What is my best strategy to start STR with $1M cash?

[James Pearce]

Hello, new to STR and selling my business. I want to invest $1M into real estate. In my mind, I want to buy a near-beach/ beach front condo/house with cash and use it as my cash flow. Since I won't rely on this cash flow I want to snowball it annually into purchasing more properties.

My question is, is that the best strategy or should I use the $1M as a down payment and finance more properties from the start? 

Curious what the best pathway is.   I've leaned towards cash first and sort of wait out the high interest rates, and then possible refi this first property in a few years.

Thanks!

[Luke Carl]

Ask the internet what you should do with 1 million cash and you’ll get a bunch of DMs and probably a marriage proposal or two. 

[James Pearce]

Quote from @Luke Carl:

Ask the internet what you should do with 1 million cash and you’ll get a bunch of DMs and probably a marriage proposal or two. 

Lol ya I figured.   It's funny you responded,  my wife and I follow you guys and currently live in Lebanon TN.  Once we get our funding (a few months), we are planning to reach out to your team to advise us through this all.   Our daughter will be going to college in pensacola, and we will be moving somewhere between there or destin .  

[John Underwood]

I would use that as a huge bargaining chip to get a deal on something.

I would find areas you like and contact owners or PMs and see if you can find a burned out owner.

I would advertise in local FB groups that are for owners.

Contact top Realtors in any ofnthese areas and try to find a pocket listing.

I wouldn't pay appraised price if I had that cash. Keep making cash offers till you land a good deal.

Ask for 50% owner financing and buy 2.

[Yiwei Cheng]

Personally I would recommend having multiple properties to spread out your risk & they all increase in appreciation.  For example 3 houses at $400k generating 60k per year + appreciation. (Okay that is a little over a mill, but you get the idea).  However if you want to buy in the vacation market, I think the purchase prices are that high.

Leveraging mortgages will be the best way to purchase more properties.

[Sarah Kensinger]

What are your long-term goals? Once you nail that down, making a decision is a whole lot easier! Looking for advice is great, but unless you have solid goals it can muddy the pond a whole lot more!

[Peter Kapner]

Why would you give up the power of leveraging that cash to build real wealth? With $1M you could buy 5 properties with 20% down and have 5x the upside.

[Clayton Silva]

Quote from @Sarah Kensinger:

What are your long-term goals? Once you nail that down, making a decision is a whole lot easier! Looking for advice is great, but unless you have solid goals it can muddy the pond a whole lot more!

 Cannot stress this enough.  Depends on what your long term and near term goals are.  Could be worthwhile to buy the first one or two in cash and have no mortgage headache to start and tons of cash flow just so you can get a feel for real estate and whether or not your strategy works and whether or not you even enjoy it.  You can always cash out refinance down the road and take a substantial chunk of your cash out later once you have some experience under your belt.

[Andrew Steffens]

I would buy 5 $1M beach houses in FL generating 15%+ gross return with 20% down

[James Pearce]

Quote from @Andrew Steffens:

I would buy 5 $1M beach houses in FL generating 15%+ gross return with 20% down

Wow!  I love all of the comments!  Let me add a little to my goals.  

I will continue to work for the next 3-5 years so I don't need to count on this cash flow as income.  I'm concerned that 20% down with these interest rates won't yield positive cash flow, but to be fair I haven't done enough market research yet to make that assumption.  The goal is that in 5 years I can live on the cash flow, still add properties and not count on a salary.   I'm definitely for leveraging and acquiring as many properties as possible, as long as there's good flow behind it.  

[Sarah Kensinger]

Quote from @James Pearce:

Quote from @Andrew Steffens:

I would buy 5 $1M beach houses in FL generating 15%+ gross return with 20% down

Wow!  I love all of the comments!  Let me add a little to my goals.  

I will continue to work for the next 3-5 years so I don't need to count on this cash flow as income.  I'm concerned that 20% down with these interest rates won't yield positive cash flow, but to be fair I haven't done enough market research yet to make that assumption.  The goal is that in 5 years I can live on the cash flow, still add properties and not count on a salary.   I'm definitely for leveraging and acquiring as many properties as possible, as long as there's good flow behind it.  

