Most new Passive Investors Circle members come prepared to invest $100K into their first real estate syndication deal.
Many times they’re looking for how to turn 100K into a million in as short as time possible.
The majority are familiar with investing in the stock market and either want a diversified portfolio with real investments or get out of the market altogether.
Those that have chosen the latter tell me that they can’t handle the market volatility any longer and are looking for assets that can provide a “more stable” return.
I get it.
Before we jump into some of the different areas that can get you to the million-dollar mark, there’s a few things to consider first….
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5 Things to Consider When Investing $100,000
#1. What’s your investment objective?
Before you shell out an initial investment of $100k, a good starting point is to define your specific investment objective.
A good question to answer is: “What are you trying to achieve with the $100k investment?”
Different goals require different investing objectives. For instance, if your goal is to generate passive income, then your investment strategy will be different than someone trying to grow the $100k as much as possible.
#2. What’s your time horizon?
The length of time you want to keep an investment is your time horizon. Ask yourself, “when will I need the money?”
The length of time you can afford to invest can impact where you invest. So the first step in growing your $100k to $1 million is looking at where you are now financially such as how much debt you have (i.e. student loans), annual income and future earning potential.
Next, consider setting a date to accomplish your goal of investing $100k and turning it into $1 million. Having 20 years to accomplish your goal versus 3 years plays a big roll in how successful you’ll be.
This goal will dictate how your funds are invested.
#3. What’s your risk tolerance?
In my opinion, your risk tolerance and risk capacity are two factors to consider as you determine your investing approach.
Typically assets with a higher investment risk have the potential for higher returns (and losses).
It’s important to know how the two balance each other out so you can choose the investments to turn your $100,000 into $1 million.
When I first started passive investing in real estate, my wife and I sat down and discussed how much risk we were willing to take.
We elected to only work with sponsors with a long, proven track record that have had at least one deal go full cycle (sell). The assets we choose are typically cash flow positive from day one which helps reduce the risk as we’re conservative investors.
Before investing your $100k, you need to figure out what type of deal can you put your money in that allows you to sleep at night.
If you’re constantly worried about losing your money then avoid anything other than cash, bonds, certificates of deposit or savings account.
#4. What is your current situation?
Before letting the $100k out the door, take a step back and look at your current situation such as:
- annual income
- family situation (married, kids, planning for kids, caring for parents, etc.)
- your age
- overall health of you and each family member
- are you expecting an inheritance?
#5. Can you control your emotions?
Even though you may consider yourself to be a rational person, when it comes to money, even the most logical folks aren’t.
How many times have you visited a car dealership with the intent of “only” looking but drive away with a brand new car?
It happens all of the time as our emotions can occasionally impair our financial judgements.
What Type Of Investor Are You?
#1. Do-It-Yourself or DIY Investors
Ever since I started my practice; I’ve been a DIY investor from day one. As long a I can remember, I’d always had an interest with investing using a hands-on approach.
Back in high school and college, I had a lawn care business while living at home. Because my expenses were next to nothing, I had to figure out what to do with the extra money.
This “good” problem led me to begin the process of learning how to invest in the stock market (stocks, bonds, mutual funds, money market account, ETF’s, etc.) as this was the only way I knew someone could invest.
I got to the point where I “thought” I knew enough about investing in basic index funds from John Bogle that I felt comfortable investing mostly in Vanguard’s VTSAX fund.
Before you decide to become a DIY investor, take the time to figure out if you initially have the time to research your options BEFORE investing.
One of the most popular and growing segments of the investor world is the robo- advisor. These are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.
Most are set up ask you a series of questions through an online survey regarding your:
- current financial situation
- future goals
Once this is completed, the data is used to offer advice and automatically invest for you. It’s the financial “set it and forget it” system.
There’s several companies that offer these automated services to manage your portfolio.
#3. Financial Advisor – full service
If you’d rather not be much involved in the investing process, the consider hiring a financial advisor to professionally handle all of your investments.
Typically they can:
- discuss your options based on your goals
- manage your portfolio
- offer overall financial planning for the future
Out of the three types of investors, this would be the more expensive route.
