 

Soon, I will be in a similar boat.  Have you considered becoming a Hard Money Lender? 15 - 20%+ secured ROI without touching a hammer is nice and easy RE investing!

Have you considered JV'ing with a seasoned commercial investor, acquiring large multi family, or Senior Housing?  Assisted Living Facilities will become very important the next 15 - 20 years, and they are cash cows!

[Roger J]

A few points:

1) don't know how you're receiving your windfall, but make sure you prepare for taxes against it.

2) Since you're seeking advice on what to do with it, coming on a public forum and announcing it to a bunch of strangers is probably not the best course of action.  Now you're going to be hit with a lot of (most bad) ideas of what someone would do if they have it, not to mention the many, many emails, pm's you're going to get offering partnerships, mentors, coaching, etc., etc.  Hold on to your money tighter than ever now.

3)  $500K held in a secure investment (ie, CD/money market) earning a small annual yield of 6.5% will earn approx $32K a year using simple interest (not compounded).  Most people don't earn that working, so that's a pretty good paycheck in and of itself.

4) With cash in hand, there are truly an unlimited amount of options available to grow that amount.  Of course, there is also an unlimited amount of ways to lose it FAST.  So, don't let it eat a hole in your pocket.  Stick it in a bank until something comes along that YOU want to do AND you know HOW to do.

5) Finally, just an added suggestion of protection.  If you want to 'invest' it in more risky ventures, then I'd at least suggest that you put your money in a money market/CD or similar account and then create a line of credit against that account to use for your investing.  It at least somewhat protects your funds and by having to 'borrow' the money, you'll be less inclined to make rash judgements.

Raj

[mw]

What CD is at 6.5%? 
I'd leave 200k in CD's...and Hard Money the other 300k at 18% for $54k return.

[marcus335]

I'd look into tax liens.  It's pretty easy to make 18% on them and you can get the occasional property for cheap. 

[HighPoint]

1) don't know how you're receiving your windfall, but make sure you prepare for taxes against it.

The $500,000 is after all taxes are paid.

2) Since you're seeking advice on what to do with it, coming on a public forum and announcing it to a bunch of strangers is probably not the best course of action.  Now you're going to be hit with a lot of (most bad) ideas of what someone would do if they have it, not to mention the many, many emails, pm's you're going to get offering partnerships, mentors, coaching, etc., etc.  Hold on to your money tighter than ever now.

I'm a stranger too and my monitor is equipped with an off switch.

3)  $500K held in a secure investment (ie, CD/money market) earning a small annual yield of 6.5% will earn approx $32K a year using simple interest (not compounded).  Most people don't earn that working, so that's a pretty good paycheck in and of itself.

I may do this with, say, $300,000 of the money.

4) With cash in hand, there are truly an unlimited amount of options available to grow that amount.  Of course, there is also an unlimited amount of ways to lose it FAST.  So, don't let it eat a hole in your pocket.  Stick it in a bank until something comes along that YOU want to do AND you know HOW to do.

Agreed. That's why I'm asking other real estate investors what they would do. This is an "egg" I do not want to lose, I want to use it to grow to well over a million dollars.



5) Finally, just an added suggestion of protection.  If you want to 'invest' it in more risky ventures, then I'd at least suggest that you put your money in a money market/CD or similar account and then create a line of credit against that account to use for your investing.  It at least somewhat protects your funds and by having to 'borrow' the money, you'll be less inclined to make rash judgements.

I'm a bit surprised no one suggested buying single family homes with between 5%-20% down, holding them to rent, maintain PCF and realize appreciation down the road and see your small investment double in a matter of a few years.

Raj

[Roger J]

Buying SFH with 5-20% down?  Maybe someone will mention it, High.  This is still a new post afterall.  However, I never recommend putting ANY money down on a deal, so it won't be me.  Also, if you plan to rent, you need to understand what PCF really is.  If your total PITI is $600 and you're collecting $650/month, it may be a shock, but you're NOT cashflowing positive.  Whether you put down 0 or 20%, what makes or breaks cashflow is the discount that you got off of retail.

Appreciation is NEVER guaranteed, so buying prop with any appreciation in mind is not the best course of action.  Buying at a large discount is the only guarantee to make money.  Of course, with cash on hand, the ability to get larger discounts is possible.

mw, getting a large sum of money and opening up shop as a hard money lender is simply foolhardy unless you actually know alot about hard money lending, your state's lending laws, market values, etc, etc.  High may or may not have this knowledge and experience or may be able to get it, but suggesting to 'just do it' doesn't really work here.

High, the problem with simply asking 'what would you do' is that no one here knows what YOU would, or could do.  As stated, there are an unlimited number of ways that you COULD double your money, there are actually only a precious few that WOULD actually work for you.  For example, I have a friend that if he had that money, he'd be in Vegas ASAP and the odds are that he would double that money before the night's over.  He's that good.  Me, if I'd try that, I'd be broke within the hour.

Which is another point,  is it more important to double the funds, or use it to create passive cashflow to finance the lifestyle that you desire?  Those two don't necessarily work hand in hand.

