$1MM Cash...How do you invest it?

[James Paine]

If you had $1M, how would you invest it?

1. Need Money to Live On

I think I would become a hard money lender. I could loan my money out at 12% interest and 3 Origination Points. In theory most HMLs are 6 month terms so if I could lend my money 1.5 times a year and earned 12% interest I’d be making a comfortable living. The points would be $45k a year and assuming I had an average of $750k lent out at any one time that would be $90k in interest. So $135k. I think I’d be happy with that in general.

One change I might make to spice things up would be to flip 2-3 houses a year. My friends that are in the HML business come across a lot of good deals that don't close and they HML ends up just buying it to flip it themselves. I think if you had the deal flow from being a hard money lender and only had to buy 2-3 deals a year you should be able to crank out $30k a deal so that would get you an extra

1. Money to Live and Long Term Wealth

If I had either less need for money than above or had some outside money coming in and wanted not only to make enough money to live on buy also build long term wealth I think I would flip houses and buy rentals. My goal here would be to flip 1 house a month and buy 1 rental every 2 months. In the markets I would work in you should be able to make $30k a flip and that is also about enough for a down payment on a rental if you get a good deal. So live on the profit from 1 flip (reinvest initial investment) and buy a rental with the profit from the next deal. Some deals wouldn’t go as well so I might only be able to buy 1 rental a quarter but in general I think this would be the way to go. It is much more work than being a hard money lender but I think because you need money to live on and also are trying to build long term wealth that you’d want to be in the market every day looking for deals.

1. Long Term Wealth

Buy properties in areas I don’t see going away that have strong cash flow. Leverage them with inexpensive long term debt. Deals 1-10 via Fannie/Freddie. All deals after that would be with a portfolio lender but interest rate would be my primary concern so they would need to be banks. B2R, Firstkey, and Colony charge higher rates than banks. They are willing to give you higher leverage but rate would be my big concern. I would make sure that the areas were good areas, where neighbors had pride in their communities and kids who grew up there wanted to stay there.

Anyway what are your thoughts if you had $1MM???