Where Should You Invest $100k?
I’m a periodontist and NOT a financial advisor. And like you, I’m simply trying to reach financial freedom in as short a time frame as possible. With that being said, please don’t take any of the recommendations below as financial advice. Do your own due diligence and decide which route is best for your situation.
There’s several ways you can turn $100k into a million. I strongly encourage you to first answer the 5 things to consider first questions above.
That way it will make choosing from the list below much easier.
Investing in individual stocks is a way to diversify into various industries and companies. Stocks allow you to own shares in public companies traded on the stock exchange.
Its worth is based on investors perceived value and potential future earnings. Due to the volatility in the stock market, investors can have fluctuations in their stock’s value. Risk can be minimized by diversification via investing in several different stocks across multiple industries.
Advantages to stock investing are:
- liquidity (access your money at anytime)
- low barrier of entry (i.e. can start investing with as little as a few dollars)
#2. Mutual funds and ETFs
The majority of my investments in the stock market (gets smaller each year) is either in mutual funds or exchange traded funds (ETFs).
These are a collection of stocks, bonds, money market funds and other assets typically operated by professional money managers. They allocate the fund’s assets and attempt to produce capital gains or income for investors in the funds.
ETFs typically follow a particular index (such as the S&P 500), while mutual funds are a portfolio of stocks that analysts have already selected. If you’re more of a passive investor (like me) and want to dabble in the market then ETFs and mutual funds give you that hands-off approach.
These investments are chosen to mimic the performance of whatever the investment manager sets as their benchmark.
For instance, some could be set up to mirror entire indexes, while others mirror specific sectors or the performance of blue-chip companies.
If you choose mutual funds or ETFs (or both), typically your risk will be lowered versus investing in individual stocks due to the fact that your money will be spread out amongst several hundred or thousand stocks.
#3. Personal Loans Investing or Peer-to-Peer (P2P) Lending
According to Wikipedia, “Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers.”
This strategy allows investors to act as the bank in certain circumstances which can help out borrowers needing a loan. Benefits include passive income plus the potential for high return on investment (ROI).
P2P lending has become increasingly popular to allow investors to diversify their portfolios. Over the last few years, access is much easier via online platforms.
#4. IRA Investing
More than likely you’ve been investing in individual retirement accounts or IRAs all along. If you own a business/practice or work for a company, more than likely some type of retirement account is offered (i.e. 401k, 403b) in which you can contribute.
In my practice, I offer a retirement account where I’ll match each employee’s contribution up to a certain percentage each month.
I understand that you’re aware of how investing $100K in a retirement account works. If you plan on working until you’re 65 or 70 and want to turn that $100k into a million, then consistently investing each year should get you there.
Who wants to wait that long, right? If that sounds like you then I’ve saved the best for last…..
#5. Real Estate
If you’ve read any of my article or watched some of my YouTube videos (thank you!), then you’re well aware of how much I love real estate.
Before we talk specifics, here’s the 5 ways real estate can help put money in your pocket:
a. Cash Flow
One of the biggest benefits of investing in real estate is for the passive cash flow (aka mailbox money).
This represents what’s left over from the money coming in via rent tenants pay each month minus expenses.
For instance, if you’re invested in an apartment complex that collects $12,000 a month and expenses are $9,000, then your cash flow is $3,000 each month.
Leverage in real estate means buying property with debt instead of paying cash.
One of the best examples of using leverage involves your primary residence. Using leverage from the bank allows you to borrow money for financing in the form of a mortgage.
The ultra-wealthy understand the power of leverage which is why most of them have real estate in their portfolio.
Related article: Leverage – The Extreme Real Estate Advantage
Leverage allows you to buy a much larger asset and increase the potential return on your investment than you could if you had to pay 100% of the purchase price upfront.
For instance, if you bought a duplex for $250,000, the bank would require 20% down or $50,000 and they would bring the remaining $200k.
The cash flow made is based on the full $250,000 and NOT the $50,000.
Even though the bank fronts the majority of money, the monthly rental income goes directly to you, not the bank.