Raj

[propertymanager]

HighPoint,

As usual, Roger has given good advice.  The fact that you had to ask a bunch of strangers what to do with the money confirms that you definitely should NOT invest it in real estate.  All internet forums contain mostly newbies.  Asking other newbies what to do with your money is a great way to lose it.  If I were you, I would definitely put that money in a CD as Roger suggested.  If you are interested in investing in real estate, then take the time and effort to really learn the basics before you buy anything.

The truth is that the vast majority of newbies to real estate fail in a short period of time.  They fail because they don't understand the realities of the business and pay too much for their properties.

You asked why no-one suggested rentals.  I am a full time "investor" in rentals (actually a rental property business owner) and do advocate rentals.  However, I certainly wouldn't advocate blowing $500K in cash to buy properties.  The rental business is about buying at a BIG discount and with as little money down as possible, getting a BIG return on your money (thanks to the leverage).

Hard money lender?  Ridiculous.  That would be even more foolish than using your money to invest directly in real estate.  Hard money lenders lend money mainly to newbies who have bad credit.  Thanks anyway!

Follow Roger's advice and you'll do fine!

Good Luck,

Mike

[mw]

Hard money lender?  Ridiculous.  That would be even more foolish than using your money to invest directly in real estate.  Hard money lenders lend money mainly to newbies who have bad credit.  Thanks anyway!

You obviously don't know much about hard money lenders.

[mw]

mw, getting a large sum of money and opening up shop as a hard money lender is simply foolhardy unless you actually know alot about hard money lending, your state's lending laws, market values, etc, etc.  High may or may not have this knowledge and experience or may be able to get it, but suggesting to 'just do it' doesn't really work here.

I don't recall suggesting to "just do it".  It does take some time learning it, but where else can you receive 18%+ secured besides tax leins?

[Roger J]

What CD is at 6.5%?

mw, when you get to the point where you have $500K to put into CDs/MMA, then you'll be able to find that interest rate, too.  In fact, when dealing with that amount or higher, that's a pretty conservative number.  This ain't your momma's $500 Home Banking CD.

And no, while you didn't say "just do it" it was implied that it was a simple process.  It isn't.  "Some" learning is a huge understatement as to becoming a hard money lender.  $500K isn't enough funds to even begin to consider doing it, even if it was a viable option.  If it is in consideration, then might I suggest betting it all on red.  You'll have about the same odds of making money and at least it'll be faster and less painful when the cash is gone.

Highpoint, if you're wanting to put the money into RE, great.  It may or may not be the best way to do what you want, depending on your risk tolerance and expected return, but I still believe that it is one of the most secure forms of investing.  One thing to consider.  You mention that you've been involved in RE on a small scale, as a 'hobby.'  RE investing shouldn't be viewed as a hobby and especially not when you're dealing with this kind of cash.  Learn RE as a business, then pursue what you want.

Raj

[HighPoint]

Funny guy Mike. 

I certainly did not come here to get my answer. I simply asked the question to get the "wheels turning" on real estate investing and to see what methods some here have used, who had or currently have, access to large sums of money.

I was not asking, then turning off my computer and running off with the advice.  I'm a little older and a little smarter than that.

I'd really like to hear peoples ideas based on what they themselves would do. Big ideas. Ideas that you have used to make great investments with lots of money.

If no one here has experience with dealing with money and real estate, then I guess coming to website titled Real Estate Investing was a mistake. 

[Topaz]

Isn't this board supposed to be a place where "strangers" can exchange opinions and ideas?  Sheesh, usually this group is more hospitable than this.  Some of these responses are rude and patronizing.

Topaz

[mw]

What CD is at 6.5%?

mw, when you get to the point where you have $500K to put into CDs/MMA, then you'll be able to find that interest rate, too.  In fact, when dealing with that amount or higher, that's a pretty conservative number.  This ain't your momma's $500 Home Banking CD.

And no, while you didn't say "just do it" it was implied that it was a simple process.  It isn't.  "Some" learning is a huge understatement as to becoming a hard money lender.  $500K isn't enough funds to even begin to consider doing it, even if it was a viable option.  If it is in consideration, then might I suggest betting it all on red.  You'll have about the same odds of making money and at least it'll be faster and less painful when the cash is gone.

Highpoint, if you're wanting to put the money into RE, great.  It may or may not be the best way to do what you want, depending on your risk tolerance and expected return, but I still believe that it is one of the most secure forms of investing.  One thing to consider.  You mention that you've been involved in RE on a small scale, as a 'hobby.'  RE investing shouldn't be viewed as a hobby and especially not when you're dealing with this kind of cash.  Learn RE as a business, then pursue what you want.

Raj

Where do you get you information?  $500k is not enough to be a hard money lender?  Maybe some  commercial properties...but that's about it.  I started with under $200k, and have steadily grown that by $100k last year...and will easily double that this year.  $500k can fetch about 15 loans in my area.

[Rich_in_CT]

If you have any doubts as to what you should do with it you can always mail me a check.....