Mom inherited 500k, knows nothing about investing

Canton, OH · Member since 2017 · 59 posts · 6 votes

My mom is retired, epileptic, and is very nervous about the money drying up. She is unable to be hands on whatsoever, and just wants something safe that will produce an income stream. What are her safest and best options? I want to help her. I have studied real estate for 2 years now and can find cashflowing deals for her but I am still a newbie. I’ve never actually done anything in real estate, she would be willing to invest with me but I would be terrified to lose her money.

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Frank Adams

Loveland, CO · Member since 2010 · 110 posts · 194 votes

Someone above suggested an annuity, which is bad advice to be giving without knowing much more about your Mom's situation. With ANY investment, annuity or otherwise, probably the most important question to ask the SALESMAN, because that is who you're dealing with is the following;

If I buy this NOW and sell it TOMORROW, how much of my original price will I get back?

That will tell you how much commission the salesman is earning.

Another bit of help regarding asking for financial advice, anyone can call themselves a FINANCIAL ADVISOR, many insurance agents and CPAs do this. Only a very few can call themselves a CERTIFIED FINANCIAL PLANNER. To do that requires adherence to s very strict code of ethics.

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Mark Bookhagen
Buffalo, NY · Member since 2014 · 371 posts · 146 votes
8y
An annuity.
6 Reply
Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Look into Vanguard. One of the best names in investing, at that price point they offer very low fee, professional management. When you sign up they give you a one on one video call and explain everything their plan entails and how they adjust it based on your needs. The only thing your mother may not like, is there are no branches and you cannot physically meet with them, however, that's one way they keep their fees low
3 Reply
Frank Adams
Loveland, CO · Member since 2010 · 110 posts · 194 votes
8y
Someone above suggested an annuity, which is bad advice to be giving without knowing much more about your Mom's situation. With ANY investment, annuity or otherwise, probably the most important question to ask the SALESMAN, because that is who you're dealing with is the following;
If I buy this NOW and sell it TOMORROW, how much of my original price will I get back?
That will tell you how much commission the salesman is earning.
Another bit of help regarding asking for financial advice, anyone can call themselves a FINANCIAL ADVISOR, many insurance agents and CPAs do this. Only a very few can call themselves a CERTIFIED FINANCIAL PLANNER. To do that requires adherence to s very strict code of ethics.
9 Reply
Austin J.
OP
Canton, OH · Member since 2017 · 59 posts · 6 votes
8y
Vanguard handles stock portfolios, right? I’m not sure what an annuity is actually. What’s the surest safest way to an 8-12% return in your professional opinions? What about private lending? REIT? Turn key Apartments with built in systems and teams/ property management in place?
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
Look up Jeff Brown (bawld guy) on here for note investing.
Does your mom have any other income or is she retired and living off of social security?
Sounds like she may not be an accredited investor.
8 to 12% return is tough. You need to quantify overall return versus cash on cash. Cash on cash is just the return generated off of the down payment. So 8% at 500k down is 40,000 a year coming in pre-tax. If you own a property there are other considerations such as mortgage pay down on principal, mortgage interest deduction, depreciation for taxes write down, annual rental increases that can push your overall yield higher.
So your IRR would be a number to watch. If your mom is older in age she might not want to worry and want more safer investments even if returns are lower.
I have a client now similar situation where they are putting down 600k on a 1.2 million dollar NNN triple net property. Cash on cash is about a 6% going in but other metrics I mentioned above helps push the return higher. They had money in mutual funds but not getting anywhere close to 6% annual return.
If you decide to use your mom's money for your investments you might want to start really small say 30k out of the 500k to see if you are successful. Then if you start increasing the money then maybe use a little more etc.
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Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Originally posted by @Austin J.:

