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

[Matt Weaver]

I agree with a lot of what is being said about syndication deals and other high level strategies for using money to make more money, including investing and even starting your own business. However,

if I had just come into a significant amount of cash, I would be very nervous about putting it into crypto currencies or syndications. As you become a more seasoned investor those strategies become more appealing but if I am sitting on $100k-$300k and I was a real estate investor I would be looking to leverage up on real estate and stay with the strategy I know. You also have the option of partnering on a larger deal with someone you know that is local to your area and you have a relationship with, either through Meet Ups or REIA meetings. For me anyway, a big part of what draws me to real estate is the ability to control my destiny, the opportunity to out work and out hustle others is one of the things that sets real estate investing apart. It would be tough for me to take the opportunity that kind of windfall gave me and trust it to a syndication deal if I wasn't already a very sophisticated investor.

[Shawn Kalakota]

Originally posted by @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.

 True there is no market without cycles. however the australian market is the best performing one in the developed economies. though it is dependent on Chinese , the market might have a correction or soft landing but will never crash. there is  acute shortage of houses sort of controlled release of land. With the exception of western australia where the early bird investors made a lot of profit, the late investors lost and market appeared to have crashed, but the reason is different. When an iron ore mine or a coal mine project  opens for development there will be thousands and thousands of jobs and people at one time were flying in and flying out every day due to housing shortage. Investors poured in but failed to understand that when the mine is operational it needs very few personnel to operate. where as the eastern markets have performed very well consistently for the past couple of decades.

[Joseph M.]

@Shawn Kalakota , That is interesting, thanks for the info. I always find it interesting to learn about other markets.

There is a lot of opportunity in the U.S market alone so I don't know if I'd ever invest overseas, but I'm sure there are opportunities out there for those with the knowledge. 

I know some countries haven't been so good to foreign investors over the years, so that would make me cautious.

[Harrison Liu]

I think to come up with an idea it's not that hard, the difficult part is the execution. that's where a lot of the people hit a wall.

[Shawn Kalakota]

Australian realestate investments from china and USA are According to Illawara Mercury news

China was the largest source of foreign investment ($47.3 billion), of which $31.9 billion was investment in real estate.

and

The United States was the second-largest source of foreign investment ($31 billion), with approvals spread across services, real estate and finance.

true implementing an idea is the other side of the coin

As an example this company is doing very well with crowd funding

http://clearstate.com.au/

[Jessie Niu]

Originally posted by @Matt Weaver:

I agree with a lot of what is being said about syndication deals and other high level strategies for using money to make more money, including investing and even starting your own business. However,

if I had just come into a significant amount of cash, I would be very nervous about putting it into crypto currencies or syndications. As you become a more seasoned investor those strategies become more appealing but if I am sitting on $100k-$300k and I was a real estate investor I would be looking to leverage up on real estate and stay with the strategy I know. You also have the option of partnering on a larger deal with someone you know that is local to your area and you have a relationship with, either through Meet Ups or REIA meetings. For me anyway, a big part of what draws me to real estate is the ability to control my destiny, the opportunity to out work and out hustle others is one of the things that sets real estate investing apart. It would be tough for me to take the opportunity that kind of windfall gave me and trust it to a syndication deal if I wasn't already a very sophisticated investor.

 I am with you on this. For where I am now, very likely I would use them as down payment for an apartment building instead of being a passive investor in a syndication deal.  

[Scott Trench]

Thank you to everyone that has responded to this. I've gotten several great emails, great ideas, and have PMed a few people to go into further detail. 

A couple of shout outs:

1) @Matt Weaver - Whoa. This is a legendary story. You rock!

2) @David Thompson - While I had initially intended this to be for someone that wanted to actively manage, perhaps it is a good idea to talk about the fact that you may be unqualified to manage such a large sum. 

3) @Account Closed said, we will definitely have a bias toward real estate, and will acknowledge that upfront. 

