Best Way to Invest a Large Lump Sum of Money ($100-$300K)?

[Scott Trench]

Hi BiggerPockets - I am considering writing a lengthy discussion on how to invest a large lump sum of money effectively. This topic comes up for discussion a LOT here on BiggerPockets, as it seems there are many reasons that folks that otherwise save just a few hundred dollars per month suddenly come into tens or hundreds of thousands of dollars (inheritance, sale of a house, divorce, stock options, or good old fashioned luck). 

The goal is to create a resource for folks that receive a sudden infusion of cash. This intended audience earns a median to upper middle-class income. I also assume that a member of the target audience does have the financial capacity to accumulate said amount in a period of less than 5-10 years, meaning that an infusion of cash in the six figure range is a life-changing event.

I *think* I have a plan about what I, Scott Trench, would do if I suddenly came into a large sum of money (much greater than the amount of cash that I currently accumulate on an annual basis) and how I would deploy it in pursuit of financial freedom while working a full-time job. 

But, I'd really like to interview some folks that have done this successfully and hear their stories. I want to create the best resource out there for folks that come into this situation and have the goal of financial freedom at heart. 

So, if you've come into tens or hundreds of thousands of dollars suddenly, and then executed a well thought out plan in deploying that to acquire cash flowing assets that help you move towards financial freedom, I'd like to interview you! Please reply to this thread with your story, or email me at [email protected]. I would also really appreciate the chance to interview you on the phone or via Skype. 

Thanks!

Scott

[Rob Roy]

If you find yourself in that situation and are feeling generous enough to throw a few bucks my way, PM me and we can work out the details!

[Zachery Buffin]

In my opinion the best way to invest it safely would be in 3/2 ranchers. It is like a savings account with much better interest rates. If you have the money to invest in your area all the better but if not there are plenty of online resources to find turnkey solutions for you to park your money. If you have a large enough chunk of change and are just not sure what to do with it this is the safest asset on the board, 3/2 ranchers are always desired if you ever want to get your money back and you can receive passive income managed by the turnkey otherwise. Not to mention the tax benefits associated with property, this can somewhat offset the taxes you will be charged if this is a gift or other kind of windfall. It is also good to grow your wealth through the power of the 1031 exchange, this all being said I would consult an accountant as I do not claim any expertise in this area. 

Now if you have a little more savvy to you and are more comfortable with leverage multi families are superior for returns on investment and passive income streams. You could potentially put the 20% down-payments on more than one duplex, triplex or quad in a lot of good areas and spread your assets out a little more diversely. Similarly you could do this with SFRs but the truth is if you are investing out of state or even locally but using property managers you will save yourself the PM fees in multis. 

Now if you are really really savvy and if you are I don't know why you'd be asking this question but the best option is probably to pick up notes. There are several articles here on BP about the subject but being the bank is always the best. Less hassle, the fees are in your favor and you can't beat the constant stream of cash for no liability as you're not a landlord. I hope this helps and best of luck with your new found wealth! 

[Aaron Mazzrillo]

3/2 ranch is the most desirable piece of real estate in the country. Can't really ever go wrong with one of those... unless you pick an absolutely horrible location or crappy school district.

There are too many good option available for using that kind of money to produce great cash flow. Probably not life changing money even though many think it would be. Definitely life improving money.

Then there is that whole lottery ticket thing....

[Matt Weaver]

