Best advice to maximize cash flow for life, with inheriting $1.8M

Sacramento, California
General Landlording & Rental Properties
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Best advice to maximize cash flow for life, with inheriting $1.8M

Vince Beusan
Member since 2016 · 9 posts · 1 vote

I am looking for the best advice in regards to how to invest $1.8M from an inheritance.   Part of the clause of the inheritance reads, all the proceeds would go into a Trust between (2) family members, the inheritor and his niece, where the inheritor (who is married) gets 100% use of the inheritance & when they die, all the proceeds go onto to the niece.

Knowing this information, what suggestion would you give a family member in how best to maximize cash flow for the rest of their life? They believe that $5500-$6000 per month rental income on the proceeds of a $1.8M SFR sale, is the best they can do. The inheritor is married, and his wife also wants control of the assets, but can not due to the rules of the trust do not allow her any control; therefore, I believe he is getting bad advice.

They technically want to 'set it and forget it', by owning a couple rental properties & that's it, I believe they can do much better, as he is age 45, and could have another 40-50 years ahead of him.

The inheritors current mindset it to purchase (2) SFR for all cash, and have no mortgage because they (he and his wife) don't 'technically own' the asset, as it is in a trust, and they don't want their investment to benefit the niece who inherits the asset after they die. I am looking for some smart suggestions, maybe someone has encountered this already or is currently going through something like this and can lend some advice.

Thanks in advance for taking the time to read and reply.

VB

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Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
4y

First off, this is way above the level of free internet advice. A financial planner and estate attorney are needed to be consulted for this. For $1.8M, spend a few dollars on professional. It can even be paid out of the Trust.

I'm very confused. I think what you're saying is that the guy gets to invest the $1.8M and receive the dividends from that investment. Then when he dies the niece gets the Trust assets which were producing the dividends? So the purpose of the Trust would be to two-fold, to provide money for the first beneficiary with the requirement to preserve assets for the second beneficiary. If that is accurate, there may be an extremely limited area of allowable investments. I'm a Trustee for a Trust whose purpose is the care of a person and preservation of assets. What I can invest in is crazy limited. If I deviate and lose money, I'm personally responsible for repaying that loss. 

Assuming that he has freedom to invest in a variety of assets, rentals is not necessarily it. The "set and forget" attitude is laughable. Rentals is a job. Re-read that sentence. It is a job. You can pay a Property Manager to handle the stuff for you, but that costs 10% or so. 

$5500-$6000 a month cash flow seems low on a $1.8M investment. That's a 3.6%-4% annual return. A diversified bond fund should easily beat that. There are REITs that return much more than 4%. Could do hard money loans at 10% + one point and get a great return. 

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    4y

    There is no "set and forget" if you own real estate. Does not matter if you have a PM or not. They can spread the money over a number of syndications for an example of 'set and forget'. The inheritor needs to talk to his accountant for starters. Owning individual houses, duplexes etc. Is a great way to make money if you are prepared for the considerable learning curve and the work involved.
    All the best!

    3Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    4y

    First off, this is way above the level of free internet advice. A financial planner and estate attorney are needed to be consulted for this. For $1.8M, spend a few dollars on professional. It can even be paid out of the Trust.

    I'm very confused. I think what you're saying is that the guy gets to invest the $1.8M and receive the dividends from that investment. Then when he dies the niece gets the Trust assets which were producing the dividends? So the purpose of the Trust would be to two-fold, to provide money for the first beneficiary with the requirement to preserve assets for the second beneficiary. If that is accurate, there may be an extremely limited area of allowable investments. I'm a Trustee for a Trust whose purpose is the care of a person and preservation of assets. What I can invest in is crazy limited. If I deviate and lose money, I'm personally responsible for repaying that loss. 

    Assuming that he has freedom to invest in a variety of assets, rentals is not necessarily it. The "set and forget" attitude is laughable. Rentals is a job. Re-read that sentence. It is a job. You can pay a Property Manager to handle the stuff for you, but that costs 10% or so. 

