Want to play with more imaginary money? 350-500k

[ondaflipside]

Nov 14, 2012 10:34:50 GMT -5 jwright said:

I would sit down with a commercial real estate broker; with a CCIM or similar designation and see what the market is like in your area.

You would need the right space. I am not sure how much of a down payment you would need, it depends on your banking relationships. Let's say you could put 10% down. You would have a $4,000,000 commercial building. I would want the tenant to be some sort of medical office or similar industry that is stable and growing. I would have them pay CAM expenses to offset property taxes and the like. And sign a 10 year lease.
Cap rates are usually 8 or 9, but we are starting to see cap rates of 10 in our area.

If you get lucky, cap rate of 10, on a $4 million building is $33,333/month in income. Debt service at 6% is 21,583. So you've got 11,750 month to cover expenses that are not offset by the tenant, I would probably hire a management service. Hope to net about $6K a month and hope that the building appreciates in value.

That would be the absolute best case scenario and obviously has moderate risk involved, but I've seen commercial real estate work out well for too many clients not to investigate it. I'm certainly not a professional but I would look into it. I'm personally more interested in the real estate market than investment market, and I think the long term cash flow would be very enticing. It really depends on the tenants and spaces that are out there.

These sounds like the best of the best case scenario, and as a first-time investor, I would not put all of my eggs in one basket this way. I likely will limit risk by joining in with another and form an LLC and purchase a building together. I would not shoulder all of these risks on my own.

[peachdragon]

We are already thinking of buying an investment property, so I'd probably just get more of those. Maybe a small apartment building. However, I would use leverage, I wouldn't buy it outright. So that would leave me some more cash, which would allow me to make some improvements. I would also invest some of it in stocks and my daughter's college fund.

[formerlyak]

I wouldn't invest in real estate in my area with that amount of money because it just wouldn't even buy a shack (literally -- crappy fixers are at least $500K). If I lived in a lower cost of living area, I might.

Fi and I might buy a vacation property.

Or, I'd quit work and get my PhD like I've always wanted to do, but my ex wasn't very supportive of it so it never happened.

But what I'd most likely do is invest half and use the other half to start my consulting business. I have already started working on the business plan for this with my someday partner and we both want to do it and both of our SOs are supportive. It's the initial loss of income and start up money that is holding us back.

[M]

I'd invest it myself. I'd treat it like another client account and put about 6 of our 9 investment strategies on it to diversify the account and let it ride. At the end of each year when we evaluate the accounts, I'd probably donate some of the profits and reinvest the rest.

[Deleted]

I'd seriously consider getting a vacation home that I can easily rent out when I'm not using. I have very flexible work schedule and can do my work from pretty much anywhere in the world for about 3 months a year. A vacation home will come in very handy.

[M]

Nov 14, 2012 8:58:18 GMT -5 juliahenry said:

So by hiring a professional, do you mean sitting down with someone at an investment firm and choosing a portfolio?

Because while that's one way to invest, there are other options out there and it seems like most people avoid some of the more hands-on investments. But then you pay a premium to have others look after your money long-term, when you might have made more with a different strategy.

Most people don't have the time or know-how to make smart investment decisions on their own which is why they turn to professionals and you pay a premium for their knowledge and know-how to grow your money.

[juliahenry]

Nov 14, 2012 17:04:10 GMT -5 M said:

Most people don't have the time or know-how to make smart investment decisions on their own which is why they turn to professionals and you pay a premium for their knowledge and know-how to grow your money.

I agree, especially where funds, stocks etc are concerned. But real estate and small businesses can be much more "hands on" for people who want to work with their own money and maximize their return.

For example, I would never deal with funds on my own, but with good advice and some hard work, I could manage my own apartment building thus cutting out the costs often associated with property management firms. That's more money in my pocket.