No, I’m not congratulating you for finding this here blog. Or finally learning how to tie your own shoes. Or for that time you started from nothing and built a company worth billions of dollars that spins out hundreds of millions in consistent earnings. Geez, fish for compliments much?
I’m congratulating you for officially winning a cool $100,000 from the ol’ lottery. Nice work, sparky. Can I have an interest free loan? I promise I will not pay a nickel of it back.
So now you have a dilemma. For you see, this lottery told you that you’re only allowed to put the earnings to work. You must invest $100,000 all in one thing. This lottery is surprisingly restrictive.
You could follow the usual advice and invest the $100,000 into a combination of equity and bond ETFs, thereby cementing your status as the lamest person on this planet. But remember, stocks are overvalued. They’re pretty likely to underperform going forward.
Or you could do things a little different and invest $100,000 in some fun stuff. Like what? Glad you asked.
Go ahead. Scoff at owning a trailer park. Take your 3% return from some Toronto condo while I collect anywhere from 12% to 20% on a trailer park.
Trailer parks get a bad rap, but they serve a very important need. Dirtbags need a place to live and cook meth. They’re affordable housing for the lowest rungs of society.
They’re also slowly going away, and municipalities aren’t allowing developers to make any new ones. Can you blame them? Why let a trailer park in when you can just sell land to a developer who will put up nice homes? A trailer might pay $1,000 per year in taxes, plus the value of the land. A nice house will pay $3,000 or $4,000.
Because nobody wants them, trailer parks offer succulent returns. About a year ago, I found a trailer park for sale in Maine that offered an 11% cap rate without any improvements. Invest a little into bringing the park up to full capacity, and I figured you could get 15% or 16% on your money.
This one is a little tougher because a big part of owning a franchise is finding a decent manager that isn’t going to let the staff get so many free pizzas that you’ll go broke.
There are thousands of franchises out there that are for sale. Some operators want to retire. Others just aren’t cut out to be restaurant owners. And some are sick of working six or seven days a week.
$100,000 isn’t going to get you much of a franchise. You’d have to use it to borrow a couple hundred grand more. But it shouldn’t be hard to invest $100,000 and turn that into $20,000 to $40,000 annual profit after you pay the manager. Give it a decade and the business itself will pay off the loan.
Hard money lending
The personal finance crowd is very against payday loans. Partially because of this backlash, each Canadian province is cracking down on them. A payday loan shop used to be able to charge 25% for a couple of weeks. Most provinces have capped the rate at 15% or so.
This has all but guaranteed the slow demise of the payday loan. It will be replaced by its almost as bad cousin, the title loan. That’s when someone borrows using their car, jewelry, or unbroken knee caps as collateral.
Easy Financial, the big guy in this space, charges 46% a year. No, that’s not a typo. That is really how much they charge. That’s still under the criminal rate of interest, which is 59.5%.
Say you charged 30%. Assuming 10% write-offs, you’d be left with a 20% return on investment, minus any associated costs. It’s a succulent, albeit morally questionable business.
I’m a big fan of private mortgages, but you’ve got to be careful. Especially if you live in a big city.
The easiest way to get into the business is to talk to a few mortgage brokers. Tell them you’re looking for deals up to a certain loan-to-value ratio (my limit is 75-80%), and promise to pay them a decent commission for their time and a quick closing process. Be prepared to finance the commission and any legal fees as well, since anyone who has to deal with a private lender doesn’t have cash kicking around.
Depending on the risk involved, I charge anywhere from 8% to 10% interest. I’ve done many of these over the years, and only one person has ever defaulted. His house was sold and we ended up making money on the deal. A $100,000 investment would spin off between $10,000 and $15,000 per year in nice cash flow, which you could then reinvest. Compounding, baby.
Rent out Airbnb places
There are two options here. You can either use the $100,000 as a down payment on one condo, or rent out a half dozen condos at a time and get cracking.
The latter is the better way to invest $100,000. You’d have to furnish each place, something that would cost $5,000 per unit or so. Add in rent for a couple months, security deposits, and other start-up expenses, and you’re pushing $50,000 invested. And if the concept doesn’t work, you’d be able to walk away far easier if you rent.
Say you can rent out each apartment for $200 per night at a 60% occupancy rate. That works out to $262,800 per year in revenue. There’s plenty of expenses there; say you’re spending $200,000 per year, which works out to $2,000 per month in rent and $777 in miscellaneous expenses. That still leaves you with a profit of $62,800. Once you’ve proven the model works, go ahead and find a half dozen more places and hire a full-time cleaner/helper.
People are doing this all around the world. It works.
Let’s wrap it up
Some of these investment ideas have an active component to them. You’re not going to rent out Airbnb space or own a trailer park without doing a little work.
Everyone is obsessed with passive income. If you invest $100,000 and a little sweat equity, there are some very attractive returns out there. It sure beats overvalued stocks, that’s for sure.