I've got $500k in cash, how should I invest it?

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I've got $500k in cash, how should I invest it?

Account Closed
Member since 2023 · 3 posts · 8 votes

I'm a 29 year old American living in California (Silicon Valley) with $500k in cash.

Due to religious reasons, I cannot use leverage (i.e. bank loans), so my investments need to be all cash.

I need to invest this money in a way that will get me good rental returns.

I do think my only options may be to go out of state.

I was thinking of potentially buying two condos in not so great neighborhoods in California ($250k each) and renting them out.

I was also thinking about going out of state and buying two nice townhouses (maybe somewhere in Arizona, North Carolina, Texas, etc) at $250k each and renting them out.

I'm not sure what to do with my money that will get me good returns, while not being able to use leverage.

Should I go out of state, or invest somewhere in California where the rental returns won't be so great?

If so, which state and area?

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y

If you won't use leverage, I recommend syndications or some other passive investment such as the stock market.  Real estate is way too much work to not achieve outpaced returns and you will not get that with unlevered real estate.

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  • Tim CraycraftPro Member
    Member since 2022 · 5 posts · 7 votes
    3y
    Have you thought about maybe doing a 1 property purchase out of state and then use the remaining fund to invest in something like Open Door Capital (Brandon Turner) or similar other type of "crowd funding investment"? you could do both and see which gives a "better return" and what I mean by this is return taking into account what matters to you (investment type return - time - effort - ease of investment management - funds accessibility = what return comes out). Just another thought, but again its all about what you feel comfortable  with, your long term goals and the risk tolerance. you are still young and you have a lot of time to grown you portfolio. good luck with your final choice but from what I have seen so far, you posting on Big Pockets and reading thru different post is a massive resource of knowledge and information which means you have made the right choice as a start.
    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y

    If you won't use leverage, I recommend syndications or some other passive investment such as the stock market.  Real estate is way too much work to not achieve outpaced returns and you will not get that with unlevered real estate.

    18Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
    3y

    @Account Closed

    I agree with @Mike Dymski the main advantage of RE is the ability to use leverage and that it is a real asset. If I were you, I would buy 1 maybe 2 houses outright in another state like Arkansas, NC, Tenn, SC,etc. Then I would save all the CF from these investments to buy my 3rd and so on. I would stay away from townhouses and condos personally because I do not like HOA's. I would invest out of CA not just b/c it is more expensive, but they have tenant friendly laws. Based on the way CA gov. is heading we will keep seeing an increase in crime, homelessness, taxes etc. At some point the pendulum will swing the other way but there is just too much risk in CA.

    I assume if you do not want to take on leverage the property appreciating does not really matter b/c in the future you will not refinance and even when your property appreciates you would want to buy the next one all cash so it wouldn't be a big move up. That means everything you buy you would be planning on holding long-term. I would want to buy in nicer areas out of state, which probably means you can buy one house outright.

    For stocks I would wait for the inevitable crash in the coming months and then look into buying dividend paying stocks and stay with companies in the DOW or S&P500. Even now you can find companies that pay 5% dividend. Thats $25k/yr. Before investing in stocks though I would read books about the stock market and stay with big companies that pay an increasing dividend.

    I have a question about it being against your religion to take on debt. Would it not also be against your religion to buy stocks, syndications, etc? I ask because if you see it as a negative to take on debt personally, I would assume you putting your money into investments that have debt associated with them would be looked down upon. 

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Mike Dymski:

    If you won't use leverage, I recommend syndications or some other passive investment such as the stock market.  Real estate is way too much work to not achieve outpaced returns and you will not get that with unlevered real estate.

    I was going to recommend stocks/bonds/reits as well. 
    Easy to get dividends alone of 7%-11% in utility or communication stocks or reits today.  
    Risk and effort adjusted, publicly traded paper equities are multiples less risky and less hassle than buying some out of area RE at retail with little knowledge or experience.  

    6Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Khail Towers

    Have you considered investing in a real estate fund?

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    My new syndication fund!  lol

    1Reply
  • Shafi Noss
    Lender · Nationwide · Member since 2018 · 571 posts · 310 votes
    3y

    Remember that if you invest in a syndication or fund, the manager will still use a loan to purchase the underlying property. There are lending funds, like the one I run, but that involves giving debt, so probably doesn't work for you. 

