Is investing with family inheritance a good idea?

Question

I am a 23 year old who recently graduated from college with a business degree focusing on real estate finance and development. I have been working the last 6 months as a commercial real estate agent focusing on retail investment sales in Los Angeles. I am on commission only compensation, so I moved back in with my parents, and am trading all of my time (60-70 hour work weeks) for little/no money.

My goal is to move more onto the ownership/management side of the real estate industry as soon as possible, but am not sure the best way to go about making the switch. I know a lot about the industry through my education, but have very little/no practical experience when it comes to managing investment properties.

There are 2 fourplex properties that my grandparents owned outright and recently passed on to my parents, who don't know much at all about real estate investing or growing the investments. The current portfolio doesn't require much management, but I feel there is opportunity to grow the portfolio moving forwards. I believe they will let me assist them with managing and helping grow the investments, but am worried about making any moves since I have no direct investment experience of my own.

I know investing with family can possibly hurt relationships if things don't go well, so I don't want to make any big mistakes since this is a large amount of my parents inheritance. Any suggestions on the best ways to make the switch to becoming a full time investor and help grow my family's (and my own) portfolio?

Nicholas L. · Answer

@Kyle Cross

Hi. I'm not sure what your question is.  It sounds like you / your parents should just hire a professional property manager for the inherited properties.

For yourself, I'd save up enough to be able to house hack, and then house hack.

Hope that helps.  Happy to dialogue further.

Carini Rochester · Answer

Education. Read books on real estate investing. Attend meet-ups. Listen to podcasts. Does it really take 60 to 70 hours a week to make little to no money? I bet you could make little to no money in 20 hours a week. Get a paying job with the 40 hours you free up.

Alan Asriants · Answer

If your parents do not have experience and you are eager to learn, you should come up with a strategy with your parents so that you can start managing the existing portfolio and finding a way to grow it.

First and foremost I would maximize the property as much as possible now.

How well is it maintained - any deferred maintenance?

What kind of tenants do you have? All pay on time? Market rent?

Do the condition of the units match market rents?

How well are the leases written? back of the napkin or formal agreements?

Once you have those ducks in a row then you can start thinking about pulling money out and buying other investments.

Michael Dumler · Answer

@Kyle Cross, correct me if I'm wrong, but I think maybe what you're getting at is potentially pitching to your parents that you would like to take a shot at personally managing the units to gain experience and some form of compensation. If this is the case, not a bad idea for you as it will be a good learning experience. However, it is a potential nightmare for your parents since they are taking a risk.

Be that as it may, with this approach, you will have to provide some value for your folks even to consider this. I recommend compiling an analysis/presentation stating that your parents will save an "x" amount by working with you instead of "ABC" local property managers. As far as advising your parents to leverage the equity in the properties to acquire more deals, I would leave that to a professional familiar with the local market conditions and residential investment experience. That being said, you could be the individual who helps identify this respective vendor. And to look at it from another angle, that potential person may be a great mentor for you moving forward. I'm optimistically spitballing here.

As a side note, why retail investments? I don't know anything about that space, but it sounds like a helluva grind and time-intensive venture. Have you considered residential sales? Given your recent small multifamily inheritance, this could be the right track for you.

Theresa Harris · Answer

Start looking for a different job that will pay you a salary first.  Then I'd start by saving up, so you can buy your own house and rent out rooms in the house (or buy a place with a suite).

Talk to your parents about what their goals are with the properties, what they like and what they don't like.

River Sava · Answer

Hey Kyle -

It’s a big responsibility, but also a huge opportunity. Since your parents seem open to your involvement, I would start start small. Focus on optimizing the current fourplexes (improving rents, reducing expenses). Build a solid track record with these properties before proposing larger moves.

Leverage your commercial experience to identify growth opportunities, and start building out your team. Consider bringing in an experienced property manager, contractor, or mentor to guide you through the process. Also, clear communication with your parents about goals, risks, and expectations will also help avoid tension. Good luck!

Drew Sygit · Answer

@Kyle Cross you claim to know a lot about the industry, but your questions are vague and so is the info you've provided.

Not sure how managing 8 units doesn't, "require much management"?

Are they being professionally managed or DIY managed?

Are they free & clear or have loans on them?

There's no way you're going to make a living as a full time investor with just 8 units! - Go look carefully at the numbers and you'll see this.

If you could acquire more rentals and they threw off $500 profit each/monthly, how many would you need to make a living?

If you've only been a commercial agent for 6 months, you are just learning the basics. Maybe after 2 years, you'll be ready to start finding your own deals and making things happen:)

Is investing with family inheritance a good idea?

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