Best way to invest $40,000

[Steamfitter]

Ok so I have an extra $40K and I would like to invest it. My t4r is my only debt. I was thinking about buying an investment property and having it rented out (my city is growing rapidly, but houses in a good area are already very expensive), or just investing it long term into dividend-paying blue chip stocks to get a retirement fund going (in case I live that long haha...) I would start a business or something but I don't think I have it in me. Any advice?

 

[kenski]

I really feel real estate is the way to go. I think you're on the right track with the apartment idea. Put the 40k into a down payment, and let the tenants pay your mortgage. Build up some equity and cash out / trade up to a larger property. Rinse and repeat. With a little bit of luck, and a lot of research, and the right timing, this can take you a long way. Most, if not all real estate tycoons started off with a modest property and worked up from there. Good luck, and try your best to resist the urge to invest in 40k worth of suspension, armor, and fancy doodads for the 4R.

 

[KidVermicious]

Managing tenants can be an utter PITA.

Why not pay off the 4Runner, and then take the money you would be plowing into car and interest payments and invest that in a Roth? I'd think you'd be ahead in the long run.

 

[Steamfitter]

Managing tenants can be an utter PITA.

Why not pay off the 4Runner, and then take the money you would be plowing into car and interest payments and invest that in a Roth? I'd think you'd be ahead in the long run.

I agree about the tenants. I would be using a property management company were I to do this. I might not even be living in this city a year from now. I'm not sure if the real estate is worth it given that 1) I think the markets are overheated 2) interest rates will likely rise and 3)the costs associated with a property management company. All that aside, I am looking at a blue chip area by a university, in a fast growing city. Tough call, but the thing is, our real estate prices have more than doubled in the last 8 years, and the profit margins are slim on the good areas. They also want a huge down payment for investment properties... It's a complicated equation if you actually think and want to plan it out, most people here are greedy flippers/realtors or out of province millionaires all looking for a quick buck.

My 4runner is financed at 1.9% over 5 years. Yes I could pay it off (mostly) with that $, otoh, avg inflation in Canada is about 1.6% and I was advised it would be good to invest it over that time. But you can't lose with paying down debts.

As for a Roth, I live in Canada so we have rrsp's and tfsa's, I'm not sure which is equivalent.

 

[LandCruiser]

10k high roller suite.

10k worth of food and boze.

20k worth of hookers.

 

[KidVermicious]

I agree about the tenants. I would be using a property management company were I to do this. I might not even be living in this city a year from now. I'm not sure if the real estate is worth it given that 1) I think the markets are overheated 2) interest rates will likely rise and 3)the costs associated with a property management company. All that aside, I am looking at a blue chip area by a university, in a fast growing city. Tough call, but the thing is, our real estate prices have more than doubled in the last 8 years, and the profit margins are slim on the good areas. They also want a huge down payment for investment properties... It's a complicated equation if you actually think and want to plan it out, most people here are greedy flippers/realtors or out of province millionaires all looking for a quick buck.

If you're planning on using an management company, plan on breaking even, at best. You'll have a tenant that doesn't give a shit about your property and a management company that doesn't care either, and you can expect any meagre profit you might get back from the management company to be soaked up in the repairs and refinishing that'll be necessary between tenants.

If you want to do this, maximize your profit by purchasing a fixer-upper for well below market value, put in the work yourself, and then forget the management company - interview the potential renters yourself. Price the rental high to weed out the dirtbags, and then be very very picky who you end up renting to. It'll save you money in the long run if you wait to find the responsible renter. It's effort on your part, but money ain't free. Real estate is not something you can just throw money at and walk away and wait for it to grow. Successful real estate investing is actually one of the hardest ways to make your money make money, although the returns can be good if you get good at it.

Oh, and get a lawyer who specializes in representing rental owners to advise you. Very important.

 

[KidVermicious]

10k high roller suite.

10k worth of food and boze.

20k worth of hookers.

Go for the 10k hooker and 10k in cocaine. Trust me.

 

[Steamfitter]

Managing tenants can be an utter PITA.

Why not pay off the 4Runner, and then take the money you would be plowing into car and interest payments and invest that in a Roth? I'd think you'd be ahead in the long run.

If you're planning on using an management company, plan on breaking even, at best. You'll have a tenant that doesn't give a shit about your property and a management company that doesn't care either, and you can expect any meagre profit you might get back from the management company to be soaked up in the repairs and refinishing that'll be necessary between tenants.

If you want to do this, maximize your profit by purchasing a fixer-upper for well below market value, put in the work yourself, and then forget the management company - interview the potential renters yourself. Price the rental high to weed out the dirtbags, and then be very very picky who you end up renting to. It'll save you money in the long run if you wait to find the responsible renter. It's effort on your part, but money ain't free. Real estate is not something you can just throw money at and walk away and wait for it to grow. Successful real estate investing is actually one of the hardest ways to make your money make money, although the returns can be good if you get good at it.

Oh, and get a lawyer who specializes in representing rental owners to advise you. Very important.

Hmmm very good points. The guys I know personally who are very pro real estate either are realtors themselves or have no money to invest themselves. Before things boomed here it would've been great, currently we have price and property taxes of a city 4 times our size.

 

[KidVermicious]

Hmmm very good points. The guys I know personally who are very pro real estate either are realtors themselves or have no money to invest themselves. Before things boomed here it would've been great, currently we have price and property taxes of a city 4 times our size.