The great advantage of having rental property is that your tenant pays the note for you each month.
By doing this, the equity in the property continues to grow without having to come from your own personal income.
This means that your tenants are essentially building that equity for you.
Appreciation is the concept of a home’s value increasing over time. The average home typically sees a 3-4% annual increase which is usually in line with inflation.
If you’ve ever sold a home that you’ve owned for several years then it’s likely you received more than you paid for it. This is an example of appreciation.
Although appreciation is always nice to receive, it’s NEVER a guarantee. This is one of the reasons we personally invest for cash flow.
e. Tax benefits
My favorite reason for investing in real estate is due to the tremendous tax benefits it offers.
Did you know that the tax code was written to mainly incentivize real estate investors and business owners?
If you’ve owned real estate, then you know that overtime the wear and tear can lower its value along with its contents. This “wear and tear” process is actually tax deductible and is known as depreciation.
Common deductible expenses are:
- property tax
- insurance premiums
- property management expenses
This deduction can be taken for the expected life of the property, but it must be spread out over multiple years.
You can also order engineers to perform a cost segregation study.
This can shorten the amount of depreciation time by helping to identify and reclassify personal property assets for taxation purposes. This will reduce income tax obligations.
You can also take advantage of a 1031 exchange which may allow you to defer taxes from any sale indefinitely.
Now that you understand the 5 ways real estate can pay you, let’s take a look at the different ways you can invest $100k to make one million in real estate.
5 Ways To Invest $100K In Real Estate
One of the first questions that needs to be answered before investing $100k in real estate is: “Do I want to invest as an active or passive investor?”
#1. Traditional real estate
If you want to invest via the “traditional” route, then you don’t mind dealing with tenants. For me, running a practice full-time + family with kids, I tend to invest passively (more about this below).
This type of investing can involve purchasing something as simple as a single-family home, duplex or small apartment in which you rent out for income.
Another example is a fix and flip which is the process of buying a distressed property, fix it up and then flip or sell it.
By finding lower priced deals, a $100k investment will typically cover the down payment (usually 20% of the purchase price) along with some of repair costs and closing costs.
Again, you need to decide whether you want to take on the responsibilities of being a landlord or hire a property management company.
#2. Real Estate Investment Trusts (REITs)
A REIT is a company (either private or public) that owns, operates or finances income-producing real estate.
So instead of buying a self storage facility or other type of real estate to generate passive income, you can now invest into larger projects through REITs.
#3. Turnkey property
A popular way to passively invest in real estate is turnkey rental property. There are several companies that participate in this buy and hold strategy that seek out and find undervalued property in strong rental markets.
They’ll renovate these properties and sell as “move-in” ready for investors which takes you out of the picture from having to oversee the repairs.
Most turnkey real estate companies provide other services such as:
- management services
- marketing to keep occupied
Even though companies will “manage and maintain” the properties for you, it’s still a good idea to monitor their performance by reviewing reports and financial statements from the property manager.
#4. Real estate crowdfunding
I started passively investing in crowdfunding sites and lost my shirt so I tend to steer clear of them. With these online platforms, you’re putting your trust in them telling you whether or not a deal is good.
People can access these deals and fund them (think a type of GoFundMe account). Projects receive money collected from numerous sources.
This concept allows investors to participate in large real estate transactions where they can earn a return during the hold time.
I now focus on investing strictly one on one with sponsors I get to know via syndications which is our next investment method.
Real estate syndications are now my go-to strategy for investing passively in real estate.
A real estate syndication is the pooling of money from a group of investors to purchase a property that’s more expensive than any of them could have afforded on their own.
They typically require little capital and are a fantastic way for a busy, high-income professional to start developing multiple streams of passive income.
In my opinion, there’s no better way to invest in real estate (with $100k) and not have to be involved with the property.
My goal for you on this site is for you to become informed of your investment options because inevitably it’s up to you to decide the best way to invest 100K.
Everyone has different goals. What’s right for me may not be for you.
If you want to learn more about passively investing in real estate, join the Investor’s Circle today.Join the Passive Investors Circle