[Julia Ann]

I don't understand how someone that comes into 100K-300K would be an accredited investor to take part in a syndicate? Maybe I'm missing something.

[Paul B.]

Originally posted by @Julia Ann:

I don't understand how someone that comes into 100K-300K would be an accredited investor to take part in a syndicate? Maybe I'm missing something.

 You don't necessarily need to be an accredited investor. There are various exemptions to SEC regulations that allow syndications to happen in the first place. One says that all investors must be syndicated, but there is another that allows for up to 35 unaccredited investors, as long as they are sophisticated (i.e. understand the nature of the investment) and have a pre-existing relationship with the sponsor. The sponsors I know structure their deals using the second option. I am not an accredited investor. 

[Paul B.]

Originally posted by @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?

I know of a few good syndicators here in Dallas that invest in Columbus. But you're better off meeting someone face to face. I suggest looking for real estate Meetups that focus on multi-family or commercial property. There must be some in your market. Then network, ask around, and eventually you'll know who the players are.

[Cam Jimmy]

@Bill Baldwin Man I was thinking the same thing... You are the first person ive seen that mentioned crypto. I don't think many people here even know what crypto currencies are. I only have a few grand invested in some ethereum and ethereum based cryptos. Anyways I wouldnt put ALL of my inheritance in crypto... but most likely half and half into RE. 

[Andy Thoms]

I would consider 20% down on a $1m multi-family unit, in a good secondary, tertiary market. Class B, rent ready, leased up, if you can find it. Look for cap rate north of 10%. Then hire a solid property manager and collect passive income. Save 50k for reserves. Hold the remaining 50k and short the stock market. TVIX

[James Work]

Was able to sell a condo that I lived in for 10 years and use the capitol to invest in a local real estate company as a hard money lender at 12% apr on a deal by deal basis.  Currently invested in three Seattle/Tacoma 'flips' with an average turnaround of 3-6 months.  

It's not risk free, but I found myself working full-time for the company I invested in as the Marketing Manager.  My ability to keep an eye on day to day activities and stay up to date on progress certainly eases anxiety...  Of course, that's dependent on the specific company you're making the loan to and your ability to look at the numbers and make an educated decision on each individual deal before investing...  Technically, if the company takes a loss I'm still owed my initial investment plus interest but as they say, "You can't get blood out of a turnip."  

Sure beats a savings account on interest and I feel it's less volatile than a typical stock portfolio.

[Levi T.]

@Scott Trench I guess I'll step up to that plate... Long ago when I was a much younger man, I came into millions from selling one of my first tech startups I built, and thus I started my journey into real estate investing.

My first peace of advice to anyone that comes into any amount of money that they deem as a lot of money, is to wait and not invest it. They should just sit on it, put it into a banking account and stare at it for weeks, months, maybe even years if needed. The opportunities you miss wont even matter if you make ONE bad investment, or get wiped out and defrauded. Don't worry about that rate of return, focus on what matters most, finding a STRONG win.

Money is hard to make, easy to spend. As this thread already has shown, vipers will hunt for you, and want you to invest into their ideas, intentional or not, good or bad, they can't help themselves. Because of this, your choices need to weight heavily on you before pulling the trigger. At the end of the day, there is only winners and losers when making deals. Whatever deal you make, make sure are winning and not losing.

The problem your going to run into with your article is that one size does not fit all. If you landed 10k, 100k, or 1 million or more, your options and choices will not just be reflected in the size of your windfall, but also by the level of your experience and risk tolerance.

My first investment was a 9 unit apartment building next to a university in my local market. It was an on market deal, and with a little luck and smart maneuvering, I managed to get the seller to come down from a $1m purchase agreement, to just under 800k. We cleaned up the property using cashflow, raised rents, hired and fired lots of PMs, and finally the gross performance was raised by 152% over it's gross when we bought it. 