I have had this situation come up twice for me in the last couple of years. In December of 2015 I won $100,000 playing fantasy football, I would like to call that skill but it might fall into your plan dumb luck category. At this point I was flipping houses and holding a small rental portfolio ~7 houses, all in my area, while working a 50-60 hour a week job. I had been looking at a very high end flip in a hot section of Richmond VA., with the unexpected cash infusion I went for it and purchased the house which all told took $225,000 to renovate and sold for $640,000, or $294 a square foot. That was a very stressful deal and I learned an enormous amount doing it. I was into that deal for $530,000 and so after the sale of the property I then had $300,000 to use to either continue to flip with or to sink into a buy and hold deal that could generate more passive income, which was my goal. I found 3 quads/4 unit multi family buildings that needed a lot of work and were vacant, it was an off market deal and I only had a few hours to make a decision to purchase them or lose the deal to someone else. I thought they presented me with an opportunity to get the passive income I was looking for and they were in a very desirable area, which I felt would continue to appreciate, while offering a strong value add component, so I offered them $800,000 for the deal and they accepted. The renovations took 6 months, went well over budget, and a lot went wrong, but at the end of the job the properties appraised at $1,600,000. In the interim I had bought a 12 unit apartment complex in Ohio, that was throwing off cash like crazy, when I compared the cash flow to the 12 units I had just finished to the apartment complex it was significant difference. After running the numbers and looking at a lot of deals I realized I could scale up into more units and improve my cash flow considerably. I have now put the buildings here on the market and am actively looking a 24-36 unit complex. The initial money that I fell into has opened a lot of doors for me and given me opportunities that I might not have had otherwise. I have been listening to every podcast and reading everything I can on multi family properties and love the potential they have for passive income. At this point I own 36 units and have the ability to leverage myself into something that will allow me the freedom to leave my day job and put my real estate career front and center, and for that I owe a debut of gratitude to Brandon Marshall, Ryan Fitzpatrick and Deanglo Williams!

[Adam Paxton]

Matt Weaver great story and I think a good example of how to utilize resources to grow them effectively

[Jim S.]

I think your responses will vary based on what each person currently invests in. For myself I actually plan for this exact scenario to happen.

My scenario - I'm 28 and have $110k worth of illiquid stock sitting in a "unicorn" startup that I worked for that is expected to IPO in a couple years. It may never happen but if it does I intend to try to find some more multi-family units in upstate NY (currently live in Denver but like the economics out there).

Recently closed on a 3 unit for $113k which is expected to bring in ~$2100/mo in rents. I'm pretty happy with that deal so far - I'd look to buy 3 more just like it when/if my stock becomes liquid :)

If I were further along in my investing career I'd use the whole thing towards a down payment on a 5+ unit w/ commercial financing.

[Henry R.]

@Scott Trench,

I hope to retire soon perhaps as soon as next year ( that is my hope) but maybe in 1 year. I will have a good chunk of money if I take the lump sum. I finally closed on a 3 unit last October 2016 it was a foreclosure and it took longer than I thought it would to complete, however it has been up and running since May of this year. It's bringing in 2415 per month. I'd like to do more of those but what I really would like to do is look for a larger apartment bldg ( larger for me) 12-20 units.

I watched your youtube podcast and it was great going to check it out again. Looking forward to reading your plan

[David Thompson]

To me Scott, if you suddenly come into a ton of cash, why do you think you can actively manage it.  Active management involves knowing one niche very well and that's not diversification even if you are insanely good at it.  Next, I would assess my resources.  Do I have the time, skill, interest and capital (assume yes on the latter) to invest effectively.  If not on the first three, then diversifying into several solid choices would seem to make sense and learning / working w/experts on what those best areas are.  

You should certainly entertain syndication where you are putting your money w/experts.  With a little research, you can find niche areas that have performed well over a long period of time, have solid downside support if we go south on the economy and have trends / winds at their back.  Then find operators who have a track record of success in that niche and have them educate you on opportunities in their niche.  I currently favor MF apts (value add) in the strongest markets, self storage and mobile home parks.  Here's an article to review on vetting sponsors and 3 blogs on 3 different niches to consider.  

https://www.biggerpockets.com/blogs/9145/53959-vet...

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/62927-6-r...

[Sara Anne Pace]

I had bought  Starbucks stocks over a decade ago which I sold recently.  Interests from the bank was a meager 1% at best.  Since I have done over 20 flips  in Connecticut, I  have used some of the cash for my flips and used the rest for  hard money lending  to the other flippers for interest ranging from 9-12% and 2-3 points.   It is really beautiful to have some passive income!    I am looking for more experienced  investors needing  hard money in Connecticut.   Of course, now that I have read Zachery Buffin's comments, I may be  looking for 3/2 ranchers! 

[Shawn Kalakota]

why not try lending in Australian real estate market. properties have doubled in the last 7 years. In just over one year the properties appreciated by 20% . People were saying that the bubble will burst soon, I have been hearing since 2015, but never happens. Most of the suburbs median price is fast approaching 1 million mark. Still the demand is so much that the land releases are sold out at the blink of an eye . 

