Helping mother-in-law find cashflow

33 Replies

My mother-in-law recently sold her primary residence and downsized since the kids are all moved out.  She's looking for something that would provide her with good cash flow as she is very close to retiring.  She doesn't care at all about appreciation.  She was very interested in buying a property near where I live, Denver, until I showed her how much cash flow she could expect right off the bat.  She then started asking me about purchasing in the Midwest, where you could get more CF, but I'm hesitant to recommend this due to the potential issues that are common with investing out of state.  Since she doesn't have decades to recoup losses, I want her in something very safe.  I'm thinking a REIT might be her best option instead of putting a bunch of money into 2 or 3 rentals.  What does everyone think of this?  Is there something else I should look into for her?  She needs a, low risk, hands off investment that will provide cash flow right off the bad.  Any recommendations would be appreciated!

@David Hodge

I am not a financial adviser. But here's my opinion.

Even with a REIT, she may still lose money. Since she is close to retirement, preservation of capital is probably the most important thing. Perhaps buy several CDs at different maturity terms and stagger them. 

Investments always has its own risks, especially real estate. 

If you know of any seasoned PROVEN investors with a track record, maybe she can look into lending her money at a higher higher interest rate that what the banks are paying, and less than what the HML are charging. Again, it has its risks.

@David Hodge
Why don't u suggest turnkey providers like Memphis invest. They are great cash flow providers in a passive investing mode

Or look for a condo townhouse or an entry level sfr in Denver where cash flow will be better than your neighborhood

My two cents

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@David Hodge , if she is an accredited investor you might consider investment into DSTs. They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. Investors can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse.

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

@David Hodge what does she know about Real Estate? By the tone of your post, it would seem like she knows nothing and has no experience. Money and no knowledge are like carrying a loaded shot gun in the woods in the dark. It doesn't sound like she would be an accredited investor (networth of $1M plus) so she would not qualify for syndication deals. I don't really think there are any real estate options that I would recommend. Now if she wants to invest lots of time and some money, I think she could figure out a way to make real estate work for her. If she won't invest the time, then probably CDs are the way to go. 

Thank you all for the replies.

@Curt Davis I have a crazy day today but I'll try to give you a call either today or tomorrow!

@Leslie Pappas I'm not familiar with DSTs but I'll look into that!

@Micki M. I've heard a lot about Joe Fairless.  He does large apartments buildings right?  Do you know if she would have to be accredited?  She might be.

@Thomas S. Other than owning her own residence and a bad rental in California decades ago, she has no real estate investing experience.  I agree about the loaded shot gun.  I would rather her get less return but something that has a fairly low chance of her losing money.  She might be accredited.  She is married and I believe her and her husband combined make over $300K.  If I'm wrong, they still might meet the net worth requirement.  They sold their primary for over $1M so I'm pretty sure their net worth would be over that.  I would need to confirm to be sure. 

I don't think she's going to be happy with the CD idea.  She wants a better return than that.  Would you consider a good syndication in apartments to be safer than directly investing in single family homes?  I know the key here would be finding someone trustworthy.  Any recommendations?

I had my mother in law invest in Aapha Flow fund III... They invest in crowdfunding  hard money loans and its paying 8-9%.  She does not have the skills to pick her on loans, so its worth the 1% fee to have a professional pick them for her. (She has to be accredited to invest with Alpha Flow) Beats the 1% CD rate she been getting.

DST's are horrible investments, they only benefit the people selling them and managing them. May make sense if you are desperate with 1031 money, but not in any other circumstance.

she may want to consider 1st deeds of trust.. these give cash flow and if you use any kind of due diligence you can find very good ones that pay 7 to 10%.. like anything the higher the yield on DT's the RISK goes up exponentially you can find  7% first were the borrower put 50% down in cash.. now for risk adverse and safe investing this is pretty darn good.. can refer you if you like

@David Hodge so investing in apartments via syndication is not really a hands off situation IMO. You have to do a good deal of due diligence upfront. In addition, I don't think we are a great place in the market cycle right now to be getting into apartment buildings with little or no knowledge.

