Best Cash Flow
Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
Best Cash Flow
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Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y@Account Closed named several), the day-to-day reality is that this investment is known, simple, predictable, and low-risk for her. You could do a lot worse than just showing her this calculation and advising her to stay the course. Risk-adjusted returns matter a lot more than absolute returns.
I'll stop there to see if you're in agreement with those numbers. If Grandma really just wants more monthly free cash flow, there's plenty of different directions to go.
69 Replies
- 10yJames MasottiPro MemberRental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
@Account Closed - If she's getting $1800 a month now and wants a $600 upgrade, than she could consider lending the funds. There's a number of ways she could go about doing this...many of them are discussed here on BP, but $369k (ballpark after capital gains) at 6% for 30 years is $2212 a month. That's gets her to $400 a month more ...with much less of the hassle of actually owning a property.
Just something to consider.
- Investor · Hilliard, OH · Member since 2014 · 60 posts · 25 votes10y
@Account Closed,
I had to take an aspirin after reading the first page, thankfully the thread got a little more sane after the first page :-)
Some more suggestions besides the ones already mention -
1. Run numbers for an immediate annuity (just google immediate annuity calculator). I ran one for a 65 year old female in CA, with immediate pay outs and 400K. Monthly return was $1987 for the rest of her life. This is something you don't even need a "pajama" to cash in, they can direct deposit to her bank account. Negative is that this money goes kaput when she is no more. She can't leave this to her heirs. Of course she can do a double life, but her monthly will go down.
2. Reverse mortgage - Don't know much about it, heard fees could be high. Do some due diligence.
3. Have her be a private lender. For example a return of 7.5% on 400K will give her $2500/month. Of course a little more work involved here, but may be you could help her out :-) May be she can lend to you, even better.
4. Invest in out of state turnkey rentals. You get all the benefits of RE investing (1031, depreciation, tax deduction, etc) This is more risky, at her age does she want to take this on? What if she gets no returns for a few months, will she be okay?
If the concern is capital gains on her existing property and and she does not have an option to go the 1031 route, she can do a cash out refi, still making sure she is cash flow positive (not sure if they will lend to her if she does not have an income though). Take that money and invest it instead of selling the house outright.
- Investor · Seattle, WA · Member since 2016 · 66 posts · 29 votes10y
@Account Closed it looks like Bob has some hatred against you! If it was me, I would discuss with the grandma on what her goals are. Does she want quick cash? Does she want to pass these properties onto another family member in the event of her passing?
If it was me, I would 1031 exchange and leverage my money, but then again I am young and can afford to bounce back if everything doesn't go as planned. Sounds like you will put in the due diligence and steer her in the right direction based upon her needs and wants.
Good luck out there!
- Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes10y
@Simon Wold thank you. She would like to pass the houses onto her 4 kids. Her biggest goal is to increase income and get rid of the ticking time bomb of deferred maintenance she currently has. I agree with the 1031 or downsize
@Melroy D'Souza all great Ideas thank you. Never thought of having grandma lend to me, I guess i've just always done it on my own. The property has been a rental the entire time and is great for the 1031. Whatever she chooses I'm sure it will be the right one.
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes10y
@Account Closed is she accredited? There are syndicated deals that can utilize 1031. I have never looked at one because I am not in your fortune situation but i have seen them out there and the added benefit is that you can deploy more precise amounts.
Course you also lose one of the best parts of those types of deals because you will probably have to put all the eggs into one basket.
Course, there are problems with the approach of buying into cash flow properties too which is you have to find the right operator and if you never invested before out of state you can easily get hurt real bad putting that much money to work right away esp with larger multis being sold at lower and lower cap rates.
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
@Simon Wold thank you. She would like to pass the houses onto her 4 kids. Her biggest goal is to increase income and get rid of the ticking time bomb of deferred maintenance she currently has. I agree with the 1031 or downsize
@Melroy D'Souza all great Ideas thank you. Never thought of having grandma lend to me, I guess i've just always done it on my own. The property has been a rental the entire time and is great for the 1031. Whatever she chooses I'm sure it will be the right one.
Just know that in my 15 years of investing both in state and out of state, every one I know in CA that has bought out of state for cash flow (either with or without 1031) has come to regret it in the long term. This includes me. Those that have done so via 1031 have doubly regretted it ... not only did they not get the long term profit out of state they were expecting, but they also missed out on huge profits they would've captured if they'd of just held their CA property. You are not the first to think of this plan, many have tried, many more have failed than succeeded. You asked for advice from experienced investors, and you got it, and then choose to ignore whatever you don't want to hear ... some people need to relearn this lesson the hard way, and it sounds like you and granny might be some of those people. I sincerely wish you both best of luck whichever route you choose.
- Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes10y
@David Faulkner I really do appreciate your advise. Was there really a need to insult though? I am in a fortunate boat that I can go to a mentor who has been investing for 60 years in real estate and at his peak owned 5 brokerages with 200 agents. Whom told me three valuable things. 1 never buy over leveraged must be cash flow from day 1 2. " There is only one reason to sell and that is you found a bigger/ better property" 3. and the last one was go straight into multi family because it is by far his best real estate investments. I highly dought grandma will be buying any more properties but rather down sizing into one of her rentals. I know that I have a lot to learn and was simply looking for stories of success from other investors either in the multi family or other real estate investing options. Your advise was really good advise and the same as my mentor but thanks again for the backhand.
- 10yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
I do not agree with the rule #1 but not here to debate.
As I have indicated hopefully without insult I consider your plan to be higher risk than keeping granny in her current situation.