[Joseph Bramante]

Thank you @David Thompson. I was waiting for somebody to explain multifamily syndications. 100% agree, as a novice investor with a large sum to invest, a qualified syndicator is your best investment. Pools your money with many others, thus spreading the risk and liability. Able to buy much larger properties with better returns and operability due to their economy of scale. We typically cash our investors out for a min of 100% every 2-3 years so they get to keep the original investment and invest in a new syndication which doubles their cash flow. In 2-3 more years, rinse and repeat. So in roughly 6 years, you could have 3 streams of cashflow from the single lump sum.

[Account Closed]

Hi Scott, thanks for taking this topic on. When I sell my house next spring, I am going to be in this very situation. It's a great opportunity, but also a great responsibility. The larger the sum, the more there is to lose... 

In your work, I'd love to see a point of view on risk management/risk tolerance that takes this dynamic into account. For example, would you recommend diversification in terms of both assets and the TIMING of asset acquisition? Under which conditions would it make sense to invest all at once versus over time? 

Good luck finding some examples to learn from. I look forward to seeing what comes of this!

[Joseph M.]

@Shawn Kalakota  I don't know anything about Australian market besides property being expensive there. But, are you saying that there has never been a real estate crash in Australia?  I find that hard to believe. Getting into the 'real estate never goes down' mentality can be pretty dangerous.

[Joseph M.]

Originally posted by @Sara Anne Pace:

I had bought  Starbucks stocks over a decade ago which I sold recently.  Interests from the bank was a meager 1% at best.  Since I have done over 20 flips  in Connecticut, I  have used some of the cash for my flips and used the rest for  hard money lending  to the other flippers for interest ranging from 9-12% and 2-3 points.   It is really beautiful to have some passive income!    I am looking for more experienced  investors needing  hard money in Connecticut.   Of course, now that I have read Zachery Buffin's comments, I may be  looking for 3/2 ranchers! 

 If you bought Starbucks at the IPO..fancy coffee who would of known right? Americans drink Folgers!

"If you had bought in at the IPO, assuming you could have, you'd have, ahem, give me a moment while I do the math, every 27-cent share would be worth $60 or so today. Says the company: "From the close of the first day of trading through today, Starbucks shareholders have enjoyed a total return of more than 19,000%."

https://www.forbes.com/sites/ronaldholden/2017/06/26/you-shoulda-bought-starbucks-at-the-ipo-youd-be-a-gazillionaire/#6f128e4133c1

[Ingrid J.]

@Joseph Bramante Thanks for mentioning syndication. I'm trying to read up on the topic, and you mentioned something interesting. What would you say is a qualified syndicator as opposed to an unqualified one?

[Ian Walsh]

My suggestion is to start out like you don't have that cash.  Learn how to make it in this business with out that money and then you will know exactly how to use it after you knew how to do it with out it.  Learn your market.

[Mike Dymski]

Good topic Scott.  You will find that investing larger sums is more common as investors scale or advance in their careers and those windfalls are not just due to unexpected events...you mentioned a few good ones above.  Some individuals have variable compensation, equity comp, maintain equity in properties and then sell, have large value add projects that sell or refinance, live in flips, markets go through cycles and you buy no properties in one year and then ten in the next, have spikes in market appreciation and a subsequent sale or refinance, kids age and budgets stretch in the driving and college years...the list goes on.  Investing and life in general are not linear, especially as we age, have families, scale, or move into commercial....re-investing larger sums is not uncommon.

[Chad Spooner]

Hi Sara,  I am an active local RE investor living in Durham, CT. I currently own 8 properties in Middletown. I'd be interested in your loan terms. Thanks...Chad

[Bill Baldwin]

Crypto currencies.  Namely ethereum.  They're gonna explode in the next couple years as they become easier and safer for the average investor to buy and more mainstream.  Nevermind when the first crypto currency ETFs are created...

Plan is to sit on cryptos for the next couple of years (and keep getting 100% LTV deals here in Japan, but not an option for most people on here) then cash out on the cryptos in the 2018-2020 range (hopefully when prices have cooled down across the US a bit!) and invest in high end multi-unit properties.

[Alex J.]

@Scott Trench

sent you email!

[Jay Hinrichs]

@Shawn Kalakota  not to disagree with you but no all of Aussie land has performed that way.. there is price correction going on in Western AU right now  Perth.. their economy tied to mineral extraction which is down.