It's definitely hard to yield positive cash flow right now! But if you look hard enough and your patient there are still deals to be had.

[James Pearce]

Quote from @Clayton Silva:

Quote from @Sarah Kensinger:

What are your long-term goals? Once you nail that down, making a decision is a whole lot easier! Looking for advice is great, but unless you have solid goals it can muddy the pond a whole lot more!

 Cannot stress this enough.  Depends on what your long term and near term goals are.  Could be worthwhile to buy the first one or two in cash and have no mortgage headache to start and tons of cash flow just so you can get a feel for real estate and whether or not your strategy works and whether or not you even enjoy it.  You can always cash out refinance down the road and take a substantial chunk of your cash out later once you have some experience under your belt.

 This is kind of where my head was at, but not committed to anything.  I don't need the cash flow and was just thinking I can use it as future downs.  However it still may be a few years before I can earn a 20% down with that specific cash flow.  I was certainly planning to refi/invest again once it seemed like good timing.  I really won't need cash flow to live on for 3-5 years

[James Pearce]

Quote from @John Underwood:

I would use that as a huge bargaining chip to get a deal on something.

I would find areas you like and contact owners or PMs and see if you can find a burned out owner.

I would advertise in local FB groups that are for owners.

Contact top Realtors in any ofnthese areas and try to find a pocket listing.

I wouldn't pay appraised price if I had that cash. Keep making cash offers till you land a good deal.

Ask for 50% owner financing and buy 2.

 I really like this idea.  Have you been successful negotiating lower int rates?  

[Andrew Steffens]

Quote from @James Pearce:

Quote from @Andrew Steffens:

I would buy 5 $1M beach houses in FL generating 15%+ gross return with 20% down

Wow!  I love all of the comments!  Let me add a little to my goals.  

I will continue to work for the next 3-5 years so I don't need to count on this cash flow as income.  I'm concerned that 20% down with these interest rates won't yield positive cash flow, but to be fair I haven't done enough market research yet to make that assumption.  The goal is that in 5 years I can live on the cash flow, still add properties and not count on a salary.   I'm definitely for leveraging and acquiring as many properties as possible, as long as there's good flow behind it.  

 It is still possible to cash flow with 7% interest rates, it is just not as easy.  The past 3 years you could pick any house in a given zip code and make money.  Now you need to have unique/beautiful homes that are amenity rich and you will do fine.  Also Florida is appreciating like crazy right now :)

[Ricardo Hidalgo]

Quote from @James Pearce:

Hello, new to STR and selling my business. I want to invest $1M into real estate. In my mind, I want to buy a near-beach/ beach front condo/house with cash and use it as my cash flow. Since I won't rely on this cash flow I want to snowball it annually into purchasing more properties.

My question is, is that the best strategy or should I use the $1M as a down payment and finance more properties from the start? 

Curious what the best pathway is.   I've leaned towards cash first and sort of wait out the high interest rates, and then possible refi this first property in a few years.

Thanks!

 I would look into value add or renovation. We invested a similar amount of cash during this time into several construction, Reno and land acquisitions projects. Some of them were for cashflow and other for equities positions. Currently we are sitting above a 30% return since buying in march of 2023. If you don't want to do any work, I would look for turn key options with strong rental history or gulf front options that are underperforming. 

[Collin Chan]

Quote from @Ricardo Hidalgo:

Quote from @James Pearce:

Hello, new to STR and selling my business. I want to invest $1M into real estate. In my mind, I want to buy a near-beach/ beach front condo/house with cash and use it as my cash flow. Since I won't rely on this cash flow I want to snowball it annually into purchasing more properties.

My question is, is that the best strategy or should I use the $1M as a down payment and finance more properties from the start? 

Curious what the best pathway is.   I've leaned towards cash first and sort of wait out the high interest rates, and then possible refi this first property in a few years.

Thanks!

 I would look into value add or renovation. We invested a similar amount of cash during this time into several construction, Reno and land acquisitions projects. Some of them were for cashflow and other for equities positions. Currently we are sitting above a 30% return since buying in march of 2023. If you don't want to do any work, I would look for turn key options with strong rental history or gulf front options that are underperforming. 

