$600k to invest in real estate, pay cash or leverage?

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Topic Author
DaffysIRA
Posts: 23
Joined: Tue Feb 04, 2020 12:28 am

$600k to invest in real estate, pay cash or leverage?

Post by DaffysIRA »

Sorry if this isn’t the right forum. I’m new here trying to learn as much as possible. Have around $600k from a recent death in our family. We have no debt and a healthy savings. College funds set up already, retirement and all. This money must be spent on real estate, nothing else.

We live in Panama City Beach, a very popular place for Short and long term rentals. I obviously want to make the best decision for my family member that passed but trying to decide if we should buy 2-3 houses or condos with cash OR buy one with cash and leverage 3-4 more with the rest. We have so many options.

Any thoughts or advice would be greatly appreciated.
Lucky2Invest
Posts: 65
Joined: Wed Mar 23, 2016 6:07 pm

Re: $600k to invest in real estate, pay cash or leverage?

Post by Lucky2Invest »

You will always do better with more leverage assuming not “too much leverage”. If it must be real estate can you do 50% Loan to Value? This will keep you safe if things go south due to Covid/2nd wave, while still allowing you some leverage.

You should use the current environment to you advantage. If the money “must” be spent ask around and make low offers and try and find someone who is panicked or nervous about the current environment. I would not personally be purchasing real estate at top dollar at the moment.
qwertyjazz
Posts: 1434
Joined: Tue Feb 23, 2016 4:24 am

Re: $600k to invest in real estate, pay cash or leverage?

Post by qwertyjazz »

Leverage will give you more risk and so potential for more reward but also greater loss. Could you pay the mortgages if there is a downturn in occupancy rates? How would a hurricane effect you? What about multiple large repair bills? etc
No correct answer - just balance risk and reward and loss
G.E. Box "All models are wrong, but some are useful."
Topic Author
DaffysIRA
Posts: 23
Joined: Tue Feb 04, 2020 12:28 am

Re: $600k to invest in real estate, pay cash or leverage?

Post by DaffysIRA »

Thanks. I should also mention that there is no time limit. Can be next week or next year. I obviously want the best deals but that’s hard for me to decipher without the experience. Maybe I can find someone locally who can assist us in looking for the right properties.
Lucky2Invest
Posts: 65
Joined: Wed Mar 23, 2016 6:07 pm

Re: $600k to invest in real estate, pay cash or leverage?

Post by Lucky2Invest »

If there isn’t a time issue why not wait and see how this all shakes out? Unless you are going to lowball several properties and get them for 20% off list price, I would recommend waiting. If this gets a lot worse, you will be kicking yourself for buying a property you can’t rent out.

On that same thought...you might be able to find a seller who doesnt want to wait this out/might be underwater/nervous/etc....so you could find yourself a property that is a steal 5 years from now when this is long forgotten. All up to your risk tolerance.
abracadabra11
Posts: 195
Joined: Sat May 01, 2010 2:09 pm

Re: $600k to invest in real estate, pay cash or leverage?

Post by abracadabra11 »

What's driving the real estate only restriction (i.e. this must be spent on real estate)?

You'll likely get better advice with some more details.
Topic Author
DaffysIRA
Posts: 23
Joined: Tue Feb 04, 2020 12:28 am

Re: $600k to invest in real estate, pay cash or leverage?

Post by DaffysIRA »

This income is from the sale of my family members home which she worked tirelessly to renovate and make her own over the past few years. It doesn’t have to be for real estate but I feel it’s the “right thing” to do. What is your suggestion?
TheDDC
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Joined: Mon Jan 08, 2018 11:11 am

Re: $600k to invest in real estate, pay cash or leverage?

Post by TheDDC »

DaffysIRA wrote: Sat Jul 25, 2020 11:05 pm This income is from the sale of my family members home which she worked tirelessly to renovate and make her own over the past few years. It doesn’t have to be for real estate but I feel it’s the “right thing” to do. What is your suggestion?
If you have settled on the idea of spending on real estate, pay cash if you have the cash. Don’t play around with leverage.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks, minimize amount given to medical-industrial complex
babystep
Posts: 253
Joined: Tue Apr 09, 2019 9:44 am

Re: $600k to invest in real estate, pay cash or leverage?

Post by babystep »

Lucky2Invest wrote: Sat Jul 25, 2020 9:27 pm You will always do better with more leverage assuming not “too much leverage”. If it must be real estate can you do 50% Loan to Value? This will keep you safe if things go south due to Covid/2nd wave, while still allowing you some leverage.

You should use the current environment to you advantage. If the money “must” be spent ask around and make low offers and try and find someone who is panicked or nervous about the current environment. I would not personally be purchasing real estate at top dollar at the moment.
This seems like a reasonable idea.

If it has to be real estate then another option would be to buy VNQ. It has a yield of 3.96% so it will throw off $23,700 per year = 600*1000*3.96/100. You don't need to be a landlord and it is diversified compared to one or two properties.

VNQ is 14% down YTD so you get a decent discount.

It may not be tax efficient compared to individual real-estate so that might be a consideration. One could swap-out the total market with VNQ in 401k and then by the equivalent total market in the taxable to get the tax efficiency.
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