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This week I sold a rental property for $125,000 that I purchased for $75,000 cash in November 2015, having collected rent for 2 years at $700/month and having put $8,500 into repairs.
And yesterday I was wired my net proceeds. After closing costs and state income tax withholding, I netted a cool $107,026.40.
Now comes the fun part. What can I do with all this cash to reach financial freedom faster than ever?
Table of Contents
Back to Basics
If you’ve read our Financial To-Do List, you know that there are some steps that everyone should take before they even think about getting too fancy with their money. In a nutshell, these fundamental steps are below:
- Build a small emergency fund of at least $1,000 or 1 month’s living expenses.
- If an employer match exists, contribute the maximum matched amount through your employer’s retirement plan.
- Pay off any high-interest debt. I define “high-interest” as having an interest rate of 10% or higher.
- Build a larger emergency fund of 3-6 months’ living expenses.
- Pay off any medium-interest debt. I define “medium-interest” as having an interest rate between greater than 5% and lower than 10%.
- Fund a traditional Individual Retirement Account (IRA) or a Roth IRA and contribute the maximum amount for the year.
- If you have a qualified high-deductible health plan, set up a Health Savings Account (HSA) and contribute the maximum for the year.
- If you have children for whom you would like to assist with their college education, look into educational plan options and contribute accordingly.
I have done 1-7 and, and I do not have children, so 8 doesn’t apply yet. So because I’ve established my financial base by completing the steps above, I’m left with putting my $100,000 toward the final steps of the Financial To-Do List, those that cover the lifelong process of building wealth through investing.
What to Do With $100,000: Build Wealth
Building wealth with $100,000 feels different than building wealth with $1,000 or even $10,000, but it really shouldn’t. No matter the amount of money you have to invest, the basic principles still apply.
See, when you have $100,000, it’s tempting to do something crazy, like go out and buy $5,000 worth of Powerball tickets or throw it all into the latest hot stock. Please don’t do that! Here are some better ideas for how to invest $100,000, and I will likely deploy most if not all of my new cash in these ways.
1. Invest in my business.
Starting your own business is one of the great ways to build wealth.
My business is blogging, and I love it! Not only do I find it extremely enjoyable to share what I know about my passion (personal finance) with others, but I am making thousands of dollars a month from it, somewhat passively — and I just launched my blog this year! And as an accountant by trade, I had absolutely no formal training in either writing or computers!
So naturally it would make sense for me to invest at least a little bit of my $100,000 in my blogging business, whether that be through taking a course on SEO or social media, upgrading my equipment, or redesigning my website.
If you would like additional information about setting up your blog as well as making money from it (and more!), I recommend that you sign up for my free blogging e-course below.
2. Dividend-paying stocks.
We love dividends here at Money Done Right.
When you invest in a dividend-paying stock, you are acquiring a portion of a company that somebody else built and that thousands of other people work for, and they are giving you a portion of their profits. Blows my mind!
There are plenty of great places to open up a stock-investing account, but the one that’s getting us hot and bothered at the moment is Ally Invest.
Ally Invest is great because you can trade dividend stocks for as little as $3.95 per trade compared to $6.95 at E*TRADE and Charles Schwab.
Ally Invest has developed a pretty amazing platform, and no matter if the stock market goes up or done, we still get dividends deposited into our Ally Invest account every quarter!
3. Lend money in $25 increments.
Lending out money is one of the oldest ways to earn passive income, and I may very well lend out some portion of my $100,000. It’s essentially renting out your money for either people to use, and the rent you charge is known as the interest rate.
Now, in the old days, if you wanted to lend money to somebody in particular, you were taking on a pretty risky business, unless he or she put up some form of collateral. But now, thanks to technology, you can spread out the risk by only lending your money in $25 increments.
