Mom wants to invest

[Jordan Calaway]

Hey all,

My mom is retiring next year at the age of 67 and her tax guy has suggested she gets into real estate to help lower her tax situation. She has made great money in the stock market and she has always been against real estate investing (fear). The question is where to start or suggestions to pass on to her? I know she would want low risk, passive income, and not a huge time investment. Any ideas? She and I are in such different areas of life.

[Robert Feol]

Hi Jordan

The most beneficial for your mother(I am not a CPA here by the way just a real estate investor who has had a great one who taught me alot about the tax code) from a tax standpoint would be to use the Fannie Mae or Freddie Mac programs on a 30 year mortgage term, which allows the highest deductible interest payment and the maximum amount of monthly cash flow.  Freddie Mac allows you up to 6 mortgages with an 80% refinance based on appraisal(new rule just changed this week), so in markets like Memphis where the acquisition cost is low she can actually use a turnkey provider as Charles Moore was suggesting, acquire a home below market value(using a private lender) which is renovated and rented, and then refinance it which would create a very low out of pocket cost situation for her.

Depending on how serious she is about doing it, or how committed she is to reducing her tax liability, she could(given her age, I am assuming she is retired) structure her real estate business where she could qualify as a 'real estate professional', and this would allow her to depreciate things like her 'home office', which is a specific amount of square footage on her primary, as well as take the mortgage interest write offs on loans plus depreciation, and other goodies like meals(when applicable), maintenance, and so on.  A good CPA can help her with the specifics of qualifying for this status but it sounds like she is doing well, and sheltering income and keeping more of what you earn obviously is paramount.  

Let me know if I can help.