MIL has $150K to invest and I want to help her, what should I do?

Question

Hello,

My mother-in-law recently inherited about $150K.  She is single, doesn't have much of a retirement, and I'm concerned she will just spend the money if I don't help her invest.  I am fairly new to REI with a couple of SFRs in the Seattle area.  I'd like to use this as an opportunity to help her, learn new skills, and possibly even generate income for my family.

My initial thought is to help her find a duplex or fourplex near my home north of Seattle.  I would help her through the whole search and transaction process.  Then, I feel confident that I could act as the property manager and take a small % of the monthly income.  She gets some passive income to help with retirement.

I just wanted to bounce this off the community to see if this is a decent plan.  Would you recommend helping her with a different type of REI?  Where in Seattle area would you recommend?

Mike Dymski · Answer

Helping a family member with personal finance advice is one thing and helping them purchase and manage a rental property is an entirely different animal.  I recommend keeping her as a mother-in-law rather than as a real estate protege or partner.  There is also a difference between her wanting to learn versus you wanting to teach her....the first usually has to precede the latter.

Dan G. · Answer

@Nicholas Questad

I think that what you are attempting to do to preserve your family wealth is great. It is one thing to make money it is another to keep it. If you are ever looking to by properties in the Spokane area my partner and I   constantly get off market deals (SFR's, Multi-Family, Small Apartments).  I also am friends with many  great RE investors that have deals like us that are willing to pass on because they have too many that they are working on.  If you ever need any info or have any questions on our local market feel free to reach out to me. I can also connect you with great lenders, attorneys etc.

Moore AndKey · Answer

@Dan G.  Would love to chat more with you about Spokane off line and get some referrals from you.  Could we chat via email?

Thanks!

Aaron Nelson · Answer

I tend to agree with @Mike Dymski. It is one thing If she has expressed interest in learning, but if not, I would steer clear. There are just too many things that can go south when it comes to real estate investing and you have to be committed to be successful.

For example, a buy and hold rental sounds great on the surface...but what if she changes her mind and wants to sell in a year? Between taxes, fees, renovation costs and possible market fluctuations, she could end up losing money. If she loses money, will she blame you? At the end of the day it doesn't matter who is actually "right," what matters is what she will think because she is your MIL.

David Sweeney · Answer

What does your wife think of the plan? Make sure she is OK with it as well. I also haven't heard what your mother-in-law thinks about your plan? Or are you just bouncing ideas off of the BP community prior to approaching the rest of your family?

Dan G. · Answer

@Moore AndKey Most Definitely I will Reach PM with an email.

To any investor looking to invest in Spokane, feel free to PM with any questions about the Spokane Market, Spokane Deals, and Referrals.

Ben Valentin · Answer

If her concern is letting the money go to waste, using it for a one time investment and paying her back is great, but she will end up in the same boat a year from now - with a bunch of money that could potentially go to waste.

My father in law has a massive chunk of money doing nothing in his savings, and I've thought about the same thing. I would go about it two ways:

1) Go the private money lending route by using the money to invest for yourself and pay her a fair return on the money.

2) Go the equity split route and invest in multi-family as a buy and hold forever. This way, you get paid for your work, and she gets paid for putting up the cash. Even if you refinance, keep your half of the equity and use her money for another deal with the same 50/50 split concept, and continue forever.

I just think that if the money ever ends up back in her bank account, it's useless and will go to waste. It's got to be invested.

Of course, she's got to be on board with all of this. And I agree that you should speak with your wife, because my wife felt funny about it when I asked her dad for money...But the way I see it, you're offering THEM a huge opportunity to create wealth.

Bill F. · Answer

@Nicholas Questad I'm not a loan expert by any means, but I'm fairly certain you will, at a minimum, tell the bank where you got the funds for a down payment. A title company may need to list her loan as a subordinate note to the first lien (bank Mortgage)

Nicholas Q. · Answer

@Bill F. Thanks for your thoughts.  The loan from my MIL would just be for the down payment on a conventional loan with a traditional lender.  Wouldn't most lenders not let me use money on loan from my MIL as a down payment?  Would I need her to cosign with me?

Bill F. · Answer

@Nicholas Questad The idea to take a loan from your MiL will work out much better than helping her buy the property.

I use a very similar method to purchase my properties. I like to have interest only notes for 14 months with an option to extend for 6 months with either a bump in the rate or a point fee. I like to make the interest only payments monthly for a few reasons. It roughly simulates the conventional loan I will have in the future, it gives the lender tangible proof their money is working for them, and motivates me a bit to get the project completed.

MIL has $150K to invest and I want to help her, what should I do?

Most Popular Reply