How would you invest $500k solely for the purpose of cash flow and FIRE

Question

Hello everyone,

I'm relatively new to real estate investing and I'm looking for some advice from you experienced investors please. My personal goal is to generate as much cash flow as possible so I can reach FIRE status as soon as possible and then just invest in RE full time. I have $500k in cash to invest as well as a credit score between 750-800. I also currently have 2 rental properties (1/2 of a duplex and 1 SFH) I currently have about $400k in equity in the 2 properties and they generate $2k/mo net income (before repairs)

How would you invest this $500k if you had a similar goal as me to reach FIRE status asap? Would you buy many SFH's or would you by a few 2-4 unit MFH's or would you go for the big one and use all $500k as a down payment towards the biggest MFH you could find that you qualified for? Also, how would you use the $400k in equity that I already have in my other 2 rental properties? Any help is greatly appreciated and thanks in advance!

Justin

Chris Seveney · Answer

@Justin Whitfield

Depends on how active you want to be. The more rentals you buy are you really retiring early?

Are you only considering real estate?

For me I diversify into real estate as well as other asset classes and put most of it in lower risk areas (I am closer to 50) and have some “play money” that I am willing to put in riskier investments.

I work backwards from “what do I want for cash flow per month and by what date” and what is a realistic return and does that get me there? If not I push to grow the number not from riskier investments but from earnings to increase the machine bringing in the money.

Alecia Loveless · Answer

@Justin Whitfield I wouldn’t invest in syndication right now because many of them are behind on payments and we’ve even seen some reports on the forums of some that have failed and taken over $200,000 of one investors money.

Personally I like smaller multi family 2-12 units. It’s fairly simple to manage and you can likely do a few of these type deals with $500K.

I’d be a little wary of initially buying as big as you can because with only 2 doors currently you may not have enough experience. Not to say you can’t, there’s just a large learning curve from what I hear.

Travis Timmons · Answer

I'd first slow down and develop some sort of subject matter expertise. Whether that be a particular strategy or the ins and outs of your market and/or asset class of choice.

I'm a big fan of Wes Moss's work and used that as a guide to become financially independent. He suggests a paid off primary residence, more than 1 source of income (real estate, retirement/after tax brokerage account, social security if old enough, part time job or business, etc.), and $500k in liquid assets.

You are probably closer than you think and are doing great if you have at least $900k in net worth. Be kind to yourself and take a minute to be proud of the progress and good decisions up to this point.

Golan Corshidi · Answer

Buy a multi-family asset in a high cash flow market. I found this chart with cap rate averages across the nation. Maybe a good starting point if cash flow is the focus.

Best of luck!

Allan C. · Answer

@Justin Whitfield I’d first forget about FiRE status - it doesn’t really exist without large trade offs that you’re likely not willing to make. Once you free yourself from that unrealistic goal, then you can focus on maximizing the returns on your capital.

So the next important question is when would you like liquid access to your investment gains. Do you want immediate access or can you wait 10-15 years? If you can wait 10-15 years, then you can invest in higher quality assets that potentially give you higher yields. If you want access to cash flow now, then you likely get lower quality assets, but can give you more liquidity.

Investing is about trade-offs so you’ll need to better define your goals for us to give you more targeted advice.

Nicholas L. · Answer

@Justin Whitfield

well... it depends. as @Chris Seveney said - on how active you want to be.  if you want to be hands-on and active, then you could buy more individual properties.  if not... then don't.

i primarily BRRRR and that is very much not a cash flow play unless you sell a BRRRR... and 'selling a BRRRR' is just flipping.

what i definitely would not do is plow all $500K into one thing / one building / one asset.

are your other properties paid off?  if so, all you're doing if you refinance them is putting pressure on yourself to beat the interest rate you'd be borrowing at. I don't think that makes sense with interest rates where they are unless i am missing something about what you're trying to achieve.

Justin Whitfield · Answer

Thank you everyone for the replies. I appreciate and will reference each one of these. You guys are great!

Bob Stevens · Answer

Buy few props CASH with 10% or better NET caps refi and buy more. YES, that simple :)

Nicholas L. · Answer

@Justin Whitfield

do you want to be hands-on and spending lots of time finding, rehabbing, and managing properties and growing your portfolio?  the more hands-on you personally are, and the more niche / creative / difficult the strategy is, the more the potential to cash flow (but also higher risk.)

standard, professionally managed, vanilla LTRs in good neighborhoods basically don't cash flow right now with interest rates where they are.

Bob Stevens · Answer

How about that. I have been saying it for 10 years!

How would you invest $500k solely for the purpose of cash flow and FIRE

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