How To Invest One Million Dollars -Getting The Best Possible Returns
First, you need an idea what sort of return you are looking for.
For this exercise, I have established 27% percent after costs as the goal of this annual result.
27% is huge by today's standards, although I think we are on the cusp of an inflationary period and getting over night cash rates in the double digits may occur.
A possible repeat of the 80's For now however, in the current climate, 27% percent is quite a good result.
To invest one million dollars effectively, it is always wise to diversify and not put all your eggs in the one basket as they say.
The bulk of that million should be put into quality real estate assets.
The trick is to find a bargain.
The less you pay for a property, the higher the appreciation will be over the year and the higher the rent will be in terms of a percentage value.
For example, a 3 bedroom family home in good condition with a garage and established gardens may have a value in any particular area of $300,000 It is your job, to invest one million dollars for 27% returns, to find that property for a lower price tag.
You will of course not find that property for $200,000 or $250,000 but you may find it for $270,000 that is a 10% percent discount.
If we rely on the historical average of what rents return of 7% and apply it to the lower figure, we will find that our real return on rents is more like 10% to 12% percent.
Also, making small and cheap repairs and improvements as simple as maybe a shade offering more privacy from the neighbor or some simple adjustments designed to make the house more appealing to renters, this can even increase the rent return to 15% if done correctly.
So the purchase of 4 rental properties at around $270,000 is where the bulk of the million dollars will be parked.
Also the minor adjustments and rehabbing you did to each home would have added a percentage value to the home itself, increasing your equity.
The historical appreciation figure is 7% however you may be looking at around 10% to 12% percent.
Lets see what we have done, we purchased 4 homes worth $300,000 for $270,000 each.
If things go to plan we have added 10 to 12% percent value to the ultimate worth of those homes by doing small adjustments which make the properties more desire-able.
Costs for each home was around 10% including escrow fees, lawyer fees and rehab costs.
At the end of the financial year, after all costs, those 3 properties returned 15% in rents.
The properties appreciated, even after costs, by 12% percent.
This is a total return of 27% Also, because the renters now have a solid rental history and they have just signed a new 5 year lease, they are considered as prime lease holders.
This has a re-sale value too and many buyers of your homes, will want to pay a premium to secure these types of tenants.
This 5 year lease to prime quality tenants could be worth up to 5% more on the re-sale of the homes purchased.
For this exercise, I have established 27% percent after costs as the goal of this annual result.
27% is huge by today's standards, although I think we are on the cusp of an inflationary period and getting over night cash rates in the double digits may occur.
A possible repeat of the 80's For now however, in the current climate, 27% percent is quite a good result.
To invest one million dollars effectively, it is always wise to diversify and not put all your eggs in the one basket as they say.
The bulk of that million should be put into quality real estate assets.
The trick is to find a bargain.
The less you pay for a property, the higher the appreciation will be over the year and the higher the rent will be in terms of a percentage value.
For example, a 3 bedroom family home in good condition with a garage and established gardens may have a value in any particular area of $300,000 It is your job, to invest one million dollars for 27% returns, to find that property for a lower price tag.
You will of course not find that property for $200,000 or $250,000 but you may find it for $270,000 that is a 10% percent discount.
If we rely on the historical average of what rents return of 7% and apply it to the lower figure, we will find that our real return on rents is more like 10% to 12% percent.
Also, making small and cheap repairs and improvements as simple as maybe a shade offering more privacy from the neighbor or some simple adjustments designed to make the house more appealing to renters, this can even increase the rent return to 15% if done correctly.
So the purchase of 4 rental properties at around $270,000 is where the bulk of the million dollars will be parked.
Also the minor adjustments and rehabbing you did to each home would have added a percentage value to the home itself, increasing your equity.
The historical appreciation figure is 7% however you may be looking at around 10% to 12% percent.
Lets see what we have done, we purchased 4 homes worth $300,000 for $270,000 each.
If things go to plan we have added 10 to 12% percent value to the ultimate worth of those homes by doing small adjustments which make the properties more desire-able.
Costs for each home was around 10% including escrow fees, lawyer fees and rehab costs.
At the end of the financial year, after all costs, those 3 properties returned 15% in rents.
The properties appreciated, even after costs, by 12% percent.
This is a total return of 27% Also, because the renters now have a solid rental history and they have just signed a new 5 year lease, they are considered as prime lease holders.
This has a re-sale value too and many buyers of your homes, will want to pay a premium to secure these types of tenants.
This 5 year lease to prime quality tenants could be worth up to 5% more on the re-sale of the homes purchased.
Source...