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Need a place to invest $500k
My father is selling his rental home in CA. It should get him around $500k. He is nearly 80 years old so he wants to simply put it into a safe investment like a bond, CD, etc. I am trying to convince him to put it into real estate. However, even though he did not manage his property himself he still had to deal with it sometimes and now that it's vacant he would have to get it ready to re-rent. He has no interest in having to deal with anything like this anymore. At his age he's more interested in having no headaches than he is in ROI. So here is my question:
Does anyone know of good turnkey providers that have inventory available? I'm on the waitlist for several and have been for months, and he will need to pull the trigger on this in the spring. Also, the provider needs to pretty much handle everything so he doesn't have to.
Could anyone make a syndication recommendation? This might be ideal since my understanding of syndication is that it is totally hands-off.
So that's what I'm looking for: a place to put his $500k that will cashflow, appreciate (although this is less important than cashflow), and he can be pretty much hands-off.
TIA!
Dan
Are you set on having another property in CA or are you looking at other locations? We've got those boxes checked in the Chicago suburbs, but I know there are other areas of the country where you can get good rents with appreciation.
Outside of CA is surely better. If you have something specific available can you post the details here or DM me here? Thanks!
@Dan Engberson
I would not be so sure that exists a place where you can put 500k and forget it. Especially if you want it to work well.
And I have doubts about Turnkey. You will pay a 20/30% more than the average market price. And most have very bad management companies in place.
Since this is your father money and you want to help him, I think you should be very careful and conservative in your choices.
My two cents.
@Dan Engberson I'd recommend spread it in a few syndications that cash flow.
Another option is dividend stocks but not sure how open you'd be to that
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@Dan Engberson why not have him do a 1031 exchange into a DST that invests in real estate? Maybe check in with @Lauren Speidel as she has a connection with a company that is great for this.
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Very good advice, guys. Thank you.
RIP your inbox lol.
1. This topic has been covered a million times on BP. Use the search bar and go wild.
2. BP isn't the worst place in the world to ask people what to do with money, but it is close. Get ready for a bunch of people who have something to sell you hawking their wares in this thread. Remember, if someone makes money from selling you a product, their incentives and yours have already diverged and they need to prove to you they have done other things to make them align. So far we've seen a turnkey provider pop up and someone recommending 1031/DSTs. Get ready for more.
3. Before you go down the syndication rabbit hole, make sure your dad qualifies for accredited investor status. Then ask 'Do I want to make an investment or buy a financial product?' Because syndication are products and not investments.
4. Why do you want to drag him back into REI if he doesn't want to. It seems like he's made it clear that he values his time more than yield. Why do you care? Let him put his money in a CD/bond/index. Turnkey and syndication will both eat up exponential more time than a CD, bond, or index. After all, it is his money.
@Dan Engberson Investing in syndications is hands-off but it requires due diligence up-front. I would recommend getting to know different sponsor teams to evaluate which team aligns the most with your investment goals and risk profile. Returns can differ based on the plan and exit strategy of the project. Some syndications will cashflow more than others and some may have a larger upside at the end of the investment but with lower cash flow during the life of the investment. It is also very helpful to understand the fundamentals of the market you are targeting to invest in, this information is usually provided by the sponsor team.
@Bill F.
I totally agree! It’s important to remember the stage of life he’s in and what is goals are, younger folks want to invest and play the game, but for him he might just want to go with it being in a safe place so he can simply enjoy life. I personally can’t wait to get there on day
@Dan Engberson he should look into a 1031 into a NNN property. There are no landlord obligations. You can find bite size Starbucks, or Dollar General stores that are backed by a corporate guarantee.
If the $500k is what he clears without a mortgage, that will allow him to buy a property up to $1.5MM approx. There are plenty of brokers that specialize in that area. Always open to chat further if you'd like.
Have you guys considered becoming a limited partner on apartment syndication investments? It doesn't take up his time, he gets to invest in real estate and have the money work for him @Dan Engberson
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#1 Personal Finance Contributor
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Originally posted by @Bill F.:
RIP your inbox lol.
1. This topic has been covered a million times on BP. Use the search bar and go wild.
4. Why do you want to drag him back into REI if he doesn't want to. It seems like he's made it clear that he values his time more than yield. Why do you care? Let him put his money in a CD/bond/index. Turnkey and syndication will both eat up exponential more time than a CD, bond, or index. After all, it is his money.
This. Search the myriad of other threads with I have $x what should I do.
