Ask HN: How would you invest $500k in real estate today?
17 comments
Long term profits.. Buy apartments. Make sure they are cashflow positive. You might have to start with a duplex.
Using 400k as down payment gives you at least 2mil buying power. There will always be expenses so keep the 100k for that. Build a partnership and the sky's the limit.
Make sure you do the math on expenses and payback period so you'll know your approximate holding period. The problem is that there are many people looking to do the same and bargains are hard to find. It's a lot of work.
Up and coming neighborhoods are probably your best bet. Think gentrification. Great for investors. Sucks for current residents. Always look at the neighborhood and try to project its future.
Stay way from real estate stocks. They are great on the way up -no work, all gains. But on the way down, they'll have to liquidate or go bankrupt leaving you very little protection.
BTW, a big chunk of the real estate billionaires are developers that bought, developed and held for 20-30 years. It's not a business where you need lots of brains but you need lots of patience and sweat equity. FU wealth comes with time and even multiple generations. So the goal is to get to a point where you can meet your expenses and have a nice living ASAP, wait and then go for the ride to wealth. Be ready for multiple ups and downs in real estate. Building relationships helps a lot. There's a reason why the rich have so many parties. It's a way to keep relationships with people you wouldn't otherwise see. Good Luck!
Using 400k as down payment gives you at least 2mil buying power. There will always be expenses so keep the 100k for that. Build a partnership and the sky's the limit.
Make sure you do the math on expenses and payback period so you'll know your approximate holding period. The problem is that there are many people looking to do the same and bargains are hard to find. It's a lot of work.
Up and coming neighborhoods are probably your best bet. Think gentrification. Great for investors. Sucks for current residents. Always look at the neighborhood and try to project its future.
Stay way from real estate stocks. They are great on the way up -no work, all gains. But on the way down, they'll have to liquidate or go bankrupt leaving you very little protection.
BTW, a big chunk of the real estate billionaires are developers that bought, developed and held for 20-30 years. It's not a business where you need lots of brains but you need lots of patience and sweat equity. FU wealth comes with time and even multiple generations. So the goal is to get to a point where you can meet your expenses and have a nice living ASAP, wait and then go for the ride to wealth. Be ready for multiple ups and downs in real estate. Building relationships helps a lot. There's a reason why the rich have so many parties. It's a way to keep relationships with people you wouldn't otherwise see. Good Luck!
Is it easy to land a $2mil loan for an investment property? Even if I come up with 400k down seems like banks would require me to earn a lot per year to qualify. I'd be curious to know more about how to qualify for such a large loan.
A 2mil loan is hard to get so that's why you need to assure the bank that the building you buy is worth at least 2mil and you have the money to pay it back with cash flow. Banks are happy to tell you why they won't lend to you so learn from it. Experience is the best teacher. Your BIG advantage is that you have 500k. That's a good amount of cash to work with. Also be very, very careful who you listen to. Make sure you read and learn before you start. You're a sheep going to visit a wolf. Make sure you don't get eaten.
A bank will also look at the track record of a person who is proposing to pay off a loan with cash flow from a commercial property. The bank will generally not rely heavily assurances by a potential loanee regarding property value. Typically a bank will require the use of a property appraiser who appraises the property according to standard practices for appraising property based on income.
Yes, they're not going to take anyone's word without backup. They want to stay in business to. They'll tell you exactly what they want.
Isn't the fact that it "sucks for current residents" a reason not to recommend this approach?
Only if you care about other people.
Sure, but I wish he'd answer since the fact that he mentions it would seem to include he does care at least a bit; but this is then directly contradicted by his recommending this course anyway. Seems a bit psychopathic to me.
First, $500k is not much in terms of real-estate investing. It's not going to secure an obviously prime piece of property and it is not enough to build a property portfolio large enough to outsource management to a full timer and create passive investment. Basically it is enough:
1. In some markets to buy some property that can be actively managed.
2. Pay off a home mortgage and improve cash flow...which is probably a good consideration when thinking about real estate investing.
3. Speculate in (more or less) an "all my eggs are in one basket" sort of way on anything from houses to commercial property to raw land.
4. Place the capital at substantial risk via leverage to create a larger portfolio...but still probably not enough to create a passive investment.
