I Have $500,000 - What Would You Do ?
OK, so I have $500,000 and no debt. No, I didn't win a lottery or inherit the money. In fact I didn't really do anything special to get this money: about half of it came from 10 years of working as a software engineer and saving about $25k a year. The other half came from the sale of my townhome. I bought a townhome in San Jose in 1995 for $225k. What's funny is that back then everyone was outraged how expensive that was! Well, guess what? I just sold it for $519k !!! That's how much RE has grown in this area. That's the good news. The bad news is I don't know much about RE investing. My question is: WHAT WOULD YOU DO WITH THE MONEY???
Thanks!
Hey Mike,
Knowledge, I have found out, is key to investing. I would start reading a book on the topic, such as Rich Dad Poor Dad, that's a start. Then maybe checking out a seminar on Real Estate. There are some seminars out there that aren't too expensive. Some that are. You want to feed your mind ideas so you can later identify opportunities.
Good luck
I'd go to the SE where the real estate is still in sync and invest in new homes sales. Be careful whatever you do. There are plenty of folks that would be willing to help but be cautious. It's better to miss a deal than to get suckered in. 8-)
Personally I would work on my credit until it hits as close to 850 as possible. While that is happening I would have 1/2 the money in a sweep account with my local bank. The other 1/2 would be invested in a land trust LLC or publicly traded REIT to follow there lead. Then once the credit is where it needs to be, and I had made enough money on the monies I had invested I would find as many properties as possible that I could get away with putting around 10% down, and invest 1/2 of the monies into those properties. The other 1/2 I would keep as a buffer in a liquid account of some sort, in case I couldnt make the payments for some unknown reason.
But thats just me.
Good Luck,
Kyle
I gotta tell you Mike, I agree with Feliciano. Having a big pot of cash is not the be-all. So rather than uproot your life and move to the SE. I would start by asking yourself what you want to do with your life. How do you want to spend your days? Where do you want to live? What is important to you? The answers to those questions are really needed before you can figure out what to do with your $500,000. If we had that information we might start to build in investment plan that would meet those goals. But just, here's money what do I do now? is not enough information.
You first have to ask yourself why you're here. Are you wanting to invest your windfall in real estate because you LOVE real estate? Or is it just because of the excitement that you got that much from RE to begin with? As I'm sure everyone here will tell you, RE investing is WORK. Just like every other job out there. If you LOVE it, it's good fun work. If you don't, it's just a job that happens to be financially rewarding if you try.
As a former computer geek myself, I'm here because my career passion has me developing what it is I want to do. Real estate is involved in the development so I'm learning everything the people here will teach me. But I'm NOT a RE investor. Everyone here will give you great advice if your passion really lies in RE. But you need to examine that for yourself first.
Personally, I'd do as Commercialking said, figure out what you really want to be doing and then see how that money can help get you there.
If I was MikeSeattle, I would book a 2 week trip to the Atlantis in the Bahamas, take every RE book that I could find with me to decide which aspect of RE is best for me, read amongst the sun and gorgeous beaches, sip on a couple of drinks, smile alot, take notes, cry during the 13th day but come back refreshed and ready to do a little business. :-D
Mike,
If your a go getta, then you'd be looking to turn the $500K into $1Mil.....as quick as you safely can do .........i think that's the object of the game........
A safe route is to put in enough cash into resi housing to make it run positive and leverage the rest. Depending on your area and comfort zone, this could give you say 10 houses. As they gain more equity , use this to keep aquiring more. When you've had enough of working, sell one off and enjoy.
regards, Eric in Australia
My advice is more of a general philosphy.
Whatever you do, don't stick that entire half a million in RE.
The key to prudent investing is diversification, ie. hedging your bets.
If I were you, I'd split the money in thirds ($166K) and invest each third in a different arena.
For example, take a third ($166K) and put it to work in RE. If it's income you're looking for, try rentals or owner financing. If it's quick profit, try wholesaling, REOs, foreclosures, etc. Or you could even hedge your bets within the RE market and split that money, buying a rental with half ($80K) and wholesaling with the other half. Anyway the numbers aren't perfect here, but the overriding point is diversifying.
Then, take the other third and put it in the stock market. If you're unfamiliar with the market, I'd suggest using an index fund, like Vanguard's Total Stock Market Index. In that fund, you're buying a piece of every stock. In short, you're diversifying. You'd also want to hedge your stock market investment with bonds. Vanguard also offers a Total Bond Market Index Fund. In this ecomnomic climate, I'd only put 10% of that third into bonds. Also, with that much capital, you'd dollar cost average your money into the stock/bond markets.
