This article will answer that question with seven proven real estate investments, curated exclusively for the high-net-worth crowd.
7 Ways to Invest $1 Million in Real Estate
Here are the top 7 ways to invest $1 million in real estate. Each strategy offers its own pros and cons. And since your investment objectives may differ from those of other investors, these are listed in no particular order.
1. Long-Term Rentals
With $1 million, you have options in the buy-and-hold residential rental space.
You could, for example:
Purchase a single-family property for cash (or even multiple properties in some markets), giving you a debt-free, cash-flowing asset.
Make a 25% down payment on a multi-family residential property worth around $4 million, using debt leverage to control a higher-value asset.
Purchase a fixer-upper (with or without financing) and use some of the capital to renovate for added value before renting.
The Benefits of Investing $1 million in Long-Term Rentals
Potential tenant issues, such as property damage, noise complaints, late rent payments, or failure to pay rent
Cash reserves needed to cover unexpected repairs/replacements
Limited diversification potential
2. House Flipping
If you’d rather not tie up your cash long-term, house flipping enables you to get in and out of a deal more quickly, sometimes within a matter of just months. With flipping, you buy a distressed property, renovate it, and resell it as quickly as possible.
In many markets, $1 million is enough to cover the purchase price, closing costs, and renovation expenses on a single-family flip. In some markets, it may even cover multiple flips. And in high-value markets, you can use financing to bridge any gap.
The Benefits of Investing $1 Million in House Flipping
Full control over the design and execution of the renovation
The Possible Drawbacks of Investing $1 Million in House Flipping
Time-intensive (even if you don’t do the renovation yourself, you’ll need to closely monitor the progress by the contractors)
Lack of skill or experience can create problems and hurt profitability
Construction costs and labor shortages can impact returns
Limited diversification
Limited tax breaks
3. Build-to-Rent
Build-to-rent (BTR) involves developing a property from the ground up with the intention of renting it out (rather than selling upon completion). This strategy combines the short-term perks of new development with the sustained advantages of a rental holding.
With $1 million, you may be able to develop multiple single-family homes or even a small multi-family structure, depending on your local market. You might also leverage your $1 million to secure financing to develop a higher-value BTR asset.
The Benefits of Investing $1 Million in BTR
Instant equity through the construction phase
Cash flows and long-term appreciation through the rental holding phase
Complete control over the architectural design (within building regulations)
The Possible Drawbacks of Investing $1 Million in BTR
Skill, experience, and connections are all required
Permitting and construction can take longer than expected
Potential for tenant issues during the rental phase
Higher margins of error increase the risk profile
4. Self Storage
More Americans are renting storage units for things like personal belongings, boats, and spare vehicles, creating a growing need for self-storage complexes. These commercial/industrial spaces tend to require less maintenance and active management than residential rentals, while providing consistent cash flow.
With $1 million, you could develop a small facility from the ground up or purchase an underperforming facility with room for added value. As with residential real estate, you can leverage financing to stretch your self-storage investment further.
For the greatest return potential, focus on underserved markets, which are often found in suburbs and smaller rural cities.
The Benefits of Investing $1 Million in Self-Storage
Options for ground-up development or acquisition of an existing facility
Lower operating costs and management demands than residential rentals
Strong cash flow potential
Easier build-out with no plumbing requirements
The Possible Drawbacks of Investing $1 Million in Self-Storage
Skill, experience, and connections are all required
Because construction is simple, markets can become oversaturated
Ongoing maintenance and management are required
5. REITs
REITs (Real Estate Investment Trusts) are essentially companies that own and operate income-generating real estate, including apartment complexes, retail centers, and office buildings. When you invest in a REIT, you’re entitled to a portion of the portfolio’s profits, which are paid out as dividends (which can be reinvested for compounded returns).
Because a REIT owns multiple assets, your $1 million investment is instantly diversified; strong-performing assets can help offset any underperformers in the portfolio.
Professional management at both the property and portfolio levels
The Possible Drawbacks of Investing $1 Million in REITs
No control over which properties are held by your chosen REIT(s)
No ownership over any tangible real estate (you own shares, not the underlying real estate)
Lack of tax benefits
6. Built-for-You Developments
If you want the benefits of a new development, but don’t have the experience, skill, or connections to manage the build on your own, consider a built-for-you development. With a built-for-you, you essentially outsource the development stage to a professional real estate sponsor. The sponsor has the developer, architect, contractors, designers, and builders in place, as well as the systems needed to ensure efficient construction.
In many cases, investors actually save on building costs by going with a built-for-you development because they get to leverage the sponsor’s favorable interest rates, bulk pricing on materials, and risk mitigation practices.
Minimum investment amounts vary by sponsor and project type (single-family vs. multi-family). It’s common for the sponsor to require proof of funds up front.
The Benefits of Investing $1 Million in Built-for-You
All the benefits of a BTR
You can be involved as much or as little as you like with the construction phase
A good sponsor can help you find deals on suitable plots and save on building costs
The Possible Drawbacks of Investing $1 Million in Built-for-You
Real estate syndication is a specialized form of crowdfunding in which multiple investors become limited partners (LPs) in a specific real estate venture, which could be nearly anything (including a rental, flip, or BTR).
The project is professionally managed by a real estate sponsor who accepts qualified investors through a syndication platform, which makes it easy for you to invest in real estate online. The sponsor handles every detail from analyzing and acquiring suitable properties to overseeing any construction and/or ongoing management to eventually selling the property. So syndication is ideal for passive investors and those with limited experience.
Because funds are pooled, investment minimums are comparatively low. For example, you could buy into a multi-million dollar multi-family BTR with as little as $25,000. With $1 million to invest, you could diversify across multiple projects (perhaps $100k in 10 projects), creating your own real estate portfolio instantly.
The Benefits of Investing $1 Million in Syndication
All the benefits of your chosen property type (the cash flow, appreciation, tax breaks, etc.)
None of the hassle of traditional real estate investing (vetting deals, overseeing contractors, screening tenants, etc.)
Low investment minimums that allow for a portfolio of projects hand-selected by you
For the last decade, Gatsby Investment has been trusted by real estate investors looking to maximize return potential under constantly evolving market conditions. Through our syndication projects, we’ve delivered an average annualized return of 22.3% to our investors since the company was founded in 2016.
Whether you’re looking to create a passive real estate syndication portfolio or outsource the construction of your new residential building to the experts, Gatsby is here to create a seamless investment experience.
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