How I Would Invest One Million Dollars into Rental Properties

I love thinking about money and all the freedom and choices a lot of money gives you. If I suddenly had a rich uncle die and leave me one million dollars free and clear; how would I invest it? I love rental properties and the returns they provide so lets see how many rental properties someone could buy with one million dollars in cash. You could buy the rental properties with all cash, but the cash on cash returns would be less. You could try to finance all the properties but as you will see that probably will not be possible due to banking guidelines. Let’s take a look at how many rentals you could buy and what the returns would be with one million dollars to invest. Here is a great article that goes through how to create one million dollars through investing a modest amount into rental properties.

Why would I invest the one million in rental properties?

I own ten rental properties and they give me over $5,000 in cash flow every month. That is $5,000 is after expenses and accounts for maintenance and vacancies that may come up in the future. I bought all my rental properties in the last 3.5 years and I obtained a loan on each of them. I have invested between $ 280,000 to $300,000 into the rental properties and that $5,000 a month equals a 20 percent return on my money. I am being very conservative with that $5,000 a month in income, I am actually making more than that, but I am assuming my properties will have some vacancies and repairs needed in the future. That 20 percent return does not include equity pay down, appreciation or the tax benefits that come with rental properties.

Paying all cash for rental properties with one million dollars

The rental properties I like to buy cost from $80,000 to $130,000. They usually rent from $1,200 to $1,400 dollars and require varying amounts of repairs. The cheaper homes usually need the most work. Assuming I could buy properties for $100,000, I could buy 10 rental properties for cash. I get $500 or more cash flow on my rental properties now, but I have loans on my properties (except for rental property one which I recently paid off). Without a loan on my properties, the cash flow would rise to $850 to $950 a month. If I bought 10 rental properties for cash at $100,000 each, I would make about $100,000 a year from cash flow.

How many rental properties could you buy with one million dollars and a loan?

I am able to buy many rental properties with loans from my portfolio lender. I have to put 20 percent down on the purchases and my portfolio lender will give me as many loans as I can qualify for. Assuming I could qualify for as many  properties as I wanted, I could buy a lot of properties with one million dollars. I talk about how much money is required to buy a rental property in this article. Lets assume I can buy a rental property with $30,000 in cash, which includes the down payment, closing costs and repairs. If I had one million dollars to invest in a rental property with a loan and it takes $30,000, then I could buy 33 rental properties. If I was able to cash flow $500 on each property, then I would make $199,000 a year. However, for most people it is not possible to buy 33 properties with a loan all at once.

Why would it be difficult to get a loan on 33 properties?

In order to get a loan, you must have more than the down payment and money for closing costs. A lender will want to see six months in reserves (reserve usually means mortgage payment plus taxes and insurance) on every mortgage you have. That could equal over $100,000 in cash needed if you have over 30 mortgages. You would have decrease to the amount of properties you bought by 3, to keep enough reserves for the rental properties (assuming you have no mortgage on your personal house). The other issue you will run into when trying to finance a lot of properties is many banks will not finance more than four or more than ten properties. I am lucky that my portfolio lender will, but they still make me qualify for loans. Check out these articles for more information on how to finance more than four and more than ten mortgages. A lender will look at your debt to income ratio when deciding if you can qualify for a loan. Rental properties produce income, but many banks will not count that income on rental property right away and some banks will not count any of it until it shows up on your tax return. Depending on how much money you make, you may be able to qualify for one, five, ten or no mortgages on a rental property, even though you have one million dollars in the bank.

Finding many great rental properties at one time is not easy

When I buy my rental properties, they have to be great deals with great cash flow. These properties are not easily available and I have to be very patient to find great rentals. I always buy my rental properties below market value and it may be months before I see a potential rental property on the MLS that will meet my criteria. If you wanted to lower your potential returns to buy many rental properties at one time, that may be possible. I would want to continue to try to get the best rental properties I could, and there is no way I could buy 30 properties or even 10 right away. Even though it would be awesome to get one million dollars to invest into rental properties, it would not be realistic to think I could invest all that money at once and start receiving $100,000 or $200,000 a year in income. It would most likely take me a couple of years to find enough properties to invest one million dollars into, provided I was getting loans.

Conclusion

On the surface it would be pretty awesome to get one million dollars to invest in rental properties. Realistically, it would not make sense to dump all that money in to rental properties at one time. I would continue to look for those great deals that produce the great returns and they do not come along that often. Don’t get me wrong, I would still love the freedom and choices that one million dollars would give me. It would increase the amount of properties I could buy and give me plenty of money to use in my fix and flip business. If you were just starting out buying rental properties, the smart thing may be to finance a couple, pay cash for a couple. Then establish the rental returns for a year so you could qualify for more loans. Possibly refinance some of the cash purchases and continue to buy more properties every year. Unfortunately the way the banking works operates today, it would be very tough to go out and buy 30 properties with 30 mortgages.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

19 thoughts on “How I Would Invest One Million Dollars into Rental Properties”

  1. This is something i also am seriously considering. I wont get into details but i was injured in a police pursuit. I am not the bad guy. But i sm potentially going to recieve around 3 million after my lawyer gets his cut. I am thinking of spending around 750,000 on buying rental property outright with no loans. Duplexes that are in good condition. All are occupied, rent would give 7,200 per month. In essence i will have made the investment back within 9 years. I have an advantage over many landlords in that i am very hands on and can fix any electrical, plumbing, hvac, or carpentry issue myself. I already also own all the tools for said maintenance. Does this sound like it would be a sound investment for me? I live a simple life, have no car or house payments, i have no desire for cars or huge houses. I dont even want or have cable tv.