At the time, the building was just the right size, provided a nice incubator or proving ground for myself to make mistakes and not get wiped out.. I already had a lot of business experience, but it was something totally new to me, and I knew mistakes in real estate where very costly, plus I did not have BiggerPocket to guide me like people have today. I had to invent my own wheel.

As you can guess, I applied a style of BRRRR to that building with them performance numbers, and the story wrote itself from there.

So to recap:

1. Find a low risk investment to the size of your capital, something you can withstand a loss if things go sideways. If that means you only invested 20k-30k out of your 100k, on a 99k purchase. You know you have time to sort it out if needed, pay it off, sell it, but not lose your shorts in the process. If you master it, move on to doing the next deal, and keep on going, you will never run out of that 100k.
2. Only invest in A-B areas. Buy B-C properties in A-B area, and only buy in towns that have seen continued population growth for multiple years, otherwise your in a flippers market trying to play the gentrification game as the market is flat, or worst, declining.
3. Forced appreciation is everything. Don't wait for market to earn you that equity and cashflow, instead, wait and find a great deal that you can quickly improve on and turn it into a huge win. My investment group picks up properties that needs 10% of purchase price in repairs, rents are at $600-$900 coming in the door per unit, and time we do our thing, rents are $1,000-$1,200 or more.. That's what forced appreciation is about. That's what risk is about, it is about having a property as-is performing, then improving on it. If you failed to reach your goal, your still in the black at the performance level you bought it at or a little better. It's always about the purchase price to value, that sets the tone of the entire venture for years to come.
4. BRRRR or BRRRL (L is for Leaning the next loan on the old property's free equity), rinse and repeat!

At some point and time your going to get bigger and bigger.. Maybe you started with a SFH, or a Small Medium or Large MFU, then rolled up to doing your own syndication or just out right owning your own apartment complexes. That's the name of the game. Take your windfall cash, and find where it fits into the scale of real estate, keep on folding it till your a real estate mogul. Best

[Mike Dymski]

Originally posted by @Levi T.:

@Scott Trench I guess I'll step up to that plate... Long ago when I was a much younger man, I came into millions from selling one of my first tech startups I built, and thus I started my journey into real estate investing.

My first peace of advice to anyone that comes into any amount of money that they deem as a lot of money, is to wait and not invest it. They should just sit on it, put it into a banking account and stare at it for weeks, months, maybe even years if needed. The opportunities you miss wont even matter if you make ONE bad investment, or get wiped out and defrauded. Don't worry about that rate of return, focus on what matters most, finding a STRONG win.

Money is hard to make, easy to spend. As this thread already has shown, vipers will hunt for you, and want you to invest into their ideas, intentional or not, good or bad, they can't help themselves. Because of this, your choices need to weight heavily on you before pulling the trigger. At the end of the day, there is only winners and losers when making deals. Whatever deal you make, make sure are winning and not losing.

The problem your going to run into with your article is that one size does not fit all. If you landed 10k, 100k, or 1 million or more, your options and choices will not just be reflected in the size of your windfall, but also by the level of your experience and risk tolerance.

My first investment was a 9 unit apartment building next to a university in my local market. It was an on market deal, and with a little luck and smart maneuvering, I managed to get the seller to come down from a $1m purchase agreement, to just under 800k. We cleaned up the property using cashflow, raised rents, hired and fired lots of PMs, and finally the gross performance was raised by 152% over it's gross when we bought it. 

At the time, the building was just the right size, provided a nice incubator or proving ground for myself to make mistakes and not get wiped out.. I already had a lot of business experience, but it was something totally new to me, and I knew mistakes in real estate where very costly, plus I did not have BiggerPocket to guide me like people have today. I had to invent my own wheel.

As you can guess, I applied a style of BRRRR to that building with them performance numbers, and the story wrote itself from there.

