1-Million $ Question - Investing Inheritance

[Aram V.]

Hello,
I'm new to the investing game and I'm an big fan of BP. I'm going to give as much information as possible, but also cut a long story very short. 

My father will be given his pension when he turns 70 1/2 in a couple of years. He will be receiving over 1.2 million dollars.

He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 44/40/34/32), when he passes away, but in the mean time invest in such a way that all of us (children) gets passive income. He asked for my help.

I suggested that he move the funds to Vanguard (Custodian), leave the account under his name, simple 60/40 split on some Index funds, and use maybe half $600K of those funds to buy a few multi-unit properties.

Do you think this is a good strategy?

I appreciate any and all suggestions. Thanks! 

A.

[Ian Ippolito]

One of my in-laws was in the exact same situation where the siblings inherited a bunch of money from his father. The entire family is very close-knit and tight and he was oldest so in charge of investing it, and he put a lot of it into real estate that he managed. Real estate is not like investing in the CD and there is risk. Everything was perfectly fine until it wasn't. The great recession hit and all of a sudden some of the deal started looking pretty bad. Some family members were okay with it, and some were not. Some family members really needed that income, and no longer were getting it. Some members were demanding that they sell, and others that they hold. Some family members had spouses that were not as tight as the siblings, and caused issues. If you decide to go ahead with the plan, just understand what you are potentially getting yourself into. Money is the number one cause of divorce, and in my opinion works the exact same way on any family…even a close one.

Anyway, to answer your question: $600,000 is not going to go very far purchasing a diversified portfolio multifamily properties if you do it all yourself. Plus you're going to have a lot of individual property risk (something goes wrong with that particular property), individual market risk (something goes wrong and that particular city), etc.. To eliminate those risks, you could invest it in a syndication/crowdfunding deal. If you put $25,000 into each deal, you can diversified into 12 different properties in completely different areas of the country (and potentially more if any one of those investments is actually in a fund to get even more protection).

The downside is that you do have to feel comfortable vetting a manager and turning over control. So if you have your mind set on managing yourself then perhaps this is not the option for you. On the other hand, if you vet well, you will end up hiring a manager that has years more experience than you can ever hope to acquire, which may save you from making very expensive mistakes.