Finally, with that last third, some should definitely be liquid. Take 1/2 ($80K) and put it in a money market account. It's there for emergencies, and its there for any prime investing possibilities if all you're other cash is tied up. The other half could be earmarked "play money," or disposable investing capital. Use it for real risk taking ventures: ie, a friend's business idea, stock option trading, even more REI, or whatever. The point being with most of your money in "safer," more traditional investments, you can afford to risk (and possibly lose) this $80K on riskier investments.
Anyway, the ratios and investing ideas I suggested are just that: merely ideas. I'm just trying to point out a general mind set, a philosophy, ie "diversification." It's the only way to protect your money from a cruel and punishing downturn in a particular market.
Good luck.
[addsig]
WOW, I just returned to this site and saw everyone's responses. Thank you guys!
If anyone else has any ideas, please post!
Monkfish, I understand what you are saying about diversification, but I lost close to $60,000 in the stock market in 2001 and I wasn't ever going to put any money in it again. Are you suggesting to put money in the stock market because Real Estate might crash similar to how the stock market did in 2001? Thanks!
I think Monkfish was trying to say to not put all your fish in one barrel, as it were. If you had had part of that 61k in real estate in '01, you wouldn't have had such bad losses... I see their point, too. I personally don't think the real estate market's in a bubble, but it sure wouldn't hurt to hedge your bets, and diversify just a little, perhaps 25% in the market, wherever you decide to put it, but not ALL in real estate. If you can turn 500k into 1mil, then you should be able to turn 400k into a Million, just might take a bit longer. Ya know? I've taken my share of losses in the stock market, and yet I still stick money in it. Yeah, might be stupid, and you can't just future success by past performance, but OVER TIME, the returns have been pretty good. Don't put money in the market that you need to buy next weeks groceries, BTW. Put money in there that you need to buy a condo in 10 years to retire to and oggle pretty girls from. lol
I'd spend it on wine and woman. No, no, just kidding.....
Determine your goals and objectives. Then with the money you have available, determine the best approach (investment options) to reach your goals. If you' tell us what you want the 500k to turn into and when, I'm sure you'll get many opinions then.
Actually, buying some land, planting grape vines, and starting a vineyard would support my above comment :-D
i'm in a kinda similar situation. just made 100k from sale of my primary residence.
however i've been investing in real estate for 14 months and reading about it and attending seminars for 3 years. i own 3 other properties and just bought 4 more.
if i had 500k, i'd buy a strip mall with a cash on cash return of 15% or 65k/yr, thus enabling me
to quit my job and do RE fulltime. it doesnt
money to money in RE if you have TIME.
but i dont have 500k, so i'm looking at investing in SFHs with a cash on cash return of 20% or more. investing for appreciation is pie in the sky, give me cashflow anyday!
In 1999 I had a bunch of money in the stock market. My colleague had everything in there. I bought a house in a nice neighborhood with a good school for 450k. He bought one in a not-so-good area for $240k. He suugested I should buy a house for $240k and invest the rest in the stock market and then buy a nicer house a few years later. I did not do it. I still lost a whole bunch in the stock market, my friend lost much more, he still lives in that house and I live in mine.
I had my 401k in Vanguard S&P and Fidelity Aggressive growth. I took it out during Bush-Gore stalemate but got back in august 2001 thinking the worst was over. Then sept 11 happened.
But 401k grew back because of the returns in the last 2 years. I took it out again in July of this year. I want to invest in the stock market, probably after the election.
I also own 5 rental homes. I have good experience with some, not so with others.
I hold a full-time job. This is my story. I hope it helps you some. I strongly believe in diversification. Just because you got burnt in the stock market doesn't mean you have to stay away from it forever. You want to be more careful and learn as much as you can, not just go with the flow.
I would move to a cheap latin American country (Costa Rica for example), buy myself a reasonable ocean front house and retire. I would work just because I like to work to make a difference, example kindergarten teacher and then Live happily ever after
hmmm...me...? I'd buy myself a nice little coconut bar and small yacht down in the caribean somewhere and live out the rest of my life in paradise....
But, I don't think that is what your looking for. You have the money to get into commercial real estate. I'd find myself a desirable multi-tenant property. Most commercial properties cash flow very well with typical financing. Or I'd contact a broker and get them to find you a nice net-lease property like a Walgreens, Walmart, grocery store, or gas station.
niravmd,
I noticed that you live in San Diego. Where are you buying single family residences that yield more than 20% cash on cash returns? I work in Newport Beach and live in Los Angeles County and know those returns are virtually impossible to find here? I have cash and would be willing to partner up with you if you are seeing more deals than you can invest in.