So to recap:

1. Find a low risk investment to the size of your capital, something you can withstand a loss if things go sideways. If that means you only invested 20k-30k out of your 100k, on a 99k purchase. You know you have time to sort it out if needed, pay it off, sell it, but not lose your shorts in the process. If you master it, move on to doing the next deal, and keep on going, you will never run out of that 100k.
2. Only invest in A-B areas. Buy B-C properties in A-B area, and only buy in towns that have seen continued population growth for multiple years, otherwise your in a flippers market trying to play the gentrification game as the market is flat, or worst, declining.
3. Forced appreciation is everything. Don't wait for market to earn you that equity and cashflow, instead, wait and find a great deal that you can quickly improve on and turn it into a huge win. My investment group picks up properties that needs 10% of purchase price in repairs, rents are at $600-$900 coming in the door per unit, and time we do our thing, rents are $1,000-$1,200 or more.. That's what forced appreciation is about. That's what risk is about, it is about having a property as-is performing, then improving on it. If you failed to reach your goal, your still in the black at the performance level you bought it at or a little better. It's always about the purchase price to value, that sets the tone of the entire venture for years to come.
4. BRRRR or BRRRL (L is for Leaning the next loan on the old property's free equity), rinse and repeat!

At some point and time your going to get bigger and bigger.. Maybe you started with a SFH, or a Small Medium or Large MFU, then rolled up to doing your own syndication or just out right owning your own apartment complexes. That's the name of the game. Take your windfall cash, and find where it fits into the scale of real estate, keep on folding it till your a real estate mogul. Best

 one of the bests posts i've read on BP...well done

[Joseph Bramante]

@Ingrid J. Qualifications include

• 10+ years experience in the market you are interested in investing in. 
• Experience doing the type of investment proposed (value add, yield play, new development, etc), 
• capacity to grow (you don't want a 1 man show with several properties. Your investment may not get the attention it needs, or if something happens at another property, your will suffer from decreased oversight),
• Performance based compensation structure. Usually based on IRR with a hurdle rate of 8% for shorter term holds and waterfall for longer term holds. Profit sharing of 20-40% over water fall. Ive seen other, simpler models with a simple return 25%/75% split after return of capital. Easy to understand but not best for investor. especially if it take a long time to return capital. Research IRR if not already familiar.
• 5-10% investment in the deal by syndicator. They need skin in the game. 
• Property management in-house. Not required but it helps a lot of the management co and the sponsor are the same company. Lots of synergies.

Other things to watch out for

• Anybody who is given equity up front for syndicating the deal. Do not do this since they have no incentive to perform for you. 
• Large cash payments upfront. I'm talking anything over 3-4% of the deal value. we charge a 1% acquisition fee up front which is market rate. 
• Guarantor or Bad Boy carve out signer on loan. Try to do deals where the syndicator is big enough to cover it, but if you are signing as a Key Principal in the deal, at least make sure you are getting compensated for it. 1-2% of the amount you are guaranteeing 

[Mateusz Prawdzik]

Wait for all this uncertainty to settle down... Wait for the correction in 1-2 years... and then buy in bulk 30%-50% on the dollar and build build build build, wholesale wholesale wholesale... 

OR....

Buy decent notes now and then when the market corrects... Default the borrow... Collect a 500k asset on a 50k Note... 

[Kapil M.]

If it's someone who wants to BECOME a syndicator or deal sponsor one day, I would think such a person would be better served by deploying that lump sum  into Multifamily properties and start investing and scaling up. The education would be tremendous and returns probably would be better than 10-15% that one could passively get through acting as an LP in a syndication. Most importantly, upside potential would be far greater --- i.e. if all goes well with this effort. That is a big if, I know, but for someone who wants to learn the multifamily business and become a deal sponsor one day, actively investing in multifamily may not be a bad option? 

[Matthew B. Farber]

Apologies for my novice here, but what's a 3/2 ranch? 

[Henry M.]

I believe syndication is a great resource, however I would prefer to be the syndicator... With that said, one major lesson I have learned over the years is... CASH IS KING!

I know... That was low hanging fruit. The point: Never Tie Up ALL Your Money!