RE has a career arc I'm ok divesting out and have with a bunch. I got tired of it before 50. Goldie Locks choices don't really exist in RE but they do in other asset classes like mutual funds, ETFs and REITs. Just right, no headaches.
First grasp the tax consequences. Sometimes I sell and absorb, sometimes I carry the paper and I've also done a 1031, depending on my income picture that calendar year and how much depreciation I'll have to recapture. Consult with a good RE tax strategist.
More great advice! Thank you. I apologize for the redundant thread. I'll try and use the search function to gather more information.
Originally posted by @Dan Engberson:Could anyone make a syndication recommendation? This might be ideal since my understanding of syndication is that it is totally hands-off.
So that's what I'm looking for: a place to put his $500k that will cashflow, appreciate (although this is less important than cashflow), and he can be pretty much hands-off.
TIA!
Dan
Yes, syndications are hands-off although not entirely work free because you have to do it due diligence beforehand before you pull the trigger. But then once you have, your work is done. Also, if you find a sponsor that you really like, you can continue to invest and subsequent investments take a lot less due diligence because most of the work is already been done.
To answer your question about how to find one: In my opinion there's no such thing as a investment that's right for everyone and it depends on the investor's unique financial tolerance, financial situation and financial goals.
Since your father's retired, that might make him pretty conservative. On the other hand if this is just a small part of a much larger portfolio he might be fairly aggressive. That's something that only he (or you, if you are his financial guardian) can decide on.
If your father is fairly aggressive then it's very easy to find syndications via the crowdfunding platforms. You can go on to a like CrowdStreet right now and find 15 or 20 different open deals to look at. There are also many people offering syndications on this website.
On the other hand if your father is conservative then there are far less deals out there and it takes more work. In general, the most experienced sponsors with long track records of success have developed strong and enthusiastic investor bases over time. These will often fill their deals very quickly, so it often doesn't make sense for them to pay a crowdfunding platform. So you find these by networking, joining an investor club, etc..
Hope this helps.
Buying turnkey properties sounds great in concept but you will always have to manage the property manager. This sounds like something dad doesn't want.
Syndications are hands-off but it requires a lot of work on the front-end. If you decide to go this route, you will need to make sure the sponsor (syndicator) has sufficient experience, the deal is top-notch, and feel confident that dad will be able to live through the life of the deal so that he can personally benefit from this.
Look through other posts I've commented on. I'm 100% for syndications. However, with your dad being in his 80's I'm not sure this is the best investment for him unless he plans on passing the syndication onto you.
If you vet syndicators, please keep in mind that a previous performance (good or bad) does not guarantee the same result for a different deal.
Best,
@Dan Engberson question #1: how important is it for him to avoid capital tax gains?? Basically he can sell it, pay taxes, and put the money into CD’s, etc. as a safe and simple way to retire. BUT, he will pay hefty capital gains. FYI he may not care, but whoever inherits his assets in the future may care ;)
So if he wants to avoid capital gains, he needs to do a 1031 exchange, which has strict timeframes to adhere to and is a semi PITA to deal with. BUT you avoid paying the tax (for now at least.) Exchanging into another physical property, even if it's NNN, has risk and some management responsibilities, which I think he won't want. Next option is to 1031 into DST funds. These are basically real estate funds, and are usually professionally managed, and it's easy to buy into a few diff ones for diversification. That sounds up his ally IMO. You basically need to research the heck out of the DST market to make sure you're getting good ones, and not overpaying in fees. The 2 big negatives of DST are 1- they're not liquid, so you need to commit for several years before an exit and 2- they have a lot of fees, so the return is usually less than buying your own NNN property. But they are passive and professionally managed.
@Dan Engberson. It's very kind of you to do this research for your father. I would recommend you purchase "The Hands-Off Investor" by BP's Brian Burke. This will give you some great research on due diligence. Then you may even want to consider investing in Brian's current offering. I would recommend splitting his capital between several syndications and funds. Assuming he is accredited.
If he is doing a 1031 Exchange, I would absolutely recommend a DST. There are marketplaces with lots of options out there and you should be able to find 3 to split up the funds between. He can do another 1031 at the end and reinvest, kicking the capital gains tax down the road.
Age 80 = risk profile of zero!
Putting him into any risky private investment vehicle where he could incur a total loss on his investment is simple foolishness. Stick to public bond, REIT and stock markets with a very low risk allocation.
I hadn't discussed DSTs with him. I'll do so, thank you. His primary concern is avoiding taxes so I think he'll like that idea. And I'm always down for reading another RE book so thanks for that!
Really great info everyone. Thank you a ton. He's actually pretty fired up about the new possibilities.