What DID you do when you had 1 Million to invest?

Question

This post is a follow-up to the current post that is asking what would you do if you had 1Million dollars to invest.

I think that there is a lot of value in hearing what people have actually done.  It is real easy to say what you would do.  The trick is actually making this happen.  It is very possible to lose money on investments that you think are safe.  There are a lot of apartment and commercial properties for sale that will NOT make money.  There are a lot of single family homes that are setup as rentals that will lose money for people based on circumstances with rent, price drops, unexpected expenses...

My guess is that if you have made a million dollars that you have some idea of how you are going to invest it going forward.  It is not always straight forward though.  Investing climates change.  What you did to make a million may not be what you are going to do to make the next chunk.  It may be that you had a great run on valuations do to a rising market and you don't see that going into the future.  It could be that you have been sitting on money waiting for the appropriate market to open up.

You may have decided that it took you too long to make that first M and want to get more aggressive.  The flip side is possible as well.  You may want to sit back and just collect cashflow for a while.

So my question is what have you investors that have had large chunks of money done with it?  Let's say 500K or more in their possession at one time.  Tell us what the environment was at the time and what your thinking was if you would please.  Any detail that you can provide will be helpful to others.

Kimberly T. · Answer

@Steve Olafson Well, I guess I kind of qualify for this post.  My husband and I currently have a net worth of right around $1M (not including a little inheritance I got a couple years ago, I'm just counting what we've built ourselves).  We bought our house when we got married in 2008, bought our first rental in 2010, and have bought a few more rentals since then (we put 25% on all of them, except only 5% down on our house, by living below our means and saving up cash).  The increase in values, combined with loan pay down and continued savings due to frugal living, has brought our net worth to right around the $1M mark.  We don't plan to operate any differently than we have been.  We still look for good cash flow deals, though those are hard to come by.  If it means we sit on our cash until the next economic downturn, the so be it.  We'll have cash available to make some more acquisitions during that next downturn.  Our ultimate goal is to be able to live off our cash flow so we can quit working.  We can already afford for one of us to quit working, which I plan to do when we have kids (well, I may do some work part time from home, if I want).

My parents did the same thing that we plan on doing.  They hit the $1M mark a while back, since they're about 30 years older than us.  They've generally bought in the downturns (except for some 1031s they did around 2004-2006) and accumulated a good portfolio for themselves.

Steve Olafson · Answer

I will start.

I have been investing for 18 years or so.  It only took about 3-4 years to make my first million.  It was done by purchasing undervalued apartments, making them presentable, filling them with good residents, and selling.

Once I had a million in NW, I joined up with an attorney/banker for some joint ventures.  With his help, I was able to purchase with little money down.  I bought 650 units this way and eventually refinanced them all to take him out of the deals.  I had to sell one building which cleared the 1M in cash mark.  I used that 1M to aid in one of the refinances.  I sold another property and came out with close to 1M.  That was used to purchase a property in another state.

I did a few more deals using investor money and took the unit count up to over 1000 units.

Then the crash came.  All but three of the buildings were lost to foreclosure.  Twoof those had to be sold at breakeven to get out of them.  No cash came to me.  The biggest one with investors hung tight until a couple of years ago.  It was finally sold and gave the investors all their money back plus their preferred return.

I basically had to start over from scratch.  I put investor groups together and took down some great deals.  Last year, I began selling them all to take profits.

I put 300K down on a 29 unit apartment deal that is a straight cashflow play.  I put $700K down on a strip center that was a value play as it was 42% vacant.  Once it is full, I may hold it for the cashflow.   There is still enough money left that my current plan is to do joint ventures or loan the money out.

So basically, I don't have faith in the market right now.  I would like to put more money into buildings but everything seems to be overpriced.  I would like to be more aggressive with the investments but will be patient for a couple of years to see what happens.

Steve Olafson · Answer

This is a key statement to pay attention to.  Just because you have a lot of money to invest does not mean that you run out and spend.  Timing plays a large role in making money!

This does not mean that you do not invest.  It simply means that your plan of attack may vary based on the market.

Some people's business model may not matter where you are in the cycle.  But answering the question of what would you do with a million dollars might simply be "It depends".