+1. We've done value add BRRR STRs as Rob likes to call it and put money into remodeling houses from 3/2 to 5/3 houses. We bought for $950k and after $200k in remodeling had it appraised at $1.4M and did a cash out refi to pull out the construction cost. We increased the value by 200k and are doing a cost segregation study on the improvements to accelerate the depreciation to offset other incomes. So we got the forced appreciation, the accelerated depreciation, and now STR income.

Given that you sold a business you might want to talk to your CPA about this strategy to minimize the taxes from selling your business.

[James Pearce]

Quote from @Collin Chan:

Quote from @Ricardo Hidalgo:

Quote from @James Pearce:

Hello, new to STR and selling my business. I want to invest $1M into real estate. In my mind, I want to buy a near-beach/ beach front condo/house with cash and use it as my cash flow. Since I won't rely on this cash flow I want to snowball it annually into purchasing more properties.

My question is, is that the best strategy or should I use the $1M as a down payment and finance more properties from the start? 

Curious what the best pathway is.   I've leaned towards cash first and sort of wait out the high interest rates, and then possible refi this first property in a few years.

Thanks!

 I would look into value add or renovation. We invested a similar amount of cash during this time into several construction, Reno and land acquisitions projects. Some of them were for cashflow and other for equities positions. Currently we are sitting above a 30% return since buying in march of 2023. If you don't want to do any work, I would look for turn key options with strong rental history or gulf front options that are underperforming. 

+1. We've done value add BRRR STRs as Rob likes to call it and put money into remodeling houses from 3/2 to 5/3 houses. We bought for $950k and after $200k in remodeling had it appraised at $1.4M and did a cash out refi to pull out the construction cost. We increased the value by 200k and are doing a cost segregation study on the improvements to accelerate the depreciation to offset other incomes. So we got the forced appreciation, the accelerated depreciation, and now STR income.

Given that you sold a business you might want to talk to your CPA about this strategy to minimize the taxes from selling your business.

I love everything about this. Now that it's a 5/3, what % were you able to refi out? And at that amount you have no problem with cash flow on the STR side?

[John Underwood]

Quote from @James Pearce:

Quote from @John Underwood:

I would use that as a huge bargaining chip to get a deal on something.

I would find areas you like and contact owners or PMs and see if you can find a burned out owner.

I would advertise in local FB groups that are for owners.

Contact top Realtors in any ofnthese areas and try to find a pocket listing.

I wouldn't pay appraised price if I had that cash. Keep making cash offers till you land a good deal.

Ask for 50% owner financing and buy 2.

 I really like this idea.  Have you been successful negotiating lower int rates?  

Just tell them you can way more than what the banks would be paying them and possibly keeping them from having a bigger capital gains tax bill.

[Leslie Anne Morris]

I didn’t read all the answers because I’m literally boarding a flight. But, I would do the smallest down payment that I was personally comfortable with. Get into one deal. Get your feet wet. 

In order to pick market you can either go with what excites you or go with top performance metrics (see my bias here). 

If beach resonants and will add some additional satisfaction and quality of life stuff then do it. It would be more like a lifestyle asset. 

If you plan to self manage get a coach and pay to learn. Don’t mess around with teaching yourself. Keep the remaining cash as cash reserves for now, maybe do some forced appreciation or value add and get the property that’s in the best location with the lowest price per sq ft. Get an agent who is also an investor in the exact thing you are looking to buy who has a good performance record. 

Do it for a minute and make sure it works - weeks / months / years - you’ll know. Then 10x in same market since now you have your process and team. OR you could pivot to another market but only if that will bring you personal satisfaction and you won’t be self managing. That’s my two cents!

[Nicholas L.]

@James Pearce

I'm not an STR investor myself, but I'll throw something out... put some work in to find a deal. Look at LOTS of properties. Talk to lots of agents. Make lots of trips to the destinations you're considering. Talk, read, network, offer, get rejected, offer some more, get more rejected.

Lots of people want to push Internet button / buy first property they see.

[Michael Baum]

This is a fun topic @James Pearce. Thanks for posting this.

There is so many good options for you with that kind of cash. Personally I like the idea of doing a large down on a ocean front place and see how it goes. I wouldn't put all the eggs in one basket by paying cash, nor would I put all the eggs in 5 baskets right off the bat.

