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Updated over 8 years ago on . Most recent reply
Need Guidance on Inheritance.
Hi, everyone!
This story could be very long but I'm going to keep it as short as possible. Here goes:
My best friends father passed away recently. Her father amassed a large amount wealth in his life which now has come into her possession, around 2 million in a trust and 7k in cash flow every month from from existing rental properties. We both want to get into REI but we don't know where to start. So that's the big question: Where do we start? The overall goal is to build an empire and gain FI just from the cash flow off of our investments.
I know this is a loaded question packed with many different answers. What would you do if you were in our position?
Thank you for reading, I look forward to the responses.
-James
Most Popular Reply
@Account Closed,
$7K in monthly cash flow? Sounds like she's already in REI via the inheritance.
My suggestion would be to consider recommending she liquidate some of the non-RE holdings and expand / diversify that portfolio of rental / income properties unless there's better income / ROI to be had elsewhere.
My $0.02 ...
Condolences on the loss, to both of you.
Hi @Account Closed. First off, I'm sorry for your loss. I hope you and your friend are doing ok.
There are a million people on BP with more experience than me, but wanted to give you my perspective. First off, what type of return are you looking for? 8%, 10%?
If your goal is to build an empire from cash flow, you're going to most likely be interested in buy-and-hold commercial or multi-family properties. Personally, I wouldn't mess around with SFR -- the ROI generally isn't as good as commercial/multi-family properties.
If I were you I would start with multi-family properties 10 units or larger. You'll want to find properties that give you a great cap rate. You may be able to find those locally, but personally, they could be a thousand miles from me and I wouldn't worry. As long as you have a good property manager in place, you're in a reasonably good neighborhood and you have solid tenants, you'll be fine.
You could also pool your money and buy larger complexes. That's a little out of my league but I know there are quite a few services that do it.
Best of luck to you!
Robert
Don't waste your time (and money) on purchasing real estate: become the bank. Real money is made in buying and selling paper (notes, loans).
Talk to a licensed fee based financial planner. Or you can contact me and I can give you a bunch of free educational information.
Stay Blessed and watch out for vultures.
You are in the right place. I agree with both @Michael Evans and @Robert Lindsley Be VERY careful of the vultures. I'm no pro, but thinking maybe getting your feet wet with some investing and then become the bank, that way you have a little experience and understand first hand on what to do with all that money. Good Luck
Thank you guys for the swift replies! @troy durrette, @Michael Evans, @Robert Lindsley Very much appreciated!
The immediate (I use immediate lightly because I know REI takes time) plan right now is to get our feet wet with a basic real estate investment. We want to pull off a deal start to finish and start making money on our own terms. Down the line buying and selling notes sounds like a very viable option. We want experience first.
There's a part of me that has always wanted to flip a house, but at the end of the day I want to get a solid and stable ROI and have a good experience doing it.
On the subject of vultures in the industry: What are some good plans/tips for avoiding them?
I am new to investing, but from what I've learned your best deal is becoming the bank. You might not want to share how much your friend is worth. There are sharks in all tanks.
Rene
Rene,
I appreciate you looking out for me! I've covered my tracks covered here quite well. I'm always on the look out for sharks. Again, I appreciate your words of wisdom.
In all honesty, (and not being facetious here) before you do anything, listen to all the biggerpocket podcasts and spend 2-3 hours a day reading the forums. You get high quality FREE education here. If you find an intriguing idea, ask lots of questions and play the devil's advocate. If someone asks you to invest with them be very suspicious, as about their past, ask for references, be very thorough. If and when you decide on something, whether it be single family, multifamily, commercial, start small and do be as hands on as possible. It doesn't matter if you do it poorly or do it well - just do it and learn and figure things out. BP is as closest you will get to a how to guide for real estate.
Also, if possible, contact local people on BP and buy them a coffee to ask them about their path in real estate. Utilize this great community here. Best of luck to you guys
@Account Closed,
$7K in monthly cash flow? Sounds like she's already in REI via the inheritance.
My suggestion would be to consider recommending she liquidate some of the non-RE holdings and expand / diversify that portfolio of rental / income properties unless there's better income / ROI to be had elsewhere.
My $0.02 ...
Condolences on the loss, to both of you.
@Account Closed Before you do any of the things I saw mentioned above you should make sure everything is in order with the properties currently in the trust. Often people let things go while their is an illness in the family.
You should absolutely do the following.
1st Find out if there is a property management contract in place.
2nd Check the insurance coverage. Make sure all of the policies have the correct beneficiary and that all payments are up to date. Do not trust anyone on this. You need a copy of all the policies.
3rd There needs to be a review of all the current leases. If a property manager is in place they should be able to give you a very detailed report on this. Check for these items...
a. Delinquencies
b. Vacancies
c. Below Market Rents
4th Check for items that need repairs. Fixing them now could save you a lot in the future.
