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NOTES FOR EPISODE 571: THE MILLION DOLLAR QUESTION
If a check for $1,000,000 arrived in your mailbox today, what would you do with the money? Spend? Invest? Donate? Surprisingly, this is a more common occurrence than most people would think. With high numbers of Baby Boomers and Baby Boomer parents passing away, inheritances are up phenomenally! Add to that real estate sales, business sales, stock market and crypto profits! In this special podcast, Bill interviews four previous Old Dawg Podcast guests who are both successful real estate investors and students/teachers of personal finance to see what they would do with a sudden one million dollar blessing.
What You Will Learn
- When investing one million dollars, why does your age matter?
- Why you shouldn’t settle for less than a 7% return
- Can Crypto be a safe investing avenue?
- What “investing slow” is and why it can be a good strategy
- Is the stock market a good place to invest today? If yes, what are the safest investments in the stock market?
- What is considered by all our guests to be the safest strategy for investing today
- How paying off debt can be a great cash flow boosting strategy
- What about Infinite Banking, Gold and Silver Mines and Passive Investing in Real Estate Syndications?
Introduction
Were doing something a little different for today’s podcast. Instead of inviting one guest on to answer a bunch of questions, I’m inviting a bunch of former guests on (4 to be exact) to answer just one question we’re answering a question. The question is: What would you do today if you suddenly received, generated or inherited $1,000,000? Now, I know when I was a kid, a million dollars was a lot — in fact it seemed like all the money a person would ever need. Well, thanks to our every growing inflationary economy, one million ain’t all that! But, for some people, it can certainly become all that with a few of the right investments.
Why did I ask this question? Probably because it is a situation that is happening more and more and is not all that unlikely a scenario. In fact, I would venture to say that there are a number of those listening hear to this podcast that have already faced just this exact situation.
- Inheritance:
- There are vast numbers of baby boomer’s parents passing away and leave inheritances
- Over the next decade, millennials are expected to inherit over $68 trillion from their baby boomer parents, according to an Oct. 2019 study from real estate firm Coldwell Banker.
- Real Estate
- Many who are listening and have been successful real estate investor have conducted transactions where they sold some real estate and received a check for $1,000,000 or more from the proceeds
- There are people who are not even real estate investors but have just sold a home where they have received a check for $1,000,000 plus (home owner’s cashing out on skyrocketing home appreciation
- Retirement Funds
- Retirees are cracking open their multi-million retirement next eggs and deciding what to do $1 million at a time
- Business
- Sold a business
- Stock options
- etc.
There are many people who have had or will have to deal with this question – What do I do with the money?
To answer this question, I invited four previous guests from the Old Dawg’s REI Network Podcast, who have both real estate investing and personal finance experience to give us their take on how they would invest and spend the money. They are Joe DiSanto, Coach Chad Carson, Josh Miller and Rachel Richards are all fairly recent guests that were asked to participate.
The million dollar question: What would you do today if you suddenly received, generated or inherited $1,000,000?
Joe DiSanto – “Crytpto, Maybe Stock Market and Personally-Owned Rental Real Estate”
Joe DiSanto built a multi-million dollar post-production company, produced critically-acclaimed films and an Emmy Award-winning TV show, invested millions of dollars in real estate, and semi-retired by the beach by the age of 43. Today, he shares a lifetime of fiscal know-how via Play Louder, an online resource that helps individuals and business owners increase their net worth and plan better for their future. Joe, What would you do today if you suddenly received $1 million?
- It’s a tough question, fun and would be an awesome reality.
- It depends on where you are in life:
- Young and just starting your career
- Doesn’t really have any money
- If you are older
- End of your working years
- Already has some money but not necessarily enough
- Young and just starting your career
- A million dollars doesn’t solve all your problems
- It isn’t like “Game over!” and you never have to think about money again
- Maybe it could be if you were a super F.I.R.E. (a movement that stands for Financial Independence Retire Early) person or super frugal
- You could probably move to South America and do pretty well on a million dollars for a while
- In America, however, it’s not like “retire on easy street”
- He struggles with the widely-held “retirement conundrum” concept as a personal finance advisor
- If you look at conventional retirement wisdom, retirement math, the basic gist is this:
- You save a pot of money – your nest egg
- You don’t spend that money
- You’re supposed to live off the “return” your generate from your investments with that money, which becomes your “income”
- You should be able to count on a 7% return*
- You take 4% for your spending money
- You keep 3% in you “nest egg” account so your account can keep up with inflation
- Looking at this formula in REAL MONEY – the $1,000,000 you just received – this is how it would look
- You have $40,000 in annual income (and that may even be “pre-tax”) which could be very hard to live on in the U.S.