    $5500-$6000 a month cash flow seems low on a $1.8M investment. That's a 3.6%-4% annual return. A diversified bond fund should easily beat that. There are REITs that return much more than 4%. Could do hard money loans at 10% + one point and get a great return. 

    4Reply
  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    4y

    This whole scenario scares me.  I'm a former wealth manager and this is a disaster in the making.  As stated before, there is no set it and forget it.  Real Estate Investing is running a business that requires ongoing management.  They don't have a clue - just a real estate porn version of how it works.  No one should be consulting with the wife...and he doesn't sound like he's equip to deal with her or an ongoing business.  

    My recommendation is to:

    1. set them up with the Trust Division of a bank/financial institution.  They need more than a financial advisor...they need that plus someone in a fiduciary role to enforce the terms of the inheritance in a way that provides benefit to all beneficiaries.  

    2. remove yourself from the transaction after making the appropriate introduction to a Trust Officer.  There are legal and tax ramifications at play.  You can't win here...but you sure can be blamed, vilified, tormented.

    Hope this helps...again, save yourself!

    3Reply
  • Vince Beusan
    OP
    Member since 2016 · 9 posts · 1 vote
    4y
    Quote from :

    There is no "set and forget" if you own real estate. Does not matter if you have a PM or not. They can spread the money over a number of syndications for an example of 'set and forget'. The inheritor needs to talk to his accountant for starters. Owning individual houses, duplexes etc. Is a great way to make money if you are prepared for the considerable learning curve and the work involved.
    All the best!

     Thank you @Bjorn Ahlblad.  I agree there is without a doubt work involved as a rental property investor, no question.  He also must also find an Accountant he trusts and get advice, as he has not needed one before.

    0Reply
  • Vince Beusan
    OP
    Member since 2016 · 9 posts · 1 vote
    4y
    Quote from @Greg M.:

    First off, this is way above the level of free internet advice. A financial planner and estate attorney are needed to be consulted for this. For $1.8M, spend a few dollars on professional. It can even be paid out of the Trust.

    I'm very confused. I think what you're saying is that the guy gets to invest the $1.8M and receive the dividends from that investment. Then when he dies the niece gets the Trust assets which were producing the dividends? So the purpose of the Trust would be to two-fold, to provide money for the first beneficiary with the requirement to preserve assets for the second beneficiary. If that is accurate, there may be an extremely limited area of allowable investments. I'm a Trustee for a Trust whose purpose is the care of a person and preservation of assets. What I can invest in is crazy limited. If I deviate and lose money, I'm personally responsible for repaying that loss. 

    Assuming that he has freedom to invest in a variety of assets, rentals is not necessarily it. The "set and forget" attitude is laughable. Rentals is a job. Re-read that sentence. It is a job. You can pay a Property Manager to handle the stuff for you, but that costs 10% or so. 

    $5500-$6000 a month cash flow seems low on a $1.8M investment. That's a 3.6%-4% annual return. A diversified bond fund should easily beat that. There are REITs that return much more than 4%. Could do hard money loans at 10% + one point and get a great return. 

    @Greg M., thank you for taking the time to review and reply & share your perspective.   You're correct, the Trust allows him to have the home, valued at $1.8M, but he's choosing to sell it, and therefore take the proceeds and improve his cash-flow for the rest of his life.  Also correct, in that the Trust is set up for both him & his niece, to provide financial benefit to him & when he passes, the heir of the asset is the niece.  There is no verbiage on preservation of the asset, that is implied and is in his interest too.

    I don't think he is limited as to what he can invest in, but what he is looking to do is maximize his return, (cash-flow), but he has a narrow understanding of the options available to him & is only looking for paying off 1-2 SFR's and that being his 'retirement'. The set it and forget it attitude is not mine, but his & I agree, it's illogical. Work is and will be involved.

    Agreed, and thank you for the comparison to the bond fund yield.  I do like your suggestion in being a hard money lender at 10-12% and +1 or 2pt for a great return.  I can explain that to him, but his mindset needs to shift drastically if he wants to think like he's the bank.  I personally think that is a great way to increase the velocity of his return annually.   Thank you again.
     

