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Real Estate Investor Tips

3 Great Ways You Can Invest One Million Dollars?

Approximate Reading Time: 5 Minutes

Learn > Investor Tips > 3 Great Ways You Can Invest One Million Dollars?

Published: July 5th, 2016

If I handed you one million dollars cash today and told you I wanted it back in 5 years with 6% interest, would you take it?

If your answer is an immediate “no,” then you don’t know how you can make more than a 6% return. That’s OK. Most people don’t know. That’s why millions of people settle for much less in stocks, bonds, mutual funds and CD’s.

If your answer is a resounding “YES!” then you probably know how to make money from money, or are willing to learn.

Either that, or you are someone who isn’t really going to worry about the consequences and just wants to have a million dollars with no idea how to pay it back!

Since we know such a situation would turn out terribly wrong, let me give you some ideas of what you could do to pay back the money plus interest, AND end up with a nice chunk of change for yourself.

How To Invest One Million Dollars?

1 – Private Lending

You could borrow the funds and then turn around and lend them to someone else for more. That’s exactly what banks do. They borrow money from the Fed, mark it up about 3% and lend it to individual borrowers like us.

If you borrowed one million dollars for 5 years at 6% interest and turned around to lend it to someone else at 9%, you’d earn $30,000 per year – and over $150,000 during that 5 year period!

The key here is to only lend it to someone you know will pay you back in full! And if they can’t pay you back for some reason, you’d have agreed to some form of collateral you could take instead (property is the most common type of collateral). For safety, the collateral property should be worth as much or more than the loan, including potential sales costs.

3 – Rental Income

You could use the million dollars to purchase rental properties that yield a 9% return from the cash flow.

Let’s say you bought 10 properties averaging $100,000 each that rent for $1000/month. Your net returns would be similar to the private lender’s, except you would have to account for closing costs of about $3000 on each property, lowering your profit to $120,000 after 5 years.

However IF those homes appreciated in value by 3% annually, you’d gain an additional $150,000 in equity. Between the home equity and the cash flow, you could sell 8 of the homes to pay back your loan plus interest, and keep 2 of the homes for yourself. You’d own them free & clear, plus have some left-over cash in your pocket.

Even better, if those homes appreciated in value by 4%, you could sell 7 of the homes to pay back your loan and keep the remaining 3 homes free & clear. And if by chance they appreciated by 6% (which is not out of the question in areas experiencing high job growth), you’d get to keep 4 of the homes free & clear!

3 – Investing in Business

You could take that million dollars and invest it in a great business idea. If all goes well, you could double, triple, or even quadruple your investment.

However, this is the riskiest venture since statistically, 50% of new business fail during the first 5 years. If you invest in a business and it fails, what kind of collateral would you have, if any?

You can see why it’s tough to get a business loan even if you have great credit and a fantastic business idea. If the business fails, you’re stuck with a million dollar debt and no real collateral with which to pay it back.

That’s why you need to be VERY CAREFUL when friends or family come to you asking for your financial support in their business idea. If there’s no collateral, you need to treat your investment like venture capital – assuming there’s a 50% chance you’ll get your money back. And that type of risk should really be left to real venture capitalists who can afford to take those kinds of losses.

Banks much prefer to lend on property. All they really want to see is that the property is worth more than the loan, that you can afford the monthly loan payments, and that you haven’t taken on more debt than you can handle.

If you have good credit because you pay your bills on time, you will get the best interest rate available. But if you don’t have a great credit history, you can still get a loan! FHA will lend to borrowers who have had foreclosures just 2 years prior! Why? Because they still don’t see a real risk. If you don’t pay, they take the property as collateral.

Use the Power of Leverage Wisely

There are many ways to make money with money. When you borrow money, you can receive far greater returns than you could achieve using your own capital. That’s why financing is often referred to as “leverage”.

But please use caution and don’t take the use of OPM (other people’s money) lightly! If things go wrong, you could find yourself over leveraged – saddled with debt you don’t know how to pay back.

Never jump into any investment that you don’t understand. Never invest your money with someone who has not succeeded in that particular investment strategy over and over again.

While private lending and rental property can be highly lucrative, they can also become money-pits if they are located in high-crime zones, in decaying cities lacking job growth or have deferred maintenance issues.

It is imperative that you get educated on any investment you wish to pursue, or get mentored by someone who has repeatedly done what you are trying to do – successfully.

Real Wealth Network has created a special Academy with detailed instruction from real world experts on private lending and income property. Topics include:

  • Asset protection
  • Huge tax deductions from real estate investing
  • 10 things you need to ask your property manager
  • Creative financing strategies
  • How to dramatically increase your IRA/401K retirement accounts through real estate

Try out the Academy here.

Real Wealth Network also researches the best markets for buying real estate today based on job growth, population growth and affordability. In those markets, we put together a team of highly experienced experts who help us find properties, renovate them to like-new condition, place qualified tenants and offer on-going property management for a “done4you” rental property.

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Author

Kathy Fettke

Kathy Fettke

Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.

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