Author Topic: Options for maximizing return from 100K?  (Read 8064 times)

StructureMan30

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Options for maximizing return from 100K?
« on: July 06, 2015, 01:05:32 PM »
My wife and I have been semi-mustachians for a few years now (after finding the MMM website it has kicked into hyperdrive). We are 30, without kids (about 2 years+ away still) and have zero debt and no mortgage. We maximize our retirement (both Roth and 401K) each year. Other than buying mutual funds, what are some good options for maximizing the return from 100k?

Financial.Velociraptor

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Re: Options for maximizing return from 100K?
« Reply #1 on: July 06, 2015, 01:31:47 PM »
You'll have to be more specific than "maximizing."  What are the risk criteria?  How long will the funds be invested?  Do you need to be able to access the funds periodically during investment period? 

The short answer is "probably" 80% in equity and 20% in bonds but there may be other considerations.

StructureMan30

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Re: Options for maximizing return from 100K?
« Reply #2 on: July 06, 2015, 04:47:53 PM »
Thank you Velociraptor. My risk tolerance is very high and I won't need this money anytime soon (10+ years). Sorry, what I mean by maximizing is are there options other than the stock market that would provide similar or a better rate of return? I have a plenty in the stock market (retirement) and would like to diversify. If needed I can increase or double the 100k. Maybe a franchise or a some way to invest directly in businesses? I'm new to this, my wife and I are big savers but know little about good options beyond that. 

Financial.Velociraptor

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Re: Options for maximizing return from 100K?
« Reply #3 on: July 06, 2015, 05:03:24 PM »
There is an entire subforum here at MMM for real estate investing.  You can earn leveraged returns that carry tax benefits that way.  I'm content to stick with the market but there are plenty who swear by REI.

forummm

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Re: Options for maximizing return from 100K?
« Reply #4 on: July 06, 2015, 05:13:29 PM »
Thank you Velociraptor. My risk tolerance is very high and I won't need this money anytime soon (10+ years). Sorry, what I mean by maximizing is are there options other than the stock market that would provide similar or a better rate of return? I have a plenty in the stock market (retirement) and would like to diversify. If needed I can increase or double the 100k. Maybe a franchise or a some way to invest directly in businesses? I'm new to this, my wife and I are big savers but know little about good options beyond that. 

Diversify? What funds do you own? If you own, say, VTSAX and VTIAX, you own about 9700 highly diversified stocks from around the world. That's what I would buy if I was given $100k today.

If you can find something that pays a higher return than stocks, it's because it's more risky and/or more work. There's no free lunch. You could get into real estate and leverage up. Again, more risky and more work.

innerscorecard

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Re: Options for maximizing return from 100K?
« Reply #5 on: July 07, 2015, 01:01:20 AM »
You may think your risk tolerance is very high, but it is likely to be the opposite. What did you do during the Great Recession?

Scandium

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Re: Options for maximizing return from 100K?
« Reply #6 on: July 07, 2015, 09:31:45 AM »
You may think your risk tolerance is very high, but it is likely to be the opposite. What did you do during the Great Recession?

These days I think "my risk tolerance is very high" is really codeword for "I want to earn more than the market and don't think anything will loose money"

tj

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Re: Options for maximizing return from 100K?
« Reply #7 on: July 07, 2015, 05:38:52 PM »
If you want to buy yourself a full time low wage job, then definitely purchase a franchise.

CanuckExpat

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Re: Options for maximizing return from 100K?
« Reply #8 on: July 08, 2015, 01:57:35 AM »
Do you live in the US, do you qualify as an accredited investor (net worth greater than 1 million , or joint income greater than $300,000)?
If yes, you might have more options open to you: private equity, investing directly in firms, crowd sourced real-estate, venture capital, etc.

I think you also have to define what you are looking for more clearly.