Vanguard handles stock portfolios, right? I'm not sure what an annuity is actually. What's the surest safest way to an 8-12% return in your professional opinions? What about private lending? REIT? Turn key Apartments with built in systems and teams/ property management in place?
I believe vanguard can invest in a wide variety if investments like stocks, bonds, annuity, mutual funds, REIT. They are very widely known and recognized, and can tailor the plan to meet your mothers risk tolerance and needs. She will likely end up with a much safer portfolio by investing with them, but the returns will match the risk. Vanguard is a set it and forget it approach. If the majority of the money goes in stocks, she should get 8-12% returns when annualized over the life of her portfolio, but if she is already retired and needs the money, she may want to be a little more risk averse. That's why I recommended Vanguard. Its the best option if you want to do no work and know nothing about investing.
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Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Austin J. Some good advice esp. about Vanguard. It is the most respected and honest company in asset management.
I would have to differ with @Mark Bookhagen because I think the annuity is a bad idea especially in this low interest rate environment. Your mother's money will not be doing any work for her and will be unnecessarily tied into a sub-optimal investment.
8-12% income returns are unrealistic as you can not count on that consistently. Don't just look at real estate as your mother needs a combination of income and appreciation. Real estate only portfolio will not be the best fit for her needs (going off your post only).
Best of luck!
1 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
8y
Safe consistent 8 - 12% If anyone knows please tell me I have a good chunk to invest. I have never heard of such a thing
3 Reply
Larry Fried
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
8y
If you are looking for something in real estate that is very passive and can offer decent returns then I'd say private lending first (secured by first position on real estate at low LTV), and syndications second. Here's an article I wrote on Three Key Routes for Passive Real Estate Investing
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Steve B.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
8y
Look into An Immediate annuity. These are quite different then whole life, fixed, or variable annuities which are generally high commission to the annuity broker and a bad option.
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Jeff Ronningen
Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
8y
I agree with other’s statements that your expectation of 8-12% may be too high. Take your time and do your homework. You said she’s retired but you didn’t state her age or investment horizon. You also dIdn’t state whether she’s got other income. These are important considerations. Over time the stock market has good returns for long term investors, but there are dips along the way. The money will last as long as you don’t touch the principle.
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Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
8y
@Austin J., I agree that expecting 8 to 12% safely per year, is not a reasonable expectation. To put it into perspective: if you put it into a CD you might get 2%. That is pretty safe: only if the bank goes bankrupt and if FDIC doesn't cover it would she have any problems. That's all pretty unlikely.
For every percent of return you go above that, you have to take on additional risk.
You said that your mom needs to be completely passive, due to her situation. I don’t know how old she is, and how long the money needs to last, which is important to coming up with a coherent strategy. However, most likely would make sense to have a combination of stocks/bonds and real estate. In my opinion, she should go with something as conservative as possible in real estate.
It sounds like she is a non-accredited investor, which does limit the potential options.
If there were also a conservative low LTV debt fund available for non-accredited investors, I would recommend that also. However currently that doesn't exist.
So that means investing in equity, which does mean taking on some additional risk since it will have debt and could possibly default.
However, there is a decent core plus fund called Blackstone Breit. It is leveraged at about 60%, which is a lot less than most non-accredited offerings. It’s diversified across numerous commercial real estate asset classes, and by geography, and in just a year and a half has grown to be the largest non-accredited fund.
It does not project the hugest return in the world, and did 10% last year. ( between both price appreciation and distributions). But in my opinion, your mom should not be shooting for the stars.
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Sean T.
Rental Property Investor · MA · Member since 2014 · 420 posts · 213 votes
8y
@Austin J. some friendly advice. Switch your privacy setting to lose the last name. Since you are asking about a real world situation and real money you should take some additional care. It would require very little to find a lot of info.
The above covers plenty for you to learn so I will abstain from adding complexity.
4 Reply
Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Originally posted by @Michael Plante:

Safe consistent 8 - 12%
If anyone knows please tell me I have a good chunk to invest.
I have never heard of such a thing
I believe you need some commas in there.
Safe, consistent, 8 - 12%...but you can only pick 2
1 Reply
Austin J.
OP
Canton, OH · Member since 2017 · 59 posts · 6 votes
8y
Thank you all for your advice. I was under the impression that 8% was a pretty standard “preferred rate of return”. She is not accredited, 45 years old but has very bad epilepsy so she is living off of social security. Can’t drive. Can’t really do much at all. I don’t think she should be shooting for the stars, but naturally I want to find her the best possible return with the lowest amount of risk. She just wants an income stream so it doesn’t start drying up.
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Chris Masons
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
8y
8 to 10% is tough, especially if you want truly passive income. Real Estate requires some work....
Vanguard has a great REIT index fund that will probably return around ~ 5 to 7% annually including dividends and capital appreciation. You may want to diversify that 500k and put 1/4 of it into a REIT index fund, a 1/4 into a nice utility index fund (both are meant to create and generate passive income with high dividends) another 1/4 in some high quality blue chip stocks like Pepsi, AT&T, Exxon Mobil and Disney - all which pay dividends as well, and lastly put the final 1/4 into a real multi family property that hopefully you can help your Mom manage.
The goal is to live off the income these investments produce and NOT have to use the capital. Hopefully the multi family will appreciate a few % yearly and cash on cash return will be somewhere above 10%
This is by no means any firm financial advice ( I am not an certified financial planner) just some thoughts and opinions based on the very little info you have given.
good luck,
Chris
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Lauren Keen Aumond
Investor · Tarpon Springs, FL · Member since 2018 · 49 posts · 11 votes
8y
I second the NNN idea - something commercial. Of course Vanguard is great (my retirement stock portfolio is there), but it sounds like you're interested in REI.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Be sure you understand what the term "risk" means with respect to investment. Risk is the RANGE of possible returns. A low risk investment, like bank CDs or treasuries, has a very narrow range of possible returns. For these types of investments the return is specified when you buy the instrument and the return and principal are almost 100% guaranteed. As long as you're below the FDIC insurance limits and the US Government stays in business you'll get the promised returns from a bank CD and you'll get your money back when the CD matures.
A high risk investment is often though of as one that has a high rate of return. Really, high risk means there is a wide range of possible returns. So, while you have the possibility of a very good return, you also have the possibility of a low or even negative return. That is, you may not even get your principal back.
I'll be a little more frank than some of the comments. This "surest safest way to an 8-12% return" is a pipe dream. At this time there is no such thing. In your shoes mom's money would be in bank CDs. Maybe annuities. Maybe treasuries. Not stocks other than a small percentage that she can afford to live without if she loses. Same for real estate.
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Kate J.
Rental Property Investor · Austin, TX · Member since 2016 · 294 posts · 104 votes
8y
park the money in ladder CD accounts or high yield saving account. You have to subdivide into 250k to have security on them. Then wait for a deal, and educate yourself a lot. The deal does not come fast you have to be patient. It applies to both stocks and real estate. I don't advise to put the whole chunk of money into stock market. The better and safer way to do it is what is called market averaging. However, considering your mother's age, you should not put all money to stocks as it may not recover in case the market drops and she needs it. Once again, market averaging seems to be a correct type of entrance for you. The disadvantage of financial advisers is they put all your chunk at once, plus their fees. Find a good one and just talk to them. You don't have to invest with them and I actually advise not to.
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Glenn R.
Cornelius, NC · Member since 2016 · 104 posts · 51 votes
8y
Mr. Money Mustache is a good forum to learn about investing. Many of the folks there recommend the Vanguard fund VTSAX and also recommend reading JL Collins site for investing advice that's presented in an easy to understand manner.
http://JLcollinsnh.com/stock-series/
https://forum.mrmoneymustache.com/index.php
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Austin J.
OP
Canton, OH · Member since 2017 · 59 posts · 6 votes
8y
Low risk is important to keep her nerves at ease, however my goal is to help her create streams of income that she can live on without having to use the money. I will refer her to vanguard and find her a financial planner to be safe. But Considering I have the passion and fire of a thousand suns for real estate, how can I go about creating these streams for her? Do i try to find a killer apartment deal? Do I look at commercial NNN properties? As mentioned, I don’t have any experience in actually investing in real estate, so I’m hesitant to entrust myself with her own wealthbuilding, but I have done the research. I’m currently getting my license just for the knowledge. I’ve listened to every podcast twice, I’ve read every book that has been recommended to me. I’m ready to jump in. So do I ease into it, have her give me a small loan, buy a great multi family deal and generate the first of many great returns for her? I realize that I’m making this a little bit about me, and I feel bad about that. I truly want to help my mom, so of course I will point her in the “safest and surest” path to a decent return. But at the same time, I know I can generate more than a CD. I just haven’t done it yet.
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Alina Trigub
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
8y
@Austin J. I'd definitely stick to a diversified portfolio. So it should include some stock market investments, real estate, and potentially other things. The easiest thing in the stock market is to stick with a decent Index Funds. In terms of the real estate, concentrate on the passive investments as mentioned above: notes, NNN leases, syndications. No matter what you decided, EDUCATE yourself first on anything you're going to invest in!
In terms of the financial tools, check out Betterment and PersonalCapital websites. Both offer hands off as well as full services with your financial needs.
If you have any other questions feel free to PM me.
Best!
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Jeffrey Holst
Investor · Chattanooga, TN · Member since 2016 · 676 posts · 543 votes
8y
If you truly believe you are ready then start with something small and see how it goes. don't risk a large amount of her money. I'm very skeptical that you or her would be able to take down an apartment building with little to no experience. I'd look to buy something for cash in the 50k range and maybe sign an interest only note to your mom promising her 6-8% on her money. then you have a low payment you are taking the risk and if it goes bad you can hopefully still afford to continue paying the interest to her from your other income.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
Learn this business inside and out. Don't her money to make it work. Once you can do it on very little money, you will know exactly what to do with her money in order to keep it safe and get a good return.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Most Americans can not make their ends meet after retirement or disabled. Suggest you figure out the minimum constant income and meet a certified financial planner. I doubt 500K alone will be adequate so she may be needing a reverse mortgage. Not to spoil your RE ambition it will make other just as nervous.
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