Eastern is about like you say.. although one being a US citizen would want to look at tax implications.. its not like US and don't think there is ability to 1031 if you make a big move up.

although I like the paying rent every week like they do there and no check's every one has electronic banking so its not the weak renter we have in the US rental markets. 

@Scott Trench  as this is a real estate site your talking about how to invest it in real estate and since this is a real estate renter landlord site basically that's what every one will talk about.. how ever with a windfall of cash there are a lot of other avenues to go down that are quite a bit more profitable than vanilla rentals..

Starting your own business being one of them..

[Adam Robinson]

This question depends greatly on the person and their experience with various real estate related uses of those funds:

• If you are like @Matt Weaver and very actively doing deals in your market, thats easy, go with your gut on some of your best options. And I agree eventually people end up at Multifamily when they can.
• For many people, and I assume this is more the angle of this Question, who are not very active in flipping or investing, I would steer clear of the stock market entirely... ITS A SUPER COMPUTER CONTROLLED CASINO and the odds are WORSE than Vegas! PHDs with high frequency bots cause ridiculous events to happen, and you ain't seen nothing yet as far as flash crashes.
• Agree with @David Thompson but take it even further, I would find a platform (like Origin Investments or RealOP Investments) or several syndicators that are leaders in their asset class and geography, and I would parcel out the lump sum into the MINIMUM investments (i.e. $50,000 usually) into different asset classes and geographies.

You could potentially have $300k spread into 6 solid investments all over the nation or internationally.

Using Syndication, you are already WAY, WAY ahead of the game, your risk adjusted returns are just amazing with a great syndicator, I'm still shocked people plow so much into Index Funds..

Spend some time digging deep into the best syndicators, and then try to meet with them in person or have multiple calls.

Parceling that lump sum into multiple syndicators also starts a relationship clock, and exposes you to MULTIPLE deals to learn. You will learn SO MUCH valuable knowledge. 

Quite honestly, the knowledge you would gain by being in a self storage or Mobile Home park or Apartment Value-add deal for instance, and gaining experience owning and seeing operations of that asset is so unbelievably valuable.

All this also sets you up to ramp up your education and with experience investing in these deals, and seeing the operations and reports, will launch you into possibly finding your own deals in these asset classes.

This is an Exponential Business, its not fair at all, the ones who have experience get more brokers calling them get more syndicators reaching out, get more loans from banks.

Deploying this lump sum into multiple deals super charges your learning and trajectory.

[Paul B.]

My vote is for syndications. I don't have much to add that others haven't already said, but getting into a deal for the $50,000 minimum is a way to diversify across several properties in different geographical areas. If you know enough qualified deal sponsors, there is no reason to invest more than the minimum in any one deal. Then just wait for the checks to roll in every quarter. Note that becoming a sophisticated investor, and building a relationship with the sponsor so that you trust him/her with your money, is by no means passive. That takes some time and effort. But once you get there, it is passive investing. I didn't start with the large lump sum mentioned by the OP. Instead I just get into a deal as soon as I have the minimum saved up, and then start saving again and repeat 6-12 months later. But if all goes well, the result should be the same: a large amount of capital invested in performing properties that are cash flowing at least 10% annually. The annual return should be more like 15-20% after factoring in capital gains and amortization. 

[Jessie Niu]

@Adam Robinson

@Paul B.

I am going to have $50~$100k cash from cash-out refi, what's the best way to find credible syndicators in my local market?

[Robert C.]

@Scott Trench,  Am I the only one that thinks syndication for a new investor who just landed a lump sum is a risky way to go? I'm from the school of "learn to manage it yourself before you let someone else touch it". This comes from a lifetime of seeing bad LP deals that my parents got into. OR, if syndication is the play, I think any book/article needs to spend a lot of time on how to find a trustworthy syndicator. I feel like everyone loves syndicators right now because you would have to try REALLY hard to have lost money in real estate over the last 8-9 years. I think there will be a lot of failed syndicators in any market correction, and that effect will cascade throughout the private and crowd funded world.

I think patience is important. If you land a lump sum, there's nothing wrong with sitting on it for the right opportunity, especially if you receive it during the likely upper part of the cycle like today. Picking/finding winners was a lot easier even 1-2 years ago. Now, if this were 2010-2012, I'd say buy ANYTHING in a decent neighborhood, and you'll look like a genius!