$500k to Invest, What Would You Do?

[Leslie Beia]

Hi All!

I've been investing for 5 years, combo of BRRRR, Airbnb, and flips, near me and out of state. I listen to podcasts and read books and have absorbed a ton of information over the years, so I'm familiar with numerous strategies, at least in concept. This year, I'm partnering with my sister, who is in a miserable corporate job taking her nowhere. But she has the W2 income and around $500k cash she's able to deploy towards our goal, which is to reach 'financial freedom' in 5-10 years. For me, that looks like around $15k/month income (and I'm starting from very little- long story). I have her figuring out her FI number, it's going to be a lot more than mine, but she also has a substantial 401k. So I'm thinking a good target will be around $30k/month to replace both of our incomes and live how we want to live, respectively.

We both live in MI and my current plan is to invest in single- and multi-family in solid, path-of-progress neighborhoods in metro Detroit, and also get some larger SFH's in the more expensive market where we live and do rent-by-the-room/co-living. We have a very severe affordable housing issue here! We are both committed to re-investing any cash flow back into the asset to snowball equity as quickly as possible. I like MI because of our climate, which is relatively stable compared to much of the country. I think our cooler climate and fresh water resources are going to attract a lot of population in coming years, especially as CA/FL become impossibly expensive for many people.

I'd love feedback and advice from those of you who are well ahead of me. I've resisted long term rentals, but am finally accepting that this is the most boring but solid way to create wealth. I am definitely focused on appreciation over cash flow. I am planning to BRRRR in DET and do turn-key up here as we are so short on labor. Are there other pathways I should consider, based on my goals and experience? I'm going to be doing all the research and execution, and I would self-manage the co-living at least the 1st year or two to learn it. Regular LTR's in DET would be fully managed. I love doing flips but I don't often see enough spread in DET and again, labor is too scarce up here to make it viable. It's exciting to have capital, I just want to be very careful and strategic. Thanks in advance for any insight!

[Jay Hinrichs]

Quote from @Jeremy H.:

I'd be tempted into doing an STR (maybe with a higher down payment to ensure cashflow, just run ROI numbers) or an apartment complex - I personally wouldn't mess w/ small stuff. Even developing a mobile home park, affordable townhomes or self storage.

A "miserable corporate job to no where" isn't all that bad - health insurance benefits, 401k matching, probably some sort of discount stock purchase plan, stability, lenders like it. Sounds like she has a good W2. 

Netting 30k/month isn't a small feat - especially without putting in consistent work. You really need a business or a commercial asset in my opinion - contractor bays, oil change type centers -something that everyone uses. Think if one house grosses 1k/month, then it may net say $500/month (after maintenance/repairs, CapEx). You're asking for 30k month - that's 60 of those houses...in a few years. Not saying it's impossible, but that is a full fledged business. You really need an infrastructure to run something like that - systems, people...and you have to keep it going.

Also - if you invest that 500k in an S&P 500 tracker - you'll average 8%/year - 40k. Not too shabby for literally 0 work or thought. 

I would also take a look at your expenses - 15k/month in Michigan? Is it really that HCOL of an area? 15k/month = 180k/year. FIRE would essentially be pulling 4% a year so she needs around 4.5mm. The two of you together at 30k/month = 9mm. I think you'll need some time to get to that number, honestly. 

The other serious honest question you have to ask yourself (you're wanting in invest a lot of capital - and your sister's at that) - how successful have you been in RE? What do your yearly numbers look like? What's your overall ROI and cashflow? Have you been more or less successful than you predicted? Why?

I find it ironic how people categorize their no where corporate job then say that job has created this wealth for them and security.. Also I find it kind of humerus were 15 years ago when i joined BP the FI number was 5k to many up to 10k  now its 15k and up.. ( which is realistic in my mind I never thought 5k was realistic.  Getting to 30k or more a month on NET NET cash flow takes a boat load of capital or you need to be in the transactional side of the industry.