Now for the help... I apologize but I am poor at names but there is a poster on this site who is a teacher and I believe his wife is a teacher. They did well in San Diego via appreciation but have been diversifying out if state for a few years via 1031 exchanges. He indicates he has been very successful at this. Maybe someone better with names can provide his name or possibly search for San Diego and teacher.
Good luck
- 10yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Dan H., I'm not positive but I think you may be talking about @michael Swan.
The 1031 Investor5137 Reviews - Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes10y
@Dan H. you are not insulting at all. It was the earlier comments saying I am trying to trick grandma into some poor investment to get a commission. I agree with your advise and hope that grandma will want to down size.
@Dave Foster @Michael Swan That would be great to listen to how someone cashed out on high equity gains in san diego and bought apartments. I am in escrow on a property and will be moving out of my primary in which I can sell for 250k net or rent out for 500.00 a month. would love to here pros and cons of both
- 10yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
@Dave Foster has the correct person. Michael Swan has been 1031 exchanging out of San Diego for a few years. He has been converting to cash flow out of state properties. He would likely have some lessons learned etc.
good luck
- Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes10y
@Account Closed
In theory that plan to go in with a 70% LTV in a Midwestern apartment building via 1031 seems like it would solve her cash flow concerns. However, there are a lot of problems. One, is that LTV would be far too risky for someone with limited income and in their 70's. If she were to go underwater or had problems with vacancy, it seems like it would be debilitating and catastrophic.
The other is logistics. Out of state low income apartments are not like a bond and are not mailbox money. How is she going to asset manage these apartments? How does she feel about flying out to wherever every year or two to check on things or if there are major problems or a management company change. Usually as people age they are getting out of these type of investments not into them.
Triple net may be a better option, but I would advise against that if this is the only real or main source of income. Retail tenants can go BK sometimes fairly suddenly even if the risk is mitigated and proper due diligence is taken. There is always some risk here.
She may not be able to refinance given lack of W-2 income and it sounds like she is not accredited. I'd probably advise trying to do a limited cash out - maybe 40% LTV and using the proceeds for other investments. In any situation, you need to help her evaluate the risk of different type of investments.
- Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes10y
Originally posted by @Account Closed:
Hello BP! I have a client that owns a rental home here in San Diego since the 70's she is ready to do a 1031 exchange and will have 400k after sell. She is retirement age and doesn't want to deal with property managing herself any more. She will need them managed. My question to the community is what would you do if this was you and you had 400k to exchange into more cash flowing property or properties. Should she jump into apartments at her age? Should she buy cash? Use leverage? buy single family or mulit family? What area should she buy? Thanks for the input.
Brent - At her age, I would not leverage. I would consider picking up some premium property, maybe SFR or MFR in Texas. Maybe a new construction 4 plex in the San Antonio area around $440-450K or 1 or 2 new construction SFRs in Dallas, Houston, or SA. It's a premium area, lots of growth, low hassle and maintenance. I wouldn't add leverage to the mix out of state at that age.
- Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes10y
Originally posted by @James Masotti:
@Account Closed - If she's getting $1800 a month now and wants a $600 upgrade, than she could consider lending the funds. There's a number of ways she could go about doing this...many of them are discussed here on BP, but $369k (ballpark after capital gains) at 6% for 30 years is $2212 a month. That's gets her to $400 a month more ...with much less of the hassle of actually owning a property.
Just something to consider.
This or 1st position mortgage notes isn't a bad idea, could get higher returns on it if done right and not too difficult. Could diversify with that amount of money too.
- Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes10y
Originally posted by @Matt Mason:
@Account Closed
In theory that plan to go in with a 70% LTV in a Midwestern apartment building via 1031 seems like it would solve her cash flow concerns. However, there are a lot of problems. One, is that LTV would be far too risky for someone with limited income and in their 70's. If she were to go underwater or had problems with vacancy, it seems like it would be debilitating and catastrophic.
The other is logistics. Out of state low income apartments are not like a bond and are not mailbox money. How is she going to asset manage these apartments? How does she feel about flying out to wherever every year or two to check on things or if there are major problems or a management company change. Usually as people age they are getting out of these type of investments not into them.
Triple net may be a better option, but I would advise against that if this is the only real or main source of income. Retail tenants can go BK sometimes fairly suddenly even if the risk is mitigated and proper due diligence is taken. There is always some risk here.
She may not be able to refinance given lack of W-2 income and it sounds like she is not accredited. I'd probably advise trying to do a limited cash out - maybe 40% LTV and using the proceeds for other investments. In any situation, you need to help her evaluate the risk of different type of investments.
This is great advice. I personally wouldn't even leverage. That way she will never lose her money via default or foreclosure. Great peace of mind.
- Real Estate Agent · Houston, TX · Member since 2016 · 13 posts · 3 votes10y
I have a property I am selling in Houston and is under contract. I want to do a 1031 Exchange but you only have 45 days to find a property and 180 days to close. This puts you me in a situation to be find something quick. These parameters leaves you in a bad negotiating spot. I am blown away at how high the asset prices have been pushed up. I cannot find anything that cash flows or makes any since. I drive around laughing at what people are asking. No way am I buying at these prices. If anyone has any ideas except taking the capital gains hit and wait for the housing crash let me know!
- Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes10y
@Lance Robinson thank you. This was her choice brand new 4 plex cash. @David Keys nothing has been sold. she would only sell if she had another property or properties under contract. At this time I do not believe she will be selling and she has decided that down sizing is something of a possibility. thank you
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