- Most people would rather live on $100,000 income per year
- But to do that, you would need $2,500,000 saved up
- However, statistically, a very small percentage of people have that saved up
- Looking at this formula in REAL MONEY – the $1,000,000 you just received – this is how it would look
- * 7% return
- How he would earn that
- It would probably be in equities
- High ratio bond portfolio
- Combination of th two
- Could be in real estate
- Not single family – good for cash flow but not in retirement
- Safer than the market
- Alternatives
- How he would earn that
- You should be able to count on a 7% return*
- If you look at conventional retirement wisdom, retirement math, the basic gist is this:
- If you’re young, you can’t say you’re done
- He struggles with the widely-held “retirement conundrum” concept as a personal finance advisor
- It isn’t like “Game over!” and you never have to think about money again
- How I Would Invest the $1,000,000:
- Some of it (10%) would go into a variety of crypto currency
- If it happened today, I would be cautious of putting any money in the market – S&P is at an all time high – and a potential crash on the horizon
- I could either:
- Wait and see if the market takes a big hit and then put a lump sum
- Or invest intervals, like $200-300K
- I could either:
- The rest, I would put into personally-owned rental real estate
- Single family
- Up to four unit small multifamily
- I could get a lot of leverage with that
- I would be focused on the leveraged appreciation
- I have owned a number of single family homes and they paid off in terms of appreciation
- If I was older (close to retirement or in retirement)
- My thinking would be “How do I turn this into spendable cash now without burning it?”
- I would be focused less on equity-building and more cash flow oriented
- I would focus more on commercial real estate syndications for cash flow
- Single tenant triple net opportunities
- Medical office
- Also, might do dividend income on blue chip stocks
- If they do bad in the crash, split them
- “A million dollars is not the mega ball”
- It’s a decent amount of money
- But not enough to be on easy street
- The other option – “Just go have fun!”
- If you’re young, and you have lots of years to earn money
- Quit your job
- Do a sabbatical
- Travel the world for a year – Spend $100,000
- Get some awesome perspective, fun and ideas
- When you’re through, come back and invest the $900,000
- Maybe invest in a business
- If you’re older you could do that too but, I think you would need more – $2.5 million
- Or subscribe to International Living Magazine
- Move to Equator and live on $2,000 per month
- If you’re young, and you have lots of years to earn money
Link to his interview on the Old Dawg’s REI Network Podcast: 539: From Hollywood to Freedomhood With Real Estate Investing July 26, 2021
Coach Chad Carson – “Pay-Off Old Debt”
Chad Carson is an entrepreneur, writer, and teacher who used real estate investing to reach financial independence before the age of 37. Soon after achieving financial independence, he traveled with his wife and two kids to live in Cuenca, Ecuador for 17 months. Chad also wrote a best-selling book Retire Early With Real Estate, published by Bigger Pockets and hosts the popular podcast Real Estate & Financial Independence. Chad, What would you do today if you suddenly received $1 million?
- If he had $1,000,000 just show up, they would pay-off debt
- It would increase income
- It would reduce risk, especially if a great depression hit and rents had to be reduced
- If someone was just starting out
- He surveyed his audiences and most said most people they could cover their core expenses with $60-80,000 per year
- If you searched hard, found and paid $1,000.000 cash (take the conservative approach) for rental properties, you should be able to get a 6-8% yield to reach that $60-80K
- He recommends to not buy the properties all at once but to purchase over a 12 month period
- People could:
- Live off of the rental income
- Have a nice inflation hedge
- If they bought the properties in pieces (multiple houses, duplexes, fourplexes)
- They could later sell off properties here and there to generate some capital gains
- Use that capital
- Refinance to pull out some cash from debt
- Single family houses, if you bought in the right areas could appreciate better, can sell one at a time, rent them, refinance them
Link to his interview on the Old Dawg’s REI Network Podcast: 535: Real Estate Investing Made Easy
Josh Miller – “Invest Slow, Infinite Banking, Crypto, Gold & Silver Mines & Oil & Gas”
After 10 years as a data engineer for a fortune 3 company, Josh Miller left the corporate world to pursue full-time real estate investing. Utilizing his data skills, he acquired 120 rentals in 18 months and purchased/sold hundreds more. In 2019, he founded GoForClose.com to help fellow investors achieve the same success by providing them with a full service marketing agency to acquire off-market properties. Josh, What would you do today if you suddenly received $1 million?
- This exact situation has happened a couple of times with Josh and, with the most recent only a few months ago
- He’s 37 years old
- Has three kids
- Is financially free
- His situation will be different than a lot of other people
- His personal rules for this type of decision
- INVEST SLOW no matter how good it sounds
- If unsure, don’t invest!
