multifamily properties

Getting 500K is no joke. Whether you’ve been able to amass this sum via your life savings, an inheritance from a relative, or a lottery win, knowing what to do with these funds might seem challenging.

With a half-million dollars, you can invest in almost anything. However, there’s one caveat — doing it the right way.

While numerous investment channels abound, the real estate sector ranks high in delivering decent profit margins. Due to the perks of this asset class, more people are turning towards landholdings for a diversified investment portfolio.

In this detailed guide, we’ll be looking at the best ways you can invest 500K in landed properties for a decent return on investment (ROI). Also, we’ll examine other asset classes bound to turn your investing.

Investing 500K in the Real Estate Market: Practical Channels to Consider

If you’re a newbie investor and you’d like to secure low-risk investments in the real estate arena, consider these mediums :If you’re a newbie investor and you’d like to secure low risk investments in the real estate arena, consider these mediums:

Real Estate Syndication

In real estate syndications, investors come together to invest in properties they wouldn’t have had if they went the DIY (Do It Yourself) path.

While real estate syndications might appear accessible now, only wealthy people could form syndications in the past. During this period, syndications in real estate had their sights set on commercial properties with values running into millions. So, if you weren’t financially buoyant, you couldn’t be a participant.

That said, 2012 marked a dramatic change as the JOBS (Jumpstart Our Business Startups) Act signed by former President Barack Obama became active. Upon its passage, individuals could now enter syndications and invest in properties that tickle their fancy.

Before you invest $500,000 in a real estate syndication, it’s essential to understand the principles guiding this investment. First off, no syndicate can operate without these focal points: the sponsor and investors.

So, what are the duties of the sponsor and investor?

The sponsor is responsible for selecting the right property and accumulating funds required to facilitate the purchase. Additionally, the sponsor handles everything from A to Z in property acquisition and management.

On the flip side, investors are vital in contributing funds required in facilitating a purchase. Generally 80% to 100% of the funds required to buy, renovate and operate a building are procured from private investors or other funding sources.

Does real estate syndication appeal to you as a newbie investor? If it does, you must go about it the right way to yield positive ROIs.

How? One reliable option is Peoples Capital Group. With over 30 years of experience, we’ve mastered the nooks and crannies of real estate syndications to ensure that investors (new and seasoned) get the ground running with great deals.

Unlike other syndications that require an astronomic financial commitment, you can enter deals for as low as $30,000. Although market fluctuations might be recurring decimals, growing your capital and making substantial passive income in the long term is achievable.

Holding key for the house

Rental Properties

Besides real estate syndications, actively owning rental properties are great investments to leverage your 500K effectively. Since you have 500K in your purse, making a $400,000 to $300,000 down payment on a small apartment complex is possible. Remember to keep reserves for closing costs, repairs, and operating costs.

When everything’s complete with the right amenities, you can attract tenants without hassles. Once they agree with the rental terms, you’ll be on the receiving end of rental payments (monthly or yearly).

While we’ve taken a peek at residential rentals, your 500K might come in handy to acquire vacation rentals. Vacation rentals offer huge ROIs during holidays as visiting tourists will always need a place to stay.

Unlike residential rentals, you get more from vacation rentals due to daily rental income. Nonetheless, it’s pertinent to note that these structures have their peak seasons.

Regardless of what rental property form tickles your fancy, it’s important to note that these structures might come off as overly tasking. To ease the burden, you can hire a property manager to handle anything property-related but in our experience, the cost of management is very high for short term rentals because it is so management intensive.

Real Estate Investment Trusts (REITs)

One way to invest 500K effectively on landholdings is through REITs.

So, what is a Real Estate Investment Trust (REIT)?

Simply put, a REIT is an entity that owns, finances, or manages landed properties. With REITs, people can invest in varying structures and make profits, regardless of their financial situation.

REITs offer versatility as it gives individuals multiple ways to invest. Like other markets, you can invest in a REIT through mutual funds or exchange traded funds (ETFs).

One thing investors love about REITs is their simplicity. With REITs, you cut the “red tape” involved in going through listings, buying a home, and maintaining it to stand the test of time. As a REIT holder, you can sit at home and earn dividends from your landed investments.

