How would you invest 950k today?

Question

I have been reading the BP forums for some time now, but haven't really found articles having to do with my current situation.  I have some mad skills regarding remodeling, built my own kitchen cabinets from scratch, completely wired my home after filing for permits and going through the proper channels for inspection.  I love real estate, even though it is not my current career/job.

Back to the topic though, would you pay cash for properties and then rent them for passive income?  Would you pay cash for a primary residence and then leverage the heck out of it to purchase and BRRRR?  Would you put the minimum down payment and buy as many investment properties as possible, and maybe only do a 15 year mortgage, so the time you are 65 you have steady passive income coming in?  Would you loan the money out for higher interest loans, similar to hard money loans?  I would really like to hear what others have to say.

Whitney Hutten · Answer

@TJ Flynn It depends.  I like spreading my risk across multiple properties which means lending works well for me. I do see the allure of purchasing all cash, but when you crunch the numbers there is a very big argument to not purchase all cash.  When purchased properly, properties still cashflow with lending on them.  If you do use leverage, lock in a 30 year fixed mortgage.  You can always pay it off like a 15 year, but now you have flexibility rather than be locked into the higher payment from the start.

And it's not just about the money...I'd also look at how you want to spend your time.  Do you want to be an active investor and managing a portfolio of properties or do you want to be a fully passive investor and go in on some else's properties?  Or a blend of both.  I have a rental portfolio and a syndication portfolio.  I spend far less time on my syndications...

Yes, you can lend as well, and maybe you do that as a side project until you have your own project identified. Dig in deeper on this, as even in lending, timelines never really go as planned.  Be certain you are lending to a partner you know well, like and trust 110%.  And do your due diligence as if you were purchasing the property (because you may end up with it!).  Side note, this does produce active income (not passive income) so be aware of that as well.

And if you don't have a primary, that is a great place to start your investing journey.  If you can, I'd do some form of househack (maybe a small multifamily, where you live in 1 unit).

Last thought, be careful of overleverage.  Leverage can amply your returns and accelerate your gains AND it can amply your losses and put you upside down if used unwisely.

It all requires education. Don't get into any of it until you have that under your belt or are partnered up with a mentor or coach who can guide you.  I've seen so many people dive in with no plan and lose their shirt.

PM me with Q's!

TJ Flynn · Answer

@Luis Vaca I do have a pretty good idea of the direction I want to go and your idea of a live in flip is not bad, but I've been there before and it's not fun with all the dust, noise etc...

@Scott Krone That's good advice, regarding the accountant.  I am always skeptical about "financial advisors", I would almost prefer to find someone that is doing what I want to do and learn that way, as Account Closed Your response was very helpful and what I was hoping to receive from my post.  I think what I will do is start small, starting with my primary residence and look into a fixer-upper that I can have instant equity after a little sweat equity.  I'll make sure the numbers make sense before diving into anything using the pro tools from BP.  I am fortunate to be able to work remotely, splitting my time in Arizona during the rainy months in Seattle.  I may take you up on the PM once I have scoped out a few properties.

TJ Flynn · Answer

@John Fortes Holding off on the primary resident and your other advice seems sound.  I have a nice paying job right now, but want to set things up now so that it will be my choice whether or not I want to work for someone else or run my own business.  Personally, I think not having a primary resident will be the most difficult for me, but hear what you are saying in regards to my capital working for me now.

John Fortes · Answer

You made some great suggestions as to what you should/could do with that capital. Rule number one, never disclose in an open forum how much.

The comment you made about buying a house and then leveraging it would be something I would avoid if you can with excess capital. You can purchase multiple cash flowing assets to help fund or purchase and pay for your own home one day if you are patient to utilize that capital to work for you now.

All the options you suggest, you will hear different viewpoints on which way to sway towards. The only person that can truly answer that is you at the end of the day. Everything else is opinions that worked for many others.

One thing you can try to do is sample all of them budget them all equally and see which option works for you and your lifestyle. If something sticks, keep perfecting it and save your primary residence for last once you get a good grasp on this and let your investments pay for it.

Happy investing!

Nana Osei · Answer

I would save 25%  and follow this model  as well.

