newb with 2 rentals in San Jose, advice on investing $500k

[Yi Chung Chen]

Recently sold 1 property in Santa Clara, CA.  have 2 more in San Jose.  We live in 1 of them + rent out 1/2 to wife's C-corp business.  other one is cash flowing $1.3k/mth, but only because we put $500k downpayment.  So market value is around $1.9M with $850k equity.

have up to ~$1M in cash i can start investing with right now.  was thinking put 1/2 in stock market and 1/2 in more real estate?  Started looking at investing OOS.  have a friend with property management company that manages 400 doors in Maryland, so looking at investing in MD, buying some $150k condos that will cashflow $250/mth/condo, ~6% cap rate.  

Since i already have $400-500k in stock market now, should i put less of the above mentioned $1M in stock market and put more into more real estate?

OOS seems to have better cashflow, but appreciation in bay area still seems possible if you can find good deals.

Any advice would be greatly appreciated.  

Thanks!

[Yousef Reda]

@Yi Chung Chen my argument for you to funnel your money into strictly real estate will obviously be biased as you are in a real estate forum. However the strong points are you can not negotiate the price of stocks as your can with real estate. Moreover you can’t force appreciation of stocks as you can with real estate. You also can deduct certain things like depreciation costs etc with real estate that you can’t with stocks. You cannot leverage bank money with stocks as you can with real estate.

Although real estate can appreciate you want to follow the three laws that will get you through any real estate market. The bigger one of these laws is buy for cash flow not appreciation. The best thing is to aim for cash flow first and also appreciation as a second metric but knowing that this is somewhat of a gamble. If I was in your shoes no question I would put all my money into real estate either buying a 60 to 100 unit building using your money as downpayment and borrowing the rest from the bank OR develop something new if the area does allow a more favourable environment for construction. This would require you to do some homework. I do not know your area in question but I’m from Toronto and this area is highly over priced and hence I have been buying in smaller cities surrounding it that are benefiting from the ripple effect as well as massive pro immigration laws in Canada as opposed to USA.

Mark Cuban says diversification is for idiots. Those who diversity are not confident with there main investment strategy. So I encourage you to learn real estate and continue to experience it to the point your confidence will allow you to focus mainly on that rather then trying to diversify. Currently the stock market did take a nosedive due to coronavirus but this still aren’t great numbers if you want your risk low. Buying Apple stock, Tesla and all those big names which have been stable are at a 15 percent discount currently which can easily be beaten by real estate strategies.

Cash flow is king my friend!!!!