Mom's House Paid For - How to Make Passive Income

Mom's House Paid For - How to Make Passive Income

Rental Property Investor · Mobile, AL · Member since 2019 · 9 posts · 1 vote

My mom is 60 years old, single, and does not make much money as a private school teacher. Luckily she has her house paid for, and I estimate it is worth $250-300K in it's current state. How would you help her earn additional income? I do not live in the same state but would love to help her figure out how to use this to her advantage by either financing another property to buy a rental property, or maybe renovating her house and selling or putting on the airbnb market. She lives in a 25 year old 2400SF brick house with 3 bedrooms, 2.5 baths, and a 2 car garage. I estimate it needs $100K of repairs and general work but could easily sell it for $500K, or maybe more! She could easily make it a 4 bedroom, the living room just needs a door & a closet. The area she lives in is growing fast, large property in great location. I would love to help her figure out how to create passive income but feel that I'm a little too far away (I live in California, she's in Alabama) and do not have enough experience to know the best options here. Most of her family lives close by if she needs to live in a temporary setup. Let me know what you guys would do here, thanks!

Best, Lane

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  • Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
    6y

    @Lane Otto

    I’m thinking AirBnB would be the best way, if she’s comfortable with it.

    I know a couple empty nesters who have utilized that extra space for AirBnB income.

  • Member since 2019 · 55 posts · 55 votes
    6y

    Honestly, I were her I would either pull a HELOC on it to either:

    A: Finance a rental property or 

    B:Privately lend to people at high interest rates. 

    I don't know if A. is fitting for your mother, because rental properties come with more responsibilities, BUT private lending is a lot more passive!

  • Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    If you're confident in your numbers @Lane Otto, there are a couple of approaches. Start with taking a HELOC to pay for the renovation. Sell at $500k, pay back the HELOC, leaving her ~$400k:

    1. Take $200k for a condo for your mom. Hopefully, that buys her something free and clear. The other $200k for a MFR where she can realize some ongoing cash flow. She should be able to clear $20-25k/year. That will be a nice pay check for her in retirement.
    2. If she's okay being a little closer to the RE: Use $100k for a DP on a quadplex. She lives in one unit and rents out the others. Tenants are covering all of your mother's living expenses. Use the other $300k as above, only larger. Should CF $30-40k/year. Considering that $1 of rental income replaces $1.25-1.45 of earned income, I bet this is about equal to what she's making every year. She'll basically be able to retire while keeping the same "salary" level, then delay taking Social Security and retirement disbursements to maximize them.

    #2 is my preferred approach as it covers your mom's living expenses in perpetuity and provides more retirement income.

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