Haha, exactly. Guys who don't know what they're talking about, and guys who make their money selling property to guys who don't know what they're talking about . Reminds me of the Alaska gold rush - you know who made the most money during the gold rush? The man selling whisky and shovels.

Don't get me wrong, I'm not down on real estate as an investment. I just know that if I had 40k I wanted to invest and forget about (I don't ), real estate isn't where I'd put it.

 

[kenski]

If you want to do this, maximize your profit by purchasing a fixer-upper for well below market value, put in the work yourself, and then forget the management company - interview the potential renters yourself. Price the rental high to weed out the dirtbags, and then be very very picky who you end up renting to. It'll save you money in the long run if you wait to find the responsible renter. It's effort on your part, but money ain't free. Real estate is not something you can just throw money at and walk away and wait for it to grow. Successful real estate investing is actually one of the hardest ways to make your money make money, although the returns can be good if you get good at it.

Blood, sweat, and tears. Definitely the way to go. I don't go through a mgmt co. I only rent out to friends, coworkers, and their friends. It's time consuming, and, like you said, PITA. Spent many weeknights driving across town to repair something. Spent many a Sundays sitting through an open house trying to sell a property. I'm not a real estate agent, but my sister is a broker, and she'll handle all the back-end paperwork for me if I do all the up-front work myself. It CAN be a set-it, forget-it investment. But more profitable if you put time and effort into it. In the end, even if you go through a mgmt co and break even, I still think it's worthwhile in that you walk away with a deed that was paid for by someone else. Not a quick turn around, but a worthwhile investment.

If you are looking for a complete "forget about it" investment, I'd go with mutual funds. Let someone else manage your money for you at a nominal service charge. It'll probably be the safest $30k you invest.

(I went ahead and subtracted the 10k cocaine recommendation mentioned earlier.)

 

[Quatre Coureur]

Warehouse and an automated hydro-ponic system. :madgrin:

 

[1engineer]

40K? Safest bet with highest return potential and least amount of work is mutual funds. Get 8-10% back and jut keep it in until you want something else. Flipping houses or having tenants is a lot of work with a lot of risk but has a much higher potential rate of return. Whoever said pay off your 4Runner at 1.9% must be joking. Hmmm, pay off 1.9% loan or make 10% with that same amount of money....

 

[kenski]

I believe the payoff was recommended before the interest rate was disclosed.

 

[MtnT4R]

+1 on the mutual funds. You will be kicking yourself if you buy RE and suddenly find you need liquid assets to pull your ass out of a tight spot. Personally, I'd keep that in cash until the fed announces its going to stop pumping money into the economy, wait for stocks to plummet for a month or so, and then dump it in. You'll get a little more bang for your buck, and then enjoy skyrocketing interest rates.

The guys who were buying more and more as the market went to sh*t in 08/09 are sitting fat and happy right now. Im pretty jealous, to be honest

 

[KidVermicious]

Why is that a joke? I don't think you understand what the word "debt" means. The way debt is supposed to work is, you pay it back. Except the entire banking industry is dedicated to taking money out of your pocket by convincing you that it's better not to pay that debt off. There's a whole subsection of our Western society that lives parasitically off the backs of the working man by fooling that man into thinking he needs a $40,000 truck when a $10,000 truck will do, and that he needs to go into debt to acquire that truck instead of waiting and paying cash for it, then fooling him into thinking that making interest payments is better than not making interest payments.

Hell yes, pay it off. Debt is evil.

 

[eddiebx]

Why is that a joke? I don't think you understand what the word "debt" means. The way debt is supposed to work is, you pay it back. Except the entire banking industry is dedicated to taking money out of your pocket by convincing you that it's better not to pay that debt off. There's a whole subsection of our Western society that lives parasitically off the backs of the working man by fooling that man into thinking he needs a $40,000 truck when a $10,000 truck will do, and that he needs to go into debt to acquire that truck instead of waiting and paying cash for it, then fooling him into thinking that making interest payments is better than not making interest payments.

Hell yes, pay it off. Debt is evil.

It really depends on the interest rate...obviously if you have a high interest debt like a credit card, you want to pay that off ASAP. But in OP's case his interest rate is pretty close to the rate of inflation, so essentially it's a "free" loan. I mean sure if OP's plans were to keep his 40k cash in the bank earning 0.05 % APR for the next few years it would make more financial sense to just pay the loan off, but he's planning to invest it. If he invests wisely, all he needs to do is be up ~2% per year in order to break even, and any more than that is just profit. It basically comes down to, if you have something better to do with your money, then why not do that instead

 

[MtnT4R]

^ agree. IF you have the cash on hand; take the amount of the remaining balance of the loan, and put it instead in a mutual fund making 10%, the money generated would essentially pay for the interest owed on the auto loan. 10% earned, less 1.9% owed, gives you an overall net gain of 8.1%, while also paying off your T4. I would take that deal any day

 

[bagelsjustbagels]

As someone working in the Financial advising department of John Hancock, with an investment advisor would be my best answer! because that money can make more money!

if you'd like to discuss this more please message me, but essentially you need to evaluate your risk/reward tolerance, and then figure out which best meets your tax bracket and go from there.

 

[Lineman]

Number one is pay off the Runner. Become debt free first.

 

[Jumpkix]

Managing tenants can be an utter PITA.

Why not pay off the 4Runner, and then take the money you would be plowing into car and interest payments and invest that in a Roth? I'd think you'd be ahead in the long run.

I agree 100%.