    If your goal is income, you could partner with a flipper who buys tax or mortgage foreclosed properties. 

    Many of these are required to be bought with cash. 

    You provide the money, your partner does the work, and you both make money with no debt involved. 

    2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    I personally would not invest in a syndication right now. Why? They are single asset = too much risk. When you have that much money you want to invest it in something that has some diversity

    So if you didn't want one asset a fund or REIT (which is a fund just with different taxation rules) offers you better protection.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Jared HottleBusiness Member
    Real Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
    3y

    This is an interesting question I have not thought of. Really no reason to do BRRR as the leverage is the best part of that. I would probably look at the highest cashflow I could get which would either be short term rentals in popular ares like Nashville or Joshua Tree or I would look to invest in turn-key rentals in the Midwest. If you have any interest in the Midwest, shoot me a message I have a couple ideas.

    [email protected]319-288-5382
    Jared Hottle Real Estate59 Reviews
    WebsiteView Page
    0Reply
  • Chad McMahan
    Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes
    3y
    Quote from @Account Closed:

    I'm a 29 year old American living in California (Silicon Valley) with $500k in cash.

    Due to religious reasons, I cannot use leverage (i.e. bank loans), so my investments need to be all cash.

    I need to invest this money in a way that will get me good rental returns.

    I do think my only options may be to go out of state.

    I was thinking of potentially buying two condos in not so great neighborhoods in California ($250k each) and renting them out.

    I was also thinking about going out of state and buying two nice townhouses (maybe somewhere in Arizona, North Carolina, Texas, etc) at $250k each and renting them out.

    I'm not sure what to do with my money that will get me good returns, while not being able to use leverage.

    Should I go out of state, or invest somewhere in California where the rental returns won't be so great?

    If so, which state and area?

    Hi Khail.
    I would do one of two things:

    1) Purchase a property around $400k-$450k, all cash, make any necessary improvements, stage and STR it out in a more secure market area that is getting strong returns and should be growing in the next 5 years, giving you strong appreciation- assuming no further major shenanigans, such as big interest rate hikes, etc. As an example, my clients in my area and based on a $450k purchase, receive gross annual income of $70k-$90k via STR. Clients that buy multiple properties per year, trust these returns and pounce when I forecast returns on a specific project, because they know, we have the entire team and the plan to make it happen, over and over again. Returns like this reliably happen in strong growing markets that are not over saturated and have rental demand, when you purchase properties that will have STR marketing "pop", and check enough demand boxes to boost your occupancy rate and ADR. Finally, either self manage properties at the highest level- like a high caliber business, or outsource the STR management to one of the top STR PM's in the state where you invest- which I recommend.
    2) Put the $500k into a real estate fund, which estimates strong returns within 3-6 years. If it's a fund, and NOT a syndication, your profits fall within "carried interest" which is only taxed at 20%- based on current tax laws at the time I'm posting this. As an example, I am the CEO of a real estate fund called Capital Giants, which invests in AZ rental property and we are targeting double to triple investor returns within approximately 3-5 years. Then, if the investors like, we give first right to roll the profits into the next real estate fund, or just pay back the investors. There are a couple of other funds in AZ that are kicking butt, as well. Word to the wise, make sure it's a fund that is investing in areas forecasted to see short and mid-term growth, such as some regions of Arizona- due to tech and other moderate and major major new business inflow.
    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    @Account Closed

    There are several opportunities at the 250k price point in Columbia TN and that area is booming right now. 

    However, if you're not going to use leverage you might as well buy US treasury bonds at this point. The return is not as good but it's considered "zero risk" 

    0Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    3y

    I recommend not investing in California, unless you really know what you are doing.  Rent control laws, especially in C-class areas..not good. There are tons of great markets across the country, really depends on what you're looking for. Some have higher cashfow, others have higher appreciation.  I invest in the Milwaukee market. Great cashflow and pretty stable.

    Investing in a syndication as an LP might be good option as well..

    If you're going to deploy 500K on your own, you have to become very knowledgeable in RE first.