Really there are several good ideas here (and apartments might be one of them) but she will really need to do some learning.

If they have $1M plus, she has some time and can do some learning. What kind of returns is she looking for from real estate?

Originally posted by @David Hodge :

My mother-in-law recently sold her primary residence and downsized since the kids are all moved out.  She's looking for something that would provide her with good cash flow as she is very close to retiring.  She doesn't care at all about appreciation.  She was very interested in buying a property near where I live, Denver, until I showed her how much cash flow she could expect right off the bat.  She then started asking me about purchasing in the Midwest, where you could get more CF, but I'm hesitant to recommend this due to the potential issues that are common with investing out of state.  Since she doesn't have decades to recoup losses, I want her in something very safe.  I'm thinking a REIT might be her best option instead of putting a bunch of money into 2 or 3 rentals.  What does everyone think of this?  Is there something else I should look into for her?  She needs a, low risk, hands off investment that will provide cash flow right off the bad.  Any recommendations would be appreciated!

"Very safe" and "high cash flow" are words that run together in cash flow markets people will pitch you like Detroit, Columbus, etc.  Safer markets, with high tenant quality, usually also provide appreciation (ex. Austin, Dallas, San Antonio, Charlotte, etc...).  It also depends on your management structure and you're experience (ability to effectively manage risks involved).

I could help you out.  Checkout my profile and website.  I can locate some deals and provide her hands-off cash flowing properties with appreciation.

Please send me a message.

Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

Originally posted by @Jon S. :
Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

 I'd re-read what he said- "REITs are reasonably safe".  You're referring to their fees, which has nothing to do with the safety.  I do not agree at all that direct investments will be considered safer than a REIT investment, but they will pay more in overall return.

Originally posted by @Jim Groves :
Originally posted by @Jon S.:
Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

 I'd re-read what he said- "REITs are reasonably safe".  You're referring to their fees, which has nothing to do with the safety.  I do not agree at all that direct investments will be considered safer than a REIT investment, but they will pay more in overall return.

 Really? Define "safe".

Originally posted by @Jon S.:
Originally posted by @Jim Groves:
Originally posted by @Jon S.:
Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

 I'd re-read what he said- "REITs are reasonably safe".  You're referring to their fees, which has nothing to do with the safety.  I do not agree at all that direct investments will be considered safer than a REIT investment, but they will pay more in overall return.

 Really? Define "safe". No one said ALL direct investments are safer.  That's a rediculous comment.

@David Hodge You have posted something that will draw everyone that is looking for money.  They will all promise what you want and some of them may be able to deliver.  There is a fair amount of Due Diligence on your part to separate the wheat from the chaff.  I would recommend using all of the suggestions as ways to potentially accomplish what you are looking to do and let the money grab people give you ideas, but don't give them any money.  Education is very valuable in this type of investing, as always with investing it is nearly impossible to guarantee any certain results.  

I agree with @Jay Hinrichs comments above and would encourage a strategy that puts your mother-in -law in a position that loses last, not in a position that she could potentially lose up front.  

I have sent a message privately and would be happy to help educate on an option that could be a good fit.  This option would not be placing any money with me or any company that I am affiliated with.  You could do this in your own backyard, which could increase the comfort level considerably.

Most of all I wish you well in your endeavor, and wish you well in your investments.

Originally posted by @Jon S. :
Originally posted by @Jon S.:
Originally posted by @Jim Groves:
Originally posted by @Jon S.:
Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

 I'd re-read what he said- "REITs are reasonably safe".  You're referring to their fees, which has nothing to do with the safety.  I do not agree at all that direct investments will be considered safer than a REIT investment, but they will pay more in overall return.

 Really? Define "safe". No one said ALL direct investments are safer.  That's a rediculous comment.

 Fair point, you didn't say that ALL direct investments are safer.  But the first part of my comment remains.

