Investing a million dollar inheritance for passive income

12 Replies

My grandfather made a small fortune in real estate and is leaving a fraction of it to the grand kids. I don't yet know how much, but for the sake of discussion, let's say I'll be getting something on the order of $1 million. As he went from high school chemistry teacher to millionaire with real estate, I figure putting it back in real estate is a good idea with the ultimate plan to travel the world on passive income for a while. 

My uncle is executing the estate which consists mostly apartment complexes in California and two pieces of commercial real estate, one in Texas (double net dialysis center) and one in Arizona (triple net bank building). My fraction of the will is not enough to cover any one property but I recently proposed that rather than liquidating everything and giving me cash, my brother, my dad, and I could split one of the commercial properties 3 ways. 

I'm leaning towards the dialysis center, as I believe that could be more stable in uncertain economic times. It's worth roughly $1.6 million and cash flows $8k a month which comes out to an annual return of 6%. If I take 35% of it, that's $560,000 share at a monthly cash flow of $2800 which leaves me $440,000 to invest other places. Notably, I'm moving to a part of the country that's experiencing a lot of growth, but still has relatively low prices (average home price is about $200,000). 

First of all, does my math look sound? Is 6% a good return? I started investing in Fundrise about 6 months ago and they've historically averaged 8-12% with a lot less effort for the investor. I guess my 6% number doesn't take appreciation into account, but what else am I missing?

This will be my first foray into real estate, with the exception that I'm going to try to buy my first home before the will gets executed (hopefully by the end of the year). I see a lot of potential in my new city, and I like the relatively hands off approach of commercial real estate. Should I try to stay in this niche, or diversify a bit into single family or multi-family units? 

Let the offers of how to spend your money begin !  Somewhat joking but my best advice is take your time and make sure you 100% understand what you are investing in 

Personally, I would not invest in either of the scenarios you mentioned.  3 way partnerships especially with family can go south quickly when losses occur and well....they are still your family and Thanksgiving will never be the same.  Investing in a business for a 6% return seems risky to me as well.  Real Estate delivers me a much much higher than 6% without the risk of a business failing or the landlord not renewing the lease.  Just my 2 cents

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You could make the house you're buying your first rental; live in it for a year, then look for another one in a solid area (HUDhomestore.com gives priority to owner-occupants on foreclosures) and move in for a year, move out, rent, repeat.  In the end, you'll have 3-4 nice houses and the $2,800 from the commercial with great equity and easy Fannie-Mae loans on all of your old houses-turned-rentals.  This is the easiest way to build up high-end, moderate cash-flow rentals for passive income but it's not easy by any means.

I have some NNN properties and your only slightly investing in the business that is in them.

For example, I have one NNN building where I would love for the tenant to go out of business because I would be able to replace them with a tenant who would pay more rent each month, making my building worth more money.

So the tenant and the lease you have would be one factor, but the more important thing to consider is how easy would it be to replace them if they moved out. If you can increase the rents and replace them right away like I can then you have very little risk. 

@Brent Shields

If you want the money to grow passively you could invest in several syndications and diversify the money in different markets. Get to know the active syndicators on this platform. Do your homework and look for experienced operators with track records.

I would not necessarily make the assumption that because your grandfather was able to do well in real estate that you automatically will also.  Keep in mind a critical difference between stock market and real estate is that in the the stock market you can only lose what you put in (generally speaking).  In real estate you can lose way more than just the money you put in.  Your loss potential in real estate is infinite.  That being said, congrats on the inheritance!

@Truman Ellis

Congrats on the inheritance! If you want to go very passive, syndicating as a limited partner could be a great path. You could achieve 15% returns possibly with almost no work after you bet the syndicator and the deal in the first place. Not that you would invest it all, but if you were to put 1 million into syndications, with a 15% return you could Get 150K a year, which is enough for a comfortable lifestyle.

@Truman Ellis

Welcome to BP! Congrats on the inheritance!  While I wouldn't necessarily announce to the world (aka any social media including BP) how much (even remotely) I'm getting in the inheritance, here's what I would do.

1) Listen to what @Greg H. said, and don't go into a partnership with your family unless ALL three of you have a background and experience investing in real estate. You can of course educate yourself, but it has to be done by all three parties to ensure full understanding of your actions.

2)  I agree with @Jacob Sampson about RE investing may not be performing as well for you as for your grandfather. Which again comes down to education and experience and different times. 

3) Take advice from @Kent Leach and research syndications. While you still need to learn how it works, pros and cons, etc. It will allow you to do what you planned: be completely passive and rely on the experts in the field to do the heavy lifting. 

Here're a few posts to help guiding you in the right direction:

https://www.biggerpockets.com/member-blogs/10850/7...

https://www.biggerpockets.com/member-blogs/10850/8...

https://www.biggerpockets.com/member-blogs/10850/8...

Feel free to reach you if you have further questions or would like book recommendations.

Best!

Originally posted by @Truman Ellis:

My grandfather made a small fortune in real estate and is leaving a fraction of it to the grand kids. I don't yet know how much, but for the sake of discussion, let's say I'll be getting something on the order of $1 million. As he went from high school chemistry teacher to millionaire with real estate, I figure putting it back in real estate is a good idea with the ultimate plan to travel the world on passive income for a while. 

My uncle is executing the estate which consists mostly apartment complexes in California and two pieces of commercial real estate, one in Texas (double net dialysis center) and one in Arizona (triple net bank building). My fraction of the will is not enough to cover any one property but I recently proposed that rather than liquidating everything and giving me cash, my brother, my dad, and I could split one of the commercial properties 3 ways. 

I'm leaning towards the dialysis center, as I believe that could be more stable in uncertain economic times. It's worth roughly $1.6 million and cash flows $8k a month which comes out to an annual return of 6%. If I take 35% of it, that's $560,000 share at a monthly cash flow of $2800 which leaves me $440,000 to invest other places. Notably, I'm moving to a part of the country that's experiencing a lot of growth, but still has relatively low prices (average home price is about $200,000). 

First of all, does my math look sound? Is 6% a good return? I started investing in Fundrise about 6 months ago and they've historically averaged 8-12% with a lot less effort for the investor. I guess my 6% number doesn't take appreciation into account, but what else am I missing?

This will be my first foray into real estate, with the exception that I'm going to try to buy my first home before the will gets executed (hopefully by the end of the year). I see a lot of potential in my new city, and I like the relatively hands off approach of commercial real estate. Should I try to stay in this niche, or diversify a bit into single family or multi-family units? 

 Truman, put it all in index funds and go travel the world on 4% of it every year. It takes a lot of work before you get good at managing any million-dollar real estate portfolio. It's real easy for a neophyte who has no real interest in the business other than the money it can make him to lose it all.

Originally posted by @Taylor Chiu :

@Truman Ellis

Congrats on the inheritance! If you want to go very passive, syndicating as a limited partner could be a great path. You could achieve 15% returns possibly with almost no work after you bet the syndicator and the deal in the first place. Not that you would invest it all, but if you were to put 1 million into syndications, with a 15% return you could Get 150K a year, which is enough for a comfortable lifestyle.

 Thanks, I was not aware of syndications, but I'll do some research.

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