
Ask HN: How would you invest $500k in real estate today? - bsvalley
How would you invest $500k in real estate today? This topic explicitly focuses on real estate. If you were to invest that money today, what would be your best strategy and biggest ROI in the US?<p>- Commercial real estate?<p>- Vacation property?<p>- Flipping houses?<p>- Strategic locations?
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WheelsAtLarge
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!

~~~
bsvalley
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.

~~~
WheelsAtLarge
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.

~~~
brudgers
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.

~~~
WheelsAtLarge
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.

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brudgers
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.

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sharemywin
Slum lord

[http://www.loopnet.com/Apartment-Buildings-For-
Sale/?Sort=15...](http://www.loopnet.com/Apartment-Buildings-For-
Sale/?Sort=15:1)

~~~
brudgers
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.

~~~
sharemywin
My personal theory is never buy a place you wouldn't live in.

~~~
stevekemp
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.

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CharlesDodgson
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.

~~~
arisAlexis
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

~~~
CharlesDodgson
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.

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tabeth
(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!

~~~
WheelsAtLarge
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.

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quickthrower2
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.

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TheSaaSGuy
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.

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kasey_junk
A broad REIT, almost certainly Vanguards. You are going to sacrifice ROI for
low cost/low headache diversification.

~~~
crzwdjk
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.

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jklein11
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/insights/insights-low-income-housing-tax-credits.pdf)

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Finnucane
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.

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mapster
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.

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arisAlexis
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.

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codegeek
I will buy 1 or more condos in tourist destination areas (e.g. disney etc) and
do AirBnB.

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kleer001
An international REIT with minimal costs and a good bit of dividends (2%-3%).

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meric
Buy property in Tasmania.