If you really just care about about return, and have very high risk tolerance, you could just go to a casino and put it all on a random number on the roulette wheel: it's risky and the average return is not great, but the upside potential is huge ($100k to 3.6 million). I doubt that is what you have in mind, though it seems to meet your criteria the way you have posed it.

SpicyMcHaggus

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Re: Options for maximizing return from 100K?
« Reply #9 on: July 08, 2015, 08:18:46 AM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

TheAnonOne

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Re: Options for maximizing return from 100K?
« Reply #10 on: July 08, 2015, 09:18:48 AM »
Do you live in the US, do you qualify as an accredited investor (net worth greater than 1 million , or joint income greater than $300,000)?
If yes, you might have more options open to you: private equity, investing directly in firms, crowd sourced real-estate, venture capital, etc.

I think you also have to define what you are looking for more clearly.

If you really just care about about return, and have very high risk tolerance, you could just go to a casino and put it all on a random number on the roulette wheel: it's risky and the average return is not great, but the upside potential is huge ($100k to 3.6 million). I doubt that is what you have in mind, though it seems to meet your criteria the way you have posed it.

+1

Vegas has higher returns than the market ever will. Though, the risk is high.

forummm

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Re: Options for maximizing return from 100K?
« Reply #11 on: July 08, 2015, 09:29:11 AM »
Buy a bunch of out-of-the money options on the stock of your choice. You could lose it all. You could make a fortune.

StructureMan30

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Re: Options for maximizing return from 100K?
« Reply #12 on: July 08, 2015, 02:43:05 PM »
You may think your risk tolerance is very high, but it is likely to be the opposite. What did you do during the Great Recession?

These days I think "my risk tolerance is very high" is really codeword for "I want to earn more than the market and don't think anything will loose money"

This is very true. Thanks for all the feedback, it appears the stock market and real estate (rentals) are the best options.

StructureMan30

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Re: Options for maximizing return from 100K?
« Reply #13 on: August 10, 2015, 04:53:50 PM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

tj

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Re: Options for maximizing return from 100K?
« Reply #14 on: August 10, 2015, 05:26:03 PM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

If you're nettting $1k, that is a 8% return. That is good. $1k rent with $700 mortgage, not so much.

SpicyMcHaggus

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Re: Options for maximizing return from 100K?
« Reply #15 on: August 11, 2015, 12:47:06 PM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

It should be. The hard work is finding the right house in the right area. Visit the landlording section for more info on that.

SpicyMcHaggus

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Re: Options for maximizing return from 100K?
« Reply #16 on: August 11, 2015, 12:48:25 PM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

If you're nettting $1k, that is a 8% return. That is good. $1k rent with $700 mortgage, not so much.

I don't follow your math.
Either way, you're gaining equity and tax shelter while making spending money. You sit on it long enough and can probably sell for a profit.

rmendpara

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Re: Options for maximizing return from 100K?
« Reply #17 on: August 11, 2015, 02:27:34 PM »
Most non-professional investors will do well in stocks/bonds only. Lots of people make money in other assets, but plenty lose money as well.

One area, mentioned above, is real estate... but that carries a LOT of risk... until you educate yourself. It's still risky, but you can mitigate a lot of that through learning how to evaluate property. Also, real estate investing is not passive. Hiring a property manager/agent will make it almost passive, but will eat into your returns. Great way for many people to build some wealth by allocating a bit of the assets to real estate, but don't blow yourself up. Learn. Read. Learn.

tj

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Re: Options for maximizing return from 100K?
« Reply #18 on: August 11, 2015, 10:54:44 PM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

If you're nettting $1k, that is a 8% return. That is good. $1k rent with $700 mortgage, not so much.

I don't follow your math.
Either way, you're gaining equity and tax shelter while making spending money. You sit on it long enough and can probably sell for a profit.

$12k annual profit on a $150k property is an 8% return on investment.

Scandium

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Re: Options for maximizing return from 100K?
« Reply #19 on: August 12, 2015, 07:16:37 AM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

If you're nettting $1k, that is a 8% return. That is good. $1k rent with $700 mortgage, not so much.

