Should $1.5M Be Invested in Real Estate?

• May 14, 2009

by Mark Wellborn

Rowhouses in San Francisco

Ah, to be a banker with $1.5 million in cash saved up. The Wall Street Journal has done an interesting Q&A piece about a hedge fund analyst in San Francisco who wonders if his savings should be invested in real estate.

The 31-year-old wants to invest in about $2 million worth of property and use about $600,000 for down payments.

However, his job situation is shaky and there is the chance that he could be unemployed soon. Author June Fletcher warns against investing with this prospect looming, but offers an alternative to the grand investment plan mentioned above.

From The Journal:

“I’d suggest that you buy a $500,000 to $600,000 foreclosed or short-sale duplex. Either pay cash, or finance the purchase with a down payment of at least 20% to avoid paying private mortgage insurance. These days, many such properties can be purchased at a huge discount over traditional sales, giving you instant equity and cushioning you against potential home price declines. Plus, you’ll eliminate your rental payment and get some income from your tenant, making it less likely that you’ll have to dip into your savings should you lose your job.”

It seems somewhat irresponsible to recommend any property investment given that the analyst could lose his job, but this scenario means that he will not overextend himself and will still have money saved in the event of job loss.

What is your take? Let us know in the comments section.

1 Comment

1. benji said at 4:49 pm on Thursday May 14, 2009:

   Interesting. Obviously real estate is a good investment, but if this guy is on the verge of losing his job he should think twice. A portion of the money should at the very least be put into a place of his own, so that he is no longer renting.