What's the smartest way to invest in real estate if you *do* have money?

[Robin Schumacher]

First, thanks to everyone here for creating/maintaining a great site. I'm new here and am learning a lot via the posts, articles, and more.

I've noticed that there are lots of posts and advice on how to get started with real estate investing with little/no money. But my question is: what's the smartest strategy to use (given my goals and preferred method below) if a person *does* have a decent sum of capital to fund the startup of the business?

I've got lots of experience with stock investing, have done fine, and have a business background of starting and selling/IPO'ing software companies (currently on my 3rd right now). I've carved out a chunk of my portfolio to now use for real estate with my preferred method being buy/hold single family homes and perhaps quads that meet my criteria. Is it better to buy few properties for cash upfront to get going or buy more properties and use leverage? I've already bought one foreclosure for cash that's a single-family home and just put my first tenant into it this weekend.

I do understand how a better ROI can be realized with the latter, however currently I am totally debt free and like the freedom and worry-free peace of mind that provides. In one of the investing books I read, the author provided an example of a couple who ran their business in a way where they bought new investment properties and aimed all the cash flow of their existing properties at the new one until it was paid off and then rinsed/repeated. That plan appeals to me, but I'm open to other strategies. I don't need the income right now or for the foreseeable future.

So what if you had a decent six-figure or even seven-figure base of $$$ to get started and didn't need the income, but was instead building a real-estate portfolio for retirement income in 10-15 years? What would be your plan of attack?

Thanks again for a great site.

[Kyle Hipp]

Robin, from your position I know exactly what I personally would do and have recommended to others. For easy numbers, lets say you have $1,000,000 to invest. If you buy $1,000,000 in property in cash and that throws off $100,000 a year in cashflow then after 10 years you would have $1,000,000 in cash from the cashflow and $1,000,000 of property when conservatively assuming no appreciation.

However if you put down 25% on each property and invest the full $1,000,000 you will control $4,000,000 in real estate. Your cashflow will be less per property because of leverage (which I will put on 10 year notes) but you should still have decent cashflow, lets say only $50,000 per year. In this scenario after those 10 years you will have thrown off $500,000 in cashflow in a time that cashflow was not really important to your world. You could even throw all that cashflow in the second scenario into property management in order to cover the extra workload and you would still after 10 years have $4,000,000 worth of property assuming no appreciation. If this throws off the same rate as in the original scenario you now have $400,000 a year in cashflow when yiu would like the income. Even take off the $50,000 for property management still leaves you with $350,000.

Either way, you will not purchase all this real estate in a month. It might take ayear or more to fully employ all this capital in the best fashion and during that time you will learn a lot and be able to make changes. I am a big proponent of developing an extremely detailed plan out 10 -20 even 40 years out. Not that we are going to follow the plan 40 years out but to see what our 5 year plan will turn into 40 years out. Once we have done that work then you know where you are going. As you grow and learn more and lean toward this or that you can alter your plan to meet your new goals or reaction to changing environments.

Great question and welcome to Bigger Pockets.