TJ Flynn · Answer

While I live in Seattle, things are a bit too expensive, unless I cross the water and look at other areas like Bremerton, but that area is speculative at best.  However, I still keep my eye out in that area for screaming deals.  I plan on doing my first few deals in Arizona though, as that is where my primary residence will be and I prefer to stick close to home for my first few deals.

@Lynnette E. Yeah, I have to admit, that paying cash does give peace of mind.  Definitely a lot to think about.

Lynnette E. · Answer

I'd buy the distressed properties for cash, fix them up and rent them.  Use the rental income to buy more distressed properties.

Keep them free and clear so you do not have to worry about how long it takes to fix it, or if the renters are late or don't pay.  Its much more stress free.  And then you can also buy another good priced distressed property when you are backlogged in fixing because the opportunity came up, and you do not have to worry about how many payments you have to make with out the rental income.

Oh, and by a decent, but modest property for your primary home.  Follow Warren Buffet's example in primary home purchase.

Enrique Huerta · Answer

Hi @TJ Flynn,

This is what I would personally do if I were you. I am not you so take this for what it is: one person's opinion and triangulate the data to make the best decision for you, your ambitions, and your goals.

Since you have a contractor's skillset, I would look into a flip/value-add project where you can invest both cash equity and sweat equity to add value and generate some profits and cash flow. You can also look into ground-up development although that requires more contacts and work.

I would personally buy a "light value add" deal that needs some cosmetic work and start with that. A house is OK but not my personal favorite. I'd probably tackle a 2-15 unit deal. Seattle is expensive so maybe a fourplex to begin. Renovate all the units and lease them out at higher rental rates. Then you can refinance and cash-out. Look into the BRRRR method. Rinse & Repeat. My personal philosophy is to buy something with an in-place minimum return that can be grown through cosmetic renovations and hands-on management.

I'd skip paying all cash. I'd skip the primary SFR. I'd skip 15-year mortgages. I'd consider hard money loans and I'd consider doing a Joint Venture with someone else. One structure I would do is approach an investor and say: "Bring me a deal and I'll invest some money and some construction work." Then y'all can partner up and make a project come to life. As always, vet all your relationships and do full DD on the project and the people involved.

A final option would be to take some capital and make a passive investment with an experienced sponsor of investments. This would be an option if you are an accredited investor. That way, you can make some "small bets" with other experienced investors and then you can place some other "small bets" with your capital in an active way.

I would do a 25%/50%/25% split or 50%/25%/25%

Take 25% and invest it passively. Take another 50% and invest it in your own hands-on projects since you're handy. Save the other 25% for cash reserves for a "rainy day" or current environment like today.

or

Take 50% and invest it passively. Take another 25% for your own hands-on projects. Save 25%

This is all with the assumption that you're not looking to make real estate your full-time job. If you are, my advice would change. If you want to keep your current career and make some investments on the side, the strategy above is awesome in my opinion.

I am biased but that is what I do with my own capital. Take it for what it is and best of luck.

Final thought: today's environment is challenging and it's good that you have cash to deploy. Don't jump at the first deal. Make sure it is a solid opportunity and when it appears, take it.

Doug McVinua · Answer

@TJ Flynn Reading the above you seem to be somewhat of a hands-on person and conservative with your funds? Good job accumulating your funds!!

Maybe you invest in both markets you spend time in for diversification with fairly significant down-payments so you can cash flow positive even during market cycles? You could purchase fix-up properties to utilize your skills in remodeling.

With the current price of money, it is very tempting to leverage real estate and that would include your primary resident.

Of course, I love Arizona and see strong results from the rental portfolio I manage.

Scott Krone · Answer

@TJ Flynn  Well done on your success.

With success comes tax consequences.  One of the advantageous real estate affords its investors is tax shelters.  There are many ways to create those shelters:  Cost Segregation, depreciation, expenses from loan payments, Opportunity Zones, IRA's to name a few.  To answer your question:  Why isn't there more articles on Bigger Pockets about situations similar to yours is this:  It is a complex question that one shoe does not fit every foot.  There are many factors to consider:

So, what is best for you? I would suggest reviewing your question with your accountant and financial adviser to create a long term plan and goal for all your investments.   I would trust they have many questions for you in order to prepare a plan.  I would certainly ask them the questions you raised in this post.

How would you invest 950k today?

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