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How to invest $500k in real estate

by Corben Grant on 27 Apr 2022

When it comes to real estate, the more money you have, the more options you can find for investing. For those with less money even, there are still options to take advantage of the real estate market to grow your wealth, however, it helps to have a bit more to get started with.

Let's say you have $500,000 and are looking to invest. Be it from savings, other investments, or a large windfall like an inheritance, that's a lot of money to work with so it's important you make the right decisions. You could very easily spend half a million dollars faster than you realize and be broke before you know it, or, you can invest your money wisely and see it grow even further.

There are many options to invest in – the stock market, mutual funds, cryptocurrency, exchange-traded funds, and more. But real estate is one of the most popular options for investors for its unique benefits.

In this article, we will answer the question: "How should I invest $500k in real estate?" and give you some ideas of what options might be best for you.

Why real estate?

Real estate has long been considered a very wise investment. People love investing in real estate because it allows them to grow their money easily while maintaining a lot of value in the long term against market fluctuations.

Though real estate can be volatile, it is much more stable than something like the stock market. More importantly, it offers a place for people to live and work and find entertainment which is fundamental to our society that the demand for real estate is almost completely future-proof (unless the metaverse really takes off).

Large financial requirements can be the biggest barrier to investing in real estate

Why don't more people invest in real estate? Well, they do. Every year more people are looking to add real estate to their investment strategy, especially with our current economic conditions. For those that don't invest, there is usually a single factor that limits them – the money.

Real estate is more expensive than most other assets and all those benefits can be hard to access to their fullest potential if you can't reach the financial requirements.

The good news for you is that you have $500,000. With that amount of money, you have nearly all avenues of real estate investing open to you to try out, from the smallest of REIT investments all the way to large commercial properties.

Don't put all your eggs in one basket

While there are many options for low-risk investments in real estate, no investment is ever guaranteed to perform. And, with so many great options in real estate, why not try out a few? With $500,000 you have some wiggle room to diversify your investment portfolio, improve your overall risk tolerance and benefit from growth in multiple different real estate segments.

For example, you could mix active and passive investing by managing a rental property and owning a stake in a real estate fund. Or, you could enter into both the commercial and residential side of real estate for each segment's different benefits. You could buy property in multiple different cities or towns or you could simply buy two properties of the same type and double your cash flow potential.

Options for investing in real estate

Residential real estate

$500k will cover a significant amount of a down payment for a home or even allow you to purchase a home outright in many areas of the country. This could be a home for your own residence or it could be a rental property.

Personal residence vs, rental property

If you buy a home to live in, you get the obvious lifestyle benefits as well as potential equity growth that can mean a large profit down the line (and remember, primary residences are exempt from capital gains taxes.) A rental offers the same equity opportunities, but also can allow you to collect cash flow while you own. This can help offset the carrying costs and once you've covered your housing expenses it becomes pure profit for you.

Buy in cash or finance?

As mentioned before, you could potentially afford a residential property outright, but should you? Buying in cash is nice because it saves you the hassle of securing financing and allows you to have full ownership of your home right away. However, it also limits your options. For one, homes under $500,000 (even if you don’t account for closing costs) are becoming increasingly rare. At the same time, owning equity does not do much for you until you sell or take out a line of credit, so your money will be tied up in the home. Instead, you could choose to finance and keep some of your money for other more liquid investments or look into financing multiple rentals and have better access to continuous cash flow.

Commercial real estate

Commercial real estate is an area that takes a bit more money to get into and can be a very different type of investment to manage, but there are so many options for those with money to invest.

Commercial real estate covers many different property types, from multifamily buildings to industrial, commercial, office space, and more. Each property type will offer its own benefits for investors. For example, multifamily buildings are a lot like residential rentals, but with much larger cash flow potential. On the other hand, something like a retail or office space can offer the benefits of long-term leases (up to 10 years in some cases), which means steady and consistent income.

If you don't want to manage your own investment property, you can even offload a lot of your properties needs to a property management company or a tenant and enjoy a much more hands-off experience.

Other ideas

As we mentioned earlier, your options at this price point are numerous. Here are a few more you could consider:

  • Become a lender to other real estate investors
  • fund a real estate development
  • Purchase vacant land to build upon
  • Invest in a real estate fund or crowdfund for passive growth
  • Closing thoughts

Every investment comes with some risk, so it’s crucial that you understand where your money is going and what it can do for you. However, if you don't know what your options are, you may be leaving money on the table.

I hope you now have a better idea of some of your options for investing up to $500,000 in real estate, however it doesn't end here. For such a large sum of money, you should definitely consider speaking to an investment planner or qualified financial advisor to get the best information for your specific circumstances. Good luck with your investing!

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