Where would you invest 5 million
Let's say you inherited $5 million in cash that you had to invest in real estate while keeping your current job. What strategy would you take to balance risk/return/career/opportunity costs ?
I'd buy a $5M house close to the beach.
Risk: Nothing (Wildfires I suppose?)
Return: A sick place to live + not paying a 7% mortgage for 30 years
Career: I can do more of what I want because I have a dope house and don't have to worry about that
Opportunity Cost: Making more money, but I would have used that money to buy an awesome place to live, so...
Glad to see someone else doesn't have their head up their ass!
Buy a house, fix out every expense I can, and escrow like 20 years of taxes/insurance/etc. Set and forget.
What’s your pick of beach city? Personally either San Clemente or Laguna Beach. Dana Point had some nice neighborhoods too.
good luck when your house in 5ft underwater
Prob invest in safe debt between 7-10% . Wouldnt want to risk it on homes or stock market at this time.
Where would you find safe debt to invest in as an individual investor?
I think brokers let you buy and sell bonds
fix and flip!!!
For me and my market specifically:
1.) $1.5mm-2mm into stabilized NNN retail properties at ideally a cap rate 1.5%-2% over interest rates (~8% cap rate today) at 75%-80% LTV. This is tough, but not impossible as I've seen a couple assets at ~7.5% cap rates that I've considered and should generate about 10%-15% CoC that is almost all tax free due to depreciation. The goal here is to generate reliable fixed income for the day that I choose to quit my job and pursue real estate investing/development full-time
2.) $1mm into 1-2 condo development/gut reno projects that I can begin somewhat immediately
3.) $1mm-$1.5mm into 1-2 entitlement projects with the goal of development upon entitling
4.) $500k-$1mm in money markets or equivalent for working capital and/or dry powder should something really good come along
wow thanks for the detailed answer, if I could ask real quick
1) will lenders really lend @6% for 75% LTV? What information would you be willing to give about the submarket this is in?
2) What experience are you coming from?
3) if you're forced to put all money into RE, could you throw down more cash for one of the properties and then have a cash out refi ready as an alternative to the money market?
My lenders would do it for 6.5% to 6.75% for a stabilized asset today at 75% LTV but if I really pushed, i could prob get 80%. For this particular strategy, you could do it nation wide. I'm subscribed to horvath tremblay's retail email blast and I see 7%-8% cap deals for sale all the time. The hard part is finding a 7%-8% cap rate in a respectable market, which I've seen, but not super common - i'm not interested investing in places like Boise, Idaho. One market that I think has the best shot at a 7%-8% cap rate but also in a market where I think lease up would be pretty easy if the tenant leaves is California. I have a friend who plays in the commercial/strip mall market in SoCal and has done very well for himself. One of his most recent deals he bought a commercial property with some mom and pop pharmacy tenant (TAW). He then kicked them out, divided it into 2 spaces and leased one side to a cafe and the other side to Verizon. Ended up doubling the income, which then doubled the value...On another deal he bought a class B office building pre-covid (TAW), put in $100k to renovate the exterior and repave the parking lot and ended up selling it to an owner-occupant company and made $700k in 3 months...he buys all cash though. The reason I think California has more opportunities is because it is such a large state and has a lot more commercially zoned land. In the market that I'm in, I'm in a much smaller state and therefore much fewer commercially zoned land, which makes playing in the commercial space very tough in my market in my opinion.
RE Investment and development...although the development part is probably more important...anyone can calculate rent - expenses = profit and CoC on a stabilized asset. IRR's, waterfalls, etc.. are all meaningless if you don't have investors. The development and entitlement strategies I provided above are very specific to ME because I have the knowledge, experience, and team to execute (team as in architects, zoning attorneys, engineers, contractors, etc...). For someone just starting off, I suggest starting off with buying something cheap and doing a simple renovation.
Yes you can, but rather than doing a refi, I suggest a line of credit because you only pay interest when you draw down and its revolving; however, the downside is that you can only get a LoC up to 65% of the asset value. Another caveat, even for a cash out refi, most lenders won't refi back to you at 75%-80% LTV. Maybe only 65%-70%, so if possible, I suggest not putting more than the necessary amount into any investment, but if you must, call a bunch of local/regional lenders and ask them if they do 75% cash out refi's - only borrow from the ones that do.
Right now? money markets... you'll know the right time to actually deploy.
How will you know, and by that time when everyone knows it's time to deploy, wouldn't it be too late?
Also, what if you cannot utilize money market accounts and must put it directly into real estate? is the best play to buy all cash and go for a cash out refinance when the best time to deploy comes around?
If I come into $5 million and have to use those funds to buy real estate while continuing to work, I would do the following. First, I would invest in the rental housing in the most popular zones as such properties would always have tenants. It is as if business people were stuck in a monopoly game, but with real dollars and cents. I would also invest in other types of commercial properties like small business spaces or retail shops for higher returns and say hello to being the future landlord, albeit indirectly As for easy cash and return and some professional management I would put my money in REITs which are mutual funds specializing in properties.
Further, I’d invest in buying homes in the prime tourist spots; who wouldn’t want to make money while allowing others to have a break?Finally, I’d get a comparatively lesser amount for property trading, investing in properties, rehabilitating and reselling them for short and immediate profits. This is like watching an episode of Tpend stage on HGTV without the cameras and the contractor crew. This enables me;self to receive steady income, hope for the business’ growth and still maintain professional elasticity so that I can indulge in watching real estate reality shows for reference.
Yeah, based on the way this is written don't listen to a word this guy says lol
I think even Chat GPT could have composed something better.
Find a Ukrainian mortgage bond that yields 40%+
just SP500 and live off of it for the rest of your life. die with $0 in your acc. $5M will be enough for life, especially if you live in some cool tropical islands (can live in a new island every couple of months) rather than big cities in US.
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