Best way to invest 500K in cash for most ROI after 5 years?

Question

Hello all,

I was hoping i could start out the right way this time. I have been reading books and posts from this awesome site and could use your experienced help to start my latest journey, and not make mistakes I have in the past working alone. You input is very welcome!

I am a somewhat experienced investor with 2 MFR and getting back to actively investing in RE again. I have 500K in cash to Invest.  Also, getting consumer loans shouldn't be a problem as I  excellent credit, decent income,large 401K, etc.  How and maybe where would you invest this money to maximize ROI in 5 years?  I mostly looking for cash flow but appreciation is how you gain wealth at the end of the day.

I am 57 and my goal is to be able to buy a beach house here in California in 5 years with the proceeds, either from cash flow or appreciation. I am currently retired so i have a lot of time to invest as well, but California is very expensive right now so looking out of state. I have done flipping before remotely, but it was very stressful not having the control of being on the job site.

Thanks!

Neil

Taylor L. · Answer

There are many guides out there that get into the details for evaluating markets. For long term investing, they'll generally all tell you to look at most, if not all of the following:  population, population growth, job growth, rent growth, economic diversity, wage growth, new construction rate, vacancy rate, landlord friendliness, and performance during prior recessions.

Start with 10 markets you might be interested in (just write them down by naming 10 markets you might be interested in). Then gather all of the above data for each market and pick the best 1 or 2. If the data stinks for all of them, then pick different markets and try again.

The benefit of doing this yourself is you'll have a better understanding of why you like the market you choose. Someone recommending a market on BP without knowledge of your situation won't really give you good enough reason to invest your hard earned money and precious time there.

I would also consider your goals and strategy. You say you're retired - how much will you be able to qualify for in loans? You want to buy a beach house in 5 years - how many dollars does that mean?

Jesse Daconta · Answer

@Neil Polehn

The 5 year timeline sounds perfect for a limited partner in an apartment syndication. May be worth the research :)

Best,

Paul Moore · Answer

Hi @Neil Polehn.  Great thread.  You've received some great advice here.  Have you considered trading in your 401(k) for a self-directed IRA?  Though there are no guarantees and regular REI risks, many of us have found that we can make more cash flow and appreciation by passively investing in real estate deals (syndications, funds, etc.) than we could in a mutual fund or wherever your 401k may be placed now.

Of course, you can invest your non-retirement account cash in a syndication as well.  This will allow you to avoid the hassles of a flip, a SFR, or a MFR.  One significant benefit of investing with a syndicator is their deal flow. It is very hard to find a fairly priced deal anywhere right now. Top syndicators/portfolio operators have access to unstabilized deals most of us would never see. These deals can have uncharacteristically high returns. Some provide much higher than market cash flow and appreciation.

Another option is to acquire your dream beach home now, as a rental home, in your 401k turned to self-directed IRA. Rent it out for a few years, then at some point after age 59.5, if I'm not mistaken, you could convert it to a personal residence. Check with your tax professional on that of course.

Good luck!

Brian G. · Answer

@Neil Polehn if you are bored, willing to run an active business and want to juice your returns, you might consider the VR biz.

Matthew Irish-Jones · Answer

@Neil Polehn the best way and the most practical and executable way are all probably one in the same.

There are higher risk strategies that provide greater returns but, have more downside and you stand to lose more if something goes wrong.

Buying in all cash, taking on a large renovations, and then using financing can produce the best returns.  It can also leave you upside down, over renovated, or worse poorly renovated if you don’t execute properly.

What strategy are you most comfortable getting involved with and what are your strengths when it comes to investing?

Andrew Rosenberg · Answer

@Matthew Irish-Jones Beat me to it.  Loaded question: "max" without weighing risk-reward profile nor accounting for risk tolerance makes for a dangerous question.

Neil Polehn · Answer

Hello Enrique,

Thanks for the suggestions.  I could use the most help picking the market.  It's overwhelming with all the options, but I know some are better than others but I am not sure the best way to evaluate them.  Thanks!

Neil

Enrique Huerta · Answer

@Neil Polehn, I would invest directly or passively in value-add apartment communities. They often have in-place cash flows and solid long-term upside as an asset class, in general. Once you complete renovations and operate the asset better, you will really put the pedal to the medal and juice the returns on equity.

What do you need the most help with? Deal Flow? Picking a market? Strategy? Please let us know and I think we can contribute more meaningfully to help you out!

Best way to invest 500K in cash for most ROI after 5 years?

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