I don't follow your math.
Either way, you're gaining equity and tax shelter while making spending money. You sit on it long enough and can probably sell for a profit.

$12k annual profit on a $150k property is an 8% return on investment.

But if he has $1k rent, $700 mortgage with $30k down payments that's a 12% return on investment. Even better.

edit: assuming of course $300 profit, after repairs etc.

tj

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Re: Options for maximizing return from 100K?
« Reply #20 on: August 12, 2015, 08:50:37 AM »
Rentals. 3x 150k homes. Use the $ as down payment and initial repair fund. Make sure they generate 700-1500 each in net income. sit back, collect (if each makes 1000/mo) 36k net per year.

36% ROI. Not bad if you don't mind the work.

I don't mind the work. I assume you mean use 30K as a down payment on each property. Is getting 1K from renting a 150k house reasonable?

If you're nettting $1k, that is a 8% return. That is good. $1k rent with $700 mortgage, not so much.

I don't follow your math.
Either way, you're gaining equity and tax shelter while making spending money. You sit on it long enough and can probably sell for a profit.

$12k annual profit on a $150k property is an 8% return on investment.

But if he has $1k rent, $700 mortgage with $30k down payments that's a 12% return on investment. Even better.

edit: assuming of course $300 profit, after repairs etc.

I'm not really understanding how you got to 12%. The down payment isn't what you invested in the property unless you live somewhere where the lenders can't come after you.

Scandium

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Re: Options for maximizing return from 100K?
« Reply #21 on: August 12, 2015, 09:33:35 AM »

But if he has $1k rent, $700 mortgage with $30k down payments that's a 12% return on investment. Even better.

edit: assuming of course $300 profit, after repairs etc.

I'm not really understanding how you got to 12%. The down payment isn't what you invested in the property unless you live somewhere where the lenders can't come after you.

Why not? $30k is what he has invested, not $150k just because that's the price of the house. $120k of it isn't his money. If, after expenses, mortgage etc he has $300/month in profit, that is $3600/year on $30k invested = 12%.

I don't see why it matters whether or not the lender can come after you? That sounds more like a risk consideration, with no impact on the return. I don't do RE myself, but it's my understanding many do an LLC so that the bank would take the rental, but have no claim to your personal assets.

tj

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Re: Options for maximizing return from 100K?
« Reply #22 on: August 12, 2015, 09:42:44 AM »
Quote
$120k of it isn't his money.

Then you need to consider the entire mortgage payment as an expense. You can't have it both ways.

SpicyMcHaggus

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Re: Options for maximizing return from 100K?
« Reply #23 on: August 12, 2015, 10:25:58 AM »
Quote
$120k of it isn't his money.

Then you need to consider the entire mortgage payment as an expense. You can't have it both ways.
What?
ROI is  [net profit]/[net investment],  or [annual net rent]/[down payment]

that's [$12,000]/[$30,000]

You can get picky and start talking about upkeep, water bills, repairs, etc, but if you're foreclosed on, you lose the house and take the credit hit; I've not heard of anyone being sued after foreclosure. How about don't buy too much house? If you can afford it on your own, this isn't even a problem.


tj

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Re: Options for maximizing return from 100K?
« Reply #24 on: August 12, 2015, 10:32:47 AM »
Quote
$120k of it isn't his money.

Then you need to consider the entire mortgage payment as an expense. You can't have it both ways.
What?
ROI is  [net profit]/[net investment],  or [annual net rent]/[down payment]

that's [$12,000]/[$30,000]

You can get picky and start talking about upkeep, water bills, repairs, etc, but if you're foreclosed on, you lose the house and take the credit hit; I've not heard of anyone being sued after foreclosure. How about don't buy too much house? If you can afford it on your own, this isn't even a problem.

If you could afford it "on your own", then you would be investing $150k in a $150k property. It's not a "30k investment".

