Helping mother-in-law find cashflow

[David Hodge]

My mother-in-law recently sold her primary residence and downsized since the kids are all moved out. She's looking for something that would provide her with good cash flow as she is very close to retiring. She doesn't care at all about appreciation. She was very interested in buying a property near where I live, Denver, until I showed her how much cash flow she could expect right off the bat. She then started asking me about purchasing in the Midwest, where you could get more CF, but I'm hesitant to recommend this due to the potential issues that are common with investing out of state. Since she doesn't have decades to recoup losses, I want her in something very safe. I'm thinking a REIT might be her best option instead of putting a bunch of money into 2 or 3 rentals. What does everyone think of this? Is there something else I should look into for her? She needs a, low risk, hands off investment that will provide cash flow right off the bad. Any recommendations would be appreciated!

[Ian Ippolito]

@David Hodge, UGGH...I shuddered as I read all the self-promoting "advice" you have received so far!

My 1st recommendation would be before taking anyone's advice, to look at how they make their money, and what potential conflict of interest they might have in giving you the advice. If a person only sells hammers, he/she will try to convince you that the entire world is a nail. These are not good sources of advice.

I am not selling anything. I do have a website on Real Estate Crowdfunding, but it is not for profit and simply put up as a service to the investor community. I'm in investor, not a salesperson.

Here's my opinion. Since your mother is about to retire, and it sounds like she will be living off the income, then the key thing to avoid is volatility. 

For anyone else, an investment in a public REIT (i.e. on the stock market) might be a good bet because they do perform well in the long term. However, in the short term it has the volatility of the stock market, which cycles much faster and more severely than the volatility of the direct real estate market. So, in my opinion this would be a very poor investment vehicle for your mother-in-law.

You mentioned she is not very knowledgeable about real estate. Would you be helping her and perhaps are you knowledgeable? If so, then putting the money into 2 or 3 rentals in strong markets on solid properties, would be a very safe investment. I personally have 8 rentals here in Tampa, that are performing very well, and are a relatively safe and non-volatile investment.

Since she is accredited, another option is Real Estate Crowdfunding. However, it's not for unsophisticated/unknowledgeable investors. There are some good opportunities and there are some complete ripoffs, and an investor has to be willing to take the time to educate themselves on the basics of real estate, then sift through all the different sites, and then finally drill into the details of the investments on the top 4-5 they are interested in. Perhaps this might be something you'd be willing to do for her. If so then I'd be happy to answer any questions you might have. On the other hand if not, then I wouldn't recommend this either.

@Mark Robertson recommended AlphaFlow, which I would 2nd as a good option for your mother-in-law. It doesn't require understanding real estate and allows her to diversify.

In my opinion, she definitely should not invest in any of the nonpublic REITs mentioned above from crowdfunding sites like Fundrise and RealtyMogul. As an accredited investor, she has access to much better options. In my opinion, neither site puts enough skin into the game (less than 1% versus a typical 10%+) to properly align themselves with investors. Both of them charge significant organizational expenses (2 to 3%) which is extremely high. Neither of them has a long track record, and they also may charge up to 5% on the backend when she needs to withdraw some of the money to live off of. I believe these are better suited for nonaccredited investors who don't have better options.