The 6 Best Uses of $1 Million as a Real Estate Investor
While most of us won’t be handed a large sum of cash any time soon, I do believe imagining what you might do with sum is a good thought experiment. For example, how we answer the question of “You’ve just been given $1,000,000. What’s the first thing you do?” can shine a light on our top priorities or help us clarify our real estate investment plan.
We asked the active real estate investors in the Best Ever Show Community how they’d invest a million dollars, and here are the top six responses.
1 – Invest
The most common response was to invest the $1 million into some sort of real estate product. Some answers were general, like finding another deal that adheres to a current real estate investment strategy (Craig Hyson), upgrading from single-family or smaller multifamily investing to apartment syndications (Barri Griffiths, Mark Alexander Davidson), or investing in real estate to live off the interest (Andrew LeBaron).
Others had more specific investment plans. Justin Shepherd would grow the $1 million to $10 million by investing in a deal with 30% cash-on-cash return, and then rinse and repeat. Justin Kling would use the $1 million for a 25% down payment on a $4 million apartment complex at $50,000 per door. The 80-unit ($4 million / $50,000 per unit) would ideally cash flow $200 per door, which is $16,000 per month or $192,000 per year. That’s enough cash flow to live off of if you ask me. Iqbal Mutabanna would take half and reinvest in his real estate business by purchasing an asset that produces a 10% cash-on-cash return
Spencer Leech’s investment plan would result in the largest investment. He would find a cash flowing C-class apartment community in a secondary market that is stabilized or required light rehabs. At 75% LTV with 20% of the down payment being private equity and 5% being his $1 million, he’d acquired $20,000,000 in apartment assets.
Two other active investors know exactly how to invest a million dollars, but in a non-real estate related product. Deren Huang would lock into a 1-year CD. Glen Sutherland would go to a lender to secure a larger loan to invest with. And Eric Kotter would invest in passive real estate investors by offering private lending and transactional funding.
2 – Pay Off Debt Obligations
Another popular investment plan for $1 million is paying off existing debt obligations. Craig Hyson and Deren Huang would pay off the mortgages on their current investment portfolio, which would drastically increase their cash flow and leveraging abilities. Eric Kotter and Amy Wan would pay off their personal debts. Eric would eliminate all personal debt, while Amy would pay off her and her husband’s student debt. By paying off their personal debt, they can redirect those monthly debt payments into real estate investments.
3 – Save
One of the less aggressive investment plans is to save the $1 million. Eric Kotter would set aside a portion of the $1 million for investment property taxes, and Iqbal Mutabanna (who used $500,000 to invest with) would add $200,000 to a rainy-day fund.
4 – Gratitude and Contribution
The most altruistic first step after receiving $1 million is to express gratitude or donate a portion of the proceeds. Since someone just gave you $1 million, it only makes sense to pass that on, right?
The first thing Jason Scott Steinhorn and Dave Slaughter would do is say thank you to whoever gave them the money. In terms of contribution, Andrew LeBaron would pay tithing, Justin Kling would give away 10%, and Iqbal Mutabanna would use his remaining funds for tithing ($100,000) and donating to charities ($200,000).
5 – Strategize
A very rational first step after acquiring $1 million is to take some time to strategize and come up with the most effective investment plan.
Neil Henderson would make an appointment with his accountant to discuss tax strategies. Nick Fleming would hire a world-class mentor/business coach and start hiring really talented employees, both of which will 10x his business. Charlie Kao would refocus by creating new goals and a new business plan, working towards growing his money long-term. And Deren Huang would make sure he remained level headed and didn’t make any impulsive decisions, because he doesn’t want to live out the reality of many lotto-winners who end up bankrupt after a couple of years.
6 – Minor Adjustments to Business or Life
Two investors wouldn’t make a massive change. Tyler Weaver would hit up the gym, get a good night’s sleep, and have a reasonable breakfast, because he needs a solid state of mind to take good care of his money. Devin Elder wouldn’t make any fundamental changes either. He would just put the money in the operational account of his house flipping business. The only changes he would consider making is to discontinue using private money lenders on a few deals or expedite a few fix-and-flip projects with the extra capital.
Create Your Plan Today
I think all six of these investment plans are great responses to the questions of how to invest a million dollars, but what do you think? Comment below: If someone gave you $1 million, what is the first thing you would do?
If you’re unsure and feel as though you could use some direction in crafting your (less hypothetical) real estate strategy, consider applying for my program. Within this program, you’ll learn how to raise real capital, how to find investors and buyers, how to choose the best marketts, and more! Apply today and take the next step towards financial freedom!
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.