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

[Leah M.]

@David Veeder, would you be willing to share which company you've invested with?

[Daniel Long]

This is great stuff. Thanks to everyone who's been contributing. I too am looking for my own deals as well as quality syndication opportunities. I'd love to hear who people recommend for Syndication. I am actively shopping. I have currently invested with a Canadian group because they came highly recommended by an uncle......who is a very successful real estate investor.  Of course. Aka: a quality, trusted referral. Keep up the good work everybody and thanks again!

[Steve Hodgdon]

Once upon a time I sold a business and suddenly had $5,000,000 in a Vanguard account. then I decided I was really smart. took no time at all to disprove that thought. First thing is find trust worthy advisors and hold still. Learn then earn. Took a long time to build it back.

[Jack B.]

Originally posted by @Steve Hodgdon:
Once upon a time I sold a business and suddenly had $5,000,000 in a Vanguard account. then I decided I was really smart. took no time at all to disprove that thought. First thing is find trust worthy advisors and hold still. Learn then earn. Took a long time to build it back.

 To be fair, you are really smart to have made that kind of money. But sometimes we get too overconfident in our abilities.

[Stephen Dickey]

I would follow the advice of Mr. Grant Cardone and invest in a multiunit apartment complex. With that much cash on hand you should be able to find a good deal by having numerous options for a down payment. 

[Paul B.]

Originally posted by @Steve Hodgdon:
Once upon a time I sold a business and suddenly had $5,000,000 in a Vanguard account. then I decided I was really smart. took no time at all to disprove that thought. First thing is find trust worthy advisors and hold still. Learn then earn. Took a long time to build it back.

Care to elaborate on how you lost it? Did you put it all in one deal that went badly? What would you do differently next time?

[Dave Van Horn]

@Scott Trench

This is a great idea, and something I've also noticed asked often here on BP.

I run a strategic planning group for accredited investors and deal with accredited investors in my everyday business, so I actually get this question of "what do I do with my money?" quite a bit. The good news for these windfall people to hear is...they're not alone. I would say the majority of accredited investors have a similar problem as these windfall investors. The difference being, the accredited are constantly looking for better ways to deploy capital.

I'm not the first person on this forum to recommend the following ideas, but I thought I'd reiterate what I felt was most important and add a few things from our group that could help.

Like others have stated, overall specific advice for a certain investment is sort of useless in this scenario. Even passive investments like syndications and fund investing demand research, evaluation and have a learning curve - sometimes almost as much as any other active investment.

So when I'm presented with this question of "what should I do with my money?", I usually never give the person asking any one investment option. My first response is usually:

- "What type of investor are you? Passive? Active?"

The person's answer of course would dictate a different response. Within that line of questioning I'd also have to interject with "What's your time commitment to investing? Are you willing to essentially learn a new business or at least a new business model?" Then I would move on to where they are as an income earner today:

- "Where do you generate your current income from and how is it taxed?"

For example, I've found that most high income earners I've encountered, prefer a long term capital gain as opposed to cash flow. So SFRs or the "3/2 ranchers" recommended above wouldn't fit their needs. They might be better off in something like an apartment fund or apartment complex since they usually are looking for tax write offs, and they're okay with a longer term appreciation play.

- "What are your goals?"

This is key. I've found the best way to answer this question myself is to examine my financial life from a 30,000 ft view. Everyone is on a different time frame of the so-called "Football Game of Life" (our true earning years of age 25 to 65 years old). Age and time horizon is a huge factor in our goals and strategy but we all have the common goal that you mentioned in the original post of financial freedom. In our group we phrase it more specifically :

- "How do I get as much passive income as quickly as possible, by retirement age at the latest? And how can we do this in a way that is as tax free as possible?"

Within the group we look at different asset classes/investment vehicles at each meeting, usually with a trusted advisor in said asset class in attendance. Those interested, invest different percentages in various ones, usually based on yield and safety. Which leads me to my next question of,

"What's your risk tolerance?"/"How do you manage risk?"

As others have said above, don't diversify for the sake of being diversified. If you have something that works, do it! That being said, the thing I've noticed consistently over the years is that many successful people have created synergy between multiple asset classes. So for example, I personally invest in notes, but I also have equity in my note business. 

Douglas R. Andrew's "Missed Fortune 101" is a great book that I often suggest to investors of all shapes and sizes. You want to work every area of your financial world and he's big on that. Everything from working your interest and working your equity to how plan your legacy with your capital.