It's like I just sold my condo for $210k cash which was getting $1500 rent. A family member thinks that is a good 7% investment for the buyer, well no. Because you have $250/mo hoa fees,  $175/mo property taxes, and after your expenses,  you're down to 5% or perhaps less with vacancies and repairs, if you use a management company etc.
« Last Edit: August 12, 2015, 10:34:27 AM by tj »

Scandium

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Re: Options for maximizing return from 100K?
« Reply #25 on: August 12, 2015, 11:08:20 AM »
Quote
$120k of it isn't his money.

Then you need to consider the entire mortgage payment as an expense. You can't have it both ways.

Yes, I did. That's why I said $300 profit. I.e. after expenses and mortgage costs. And in reality it would only be interest costs that are an expense, as the principal comes back to you as equity, but I chose to ignore this.

A $120k loan at 5% will be almost $650 a month, so with $1k/month in rent he'd probably not clear $300 in profit, but that's secondary to the discussion. Say he got high enough rent to have $300 in pure profit. With a $30k down payment that's his investment. The $3,600/$30,000=  12% return, plus the principle payments.

Now, I  haven't been able to find RE in this area that would give any return like that. But the theory is the same for lower returns.
« Last Edit: August 12, 2015, 11:10:05 AM by Scandium »

SpicyMcHaggus

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Re: Options for maximizing return from 100K?
« Reply #26 on: August 14, 2015, 09:09:52 AM »
Sorry, TJ; still disagree.

example: I purchased my house for $122k. I only put 6k down.
I have the bottom rented for $695, and the upper for $795.
my mortgage payment is $1130
water bill averages $55

That's $1490 income, $1185 expense. = $305 / mo net profit.  could be more if i refinance and get to 25% equity.
over 12 months, that's $3660.  Considering it only cost me $6k out of pocket, then the return is $3660/$6000.  = > 50%
this doesn't account for upkeep, forwhich I have no average yet. After owning the house a few more years, I will have a better idea what that is. Aside from some sewer issues (fixed) and a garage roof that I still need to reshingle, it has been good.

tj

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Re: Options for maximizing return from 100K?
« Reply #27 on: August 14, 2015, 09:46:17 AM »
Sorry, TJ; still disagree.

example: I purchased my house for $122k. I only put 6k down.
I have the bottom rented for $695, and the upper for $795.
my mortgage payment is $1130
water bill averages $55

That's $1490 income, $1185 expense. = $305 / mo net profit.  could be more if i refinance and get to 25% equity.
over 12 months, that's $3660.  Considering it only cost me $6k out of pocket, then the return is $3660/$6000.  = > 50%
this doesn't account for upkeep, forwhich I have no average yet. After owning the house a few more years, I will have a better idea what that is. Aside from some sewer issues (fixed) and a garage roof that I still need to reshingle, it has been good.

Fair enough, it sounds like that works out for you, but $6k isn't a huge chunk of $$, if you were to have $100k-$200k to invest, you would need to find enough properties to scale that up, or if you paid $122k cash, you'd be aroudnd 14% which is rather good, but not 50%.

But the scary thing about your numbers is that a lot of your annual profit could be wiped out if you have to replace an appliance like an air conditioner or whatever.
« Last Edit: August 14, 2015, 09:48:41 AM by tj »

Retire-Canada

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Re: Options for maximizing return from 100K?
« Reply #28 on: August 15, 2015, 09:43:49 AM »

But if he has $1k rent, $700 mortgage with $30k down payments that's a 12% return on investment. Even better.

edit: assuming of course $300 profit, after repairs etc.

Not specifically in response to this post, but in response to all the calculations of RE returns you need to deduct the opportunity cost of all the hours that get spent on managing the properties vs. doing other paid work.

If I spend 15hrs/month keeping my 3 rentals running smoothly and I can make $50/hr at what I do for work that's $750 or $250/property in opportunity cost I am giving up that needs to be captured.

Unless your time is worth nothing to you.