Helping mother-in-law find cashflow

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Helping mother-in-law find cashflow

David Hodge
Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes

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!

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Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
10y

@David Hodge, UGGH...I shuddered as I read all the self-promoting "advice" you have received so far!

My 1st recommendation would be before taking anyone's advice, to look at how they make their money, and what potential conflict of interest they might have in giving you the advice. If a person only sells hammers, he/she will try to convince you that the entire world is a nail. These are not good sources of advice.

I am not selling anything. I do have a website on Real Estate Crowdfunding, but it is not for profit and simply put up as a service to the investor community. I'm in investor, not a salesperson.

Here's my opinion. Since your mother is about to retire, and it sounds like she will be living off the income, then the key thing to avoid is volatility. 

For anyone else, an investment in a public REIT (i.e. on the stock market) might be a good bet because they do perform well in the long term. However, in the short term it has the volatility of the stock market, which cycles much faster and more severely than the volatility of the direct real estate market. So, in my opinion this would be a very poor investment vehicle for your mother-in-law.

You mentioned she is not very knowledgeable about real estate. Would you be helping her and perhaps are you knowledgeable? If so, then putting the money into 2 or 3 rentals in strong markets on solid properties, would be a very safe investment. I personally have 8 rentals here in Tampa, that are performing very well, and are a relatively safe and non-volatile investment.

Since she is accredited, another option is Real Estate Crowdfunding. However, it's not for unsophisticated/unknowledgeable investors. There are some good opportunities and there are some complete ripoffs, and an investor has to be willing to take the time to educate themselves on the basics of real estate, then sift through all the different sites, and then finally drill into the details of the investments on the top 4-5 they are interested in. Perhaps this might be something you'd be willing to do for her. If so then I'd be happy to answer any questions you might have. On the other hand if not, then I wouldn't recommend this either.

@Mark Robertson recommended AlphaFlow, which I would 2nd as a good option for your mother-in-law. It doesn't require understanding real estate and allows her to diversify.

In my opinion, she definitely should not invest in any of the nonpublic REITs mentioned above from crowdfunding sites like Fundrise and RealtyMogul. As an accredited investor, she has access to much better options. In my opinion, neither site puts enough skin into the game (less than 1% versus a typical 10%+) to properly align themselves with investors. Both of them charge significant organizational expenses (2 to 3%) which is extremely high. Neither of them has a long track record, and they also may charge up to 5% on the backend when she needs to withdraw some of the money to live off of. I believe these are better suited for nonaccredited investors who don't have better options.

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  • Brian Pleshek
    Investor · Hamilton, OH · Member since 2016 · 272 posts · 77 votes
    10y

    If you are an experienced investor, she could become one of your "banks" for your real estate projects.  You could present her with a property that you're thinking of acquiring and then you can buy the property with her holding the mortgage secured by the property at a rate of return that is fair to both of you.  

    I only mentioned this because I noticed that you didn't have under 10 posts, so I figure that you've been around a little bit.  This would require that you do your due dilligence to make sure it's a deal. This keeps her out of real estate but gives her a modest return.  We talk a lot about utilizing people in your circle for this purpose.

    The only other option that I would give you is have her buy and hold with cash(no leverage) in a decent location and use a property manager(or turnkey).  Then she just has to go to the box and collect the checks other than the occasional writing one to cover an expense.

    Good luck.

    Brian

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  • David Hodge
    OP
    Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes
    10y

    Thank you @Brian Pleshek we have been considering that option as well... using her as our bank.  We have that near the top of the list for possible options.  Appreciate the input!

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  • David Hodge
    OP
    Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes
    10y

    @Bill S. I believe she's expecting her cash on cash to be a minimum of 8%. She doesn't need this money now as she isn't retiring in the next few years, but she wants to start getting her money into assets that will cashflow for when she needs it. I know her COC will probably be better here in Denver in 10 years compared to the typical CF markets due to rents increasing here at a faster rate than the rust belt and midwest, but I also am aware that that isn't a guarantee so it's somewhat speculative.

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  • Ian IppolitoBusiness Member
    Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    @David Hodge, The 50/50 option in Denver sounds really good from an investment point of view.

    You'd be the best person to determine the human side and whether it would be worth it to coinvest with the family member. I've had both good and bad experiences doing that and it depended greatly on how closely aligned I was with the family member.

    Another option would be to use a service like Roof Stock.com. They resell single-family residential homes that are currently owned by institutional investors, and have inventory in many markets around the country. They are similar to a turnkey provider, except with significantly lower costs, and larger choice of inventory. The downside is that you are purchasing property halfway across the country, and it's difficult to make sure that your interests are being best represented by your property management team, etc..

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  • Michael Haynes
    Investor · Tampa, FL · Member since 2016 · 681 posts · 288 votes
    10y

    @David Hodge, Hello, your post and the replies outline the problem worldwide at this time. Everyone is looking for yield and your mother wants to find a way to make 8% on her Money...that is the same target for all the Pension Funds and the reason why they are all going to collapse. This is the reason why we are having this explosion of building in Tampa, Florida. The people with Money don't have anywhere to make Money with their Money, so they are forced to build houses and start businesses. If you are convinced that you should help your mother invest her Money in Buy and Hold Real Estate Rentals, then, make sure that you have total control over them. Buy in your area. Colorado is overpriced, but, you can still do your due diligence and try to find one Deal at a time to fix up and manage to create a cushion with Sweat Equity and Personal Management while you wait for this Real Estate Market to collapse when the Fed raises the interest rate. There are many triggers in the World Economy that will affect the value of property in the US like the 2008 Crash. If you Buy one good Rental for Cash and fix it up yourself, then, you will be in a safer position than the Investors who have ten Rentals financed to the hilt in places that they can't drive to when the toilets overflow and the Tenant stops paying the rent. Rentals don't take care of themselves and Tenants cannot be counted on to do anything, responsibly when the next Downturn occurs. 

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  • Bill S.Pro Member
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    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    10y

    @David Hodge so it really doesn't make sense to buy for cash flow when you don't need it. Seems like she is looking for an easy button. I would venture that there is no easy button in real estate for returns at that level in today's market. I have heard local brokers say that a 3-4 CAP on quality real estate is the going rate. Your mother wants 2x that. Tough sailing without some real hard work.

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