My Dad Doesn't Invest in Real Estate- Is it too Late?

[Josh Quinn]

To give everyone some context, my dad is a D.O. (internal medicine) at a hospital in Grand Rapids, MI. I have talked to him over past few months about buying a rental property for supplemental income and getting into the real estate realm. Neither of us have experience (we are both science guys), although I have more of an entrepreneurial edge about me, which keeps my curiosity alive and well. 

I am about to graduate grad school and work for a few years in Grand Rapids before hopefully getting out to southern California, and my parents are waiting to sell their home in East Grand Rapids until after I'm gone. Their last appraisal was set at $850,000. My dad is 57 years old. 

My question is do they have the option to 1031 their home into something like a multifamily home for cash flow and another primary home? Or has anyone encountered this scenario before and have suggestions? Just looking for options and talking points for my dad. Neither of us are aware of options beyond selling. 

Thank you for the help!

[David Faulkner]

If their home was a primary residence for them for at least 2 of the last 5 years (which sounds like it is the case) then the first $500k of capital gains for them (as a married couple) is TAX FREE. Depending on their cost basis for the property, that would likely wipe out most/all of their taxes on the transaction. If their property is not a rental, then it would not be eligible for a 1031 exchange, but with the primary residence exclusion mentioned above they wouldn't likely need a 1031 and the sell transaction would be much simpler in that case.

As for investing in RE ... if you want to and are willing to put in the time and effort to get good at it, then it can be a great way to go. I would not pressure your Dad on it if he does not have a passion for getting into it like you do. Plus, he is in a different phase of life than you are, so he'd need to make sure that REI fits into his investment goals, financial needs, and risk tolerance.