- He would much rather to not invest than to invest in a bad deal
- Surround yourself with people that are smarter than yourself
- He belongs to a financial group that meets weekly
- Each week someone brings in a different deal and they all talk about the deals
- They treat their finances like a business
- Plug: Keith – FinancialJourney.life
- Christian guys
- Diversify
- Things are crazy right now
- He just listened to Jeremy Grantham, 83 years old
- He accurately predicted the market crash at 2007
- INVEST SLOW no matter how good it sounds
- How Josh recently invested $1,000,000
- Infinite Banking
- It goes through a life insurance policy that is going up in value
- It allows him to have liquid cash but still earning money
- He put $350,000 into his infinite banking policy
- He gets to choose from various Index Funds that he can invest in (typical S&P 500 – averages 9% over the last 20 years)
- It has a 0% floor on the investment, so if it ever hits 0%, it will immediately be sold – so the account will never go below $350,000
- He also has complete access to his cash at any time through a low interest (2.5-3.4%) loan
- Tax deductible
- It is new with the Covid relief bill
- You have to be careful who does it for you
- He goes with Jonathan at UnbridledWealth.com
- You also never have to pay the loan off as long as the account is earning interest (i.e. He gets 9% yield on Index fund, minus 3.5% on loan interest)
- Crypto
- Michael Saylor – Josh’s hero in the crypto world says, “You don’t have to invest all your money in Bitcoin, just the money you want to keep.”
- Everyone should get educated on Bitcoin
- Go on to YouTube, type in Michael Saylor and look for the series done with Robert Breedlove
- Gold or Silver Mines
- Infinite Banking
Link to his interview on the Old Dawg’s REI Network Podcast: 553: Passive Income With Under-Market Homes, Wholetailing, Landlording & Crypto
Rachel Richards – “Home down payment, real estate syndications, index funds, ETFs and travel”
At only 27 years of age, Rachel quit her job and retired, living off over $10,000 per month in passive income. Rachel has made a name for herself in the personal finance realm. She is the bestselling author of Money Honey and Passive Income, Aggressive Retirement. Her valuable lessons have helped thousands of female millennials work their way out of financial despair. Rachel, What would you do today if you suddenly received $1 million?
- She is looking at the question from a strictly personal standpoint
- Her and her husband are looking to purchase a home in Colorado, so that is part of the equation
- If you listened to her interview on the Old Dawg’s REI Network podcast, you’d know that they recently moved to Colorado from Kentucky (where most of their rental properties are located)
- Here is her breakdown of how she would use the $1 million:
- $100,000 down payment on a home
- $750,000 into real estate syndications
- She’s putting most of her money in real estate because we are going to see a lot of inflation and real estate is the best place to be during inflation periods
- $125,000 in the stock market
- Primarily:
- Index funds
- Vanguard or Fidelity ETFs
- Primarily:
- $25,000 just for travel and fun
- She’s usually not very good at rewarding herself and having fun
- She’s usually very disciplined and focused on her goals
- She had to do that
- Background
- Rachel and her husband wanted to create passive income
- So, they built up a portfolio of rental properties – 40 doors
- Earlier this year, however, they sold 34 of those units
- They currently only own 4 doors
- The reason they sold is two-fold
- Because prices are up and they wanted to capitalize
- They were also sick of being landlords and having to deal with all the hassles and problems
- When they got started, they really didn’t have any money
- They had to really scrimp to get down payments together
- They were hustling and were willing to work really hard on properties and even self-manage to make as much money as possible
- Today, they are in a different place
- They have a lot more money
- And when they heard about real estate syndications, that was more in-line with their passive income goals
- So, they shifted their strategy to liquidate most of their properties and invest in real estate syndications with the proceeds
- They realize that they may not be making as much money as they were before but that doesn’t matter because they value their time more than their money
- Before, they sought to make more money at the expense of their time – now, that has reversed
- Investing in Syndications
- Take, for example, a person or group, wants to purchase a $10 million apartment building
- But, for the sponsor/operator to purchase the building, they need to raise money from investors
- An investor gets the opportunity to be an equity owner of the apartment building (for as little as $50K and will earn monthly or quarterly payments as their share of the cash flow
- The investor does all the due diligence upfront and if they decide to invest, they put the money into the project
- Also, if the apartment is ever sold, the investor gets a cut of the profits
- You get all the same tax benefits, depreciation, and the K-1 tax form, as you would with your own rental properties
- The reason they didn’t do it in the beginning is that they didn’t have the money to invest, nor were they Accredited Investors
- Screening Syndicators
- She looks very close at the syndicator and the team
- You look for introductions from people you know and trust
- People who have invested with the syndicator before and had a good experience
- It shouldn’t be someone you find on Facebook or LinkedIn
- You look for introductions from people you know and trust
- She also looks for syndications that have strong cash flow
- It’s also a plus if it has the equity play later on
- She also knows that their “pro forma” or projections are just that – projections
- Questions you can ask:
- How many syndications have you done
- What is the worse syndication you you have ever done
- Have your investors ever lost money
- There is a great book she recommends: The Hands Off Investor by Brian Burke
- She looks very close at the syndicator and the team
- Holding money for the short term
- She recommends high-yielding online savings accounts
- Bill mentioned Groundfloor (see interview with the company’s CEO Brian Dally – episode 295) has an online account called Stairs, backed by real estate, that pays 4-6%, has no fees and you can withdraw anytime
Link to her interview on the Old Dawg’s REI Network Podcast: 433: Secrets of a 27 Year Old Retiree
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