In regard to flipping houses, the money is not just in getting the house at a discount. It is also in getting the improvements at wholesale cost rather than retail (or doing the work ones self). It also helps if the property can be acquired and sold in a manner that one avoids or receives or reduces real-estate commissions because 7% of $500k is real money when it is your money.
Likewise 10% contractor overhead + 10% contractor profit on $100k worth of construction is real money when it is your money. There is a reason the stars of the home flipping shows usually have contractor licenses. They also use the same crews and have relationships with businesses in the various trades. To make real money, house flippers need a continuous deal flow. It's not part time work.
If it were me, I would probably sit on it and wait for an opportunity that clearly appeared to be well above average. That means understanding at least one particular market really well and being very patient and financially conservative. Basically, it is a recognition that I am going up against professionals as an amateur and with the intent of making money more or less passively. There are lots of other businesses with better cash flow if I am actively participating.
Good luck.
1. In some markets to buy some property that can be actively managed.
2. Pay off a home mortgage and improve cash flow...which is probably a good consideration when thinking about real estate investing.
3. Speculate in (more or less) an "all my eggs are in one basket" sort of way on anything from houses to commercial property to raw land.
4. Place the capital at substantial risk via leverage to create a larger portfolio...but still probably not enough to create a passive investment.
In regard to flipping houses, the money is not just in getting the house at a discount. It is also in getting the improvements at wholesale cost rather than retail (or doing the work ones self). It also helps if the property can be acquired and sold in a manner that one avoids or receives or reduces real-estate commissions because 7% of $500k is real money when it is your money.
Likewise 10% contractor overhead + 10% contractor profit on $100k worth of construction is real money when it is your money. There is a reason the stars of the home flipping shows usually have contractor licenses. They also use the same crews and have relationships with businesses in the various trades. To make real money, house flippers need a continuous deal flow. It's not part time work.
If it were me, I would probably sit on it and wait for an opportunity that clearly appeared to be well above average. That means understanding at least one particular market really well and being very patient and financially conservative. Basically, it is a recognition that I am going up against professionals as an amateur and with the intent of making money more or less passively. There are lots of other businesses with better cash flow if I am actively participating.
Good luck.
It is highly likely that there are sound business reasons that local investors have not acquired those properties. On the other hand, for a person who has longed to live and work in Montgomery Alabama, it might be an opportunity. But probably not.
My personal theory is never buy a place you wouldn't live in.
I'm having a problem with this right now. Two years ago I owned my own flat in Scotland, I left the country and rented it out on the off-chance I'd want to return.
I've now sold the Scottish flat and I'm looking to rent somewhere where I am right now. Instead of having a two-bedroom flat all I can afford to buy outright in my current location is a small 25 square meter place - literally one room with a separate shower/toilet room.
On the one hand I can see this would be perfect for a student, and I know they will rent happily. On the other hand I just can't imagine living in such a small place myself.
I can buy a semi-detached house further away, or even two for the same money. It's very tempting because those properties are much nicer, but of course the downside is that renting them would be significantly more difficult. Especially having two rather than one.
So it's a trade-off I'm investigating: Small place in heart of the city, vs house in the countryside, or family-home beneath an airport. Tricky.
I've now sold the Scottish flat and I'm looking to rent somewhere where I am right now. Instead of having a two-bedroom flat all I can afford to buy outright in my current location is a small 25 square meter place - literally one room with a separate shower/toilet room.
On the one hand I can see this would be perfect for a student, and I know they will rent happily. On the other hand I just can't imagine living in such a small place myself.
I can buy a semi-detached house further away, or even two for the same money. It's very tempting because those properties are much nicer, but of course the downside is that renting them would be significantly more difficult. Especially having two rather than one.
So it's a trade-off I'm investigating: Small place in heart of the city, vs house in the countryside, or family-home beneath an airport. Tricky.
(Assuming you don't already own a house) Buy a house with more bedrooms than you need and rent out the remaining rooms. Owner occupancy plus the tax benefits (deprecation of all improvements, deduction of repairs, mortgage interest writeoff, to name a few) make it the best possible use of money today. Being an owner occupant ensures your tenants won't tear things up.
The only downside is that you have roommates now, so choose carefully!
The only downside is that you have roommates now, so choose carefully!
This advice is not bad. Low maintenance and difficulty. The problem is that you have to deal with roommates. Once you're past your 20's you get set in your ways and you get irritated when things don't go your way. You have to become a super dick or be upset all the time because your roommates suck ( you on the other hand are "perfect" :-) ). I would go AirBnB these days if possible.