    • This sounds like a good investment, but I would not jump into it without learning your market and how to get a good deal. There will also be expenses like property management, taxes, maintenance and vacancies.

  2. hello mark,
    i live saudi arabia and thinking about investing in my country ,
    i have more than 13,000,000 million dollars and I’m young 21 years old
    what are your ideas in investing ?
    thanks

    • You are in an awesome position and good for you for wanting to invest the money. I know nothing about real estate in Suadi Arabia, I would reserach your market and laws and see if there is opportunity there.

  3. I am actually in the situation of having almost 1M in cash and trying to decide what to do with it. I’ve been considering investment in rentals. It’s currently split 70/30 between non-retirement and SEP. Your info has been very helpful, looking at setting up several LLCs, one for the properties, and the other as a management company. Your info would be most helpful.

  4. I am 40 years old. Own 2 properties outright valued at $240 K and $200 K in FL. One is rented full time, one seasonal. I also own a condo in Chicago appraised at $675 K (I owe $330 K). I have $1,600,000 in a portfolio and an additional $150,000 in cash. Should I purchase additional rental properties?

    • A lot of that depends on where you want to buy, what kind of cash flow you can get, what your goals are and what your current cash flow is. If it were me then yes I would buy more, but we are all different.

  5. Hi Mark:

    I actually had this “problem” last year. I came into $1.1MM after the sale of some software and I chose to invest it in mutual funds.

    This year, I wanted to purchase some rental property. With a total net worth of $1.8MM, my wife and I could NOT qualify for a $75,000 loan for investment property due to our debt to income ratio…whereas we only have our primary home mortgage (10 year mortgage because we wanted to pay it down). We also have 770 credit score. She’s a teacher and I own my own business and we both live frugally on meager W2 earnings.

    It appears that when you have cash in the bank, this doesn’t make any difference when looking for financing. So this year, I had to make sure to increase my W2 stated income in order to qualify for 3-4 property loans in 2015.

    Having cash on-hand certainly helps with down payments, but I truly don’t want to use my cash to pay in full for rental property.

    The system is broken when something like this happens.

  6. I’ve enjoyed reading the posts on your site – lots of information. I noticed you always seem to be purchasing single family, have you ever looked at 4plexs or larger? I personally stay away from duplex/triplex’s as the pricing is emotional rather than rational – too many buyers want to live in one of the units and will pay a premium. However, at the 4plex level decent cap rates start to show up, at least in my area (Kitsap County, WA).

  7. Mark,

    Awesome article! We’ve all heard people say what they would do with a million dollars and I truly believe I would put almost every penny into rental investments.

    I am really enjoying all of your material and your story is inspirational. I do have one question that may have a different answer depending on which investor you ask:

    Should you put rentals on a 30 year mortgage to increase cash flow and help speed up the snowball method you use to pay off your earlier rentals one by one or should you put them on shorter mortgages to reduce the amount of interest being paid and pay it down quicker?

    Thanks in advance for your time!

    Alex Milani

    • Hi Alex,
      Great question. I personally prefer the most cash flow I can get so I go with a 30 year fixed. The interest rate difference between a 15 year and 30 year is not that great and I can definitely pay off one mortgage faster by putting all my cash flow into one house at a time. Plus if I ever need money for some reason I can funnel that cash flow into something else besides mortgage pay down. With a 15 year fixed you are stuck.

  8. Hey Mark,

    I’ve been soaking up as much information from your site, and it’s really good stuff. I just have one question; how would you calculation the appreciation of a home, versus the inflation of the dollar and apr on the mortgage?

    Maybe I’m missing something, or they aren’t actually relevant, but I keep coming up with the second value being more than the appreciation, rendering it useless. I’m sure it’s just a miscalculation somewhere, but any help would be great.

    Thanks!
    Nick

    • Hi Nick, I don’t account for appreciation since you can’t predict it. Historically I think houses have appreciated 5% a year over the last 50 years or something. It varies greatly in different locations.
      When you buy rentals it is a hedge against inflation. As inflation goes up so will rental rates, which will increase your returns against the cash invested. Your mortgage is also locked in if it is fixed and the rents will go up with inflation as well while your mortgage payments stay the same.

Leave a Comment