Investor · Woodland Hills, CA · Member since 2016 · 11 posts · 4 votes
Hey all,
My mom is retiring next year at the age of 67 and her tax guy has suggested she gets into real estate to help lower her tax situation. She has made great money in the stock market and she has always been against real estate investing (fear). The question is where to start or suggestions to pass on to her? I know she would want low risk, passive income, and not a huge time investment. Any ideas? She and I are in such different areas of life.
Specialist · Memphis, TN · Member since 2008 · 41 posts · 34 votes
10y
Hi Jordan
The most beneficial for your mother(I am not a CPA here by the way just a real estate investor who has had a great one who taught me alot about the tax code) from a tax standpoint would be to use the Fannie Mae or Freddie Mac programs on a 30 year mortgage term, which allows the highest deductible interest payment and the maximum amount of monthly cash flow. Freddie Mac allows you up to 6 mortgages with an 80% refinance based on appraisal(new rule just changed this week), so in markets like Memphis where the acquisition cost is low she can actually use a turnkey provider as Charles Moore was suggesting, acquire a home below market value(using a private lender) which is renovated and rented, and then refinance it which would create a very low out of pocket cost situation for her.
Depending on how serious she is about doing it, or how committed she is to reducing her tax liability, she could(given her age, I am assuming she is retired) structure her real estate business where she could qualify as a 'real estate professional', and this would allow her to depreciate things like her 'home office', which is a specific amount of square footage on her primary, as well as take the mortgage interest write offs on loans plus depreciation, and other goodies like meals(when applicable), maintenance, and so on. A good CPA can help her with the specifics of qualifying for this status but it sounds like she is doing well, and sheltering income and keeping more of what you earn obviously is paramount.
Have her invest in a real estate based fund not morter and brick. She is too old to bother investing in actual real estate. She does not need that level of stress in her golden years.
Investor · Lake Forest Park, WA · Member since 2015 · 108 posts · 35 votes
10y
REITs aren't really tax efficient, though, unless you're using a retirement account, and presumably that is not her situation.
You could look into turnkey providers. That's about as passive with brick and mortar houses as you can get. Lots of CA investors look into those in other markets like Memphis, Indianapolis, Cleveland, Kansas City, Dallas, Houston, and Jacksonville FL because their dollars can go a lot further to buy more than in CA. Also you get to take all the traditional tax benefits like any other rental property. She would probably be looking at $200+ per month per house if she financed a $90K + property with $20K-$30K down, which again is more tax beneficial than buying all cash.
Specialist · Memphis, TN · Member since 2008 · 41 posts · 34 votes
10y
Hi Jordan
The most beneficial for your mother(I am not a CPA here by the way just a real estate investor who has had a great one who taught me alot about the tax code) from a tax standpoint would be to use the Fannie Mae or Freddie Mac programs on a 30 year mortgage term, which allows the highest deductible interest payment and the maximum amount of monthly cash flow. Freddie Mac allows you up to 6 mortgages with an 80% refinance based on appraisal(new rule just changed this week), so in markets like Memphis where the acquisition cost is low she can actually use a turnkey provider as Charles Moore was suggesting, acquire a home below market value(using a private lender) which is renovated and rented, and then refinance it which would create a very low out of pocket cost situation for her.
Depending on how serious she is about doing it, or how committed she is to reducing her tax liability, she could(given her age, I am assuming she is retired) structure her real estate business where she could qualify as a 'real estate professional', and this would allow her to depreciate things like her 'home office', which is a specific amount of square footage on her primary, as well as take the mortgage interest write offs on loans plus depreciation, and other goodies like meals(when applicable), maintenance, and so on. A good CPA can help her with the specifics of qualifying for this status but it sounds like she is doing well, and sheltering income and keeping more of what you earn obviously is paramount.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
10y
@Robert Feol that new rule for up to 6 mortgages at 80%LTV is the first I've heard of it (previously it was just 4). Can you please point me to an online source for more info on this rule?
@Jordan Calaway There is a way your mother can invest in a diversified portfolios of SFR homes in a way that is totally passive, with no management headaches what-so-ever, and in fact is co-owned with the managers. It is not a REIT and has projected ROIs of mid to upper teens . I recently started investing with this very unique group and really like what I am seeing, and planning and I am adding to my investments this month. Go ahead and PM me if you want to know more about this investment option.
Washington, DC · Member since 2016 · 46 posts · 10 votes
10y
@Jordan Calaway - your mom could comfortably get double digit returns in the Washington, D.C. market. The entry price to DC rental market is elevated compared to other parts of the country but the returns are worth it. Happy to link you up with a deal team (agent, property manager, inspector, title, insurance etc. in DC if you/your mom would like to explore the DC market.
Investor · Woodland Hills, CA · Member since 2016 · 11 posts · 4 votes
10y
WOW. Thank you all for the great information! It's all very useful stuff! More importantly thank you for spending time responding! I will relay some of this information and see what might interest my mom. @John Van Uytven thank you for the questions. Great starting place. @Thomas S. thanks for offering the help. I will run this all past my mom and see what she thinks. Thanks again all!
Rental Property Investor · Vancouver, WA · Member since 2014 · 308 posts · 144 votes
10y
All great suggestions, and I would add this one: Get a property manager who knows her financial goals and lines up with them to help her plan things out. Property managers will deal with all the day to day stuff that she likely won't want to deal with.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Jordan Calaway it's hard to convince people who are afraid to invest in real estate to do it especially at 67 years okd. If she's afraid of it, she'll probably never do it no matter what suggestions you make. I see people recommending REITS and syndications, we can be great investments, however, at her age, I would recommend something that she has more control over. That might just be good old fashioned rental properties with property management. Turn key would be an easy and low risk way to go if she does it right.
Real Estate Agent · Washington, DC · Member since 2014 · 65 posts · 14 votes
10y
If she doesn't want to get into the details, she cab be a passive investor in a real estate fund. Let someone else do the hard work and send the distributions to her. She can still claim the assets in taxes some she'll be a member of the entity that owns the real property.
I would suggest seeing if she will attend a local REIA. She will most likely see people just like her that have been successfully investing in real estate. However, It doesn't matter that others think that real estate is the best solution for her money until she believes that real estate is the best answer.