What would YOU do with my 500k?

[David B.]

Hi all -

 
So this is a post that is essentially meant to generate thoughtful discussion about how I should start investing in real estate with the wealth I’ve been fortunate to generate. I have enough capital to do some cool things, but not enough wisdom to know what my best options are. So I’m humbly relying on all of you to help stoke the fires a bit, or maybe tell me if I’m heading in the right direction. Thank you so much for your thoughts in advance. I appreciate the guidance, and I apologize if I come across as a rookie for asking this.

First, some stats:

34 years old  

Job: artist/ entertainer (which means I don’t have particularly steady income, or predictable W2’s. That said, I make a fair amount of money)

Net Worth: 1.55 million. 

Available cash: 300-500k. 

Goals: cash flow, plus high appreciation over next ten years so I can 1031 exchange to bigger properties. 

Properties owned: I own one cash flow townhome worth 550k. I am also buying a new Single Family Home in May that I expect to appreciate significantly, and cash flow slightly. I will be able to force appreciation in this home by finishing a basement with 3 new beds and 1 bath. 721k. Salt Lake City market. 

I have about a 1 million invested in stocks, which provide dividends for me to live off when work is tough. the rest right now is cash. Due to inflation, and my growing hunger for real estate, I would like to invest at least 300k into multi family properties this year. But I could go as high as 500k for the right deal. Multi units that I could force appreciation into would be awesome, as I love the idea of refinancing capital out.

I should also mention that I expect to make about 425 k, in installments, from another business deal over the next 3 years, at a minimum. I would like to add that money directly to real estate investments. This would total 725-925k thousand that I could invest over the next 4-5 years.

Lastly, before anyone says I should liquidate the stocks and use that too, my goal (currently) is to not touch my stock portfolio for 30 years, and to develop enough cash flow in real estate that I could live off of that and leave my dividends to reinvest. This would exponentially increase that portfolios value over time. Also, because I’m an artist and I have tough years, I’m concerned about losing that dividend safety net that currently nets me 80-100k. 

OK! So all that said, I’m debating between…

1. Going big. Trying to find 8-20 unit multi family deals (maybe with a partner to scale quickly) in hot markets like Miami, Tampa, Houston, etc. Sort of “Grant Cardone Style”.

2. Buying smaller single family’s and multi family’s in areas like Lakeland Florida or the Midwest. Where I can put 30 -45k down, net a little over a 1k a month, and get some thing like 15-20% cash on cash returns. Then, once I’ve acquired quite a few of them, let’s them appreciate until I can sell/refi/1031

3. I have an idea about finding a luxury home in Miami that I could short term rent. I’ve seen a lot of awesome cash flow on those deals and I’d be interested in having a “second home” that I could Airbnb when I’m gone. Of course, I would continue to diversify with other properties as I had cash coming in (not just short term rentals. More traditional multi families.)

* My first cash flow goal is 5000k a month, but ideally I’d like 10k.

Thank you everyone for reading. I really appreciate any advice or guidance as I begin this new financial journey for myself. 

God Bless,

D

[Don Petrasek]

The challenge you face with SFHs is that you're going to be competing with owner occupant buyers who are very willing to overpay.  In my market (Cleveland OH) there are also more cash buyers than you might think, even in the lower price ranges- who are also going to win out over your financed offer.  Its going to be difficult for you to lock down a property, never mind trying to get it at a price where it will cashflow.  The investor portfolios of SFHs will largely be C-D properties (at least in my experience) that will be more difficult to manage and won't appreciate at the near the same rate as a B property would. 

To me, the ideal structure would be to find 3-4 markets (probably Midwest) where you can buy a small multi family, get decent cashflow (e g 10% cash on cash) and then raise rents/improve to drive the value up.  Being in even 3 separate markets will dramatically decrease your risk vs owning a larger building in one market.  If you wind up liking the market, at some point you 1031 out of the smaller building into a larger one....if you don't you go to a different market with your proceeds.