Imagine $500K falls in your lap; putting aside its weight, how would you feel? Investing that amount of money can be problematic, especially if you don't know much about investing strategies in real estate. Don’t worry, Lots of other people don't know either!
You might ask what to do with $500K or how you can invest $500K and make a profit? The Tim Stout Team can answer all these types of questions and help you make sound investments. So read on for some of Tim Stout Team's professional tips on how to invest 500K.
Investing $500K for Income
When investing a small amount of money, the emphasis is just on the short-term return. But the story changes when a portfolio of $500K comes into question. Now you're talking about half a million bucks; you should consider the return on investment and capital preservation from an investing perspective, especially if you are already retired or about to retire.
Here are some renowned strategies you can utilize to have a wise real estate investment:
The Stepping Stone
You might have heard the term "accidental landlord", but what does that mean? If a person lives in a house, then moves to another residence and rents out the old house, he/she is an accidental landlord of that property. These owners might have never planned for it, but they become accidental landlords when they buy a second house.
Since many single-family homes can't earn a profit, they don't make ideal rental properties. It is not a good reason to buy such property only for the sake of appreciation. You should devise a proper plan to make the strategy work. For example, you can buy a home in a higher-rent neighborhood, or take into account the mortgage expenses and other costs.
House Hacking
Another approach for investing $500K is House Hacking, meaning renting out parts of your house to earn money to pay for your mortgage and other expenses. By doing so, you will be able to live in classy neighborhoods for free and even earn extra money.
House Hacking is a method of making the most possible money out of your unused space. However, this approach has some drawbacks; the homeowner must take more responsibility for managing the property and sacrifice a bit of his/her comfort to save on the financial side.
Live-In Flip
This method is dissimilar to previous methods but still a good one. In this strategy, the person buys a habitable house that needs renovation, such as adding hardwood floors, customizing the bathrooms or kitchens, providing equipment for a basement or attic, or making additions to the house.
If you want to go with this method, you may need to live in a noisy construction site for a while, but on the plus side, there is a high potential for tax-free profits.
The Process: Frist you need to find a habitable place to live, then estimate the ARV (After Repair Value). You can do this by reviewing comparable sales and new construction prices. You can always get help from a real estate agent in dealing with finances.
The Offer: Before making an offer, you need to double-check the profit margin, have the ARV in mind, and estimate the final renovation costs. The final price involves the previously mentioned factors.
The Advantages: The main advantage of this method is its tax benefits. The majority or all of the taxes will be paid after three years of residency in the house since taxes are not collected on home profit (to a large extent).
This method is very prevalent in the real estate market since it is a low-risk approach. In case it doesn’t go well and your estimations go wrong,, or if you can't sell the property for a higher profit, you still have a home to live in.
Turn-Key Investment
This method is suitable for those who don't like to move a lot or live in a construction neighborhood. In this approach, the contractor handles almost everything on behalf of you. The agents help you find, choose, buy, and manage the house (Not all the companies follow the same approach). Here are the primary steps to take:
Finding, evaluating, and buying the property: Turn-key companies purchase buildings and either repair them themselves or hand them to you for doing the repair They can suggest some fixer-uppers and estimate renovation costs to help you get the job done.
In this method, you are responsible for paying all the renovation expenses. Most of these companies will assist you in finding mortgage brokers or private lenders.
Some people prefer to work with rehab companies to handle their completed buildings. It would help if you always have your estimations in hand, regardless of the costs that contractors offer.
A professional real estate agent is the one who can help you solve the head-spinning inducing issues and find the best price
Management: Some Turn-key companies may directly handle the building issues or introduce a management company to do the job. The companies' credentials rely on this factor; hence, they are very strict on this. If you need any help concerning the management process, you can easily refer to the turn-key companies and ask them for guidance.
Possible risks: First of all, these companies may charge you a lot, while you may never figure this out since you may not be a professional in this field. These companies may also do extra useless repairs and tenant movements. However, if you search enough, you can find reliable turn-key and management companies.
Partner with Other Investors
In case you are interested in real estate investment but you are not an expert and need guidance on how to invest 500K, seeking help and partnering with those with experience could be a great idea. Investors are often asset-rich but they are cash-poor. Professional investors also care about their partners. When investors cooperate, they diffuse some of the tensions and can handle more deals, which results in making more money.
You can have either of the two roles in a contract: a lender, or an equity investor. The main difference is the risk-reward ratio. There are various ways to partner with industry players for investing $500K cash, and each has its own collection of risks and rewards. Below you can find some of those partnering methods:
House flipping: House flipping means buying and selling houses to make a profit. Usually, the time between buying and selling the property may range from a month to up to a year. House-flippers are inclined to cooperate with private lenders, but they rarely like the concept of sharing properties. The more money you spend, the more superior options you can get.
Single-family residential or 1-4 unit multifamily rentals: Partnership in rental properties is another method to spend and invest your $500K. Many people can properly save money but are not able to buy any suitable properties.
Each contract may be of a different type, but mainly one person pays the expenses or a part of the costs, the other one finds and buys a building. The parties can consult and agree on how to divide the expenses and profit.Syndication: Syndications buy most of the significant and high-priced properties. Syndication involves two parties: investor and sponsor. The former uses their money to offset the purchase expenses associated with an investment property, and the latter provides the remainder plus deal management tasks. The larger the offer, the greater the minimum investment would be.
So What to Do With $500k Cash?
Real estate rises in value consistently and can outperform other holdings. You earn more money from buying real estate than any other kind of investment. It may cost you $5K a month to rent a one-bedroom apartment, and with the same rate spent on a 30-year fixed mortgage, you can have a $1 million building!. This way, you will get a tangible and secure asset regardless of your real estate investment strategy.
Unlike the stock market, the real estate market is not affected significantly by short-term fluctuations.. And there are tax incentives for investors as well. Appreciation of the real estate’s value is one of the ways to generate income, but the main real estate's superiority derives from the rental opportunities.
Not everyone wants to become a full-time investor in the real estate market, nor should everyone aspire to become one. Although, by allocating some of their financial capital to a real estate investment, everyone could make a decent profit. Since real estate is pricey, specific rental properties cannot be purchased by the majority of people. Fortunately, there are many useful methods to engage in real estate investment with small capital, such as syndication.
Still need help on how to invest $500K in real estate? Get in touch with The My Brokerage Team to find out how we can help you with finding and choosing a high return real estate investment.