You might find you don't care for STRs. A lot of folks aren't cut out for the hospitality part which still comes into play with a property manager IMHO. You still need to support the PM.

So I would be a bit more conservative in this rather than going whole hog from the get.

[James Pearce]

Quote from @Michael Baum:

This is a fun topic @James Pearce. Thanks for posting this.

There is so many good options for you with that kind of cash. Personally I like the idea of doing a large down on a ocean front place and see how it goes. I wouldn't put all the eggs in one basket by paying cash, nor would I put all the eggs in 5 baskets right off the bat.

You might find you don't care for STRs. A lot of folks aren't cut out for the hospitality part which still comes into play with a property manager IMHO. You still need to support the PM.

So I would be a bit more conservative in this rather than going whole hog from the get.

 Thanks Micheal!  It's fun thinking about it too lol.  I appreciate the comments,  everything that's been said all seem like great directions.  Seems like people just need to get in, and find their niche.  I'm torn between a bunch of these comments haha

[Michael Baum]

Quote from @James Pearce:

Quote from @Michael Baum:

This is a fun topic @James Pearce. Thanks for posting this.

There is so many good options for you with that kind of cash. Personally I like the idea of doing a large down on a ocean front place and see how it goes. I wouldn't put all the eggs in one basket by paying cash, nor would I put all the eggs in 5 baskets right off the bat.

You might find you don't care for STRs. A lot of folks aren't cut out for the hospitality part which still comes into play with a property manager IMHO. You still need to support the PM.

So I would be a bit more conservative in this rather than going whole hog from the get.

 Thanks Micheal!  It's fun thinking about it too lol.  I appreciate the comments,  everything that's been said all seem like great directions.  Seems like people just need to get in, and find their niche.  I'm torn between a bunch of these comments haha

Yeah. There are a ton of different ways you could invest that cash. You might not even want to buy a property. Invest in REITs maybe. Not as much cash, but reliable (usually).

[Patricia Andriolo-Bull]

Quote from @Michael Baum:

This is a fun topic @James Pearce. Thanks for posting this.

There is so many good options for you with that kind of cash. Personally I like the idea of doing a large down on a ocean front place and see how it goes. I wouldn't put all the eggs in one basket by paying cash, nor would I put all the eggs in 5 baskets right off the bat.

You might find you don't care for STRs. A lot of folks aren't cut out for the hospitality part which still comes into play with a property manager IMHO. You still need to support the PM.

So I would be a bit more conservative in this rather than going whole hog from the get.

 This!  STRs are a lot of work.  If you haven’t done it before I wouldn’t go strong into several without getting your feet wet.  Also, consider the properties themselves before making a decision.  You could get one that makes the same cash flow as 3 without all the headaches of 3.  Researching the properties and markets will be key in helping you decide.

[Timothy Howdeshell]

I think the desire to want to deploy $1M fast is the biggest risk here. I could be wrong, but it sounds like you have limited real estate investing experience. 

If I were in your shoes I would put 50% down on a 3-500k property somewhere and use this as a learning experience. If you find that you like the process then jump in more fully. 

Having a lot of money can lead to purchasing something, anything to get in the game. But to make those awesome returns you've heard about, you need to focus more on the deal itself. 

Learn how to spot a good deal, underwrite it, leverage your money via mortgage, manage the property and/or hire people. 

Once you've got those basics down I'd say you're ready to go whole hog with the rest of your money. And if you put 50% down on a 300k house you'll still have 850k (most of your money) left to pursue the larger vision. 

[Marcus R.]

With $1M cash in hand that you don't need, I'd focus on defense vs offense.

Index fund and chill.  $1M in VOO or VTI.  Year 1, $1M in VTI will kick off $100K in cap gains and $15K in dividends and you don't need to have a clue about what's going on. The dividends in year 1 might be enough for a downpayment next year.

...or sign up for my investing workshop later this month.  I teach people with $1M cash how to be financially free in 24 hours.  It's only $999,999.00, but hurry there's only 1 spot left because this deal is so good.  

But in all seriousness you'll get a lot of these responses on the internet.  I would focus on education for a year before investing anywhere.