    0Reply
  • Chris Davidson
    Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
    3y

    @Account Closed if you aren't using leverage you can still do REI in actual properties and get the tax benefits, just won't be as sizable as someone else. I would narrow down more why you want to do REI and what you are looking for. IF it is just for monthly payments could you put it into equities and get similar results with less management. If you are looking for the tax benefits, find some properties you can buy all cash and roll with it. I would avoid strictly cashflow markets since you have the funds to buy in some appreciation areas as that will provide the best long term results. If you have 500k at 29 likely going to have good income anyways and you won't need the cashflow. Another option would be to check out some commercial NNN properties in more affordable markets. the 500k might not get what you are looking for but could put you close and remove some of the responsibilities.

    If you are looking at OOS investing focus on finding/ making a great team as this will have a larger impact on your investments than just buying right. You have to buy right and manage right to really get REI to work well for you.

    Best of luck and keep crushing it!

    0Reply
  • Travis Biziorek
    Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    Hi Khail, where in CA are you? I'm in the central coast and own 12-doors in Detroit. I also help folks invest in the Detroit market all the time and a lot of those deals are done with cash.

    Detroit is known for its strong cash flow but I believe there's lots of upside for appreciation as well. My portfolio is up 2-3x since purchasing between 2019 and 2021. Happy to talk about options if you'd like.

    1Reply
  • Chris Willard
    Property Manager · Big Bear, CA · Member since 2023 · 10 posts · 0 votes
    3y

    Hi @Account Closed

    My encouragement is to invest in a short term rental in big bear. Happy to guide you through a performa of what you can make and support you on the short term rental management side. My website is: achalet.com 

    Let me know if you have any questions around this space!

    0Reply
  • Ben Shelbourne
    Lender · Long Beach, CA · Member since 2023 · 21 posts · 8 votes
    3y

    AirBNB'ing an existing rental is becoming a very popular option for people. It allows you to keep most of the $500K you already have while having the advantage of cash flowing someone else's property. Find a rental property in a high traffic area and discuss terms with a landlord who will allow you to AirBNB the property. Use some of the $500K to invest in furniture and added security for the property and go live on AirBNB. Best to start with 1 to become familiar with the process and once you're comfortable you can start more or them. Obviously this can be time consuming but there are APPs that track everything for you, including check in and check out.

    0Reply
  • Dexter Rogers
    Member since 2023 · 3 posts · 1 vote
    3y

    There are various ways to leverage your funds from lending, providing short-term loans for people who need earnest money deposits, down payments etc for those who lack funds to get deals to the closing table. 

    Eg: Suppose an investor has a property under contract and they have a strong end buyer in place but they lack the $1000.00 for the earnest money. Vet the end buyer to make sure it's likely to close. Suppose the investor is going to make $25,000.00 when the deal closes. Simply lend the investor the $1000.00 and charge them a fee of $1000.00. You can double your money.

    In short, find a need and fill it for a fee.

    0Reply
  • Ricardo Hidalgo
    Real Estate Agent · Member since 2019 · 569 posts · 257 votes
    3y
    Quote from @Account Closed:

    I'm a 29 year old American living in California (Silicon Valley) with $500k in cash.

    Due to religious reasons, I cannot use leverage (i.e. bank loans), so my investments need to be all cash.

    I need to invest this money in a way that will get me good rental returns.

    I do think my only options may be to go out of state.

    I was thinking of potentially buying two condos in not so great neighborhoods in California ($250k each) and renting them out.

    I was also thinking about going out of state and buying two nice townhouses (maybe somewhere in Arizona, North Carolina, Texas, etc) at $250k each and renting them out.

    I'm not sure what to do with my money that will get me good returns, while not being able to use leverage.

    Should I go out of state, or invest somewhere in California where the rental returns won't be so great?

    If so, which state and area?

    The Emerald Coast is a region of Florida known for its beautiful beaches, warm climate, and outdoor recreational opportunities, and it can potentially be a good location for building or flipping homes for a few reasons:

    1. High demand: The Emerald Coast is a popular tourist destination, attracting millions of visitors each year. This high demand can lead to a strong real estate market, which can potentially result in higher profits for investors.
    2. Appreciating property values: Property values in the Emerald Coast have historically appreciated over time, making it a potentially lucrative market for real estate investors.
    3. Strong economy: The economy of the Emerald Coast is strong and diverse, with industries such as tourism, healthcare, and defense playing a significant role. A strong economy can lead to job growth and population growth, which can in turn lead to increased demand for housing.
    4. Favorable tax environment: Florida has a favorable tax environment, with no state income tax and relatively low property taxes compared to other states. This can make it more appealing for individuals to buy or invest in real estate in the state.