The wisest long-term investment is in yourself. Don't be in a hurry to do something with the money. Doing something just to be doing something isn't prudent. I'd learn as much about REI as you can, I like the idea of a getaway vacation w/all the REI books/courses you can carry. I highly recommend the Rich Dad Poor Dad stuff, and especially "Rich Dad Poor Dad-What the rich teach their Children ..","Rich Dad Poor Dad's Cash Flow Quadrant" & esp. Rich Dad Poor Dad's- Real Estate Investing by Dolf Laroos(?sp). Then read everything you can find on this website and others dealing w/Real Estate investing. Pick out the meat and throw away the bones. With $500K to kick off your REI, you could easily be a multi-millionaire quickly,..or you could be broke quickly, it's all in you hands. Good Luck !
Mike , Real estate is the way to go, but if you don't want the headaches of doing it yourself invest your money with an investor who can, Like a company named REST 614-394-2714 ask for Jimmy..
Deb
Costa Rica is not cheap anymore. I checked. Nicaragua is still affordable.
Quote:
On 2004-09-28 11:04, tzachari wrote:
I would move to a cheap latin American country (Costa Rica for example), buy myself a reasonable ocean front house and retire. I would work just because I like to work to make a difference, example kindergarten teacher and then Live happily ever after
Everyone, thank you for the wonderful responses!
It was mentioned that the Southeast still presents a good potential for appreciation. I was wondering, in your opinion, what state (and city) except Florida looks good in terms of that potential?
Hibby, may I ask how exactly would you double the money in a year?
Thanks!
I think the phoenix, AZ market is real hot right now.....if I had the money, I'd be going there , Las Vegas, or Cape Coral FL ( I know it's a gamble, but no one would think of it if it weren't for last month's 20 hurricanes)
The Hard Money lender is a good way to go also, I mean, look at banks, they have the biggest buildings around........be the bank! well....you can be my bank...i'm always looking!
As far as the southeast area, coastal regions of SC are good. Many retiring baby boomers are heading this way as well as family vacationers. Myrtle Beach is about 1/2 way between NYC & Miami AND the new interstate corridor from the Detroit area is heading straight towards it in the next few years. Weather is very moderate in winter, ocean,appalachia, historic charelston/savannah, hilton head are all within 2-3 hours drive.
Mike, I live in Emerald Isle, NC, on the west end of Bogue Banks which is a barrier island. I consider this area to be underpriced in relation to other beach type property on the East Coast.
The demographics of the US will drive this market for years to come. It seems that most want to retire to the beach or the mountains. I have flown from eastern NC to LA and many areas in between when I was in the USMC. I saw a heck of a lot more mountains than beach. Supply and demand...
I know this thread is old as dirt but some follow up would be nice.. what did you end up doing?
You could invest in pre-construction and earn a good profit providing u work with a reputable group of pre-construction developers. You could also lend your money to other investors for a good rate of return. There is no end to the possibilities open to a person who has money to invest providing he does his due diligence in whatever project he undertakes.
You guys might want to read up on stock loans. I heard that a way to be in the market without being in the market and the loans are 90%LTV of what your securities are worth.
If the stock takes you walk away with no loss if it increases you pay the loan pack and keep the gains.
I got a broker who really made a good presentation to me!
What would I do if I had $500k and not much real estate knowledge? First, I would take a small vacation to relax from all the hard work. Then, I would go to local REI meetings to meet investors and learn about real estate. You have what us knowledgeable investors need - MONEY. So I would find some experienced investors that are in need of money partners. You can do private mortgages (also called hard money) or invest the money for a deal and receive partnership in the transaction. Make sure you dont use all the cash because nothing is guaranteed. Now your money is a work for you (doing private mortgages you can earn 12% ROI). Then continue to learn all that you can about real estate because this is a great way to increase your wealth.
Also, are you gonna buy another house or are you a homeless person with $500k? )
So, Mike I was wondering if you managed to:
1- Keep your original $ 500,000 back in 2004?
2- What did you with it?
3- How much did you make with it, if any?
4- How much taxes did you pay on your profits?
5- Did you compound your money?
What lenders offer the 80/10/10 at the best rates?
A mortgage broker can help you there. They will have a variety to choose from for your needs.
Hi, I work for a loan broker. Is this res or commercial property? How much needed? Other basic facts before
I can give opinion in good faith. Lenders are changing parameters daily.
Residential. I already have financing lined up. Thanks.
Due to the fallout of the subprime loans currently there does not seem to be anything better than 90% LTV, I had a similar post here:
http://www.thecreativeinvestor.com/residential/ViewTopic61165-24-21.html