Do you have $50,000 ready to invest? Maybe you worked years to save up this capital or maybe this is your play money for the month, either way, it’s important to invest that $50,000 wisely. In this episode, Aaron reviews three different investment strategies for bold, moderate, or conservative investors. Maybe you want to be hands-on or maybe you want to put your feet up and collect a check. Do you have the stomach to be a landlord, cryptocurrency trader, day trader, or prefer to trust experienced professionals with your hard-earned capital. Every person will have their own goals and determining those goals is the first step before investing any capital.
01:03 Have a strategy
02:35 Being active or passive
04:19 Buy a short-term rental property or vacation property
05:59 Turn key properties
07:10 Be aware
08:52 Real estate investment trust
10:39 Real estate partnerships
11:36 Mutual funds
13:02 Emergency fund
Aaron Fragnito: Ideally, if you don’t own any real estate, and you’re looking to get into real estate, in my opinion, a third of people’s wealth should be in real estate. If you look at the billionaires in the world, about 60% to 70% of their wealth is held in real estate. What does that tell you? If you want to be a billionaire, buy more real estate.
All right, ladies and gentlemen, welcome back to the Passive Cash Flow Podcast. I’m your host, Aaron Fragnito, and our topic today is How to Invest $50,000. I have people come to me all the time, they say, “Aaron, I worked hard to put $50,000 away to invest this capital. I have a couple options. I have a few places I want to put it. I have lots of different ideas. What should I do with this $50,000?” That’s what we’re going to talk about today on the Passive Cash Flow Podcast.
First of all, whenever you’re looking to invest your capital, you want to have a strategy. What is your strategy, and what is your stomach for risk? What type of investor are you? Are you a bold investor, this is a more aggressive investor. You’re going to take larger risks. Bold investors tend to be a little younger. I’m 35 myself. I’m a bold investor. I look for higher risk investments such as cryptocurrency, equity investments, equity and real estate, higher growth investment opportunities. That is where I prefer to invest.
There’s also moderate investors. Moderate investors are going to have more of a balance between higher risk investments and lower risk investments, however, you sacrifice gains with less risk. Moderate investors are going to be somewhere in the middle between bold and cautious investors. Cautious investors will be the bottom rung there, the ultimate low risk tolerance here, looking more for bonds, lower risk investments. These tend to be older investors or people more towards the retirement age.
You want to understand what is this $50,000 to you, have you worked 25 years to save up this $50,000? You might want to be a bit of a cautious investor with a tip of bold, because you want to grow it as well, or you have millions of dollars in assets, and this $50,000 is your play money. You might want to be a little bold with it, and you might want to try to grow something quickly with that investment. Also, another big factor here is, are you active, or passive?
Are you going to be hands-on, maybe flip a house, buy a fixer-upper, hire a contractor to renovate it, work with a realtor to find a fixer-upper, go through the process of maybe getting a bank loan, a hard money loan, managing a construction site, managing contractors, hiring a realtor to sell the property, dealing with buyers, dealing with sellers, dealing with transactions and contractors, being on the hook for the mortgage, personally guaranteed debt. That’s an active investor.
That’s someone who’s an active real estate investor, or maybe you’re actively picking stocks or actively picking mutual funds to invest in, you’re actively investing your capital through different cryptocurrencies day in and day out, maybe you have an active strategy and the time, the experience, and the know-how to successfully be an active investor. However, we’re going to take a pause here, because if you don’t know what you’re doing in that asset class, and this is your first run, don’t take your $50,000 and just– We’re going to learn, unless this $50,000 is allocated to play money, money you can lose.
If you lost it tomorrow, it would not affect your financial position. Hopefully, that’s this $50,000 we’re talking about. If it is and you want to learn how to flip a house, or you want to learn how to be a day trader, then go ahead and use it for that. That’s a very high risk investment, and really not a great long-term strategy. Okay, if you’re going to invest in real estate, you want to invest for professionals, experienced operators who know what they’re doing.
Same thing with stocks really, you want to invest with people that know what they’re doing in that space. Here’s another way to invest $50,000 and make cash flow. You can buy a short-term rental property or a vacation property. Now, as long as you’re not self-directing your IRA or solo 401(k), you can enjoy this property with your family and go on vacation, maybe a beach house or a ski house.