    1Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    @Khail Towers $50,000 on 10 numbers on the roulette table. 1 spin. You hit for $1,750,000. You give me $50,000 tip and keep $1,700,000. You’re welcome

    0Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    3y

    If by "good returns" you mean cash on cash return, IRR, ROI etc. it will be hard to achieve anything worthwhile without financing, IMO. Using leverage is pretty critical to getting a better return on investment property than you could by using other investment vehicles. If I had to stay completely in cash I'd probably just flip properties.

    If the reason for needing to avoid financing is due to needing a sharia-compliant/orthodox Jewish/Halal friendly option, I believe those do exist. Certainly not my area of expertise here and I've never done a transaction with any of the banks that offer these products, but it has been discussed on here several times over the years. For example have you looked into University Islamic Finance? My understanding is that they are setup specifically for those who can't pay or receive interest on a loan (I am in no way affiliated nor have I ever used UIF, by the way, just read about them in other threads here on BP). 

    According to other older threads on here, the way it works is that the buyer doesn't borrow money, but instead buys the property from the bank over a predetermined number of payments, with the price of the property marked up close to what the total interest would be on a normal loan, which is considered profit instead of interest. When you sell the property, any remaining profit is expunged. From a cash on cash return basis, it is pretty much mathematically equivalent to traditional financing. However, the downside compared to traditional financing is you can never cash-out refinance to access your trapped equity. The only way to access equity is to sell the property. Here's another thread on the topic, where several other sharia compliant/ Halal friendly banks are mentioned: https://www.biggerpockets.com/...

    0Reply
  • Billy Daniel
    Rental Property Investor · Russellville, AR · Member since 2014 · 684 posts · 509 votes
    3y

    If you're willing, that money will go a long way in some other states.  Particularly the southeast!  If you'd like, we can discuss my area!

    0Reply
  • Joe Archbold
    Investor · Batavia, IL · Member since 2014 · 99 posts · 81 votes
    3y

    We are still seeing strong operators bring excellent projects throughout the sunbelt via Syndication. There is diversification in multiple investments in different markets, operators building Fund (several assets in one offering), or a mix of Self Storage and Large Value add multifamily.  Connect with a group with a proven track record, Assets under management or full-cycle experience.

    With a Syndication you are investing in a group's ability to perform, their operational expertise, otherwise do it yourself.

    Good luck,

    Joe

    0Reply
  • Brian DeLuca
    Member since 2023 · 24 posts · 4 votes
    3y
    Quote from @Steve Vaughan:
    Quote from @Mike Dymski:

    If you won't use leverage, I recommend syndications or some other passive investment such as the stock market.  Real estate is way too much work to not achieve outpaced returns and you will not get that with unlevered real estate.

    I was going to recommend stocks/bonds/reits as well. 
    Easy to get dividends alone of 7%-11% in utility or communication stocks or reits today.  
    Risk and effort adjusted, publicly traded paper equities are multiples less risky and less hassle than buying some out of area RE at retail with little knowledge or experience.  

    Also less ROI. Most people with money will way it's not because or the stock market but they have money because of realestate 
    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Brian DeLuca:
    Quote from @Steve Vaughan:
    Quote from @Mike Dymski:

    If you won't use leverage, I recommend syndications or some other passive investment such as the stock market.  Real estate is way too much work to not achieve outpaced returns and you will not get that with unlevered real estate.

    Easy to get dividends alone of 7%-11% in utility or communication stocks or reits today.  
    Risk and effort adjusted, publicly traded paper equities are multiples less risky and less hassle than buying some out of area RE at retail with little knowledge or experience.  

    Also less ROI. Most people with money will say it's not because of the stock market but they have money because of realestate 

    Yeah, real estate has created more wealth than any other asset class- for knowledgeable investors that use leverage. 

     Little knowledge, no leverage, already have the $?  Now we're talking about ROE and that's safer and easier and much less hassle to earn with paper securities.  

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y

    Buy rentals with 10- 14% net caps 100% hands off, SF all in about 105k, rents 1200 1400, Duplex all in about 110- 125k rents from 20k, - 25k, 

    All the best 

    0Reply
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