My Dad Doesn't Invest in Real Estate- Is it too Late?

Question

To give everyone some context, my dad is a D.O. (internal medicine) at a hospital in Grand Rapids, MI. I have talked to him over past few months about buying a rental property for supplemental income and getting into the real estate realm. Neither of us have experience (we are both science guys), although I have more of an entrepreneurial edge about me, which keeps my curiosity alive and well.

I am about to graduate grad school and work for a few years in Grand Rapids before hopefully getting out to southern California, and my parents are waiting to sell their home in East Grand Rapids until after I'm gone. Their last appraisal was set at $850,000. My dad is 57 years old.

My question is do they have the option to 1031 their home into something like a multifamily home for cash flow and another primary home? Or has anyone encountered this scenario before and have suggestions? Just looking for options and talking points for my dad. Neither of us are aware of options beyond selling.

Thank you for the help!

David Faulkner · Answer

If their home was a primary residence for them for at least 2 of the last 5 years (which sounds like it is the case) then the first $500k of capital gains for them (as a married couple) is TAX FREE. Depending on their cost basis for the property, that would likely wipe out most/all of their taxes on the transaction. If their property is not a rental, then it would not be eligible for a 1031 exchange, but with the primary residence exclusion mentioned above they wouldn't likely need a 1031 and the sell transaction would be much simpler in that case.

As for investing in RE ... if you want to and are willing to put in the time and effort to get good at it, then it can be a great way to go. I would not pressure your Dad on it if he does not have a passion for getting into it like you do. Plus, he is in a different phase of life than you are, so he'd need to make sure that REI fits into his investment goals, financial needs, and risk tolerance.

Michael Swan · Answer

Hi @Josh Quinn

Never too late.  I have helped my parents to become financially free and they are in 105 front doors with me right now.  They started to invest with me when I was 46 years old and they were 70 years old.  Right now as of October 1st, moving forward they will have $80,000 cash flow coming in every year and so will I have the same. We went 50/50 on all our front doors.

Go for it (with education)!!

Swanny

BP Podcast 238 (this week)

Account Closed · Answer

@Josh Quinn Heh, heh 57 is still pretty young. There are sooooo many options. I work with people until they are 70 1/2. Then they start complaining about having to take distributions and taxes and all that whiny stuff. ;-)     Sure, get dad involved and have a lot of fun. He can use pension money to fund your operations.

Josh Quinn · Answer

@Jake Thomas They are looking to move out of the highly taxed jurisdiction of EGR and into something smaller since they will be empty nesters. I was curious about what their options might be if they wanted to purchase two smaller homes after selling (one for primary and one to buy and hold for renting) and if other people on BP have experienced something similar.

I would like to discuss the HELOC option if you would't mind contacting me directly, not to pressure him, but perhaps to give him insight on what his options may be (past selling 1 for 1).

Jake Thomas · Answer

@Josh Quinn If your father's income is significant why would he need to sell his primary to invest? His DTI should be phenomenal and he should be able to get several loans right away. I can't see someone like that wanting to sell his nice EGR home to move into a multi-family and live with the tenants. Another option would be to get a Home Equity Line of Credit (HELOC) against his primary and use that to invest with cash offers. I personally do this and it has worked very well. I work with several investors with similar strategies if you or your father would like to discuss.

Alex J. · Answer

My father in-law and I started together he was around that same age...we both have about 2m in equity each  now in our holdings.

Now to be fair we were in a fortune time in the market (of course it's very easy to say now that it's in the past).

I'll leave you with this

Warren Buffett made the majority of his wealth after the age of 60

And if you ask him when will you have enough he will say "when I make just a little bit more"

Go get 'em!!

Josh Quinn · Answer

Ok great. Thank you guys.

My Dad Doesn't Invest in Real Estate- Is it too Late?

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