So lastly, when I get this question I also make sure to talk about not just making money on an investment but PRESERVING money. So we discuss things like tax strategy, estate/legacy plans, and family governance, with questions like:

- "What's the safety of your money?"

- "Is it diversified into multiple buckets?"

- "Does it transfer favorably to heirs?"

In my opinion, the smartest investors sweep their accounts and limit their risk exposure by putting their money into multiple buckets (outside of reserves - which are crucial). Now this might not be something they do monthly or even yearly. I know many that sweep their accounts when business is up and put it into multiple buckets while they can.

Buckets like:

- IRA accounts

- Insurance Contracts

- Family Trusts/Partnerships

- Self-directed 401K’s

- Health Savings Accounts

And you don't necessarily need to own these buckets, sometimes control is better and safer than actual ownership. Either way, evaluating things like taxes, insurance, and entity selection can be just as important as what you actually invest in. 

Anyway, I hope this could contribute to the conversation. The responses thus far are priceless and why I love BP. What other place exists where can you find multiple millionaires telling you what they'd do with a large lump some of money!? Curious to see the end result.

[Antoine Martel]

Originally posted by @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.

 I'd do the same thing. With that kind of $ you would be able to buy a $1M property in nice location with 5+ units which could generate some really nice cash flow each month.

[Antoine Martel]

Originally posted by @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.  

 Good move Ash! haha.

[Antoine Martel]

Originally posted by @Leah M.:

I don't find syndications to be that great an option, although I've invested with them.  While they may have some superiority in investing skills to me, the fees that they collect wipe that out, and I do better on what I buy myself.  The main problem with a syndication is that it is usually a buy and hold for a fixed time, say 7-10 years, followed by a sale, and a big capital gains tax bill at the end, since you can't really do a 1031. Much better to buy and hold on your own so that you can defer taxes.

 I agree with this. With a little bit more time and effort on your part, you're able to double the returns that a syndication would be able to give you. 

[Leah M.]

@Antoine Martel, yes the syndicate that I invested with told me that while the LLC doing a 1031 is a possibility, I shouldn't count on it. The reasons are that most of the members need to want to stay in for it to work, and the sponsor needs to find an opportunity it considers compelling that works into the time frame. Furthermore, if the sponsor decides to sell the original property, that could mean that they think the platform that they originally raised money for is no longer compelling as a buy (say multifamily in region X), and they need to get most of their investors to switch over into a new platform. That seemed to me a thorough and honest answer.

[David Veeder]

@Leah M.  I did not invest with a company.  I have invested with a Mentee of Brad Summrock and a mentee of Life Styles Unlimited.

[Michael Le]

@Brian Adams I thought you could do it if all the members agree to do the exchange. Here is something I read on an Exeter article "Partnerships can dispose of real property and defer the corresponding income tax liabilities by acquiring like-kind replacement property as part of a 1031 Exchange transaction provided the 1031 Exchange is completed at the partnership level." 

[Ivan Barratt]

@Antoine Martel LMAO! If all it took was "a little more time" everyone would be doing it. Building a scaleable platform that delivers consistent returns year over year takes more than "a little more time." Happy Hunting my Friend.

[Ash Patel]

Originally posted by @Ivan Barratt:

@Antoine Martel LMAO! If all it took was "a little more time" everyone would be doing it. Building a scaleable platform that delivers consistent returns year over year takes more than "a little more time." Happy Hunting my Friend.

 True that!  

[Michael Blizniak]

ok wow, I am currently in this exact situation, crazy how I see this post as this happened to me. Since I was 17 I would rave about how I'm going to one day own multifamily properties, I'm currently 20 living at home making 40k a year and saving, i just recently and un expectedly came into a settlement and after everything I should be looking at 150k cash. Multifamily is the route I want to go 100% will I qualify for a investment property loan? Like I said I have 150k cash looking to put 25% down have a credit score of 740+  and while I personally don't own and manage any multifamily my mother a And father do own several units I'm 100% a partner of manageing and repairing when's needed, will thins help me qualify? Will the liquid cash itslef be enough?