The popularity of REITs is growing in the US. According to a recent report, over 145 million Americans have REIT investments. So, if you have $500,000 and you’d like an investment form that you can enter and exit easily, you may prefer REIT stocks.

House Flipping

If you are seeking active investments and you sought the services of a qualified financial advisor for an insight into viable alternatives, house flipping would likely make that list.

What does it mean?

In layman’s terms, house flipping refers to acquiring a property, renovating it, and reselling it for a higher price.

Although this is an excellent medium to invest 500,000 and create a diversified portfolio, house flipping isn’t for everyone. This investment strategy is engaging and requires prior experience in renovation, property valuation, and marketing.

Instant gratification isn’t a significant theme with home flipping, as the only way you’ll make a profit is when you sell the house for a higher price.

If you’re considering house flipping, take a long, hard look at the market to decipher what property form will sell faster. Those who fail to conduct due diligence might find it strenuous to make sales, thereby incurring losses.

To get the ROI values you crave with house flipping, ensure that the total cost of purchase and renovation doesn’t exceed 70 percent of the intended sale price.

Storage Unit

Self-Storage

A self-storage unit is a space rented by individuals or businesses to keep their equipment safe. Self-storage investments are “recession-proof.” Regardless of what happens, people will always need a place to store things.

Besides its low risk, investors are turning towards the self-storage “goldmine” as it integrates low overheads and construction costs.

With over 49,000 self-storage facilities in the US alone, a financial professional might advise you to stake a claim.

Generating over $39 billion a year in revenue, making a sizable investment from your 500K is bound to yield strong profits.

Investing 500,000 and Winning: Profitable Ventures to Consider Besides Real Estate

While landholdings present many opportunities to invest $500,000 in, there are other investment forms to try if you’d like to make decent returns.

You’ll go through your 500K quickly if you don’t invest. To avoid this, consider these investment channels:

The Stock Market

If you’re looking to diversify your investment portfolio, it might be time to invest a large chunk of your 500K in the stock market. In fact, you might even have your retirement funds invested here through a 401(k) or Solo 401(k).

That said, it’s possible to diversify your investments and invest in index funds, stocks, and government bonds outside the preview of a regular retirement plan.

The medium? A brokerage account.

While this medium is excellent for DIY stock market investing, there are some caveats in the mix. First off, unlike traditional retirement plans, brokerage accounts don’t deliver tax benefits.

You can sell stocks and securities without risking a penalty with brokerage accounts, making them more liquid than retirement plans.

Although the stock market seems to hold lots of perks, the tide could turn when there’s an unexpected economic downturn.

Retirement Accounts

If we’re being technical, retirement accounts don’t rank as an investment. However, these accounts are your best bet to bolster your savings and solidify your financial stance pending when you leave the reins of duty.

While traditional brokerage accounts don’t offer tax subsidies, you get that with the retirement variation.

Since you don’t have to pay “capital gains taxes,” you have access to more funds.

Besides tax advantages, a retirement account wields more positives. With social security benefits becoming a shadow of its past self due to underfunding, it might come to a complete halt soon, leaving many stranded.

Therefore, to avoid impending doom, taking the “solo” route to funding your retirement is non-negotiable.

Starting a Business

With many passive asset classes available for profitable investments, starting a business might rank as the “round peg in the square hole.” However, this venture might be beneficial in the long run if you can commit the many hours required to be successful in starting a business.

With $500,000, you can start a business that could yield six figure revenues. That said, before you set something up, ensure to work with a financial advisor to give you the required perspective.

While investing with $500,000 might seem huge, putting the “Rome wasn’t built in a day” mantra at the forefront of your decisions is a must.

Consider small businesses like a laundromat or a car wash. Although these ventures might look small when you cut the “red ribbon,” you can grow them into an empire if you stick to the basics and are willing to put in the hours.

Unlike other investments, establishing a business from the ground up requires hard work and patience. If you don’t possess these crucial virtues, your start-up won’t stand the test of time.

Fixed Annuities

It might be time to look towards fixed annuities if you have an eye for profit-oriented investment forms. You can make this investment at an insurance company.

