$1 million to invest in real estate - what would you do?

[Angel Hernandez]

BP- Here is my opportunity. I have been able to attract a $1 million investment from a private source into my newly formed LLC. The terms are that I pay 5% interest per year and have to pay the $1 million back in 7 years. Agreement is that the location has to be NYC, Connecticut or Virginia. I want to start beginning next year.

This is a very special opportunity and I want to be absolutely certain that I have done my due diligence and explored opportunities as thoroughly as possible.  I have explored various options:

1) All cash and being more conservative vs. leveraging and being more ambitious

2) Partnering with a larger more experienced equity partner/developer to invest on larger deals vs. doing deals 100% on my own

3) Residential vs. Commercial 

4) Buying smaller multifamily homes to buying a larger apt unit complex

5) Buy and Hold vs. Flipping/Renovating 

I am intrigued to see what you fellow BPers would do if you had $1 million to invest. 

Thanks,

Angel

[Will Barnard]

Here are my thoughts. Having knowledge of terms and being around the commercial RE world is a good start, but not enough to jump into the water yet. Get some experience first by doing a small deal or two. Rather than taking the entire $1M, how about starting out with just 20% of that, do a deal and gain some real world experience. Repeat that while stepping up the ladder a bit until you have done several deals and worked your way up to 1/2 of the money. Once you have proven to yourself that you can do it well and profitably, then take on the entire $1M.

Second, get a RE attorney and CPA. You mentioned forming an LLC and funding the LLC with the $1M. That may or may not be the proper entity for you, your strategy plays a large role in that.

Diversification is a good thing for protection, but not everything. Diversification can be a limitation at times. I would take the smaller steps approach I have laid out rather than the entire $1M and diversify.

Lastly, long term holds with income property is a great way to build a lifetime of income streams and net worth, I recommend it if you have the desire and ability to be a landlord and all that it entails. Flipping is a great cash builder and requires some tax planning strategies, hence the CPA should jump in there to assist. Loaning on other projects as a hard or private money lender is also a good idea as is buying notes at discounts, keeping in mind that no matter which strategy you use (or any combination of them all), all of them require some education and that should be your first step on the ladder!