    0Reply
  • Vince Beusan
    OP
    Member since 2016 · 9 posts · 1 vote
    4y
    Quote @Patricia Steiner:

    This whole scenario scares me.  I'm a former wealth manager and this is a disaster in the making.  As stated before, there is no set it and forget it.  Real Estate Investing is running a business that requires ongoing management.  They don't have a clue - just a real estate porn version of how it works.  No one should be consulting with the wife...and he doesn't sound like he's equip to deal with her or an ongoing business.  

    My recommendation is to:

    1. set them up with the Trust Division of a bank/financial institution.  They need more than a financial advisor...they need that plus someone in a fiduciary role to enforce the terms of the inheritance in a way that provides benefit to all beneficiaries.  

    2. remove yourself from the transaction after making the appropriate introduction to a Trust Officer.  There are legal and tax ramifications at play.  You can't win here...but you sure can be blamed, vilified, tormented.

    Hope this helps...again, save yourself!

    Thank you for your response.

    The inheritor will create a Trust between him and his niece, outlining the fiduciary responsibility of the asset(s) in the event that he passes on.  As explained before, the mindset of 'set it and forget it' is not mine, but rather that of the inheritor.   I understand there is work involved in being a property manager, what I believe he (the inheritor) wants is to best maximize his inheritance by creating a positive stream of cash-flow for his lifetime.   

    There are many ways to achieve & create positive cash-flow, through owning rental properties with SFR's, as being one of them, and the one he is most likely to choose and is focused on.

    However, he does not want to use leverage, for the reason that the asset will not benefit and be transferred to his wife upon his passing, but to his niece.   Therefore, he is in a cash-only mindset;   Is there a better way?

    I am not in anyway a part of the transaction, I am only trying to brainstorm some creative ideas to help him, and share some information as this is a once in a life-time opportunity that could help set him self up well, for a recurring cash-flow investment.    Although I like the prior suggestion of being a hard money lender, he is not savvy enough to be the bank. 

    0Reply
  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    4y

    @Vince Beusan

    It's not about setting up a Trust Account - a different thing. It's about having a Trust Officer assigned to them to help plan and preserve their inheritance.  

    0Reply
  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Vince Beusan:

    I am looking for the best advice in regards to how to invest $1.8M from an inheritance.   Part of the clause of the inheritance reads, all the proceeds would go into a Trust between (2) family members, the inheritor and his niece, where the inheritor (who is married) gets 100% use of the inheritance & when they die, all the proceeds go onto to the niece.

    Knowing this information, what suggestion would you give a family member in how best to maximize cash flow for the rest of their life? They believe that $5500-$6000 per month rental income on the proceeds of a $1.8M SFR sale, is the best they can do. The inheritor is married, and his wife also wants control of the assets, but can not due to the rules of the trust do not allow her any control; therefore, I believe he is getting bad advice.

    They technically want to 'set it and forget it', by owning a couple rental properties & that's it, I believe they can do much better, as he is age 45, and could have another 40-50 years ahead of him.

    The inheritors current mindset it to purchase (2) SFR for all cash, and have no mortgage because they (he and his wife) don't 'technically own' the asset, as it is in a trust, and they don't want their investment to benefit the niece who inherits the asset after they die. I am looking for some smart suggestions, maybe someone has encountered this already or is currently going through something like this and can lend some advice.

    Thanks in advance for taking the time to read and reply.

    VB


    You should check out Columbus or Cincinnati. Your money will go very far, you'd be able to pick up a multifamily portfolio and start your cash flow. Not to mention Ohio is a landlord-friendly state.

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    4y
    Quote from @Vince Beusan:

    ....The inheritor is married, (((and his wife also wants control of the assets))), but can not due to the rules of the trust do not allow her any control....

    ... and they don't want their investment to benefit the niece who inherits the asset after they die....   

    Drama, drama, drama.

    Nice aunt and uncle.

    Where is my 10 foot pole.

    0Reply
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