I would prefer to leverage my money. Come up with a plan to obtain whatever your goal it is you are seeking.

In order to reach it, you must plan it, research it, then execute it.

Buy distressed properties at 20-40% of ARV, then Fix & Flip...

Syndication again is great, even at minimum, but normally that is for bigger purchases I.e. Apt. Complex, Storage Facilities, etc.

You should not bite off more than you could chew.

In real estate investing next to location, location, location and due diligence... Is cost of money.

And no I didn't forget experience.

With $300K, there is so much you can do on your own or with another financial partner (I.e. bank, private lender, etc).

What could you do solo?

In my area... Buy SFR properties for $30-$50K, repair up to par, collect $1K to $1.2K per month from housing aka Section 8.

Or even invest in multiplexes... And generate passive income without giving up all your fortune. 

You can buy three to five properties with just half your money. Maybe invest $50K in syndication as indicated from previous posters... And still have $100K on hand, just in case.

There's no right or wrong answer, unless you fly blindly into any given deal.

I'm interested in future postings on the subject.

Just my two pesos,

Big Henry

[Ingrid J.]

@Joseph Bramante Much appreciated. Thank you.

[Joseph M.]

Originally posted by @Matthew B. Farber:

Apologies for my novice here, but what's a 3/2 ranch? 

 A ranch or rancher is a typical style of house in America. More info here. 

https://en.wikipedia.org/wiki/Ranch-style_house

3/2 means  the house has 3 bedrooms , 2 bathrooms. These homes have the most demand. For example not many people want a 2 bedroom/1 bath home.

[Steve Vaughan]

I would re-invest into the same thing that made you the money in the first place.  If something is working for you, keep doing it!

Sometimes we look up and see our acquisition account has grown to 6 figures waiting for a couple on the fence sellers. 

Not wanting to do more work for skinnier deals, I just paid off my high rate, high risk, high hassle debt.  Conventional mortgages over 6% or commercial loans with shorter terms, adjustable rates and report to them every year loans are going bye-bye.  Risk-free, tax-free.

But I wanted serenity and freedom and am more on my way out than in on my REI journey.

Flippers and lenders want fast money and don't care about tax rates.  

Overall it would go something like... if you come into some money and a) are being killed with taxes already from your w-2 - in general, avoid flipping and lending OR b) your marginal tax rate is hardly anything and you want to be involved A LOT, then flipping and note investing may be just the ticket for you. 

What we end up doing will depend on our entire financial picture and our hands-on desires.

Syndicators want you to syndicate (with them).  Barbers want you to have long hair.  HCAV people want it to be really hot or really cold out....  Thanks for chiming all self-promoters out there.  At least you're consistent.

[Brent Coombs]

Originally posted by @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!

Your post looks to be a microcosm of what's right - and wrong - with obtaining large sums of money ALL OF A SUDDEN.

The main thing I noticed was that when you invested your $100k winnings into your flip, it arguably didn't generate any extra return for you ie. You were "into that deal for $530,000" (including your $100k winnings), yet ONLY sold it for $640k. Who's to say that if you'd only spent $125k on renovating rather than $225k, you wouldn't have been able to get at least $540k for it? But anyway, thanks for sharing.

I agree with those who say: WAIT (years if necessary), before investing/spending windfalls. There will ALWAYS be charmers out there who spin a good yarn, aimed at emptying your pockets into theirs. Problem is, in their fine print will be words to the effect: "Proof of past performance is NOT a reliable indicator of future outcomes"! That's their "get out of jail free" card, after you're forced to wonder: where did all my money go? [Everyone, please, let that sink in]...

[Ash Patel]

I purchased a small strip center for $620k that I sold for $1m one year (cap gains) later.  The strip was mispriced by an inexperienced broker that was a friend of the owners.  With the operating income my net profit was almost $500k.  As much as I wanted to buy an exotic car, I put all the money in a multi-family syndication.