My friend bought a house and build an independent area for renting. Basicly he turned it into a duplex. That's an alternative way to go.
My friend bought a house and build an independent area for renting. Basicly he turned it into a duplex. That's an alternative way to go.
I definitely think that an apartment in the suburbs of a big city or a international REIT are the best options. Or perhaps pick a city, read up on future developments that are planned there and position yourself close to large retail and business developments.
Although maybe look at other investments, property doesn't really create wealth, it just benefits off the increasing demand for housing. You'll make money for sure, but be mindful, many young people like myself are stuck, we find it hard it own a home in home town due to over investment in the areas we grew up in and want to live. It's pretty anti-social in many ways. I feel investment in property is quite divisive.
I'm not some long haired socialist either, I'm a 32 year old working in computing for a while. I just don't have a stockpile of wealth. I also have no debt and good credit, but getting a mortgage for $400k+ is outside my capacity.
I think a decent investment option are cloud computing based ETFs, they have decent returns, and are essentially a 'tax' that is levied on some of the largest internet companies.
Just a thought.
are you basically saying to OP to not invest because people like you cannot find apartments? Sorry to say but our society doesn't work like that
I'm more saying that there is a social consequence to investing, and people should be mindful of them. I know we all (well most of us) enjoy the benefits of living in a Capitalist society and can put our money where we like, but as I said property is divisive and money sitting there doesn't generate wealth in a meaningful way.
It's certainly not just about myself, if you talk to any person under 30 in a major city in a G7 country they will cite housing concerns and access to a stable home as a key concern.
There's nothing anti-capitalist about investing to protect wealth and benefit society.
There's nothing anti-capitalist about investing to protect wealth and benefit society.
Recently purchased in Australia. I've gone for a simple apartment in a central location. Just kept hunting until I found something cheaper than it "should" be.
Not sure about your tax laws but here it's usually best to borrow 100% and chuck your cash on your primary residence mortgage first ideally via offset then the rest offsetting the investment loan.
In that sense it may make sense to spend the money upgrading the primary residence and pull equity out for the deposit on the investment so there is a 100+% loan to maximise tax deductions. That's if you are aiming for capital growth and can stomach the lack of cashflow of course.
Not sure about your tax laws but here it's usually best to borrow 100% and chuck your cash on your primary residence mortgage first ideally via offset then the rest offsetting the investment loan.
In that sense it may make sense to spend the money upgrading the primary residence and pull equity out for the deposit on the investment so there is a 100+% loan to maximise tax deductions. That's if you are aiming for capital growth and can stomach the lack of cashflow of course.
One good option I have executed in the past it to buy a semi-detached home with 3 apt units. It is imp to work out the location, the rent the 3 units can fetch if it is an investment you may likely need 20%-25% down with good credit. This approach requires you/your partner to do a lot of work in searching the house, finding right tenants and finding a right handyman that you like.
I wish you the very best.
I wish you the very best.
A broad REIT, almost certainly Vanguards. You are going to sacrifice ROI for low cost/low headache diversification.
This is absolutely the right answer, even though it's not the option that I personally took. If you want to invest in actual property, it should be because you would enjoy having a side job as a property manager, and possibly because you also need a place to live. I own a small duplex, but most of the actual profit from it comes in the form of imputed rent and from the fact that I'm also the property manager and don't have to pay one.
I would try to find a way to take advantage of these:
https://www.occ.gov/topics/community-affairs/publications/in...
https://www.occ.gov/topics/community-affairs/publications/in...
If I had that much money to invest in real estate right now, I'd buy the house next to mine (semi-detached row house--we share a wall on one side), and use the space as a studio. Assuming I could get the neighbor to sell it, of course.
buy a small home in a hot, small city market. contract w prop mgmt and have it rented to families. when u put it back on the market in 5 years you will see ~10-15% return. at least in my city that s the case.
I guess you are in USA. In Europe you can buy 2-3 apartments in relatively popular cities here without a mortgage and rent them out.
I will buy 1 or more condos in tourist destination areas (e.g. disney etc) and do AirBnB.
An international REIT with minimal costs and a good bit of dividends (2%-3%).
Buy property in Tasmania.
- Commercial real estate?
- Vacation property?
- Flipping houses?
- Strategic locations?