With some luck maybe your current property manager has all of that handled.
I agree with David Dachtera.
I think taking some time to understand the inherited portfolio is necessary.
Also, there's a general rule about not making serious financial decisions for 6-12 months after losing someone close.
So taking her time, learning the business before jumping in more seems like a good idea to me.
And finally, at 7k/mo, she's in a pretty good starting place. It won't hurt her to take her time.
I'm an estate planning attorney and I often deal with family members that have just lost a loved one. Its very important that your friend follow the advice given by @Karen O. about waiting 6 to 12 months before making any serious financial decisions. You will avoid the vultures (because they're very prominent right after someone has passed away) and it will also give the both of you a chance to get educated about the subject.
Here are a couple of questions for you and your friend to ask yourself:
Who is the Trustee of the trust? If its someone other than your friend, then you should see what the Trustee knows about real estate investing (considering there seems to be a substantial amount of it in the Trust).
Who are your friend's father's business partners, attorneys, and/or friends ? They may have insight about real estate investing considering her father was involved in real estate.
On the one hand, you may already have a "built in" network of team members to help you in your future real estate investing. On the other hand, just because your friend's father trust them, doesn't mean you have to "go" with them if you don't feel comfortable with them.
I'm sorry for your friend's loss and I also lost a family member this year and inherited a number of properties. The first thing I did was not make any rash decisions and take steps to protect my assets and stabilize the properties. I thought it was best to sell at first, but now I'm glad I didn't. I talked to a lawyer and set up a living trust. Also confirmed that insurance and taxes were paid to date.
Living out of state, I found a property manager and proceeded to clean house. We had some deferred maintenance and rehabbed 8 units and upped the rent in all of them. We evicted 10 inherited tenants and replaced them with new screened tenants with new leases.They are 100% rented and cash flowing nicely.
@Account Closed This is not going to be easy and will take some time to stabilize your properties. Be patient and take a deep breath.
@Account Closed
Don't be surprised if your inbox becomes full with people trying to connect with you offering their "help". Vultures sound like this: sorry for your loss but I have a great opportunity for you. You can't lose & if you invest with me /my project you're guaranteed to make money. Remember if someone is asking for money via the Internet from someone they don't know it's generally a poor investment Or they are looking to scam you.
I would recommend reading everything you can on investing, real estate, business, self motivation etc. Connect with people in your LOCAL (not over the Internet) area. Do not do anything without an attorney looking over the deal. As for being the bank that's how I started & would not recommend starting out that way. People that are only interested in taking your money come out of the woodwork. I'm still a private money investor and because of my experience will only work with my existing business partner.
On the positive note you are in a great position to build lasting wealth.
Good luck.
I believe now the best action for us to take is hunkering down with some of books that cover the core fundamentals of REI, listen to the BP podcast, and getting active on the BP forums.
All while being weary of anyone asking for anything. I'm actually kind of surprised that I haven't gotten any direct messages on here from anyone looking to "help me out" with a deal.
Motivational books are a big favorite of mine, I'm currently reading Eat That Frog and it's made some big impacts on my life so far. I love making my list every night and crossing everything off on it the next day.
I've read RDPD and quickly I realized that I can do without all the fluff and stories. Thats not to say it didn't have a big impact on me because it certainly did. I'm looking for a book with concrete information to raise my "financial IQ".
The Rich Dad Advisors book seems like a good one to get started with. Does anyone have any other suggestion?
I agree with Michael, there is a ton of money in lending.
@Account Closed has great advice for you, slow down and take some time to make sure that the current portfolio is effectively doing the basic blocking and tackling. That management is in place, insurance coverage is in place, that the entities are set up properly to protect them from a liability perspective and to keep you from being personally at risk in a lawsuit.
3) In addition to to Property management etc. Make sure there is a solid existing infrastructure for accounting, legal and audit. Frankly, I might consider finding a neutral third party to do an independent audit to look for deficiencies in legal or accounting. The last thing you want is the IRS after you over unknown tax liabilities.
4) Go slow. honestly 7K-10K a year will make you very wealthy dare I say rich if you let it. your friend doesnt really need to take risks. I'd be tempted to be conservative. Use moderate debt or even no debt so that if the market goes against your friend for a few years, you arent putting the whole inheritance at risk.
5)diversify into other assets, ie buy some stocks, some real estate and some bonds.
6) do a personal budget, everyone can overspend, the world is littered with pro athletes, entertainers and the like going bankrupt because they couldnt live within their means, especially with new found wealth. Think in terms of investing, spending and giving a portion of what they get each month.
7) Set very strict boundaries with friends, family and outside folks who want money. If you have a personal budget already built, then you would already know how much you want to give, and save, and what criteria you personally will develop to determine who and how much you will give or save..
Best of luck to you.