[Michael Blizniak]

also should mention, I'm looking to use the rental income to qualify for the loan 

[Brent Coombs]

Originally posted by @Michael Blizniak:

also should mention, I'm looking to use the rental income to qualify for the loan 

You, and EVERY budding and seasoned Investor! Trouble is, if there's sufficient proof of self-sustaining income from your proposed purchase, your COMPETITORS will make it that much harder for you to score a BARGAIN. And if you end up paying the standard market cap rate for that area, you won't really be getting AHEAD in the game. (ie. Might as well just shut your eyes and buy any random listing your finger lands on? No, you DON'T want to be doing that!)

As well as asking here, ask LENDERS! (Especially the one where you're already keeping your money). Congrats so far...

[Dave Foster]

@Michael Le, You're absolutely right about the 1031 being completed at the partnership level.  It is possible.  But there usually will not need to be a 100% agreement by the limited partners or minority members.  The managing member or general partner will almost always have document control of the project and can act in the best interest of the partnership/syndicator.  

So whether or not the individual members want to do an exchange or not, the partnership/syndicator can usually make that determination solely on it's own discretion.  Individual members are usually given their choice of moving forward with the 1031 or taking the buy out at the end of the specified period.  It is to the syndicators interest to have as many investors go forward as possible.  Capital raising then is just that much more simple.

[Steve Vaughan]

Originally posted by @Michael Blizniak:

ok wow, I am currently in this exact situation, crazy how I see this post as this happened to me. Since I was 17 I would rave about how I'm going to one day own multifamily properties, I'm currently 20 living at home making 40k a year and saving, i just recently and un expectedly came into a settlement and after everything I should be looking at 150k cash. Multifamily is the route I want to go 100% will I qualify for a investment property loan? Like I said I have 150k cash looking to put 25% down have a credit score of 740+  and while I personally don't own and manage any multifamily my mother a And father do own several units I'm 100% a partner of manageing and repairing when's needed, will thins help me qualify? Will the liquid cash itslef be enough?

 When buying 5+ unit commercial, liquid assets will come into your favor a lot more than a 4 unit or less residential in my experience.  The income-producing asset itself will help you qualify.

I just went through refinancing a little rental house. They were focused on DTI and credit pretty much solely. Assets- liquid or RE- didn't matter. Even though I could've stroked a check for much more than the refi and have no consumer debt, residential fannie didn't give a rip.

The downside of commercial is the shorter terms, calls, adjustable rates and having to report your financials annually, but that's what we all face when financing a commercial asset with a bank or institution. I'd focus on 5+ unit apts. 

[Braxton Boone]

For some reason, every time I tried to view this post the Bigger Pockets App crashes. I had to go on my laptop just to view it. Weird.

[Mike Dymski]

Originally posted by @Steve Vaughan:

Originally posted by @Michael Blizniak:

ok wow, I am currently in this exact situation, crazy how I see this post as this happened to me. Since I was 17 I would rave about how I'm going to one day own multifamily properties, I'm currently 20 living at home making 40k a year and saving, i just recently and un expectedly came into a settlement and after everything I should be looking at 150k cash. Multifamily is the route I want to go 100% will I qualify for a investment property loan? Like I said I have 150k cash looking to put 25% down have a credit score of 740+  and while I personally don't own and manage any multifamily my mother a And father do own several units I'm 100% a partner of manageing and repairing when's needed, will thins help me qualify? Will the liquid cash itslef be enough?

 When buying 5+ unit commercial, liquid assets will come into your favor a lot more than a 4 unit or less residential in my experience.  The income-producing asset itself will help you qualify.

I just went through refinancing a little rental house. They were focused on DTI and credit pretty much solely. Assets- liquid or RE- didn't matter. Even though I could've stroked a check for much more than the refi and have no consumer debt, residential fannie didn't give a rip.

The downside of commercial is the shorter terms, calls, adjustable rates and having to report your financials annually, but that's what we all face when financing a commercial asset with a bank or institution. I'd focus on 5+ unit apts. 

 Steve, someone has hacked your account.  They are recommending a commercial loan!

[Bill Baldwin]

Originally posted by @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. 

Half in cryptos and half in REI (excluding maxing out 401k each year) is actually exactly what I'm doing. Can keep scaling up the properties slowly while cryptos build a base for large purchases in a few years.

[Christian Barth]

syndication would be smart in my opinion

[Troy Whitney]

In my opinion, Grant Cardone is a snake oil salesman.  His "educational" materials that I ordered were completely worthless (for me), and just hype to sell more stuff.