I have a ski house, I love going skiing at. We also rent it as Airbnb property and make cash flow on it when we’re not there. It could be a great combination, but again, this is an active position. My wife does the management. I own a bunch of real estate. I have the infrastructure, the back office, the bookkeeper, [unintelligible 00:04:56] to own real estate easily and manage it really hands off.
Since I have these resources in place, it makes it much easier for me to own and operate real estate. Make no mistake about it. Owning a vacation property and leasing it on Airbnb is a full-time gig. It is a hands-on gig. If you are doing multiple properties, it is a full-time gig, if you’re only doing one, it’s really not. If you’re doing multiple properties, it becomes very hands on.
A vacation property can, although you buy it to relieve stress, can end up creating stress. If you think it’s going to be easy to lease on Airbnb and not have to deal with the headaches of pleasing tenants who are on vacation for a short period of time, and pay a lot of money to rent your property, you better bet everything’s got to work. If the pipe leaks, you got to get a plumber out there that day.
It can be very difficult to manage short-term rental properties and vacation properties. It can also be a good place to invest your capital, because you’ll earn cash flow, ideally, equity growth over time, and tax depreciation as all real estate offers. Of course, you have turnkey properties. If you’re looking to invest $50,000 in real estate, turnkey properties is not a bad way to go.
You can hire a realtor, find and occupy a three-unit property in maybe a city near you, and hire a management company and manage it. You can buy turnkey properties and own them. They generally produce cash flow pretty quickly, and there’s a lot less work to be involved. You’re not renovating them. You’re not leasing them up. Keep in mind, owning real estate, whether it’s turnkey or a fixer-upper or a vacation property is management-intensive.
It is not an easy asset class management wise. Real estate, you need to know what you’re doing. It’s really not like a mutual fund or a bond or a stock necessarily. You’re running the company essentially, or you’re hiring a management company to manage that asset. Buying turnkey properties is easy, managing a three-family or a two-family property, it’s not rocket science. I’m sure you could figure it out. Even flipping a house, this is not rocket science, especially if you know construction.
At the end of the day, these are management-intensive options, and you’d want to be an active minded investor to invest in these recent options I’ve put out here. You want to be aware of, if you realistically have the stomach to be a landlord, have the time to be a landlord. Do you even want to be a landlord? It’s not a very grateful job. It’s a thankless job really, and it doesn’t pay all that well if you don’t have a bunch of property.
If you’re not looking to be a landlord, run around, and fix toilets, answer tenant calls, then you might want to be a passive investor, looking at real estate crowdfunding sites or real estate syndications. Peoples Capital Group is a real estate syndicate. What we do is, we pull capital together and our investors are completely passive. That means they don’t have to manage the asset day-to-day, they don’t have to secure the financing, they don’t have to look at tons of bad opportunities to find a well vetted good investment opportunity.
Then, of course, once we close on the property, they don’t have to manage the construction or renegotiate leases with tenants or improve the property. It earns top dollar and can refinance or it can be sold for top dollar. That’s all the operator’s job. When you’re investing in a crowdfunding site or a syndication, you’re hiring professional operators to run the asset for you. That’s really a smart way to invest.
We don’t go do our own surgery on ourselves. We don’t cut our own hair. A lot of things we do these days, we outsource to professionals. Real estate investing, real estate operations should be the same thing. Your hard earned capital should not just be thrown to the wind, investing in assets that are not professionally managed by good real estate operators.
Another way to invest passively in real estate without doing the day-to-day operations is a real estate investment trust. Now, real estate investment trusts are generally publicly traded. You can get into these investment opportunities for as little as a few hundred dollars. You can buy mutual funds that own real estate investment trusts. You can also buy privately traded real estate investment trusts that have different benefits.
However, this is generally a stock that’s backed by real estate. When the pandemic hit 18 months ago, the stock market just dropped out, if you recall, and REITs got hit by about 80%. If you owned a REIT that held a lot of office space, there was a complete panic on those REITs. Now, the truth is, the value of office space in America didn’t drop by 80% in four days. That’s not how real estate values work.
That is how the stock market works sometimes, and when it drops, it drops fast. Now, REITs have done well, they’ve produced strong dividends, they can grow over time as well. Generally, people invest in REITs for the cash flow. They produce about 8% to 10%, sometimes 12% dividends. You want to look for strong cash flowing REITs there, but also be aware that it’s not like owning real estate, it’s more volatile, and it goes up and down with the stock market. However, it is more liquid, so you can get in and out of the investment much more quickly than a real estate syndicate, where real estate syndicate, you may locked into the investment for a three to five year period.