Annuities are great for those close to retirement. Some variations even offer up to a three percent ROI.

With annuities, you can access tax rebates and fixed monthly income. Here, your capital remains intact, and you’re confident of returns.

However, annuities have a significant con. During inflation, you might see your purchasing power reduced. When this happens, your annuities might not deliver on their purported returns.

Treasury Bonds

Treasury bonds are outstanding for those looking towards a safe and reliable investment alternative. Investing in bonds means you’ll receive a specific amount in interest until it matures.

Currently, there are four primary forms:

Treasury Bills

Treasury bills are short-term bonds that mature within a year. Sold with multiple maturity values, the most common variations are 4, 8, 13, 26, and 52 weeks.

Treasury Notes

Treasury notes are bonds sold with intermediate terms in the mix. These securities usually mature in two, five, seven, or ten years.

Treasury Bonds

These are long-term securities that mature within 20 to 30 years.

Treasury Inflation-Protected Securities

Technically Treasury Inflation Protected Securities (TIPS) are treasury bonds. However, this variation differs as it keeps up with inflation.

Despite coming off as great investments, treasury bonds pass through several penalties and restrictions before they mature.

Index Funds

If you’d like to know how to invest 500,000 in stocks without shouldering many risks, index funds might work the trick. While index funds pose minimal risks, the benefits make up for it.

The general rule is to diversify your stocks using reputable companies as cover. Here are some of the best index funds as indicated by Bankrate:

  • Fidelity ZERO Large Cap Index
  • Shelton NASDAQ-100 Index Direct
  • Invesco QQQ Trust ETF
  • Vanguard S&P 500 ETF
  • SPDR S&P 500 ETF Trust

 

Although index funds are excellent tools for portfolio diversification, it’s pertinent to note that you have no control over holdings.

High Yield Savings Account

With a high yield savings account, you’re eligible for a fixed income while your 500K capital remains safe.

High yield savings accounts don’t offer you great ROI values on index funds or stocks. However, the interest rates on these accounts are better than those on traditional savings accounts.

That said, the ROIs on high yield savings accounts are dependent on prevailing economic conditions. The money you get will increase in the season of plenty (good times). However, if there’s an economic downturn, your earnings will follow suit.

Crucial Factors to Consider Before Investing $500,000

Different strokes for different folks, they say. The same applies to making investments. Everyone has a unique need.

While contacting an investment advisor might be great, it’s critical to examine these factors circumspectly before you take that bold step:

Emergency Fund Availability

Before you invest 500K into a venture, having a fund set aside for emergencies is essential. Have you ever considered what would happen if you invest all these funds and encounter something serious like an accident or ailment before its maturity?

With an emergency fund, you’ll be able to settle urgent matters while your investment is safe, making decent dividends.

Value of Your Retirement Savings

How much do you have as retirement savings? As recommended by most financial advisors, try to save at least 15 percent of your total income towards retirement. This consideration is vital for those coming to the end of their working tenures.

While you can still key into other investments, saving creates a financial shell that protects you from uncertainties that might crop up in the future.

Major Takeaway

$500,000 is quite a steep amount of money to have. However, adopting a viable investment medium is advisable to ensure you don’t run through these funds as quickly as they came.

The real estate market indeed holds much potential with syndications and rental properties in the mix.

Despite its prominence, there are other proven alternatives to consider. Notable mentions include stocks, index funds and treasury bonds.

While taking that big leap might seem exciting, ensure you engage the services of a financial adviser for some crucial perspective. We can’t give 100 percent certainty on an investment due to varying levels of risk. Thus, adopting an investment strategy that reduces risks while giving you some optimal returns is crucial.

You’re halfway to hitting your first million. Remember, your decisions can either propel or repel this endeavor. Good luck!

Aaron Fragnito

Aaron Fragnito

Aaron has been helping people invest in Real Estate for over 10 years. He is a Co-Founder of Peoples Capital Group (PCG) a real estate investment and holding company. He is a full time real estate investor, as well as, the host of the New Jersey Real Estate Network and host of the Passive Cash Flow Podcast. Aaron has previously completed over 100 real estate transactions as a realtor and another 150 transactions in his current role as a real estate investor.

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