Several individuals have built up their savings through stock market investment over a couple of years.
But with the recent turn of events, keeping large sums of money in mutual funds, ETFs, bonds, and stocks may no longer be the wisest investment decision.
Of all the various assets you could decide to invest large sums of money, real estate stands above others when you use the right techniques and strategies.
Read on to find out how you can invest large sums in property without tears.
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Guide to Investing Large Sums of Money in Real Estate
If you have large sums of money and are looking for a guide that explains how to invest 500k, Team Stout Team blog's article should help you.
In real estate investment, you can be passive, active, or even both.
Active Investing
Investing actively in real estate implies scouting our deals or partnering with real estate agents, dealing with tenants and vendors, managing the property, and settling the bills every month.
Investing actively in real estate is a great way to learn and understand the business but can be quite challenging when growing your rental property portfolio and diversifying geographically.
Passive Investing
A passive real estate investor buys income-producing real estate with his capital while allowing a professional with local marketplace experience to handle day-to-day operations.
Passive investing enables you to learn the business without ‘doing the job yourself.'
Most investors take this route since it's more cost-effective, generates potentially higher profits, and requires less time. Who doesn't like passive income?
Options for Investing Large Sums in Real Estate
Your options on how to invest $500k in property depend mainly on whether you're a passive or active investor and how much risk you can bear in exchange for potentially high rewards.
1. Wholesaling
You can make money as a property wholesaler by scouting for distressed property sellers, putting their property under contract, and assigning them to other investors for a wholesale charge.
You can lose money as a wholesaler if there's an error while estimating the property's actual market value or the number of repairs needed.
3. Single-family Houses
The most popular forms of real estate you'll find in the United States are houses. They are easy to locate, manage, rent out, and sell at the right time.
However, determining the actual fair market rent is one of the major challenges of investing large sums of money in a single-family house.
2. Fixing-and-flipping
Being a successful property flipper depends on money, experience, time, and luck.
Unlike property wholesalers, a fix-and-flipper closes escrow on a property, completes every required repair and sells the property to an owner occupant or another investor for a profit.
4. Multi-family
A small multi-family property (like a duplex, triplex, or fourplex) is an attractive investment for numerous reasons.
Plus, with experts out there like Michael Teys to help answer any questions you may about properties similar to these, investing in this type of property isn't perhaps quite as daunting as it previously has been, and you have a much better chance of succeeding with it.
Multi-family property investment is a great way to grow quick cash flow as each property features more than one door or unit. It's also very easy to maintain and manage since several tenants are at the same location.
5. Turnkey Rental Property
There are two kinds of turnkey rental investment:
- Rental property leased to tenants
- Completely updated property waiting for new tenants
The first option is the best for a real estate investor since there's a tenant already in place, allowing you to operate with cash flow as soon as you close escrow.
Other Ways to Invest Large Sums in Real Estate
For more experienced property investors seeking extra ways to diversify their investments, here are some other options to consider:
Crowdfunding
Crowdfunding involves numerous investors coming together to contribute some capital. You can invest some of your money in real estate crowdfunding.
It's a great way to diversify your funds and access huge commercial investments like large apartment projects, shopping centers, and Class A buildings.
Group Investing
In real estate investments, joint ventures and partnerships allow you to contribute capital and be a silent partner while other members handle the day-to-day operations.
Private Money Lending
Aside from equity investment through owning property directly, you can also lend or buy deeds of trust and debt notes.
Note that hard and private money lending is risky for those who lack experience.
Portfolio Investing
Purchasing a group of properties with conservative leverage is a good way to quickly boost your rental real estate portfolio, especially if you need a replacement property for a 1031 exchange (tax-deferred).
REITs
A Real Estate Investment Trust (REIT) can be either private or traded publicly on stock exchanges.
It can focus on commercial or residential asset classes or specific specialty sectors, including antenna sites and movie theaters.
Takeaway Tips Before Investing
Avoid Taking a Hasty Decision
If you got the money for an emotional reason (like losing a loved one), you might feel pressured to do the “perfect” thing with it.
There might also be several individuals offering you different opinionated advice about the right thing to do with the money.
But it's okay and understandable if you feel overwhelmed. Ignore the individuals and put the money in your savings account for some weeks (or months) while deciding your next line of action.
That way, you can patiently figure out how to best hit any long-term goals with the money.
Pay Off Your High-interest Debts
Ensure to pay off your debt (such as credit card balance) by prioritizing the highest to the lowest interest rate.
Also, it's advisable to pay off only those with a five percent or more interest rate.
Historically, individuals have more easily settled the minimum amounts in debts below five percent and invested instead.
It's Okay to Spend a Little
If you're looking to use a little part of the money to upgrade your wardrobe, or pay for a new apartment's security deposit, or replace a few items in your home, it's not a bad idea. It's your money.
Boost Your Emergency Fund
After settling every high-interest debt, target a take-home pay in the emergency fund for about four to six months.
Save it somewhere with zero investment risk (like an FDIC-insured account) — it will always be there whenever you need it.
Save for Your Short-term Goals
If you're planning to use some money soon — for a proposed career break, or machinery purchase, or a vacation — ensure that each property invested in has a capital reserve account.
That way, you can easily access available funds if and when you need them without seeking a loan from the bank or revisiting your just paid-off credit card balance.
Final Thoughts
Investing large sums of money in real estate can be highly rewarding and less risky, depending on several factors.
Decide which options will suit you and the kind of investor you wish to be.
Then, seek advice from a reliable property investment company, and you'll be sitting on some pure profits in no time!