There’s benefits to both being able to move out to the investment quickly, but also that leads to volatility. Real estate syndicates tend to be a better passive investment for people looking to avoid volatility that aren’t looking to stomach the woes of the stock market. That brings me to real estate partnership, so real estate syndicates, crowdfunding sites. These are operators, similar to Peoples Capital Group, where we can operate the asset and allow passive investors to get invested in the opportunity.
There’s other types of real estate crowd sites and real estate syndications, there’s real estate partnerships where you’re joint venturing with someone, maybe they’re doing the work, you’re bringing the capital. There’s lot of ways to skin the cat, as they say, with real estate investing, there’s active ways, there’s passive ways. You want to make sure you find the right fit for you.
Be realistic, do you really want to be a landlord? Do you have the means to do that, the time to do that, is that the best option doing it yourself, or investing with professionals? Is that a better option? Sure, you may have to share the pie a little bit more, but at the end of the day, you may actually earn a better return investing in a real estate syndicate with professionals operating the project, and operating the properties, than you yourself operating it, and having that learning curve all along the way.
Other investment options, if you’re looking to invest $50,000, we have mutual funds and ETFs. Mutual funds can hold a number of stocks, a number of REITs, so your ETFs as well, a great way to diversify over the stock market, and not have to be the mercy of picking the next winner or loser, and knowing which stocks to pick. You could just invest in mutual funds that are professionally selected stocks there. They tend to ride with the S&P 500 or something like that.
Again, you’re looking at the volatility of the stock market, but overall, the stock market does grow over time. You also want to check out robo-advisor services. These days, there’s so many services out there. There’s technologies that cost a few bucks that can help advise you on day trading. There’s different investment platforms that are free, that you can start investing on yourself.
Of course, you want to make sure what you’re doing here, but it’s good to have, be diversified with some capital in the stock market. Some monies in mutual funds, maybe specific stocks, or companies you really follow or really enjoy. I myself enjoy certain motocross and certain motocross companies, so I might want to buy stock in that, just to support that I like owning stocks in that case in companies you enjoy their product there.
Really, at the end of the day, you want to be diversified and you don’t want to necessarily be doing all your stock picks, if you don’t know [chuckles] how to do stock picks, because that can result in losses and weigh too much risk. A final way to invest $50,000 is to start emergency fund. Now, if you don’t have an emergency fund, it’s extremely important. You have a cash savings of six months, so that, if something happens, if you lost your job, lost your forms of income, you were able to survive on your savings for at least six months.
You want to have that cash available. Maybe you want to invest into your retirement as well. 401(k) plan, IRA, you can, self-direct your IRA into real estate. You can self-direct your IRA into lots of different asset classes. You can have a solo 401(k) that you self-direct into real estate as well. That’s a great way to have your nest egg, grow nest egg. Maybe it’s in the stock market, maybe it’s in real estate, maybe it’s in both.
You want to diversify that asset class, diversify your nest egg, and make sure you have that an IRA there, 401(k) over time, and you’re deferring those any tax gains, any tax ramifications there as well, great tax advantages to an IRA. Finally, we have bonds, and investing in bonds is a more conservative way to invest. You’re not going to make a great return there, but it’s a great way to beat inflation, or at least keep up with it, at the rate inflation’s moving now.
Of course, that’s more for conservative investors, perhaps, at an older age are going to enjoy bond options. The bottom line is, you want to have a combination of conservative investments, aggressive investments, higher risk for higher reward, but lower risk for lower reward, you want to be diversified. Depending on your position, your other investments, that’s going to drive how you’re going to invest $50,000, if you have to invest today.
Ideally, if you don’t own any real estate and you’re looking to get into real estate, in my opinion, a third of people’s wealth should be in real estate. If you look at the billionaires in the world, about 60% to 70% of their wealth is held in real estate. What does that tell you? If you want to be a billionaire, buy more real estate, go to peoplescapitalgroup.com, fill out a qualification form. We’ll see if we’re a fit.
You can learn more about passively investing in high demand apartment buildings with Peoples Capital Group, and that all starts at peoplescapitalgroup.com. I hope you enjoyed our presentation today about how to invest $50,000, and you go to our website to learn more. Have a great day.