How does this work? Well, let’s say Borrower A needs a $25,000 loan. Instead of going to one entity, like a bank or rich person, to borrow the full $25,000 — which would be very risky to that one entity — he or she borrows $25 from 1,000 people. This scenario presents much less risk because the most any single investor could lose is only $25.
Such an arrangement would have been administratively impossible just 15 years ago. But thanks to the wonders of the Internet, it is now very possible, and the peer-to-peer lending industry, as it’s known, is thriving for borrowers and investors alike.
4. Invest in a duplex, triplex, or fourplex.
More young people should start investing in real estate. I think a big misconception about real estate investing is that you need a lot of money to get started. You don’t! My first property was a 4-unit property in a suburb of Los Angeles that I picked up in my 20s for only 3.5% down.
So who knows? I might just plop some money into another multifamily property. Now, because I won’t be occupying the property, the 3.5%-down option is no longer available, so I would have to put a full 20-25% down, and $100,000 won’t cut it as a down payment in my area. I could, of course, look out-of-state where properties are generally less expensive.
Check out my article How 20-Something Me Bought a Fourplex in L.A. With Only $15k Out of Pocket to learn about my first real estate purchase.
5. Invest in Private Real Estate Deals With Only $500
Real estate is one of the classic forms of passive income: you own property, and others pay you for using it.
The downside to traditional real estate, of course, is that you typically need a lot of cash to get started.
Not so anymore with the rise of private real estate investing platforms.
We personally invest in one of these platforms called Fundrise.
Fundrise lets everyday people invest in top deals across the nation — way better deals than most people could find on their own.
It also lets you diversify your real estate holdings. For example, I am invested in deals in 10 different states!
And for the first 90 days of your investment, Fundrise will buy your investment back at the original investment amount if for any reason you are not satisfied.
6. Put money into high-yield savings accounts.
Yeah, this one’s pretty boring and doesn’t have the pizzazz as the others, and you won’t make nearly as much money. But it’s also the least risky by far. We recommend Capital One Investing. They have no fees, a 1.20% APY on savings accounts (depending on your balance), and will give you $25 for opening an account if you deposit at least $250 at account opening. For the time being, this is actually where I’m parking the $100,000 sales proceeds.
7. Invest in cryptocurrencies like Bitcoin.
I would only recommend doing this if you have money to lose. Unlike the other investment opportunities we mention previously that 1) are well-regulated and 2) will almost certainly pay off in the long haul, cryptocurrencies are not well-regulated, and it is possible that they will be entirely worthless someday.
However, that being said, some people have become millionaires practically overnight by investing in cryptocurrencies, and the concept of cryptocurrencies is not without merit. So I may invest a small portion of my $100,000 into cryptocurrencies such as Bitcoin, Ethereum, and others.
In any case, if you would like to receive a $10 bonus to start investing in Bitcoin and other cryptocurrencies, please click my Coinbase $10 Sign-Up Bonus Link to buy some right now (the markets are 24/7).
What Would You Do With $100,000?
So, dear readers, I want to hear from you! What would you do with a fresh $100,000 in your bank account? Let me know in the comments!
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
First off you must ensure you are DEBT FREE. That should be everyone’s aim in life 0 no credit cards, car notes etc YES it is very doable, Your principles are aligned to Dave Ramsey’s, who we follow carefully… good post!
Hello! I’m at work browsing your blog from my new apple iphone! Just wanted to say I love reading your blog and look forward to all your posts! Keep up the excellent work!
If he have invested $75K in AAPL in Nov. 2015, he would be sitting on over $400K
Well, I discovered Dollar Savings Direct high yield savings account which is currently paying 3.5% interest on savings accounts! great for your emergency fund! Also, I am investing my proceeds from a house sale into a fixed annuity for 7 years at 5.4% interest compounding. I prefer to know my money is safe with the uncertain economic future and current high interest rates – I want to lock that in for seven years and forget it! No worries and I can withdraw the interest with no penalties if I want. Good Luck and prosperity to all!