Originally posted by @Jim Groves :
Originally posted by @Jon S.:
Originally posted by @Jon S.:
Originally posted by @Jim Groves:
Originally posted by @Jon S.:
Originally posted by @Greg S.:

I would agree you should keep her out of direct real estate investing. One bad tenant could be financially devastating.

REITs are reasonably safe but there are other similar options. What she really needs is security which will come with a lower return. The higher the risk the greater the return. Real estate is high risk.

Sorry, but I respectfully disagree. I worked in the securities industry for over 13 years (Blackrock, Franklin Templeton, RCM Investments, etc.). The overhead costs in a REIT are very high so your return will be diluted.  Also, if you receive any, your after tax income from a REIT will likely be very low. 

I've been generating 12%+ cash on cash returns on all investments outside of California for over 10 years in Austin, Dallas, San Antonio, Charlotte and other markets.  These are well-built, high quality properties (class B), in great locations, with quality tenants in place and very low turnover.

He's better off getting his mother in law investing with an experienced sponsor with strong ability to effectively manage risk. She can invest as a limited partner in a multifamily deal or have the sponsor acquire and manage SFR property for her that generate income.

Whether a sponsor would choose to work with her would have to do with (1) her experience as an investor, (2) whether or not she's an accredited investor, and (3) how much capital she has to invest.

 I'd re-read what he said- "REITs are reasonably safe".  You're referring to their fees, which has nothing to do with the safety.  I do not agree at all that direct investments will be considered safer than a REIT investment, but they will pay more in overall return.

 Really? Define "safe". No one said ALL direct investments are safer.  That's a rediculous comment.

 Fair point, you didn't say that ALL direct investments are safer.  But the first part of my comment remains.

Jim,

Whether not an investment is "safe", comes down to how you define safe.  To run a REIT often requires so much spending on operational cost, fees, etc. and they are so diversified as to render your return significantly lower, for me prohibitively lower, than investing more direct in the asset, either through an LP with a reputable and very experienced partner or directly.

If you define "safe" as being so overly diversified as to generating low returns...you may be right! She will not achieve high-income through a REIT.  Show me a REIT that consistently generates a 12%+ return solely from income investing in high-quality properties...they don't exist.  I know many experienced investors that are doing so consistently and they are able to effectively manage/minimize risks by acquiring only properties at discount, with clear upsides, experienced property management, and understand market cycles...lots of this comes with experience. 

If you define "safe" as generating an above market return with lower commensurate risk, then that is done by investing in an experienced sponsor who is fully aware of all risk and has developed methods to minimize them (handicap them). Risk is usually commensurate with return, but in real estate, through experience you can develop techniques to effectively manage/minimize these risks.

If she's seeking to generate a high level of income and do so at less risk, I feel that the best option is to locate a reputable and very experienced sponsor.  Although that would require more due diligence, it would maximize her income and return.  If they conducted adequate due diligence, the predominant risk would be that her money would be locked up for the full investment term (usually 7 years).

    

@David Hodge I have a property that I just got under contract today that would be perfect for your mother-in-law. Please PM if you have any interest.

Hi @David Hodge . Here are some thoughts for your consideration:

  • -Current yields on CDs are around 1%. So even if your mother-in-law had $1M, I doubt she would be happy to live on $10k/year
  • -REITS are essentially stocks. They are publicly traded and their value is based on what the market is willing to pay for them. That being said, there are several new crowdfunding sites that have started REITS that offer regular dividends. RealtyMogul, Fundrise and RichUncles are a few that come to mind.
  • -Direct investment will provide the highest yields along with tax benefits (if she is accredited, i.e. made $200k/year if single $300k if married for previous 2 years, or her net worth is $1M excluding her primary residence). If you go this route, the key will be to identify sponsors with substantial track records of success. There are many on this platform. Ask them for the listing of projects and results achieved. Ask what markets they are in and why? Ask who is on their team and what their experience is. Ask, ask, and ask some more.

It sounds like you are doing your homework and not blindly turning her money over to a financial adviser and hoping they will perform. If you have any specific questions, please feel free to reach out. 

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