All Forum Posts by: Grant Nelson

Without knowing more about her finances, I'd suggest diversification unless she has another source of retirement income. Typically retirees move into something like bonds in order to have certainty about cash flows. Real estate has fairly predictable cash flows but investing out of state or in a property that requires great management can be risky, as others in this thread have mentioned. I'd suggest purchasing a couple of properties cash in different areas until finding a city or management that works. I wouldn't dump it all into one area or one property. 

@Grant Nelson, To save you a lot of time initially ask the syndicator up front if they can give your mom a tenant in common interest in the property owned by the syndicate.  This is the only way 1031 will work.  Most cannot.  So you'll want to weed through those quickly.

Quote from @Grant Nelson:

Hi BiggerPockets! My mom is in her 60s and just sold a home in San Francisco that's essentially her retirement. The next step is to reinvest the income into something that'll cash flow to pay for monthly living expenses. From what I can see, California isn't really the best cash flow state. Curious to see what routes Bigger Pockets members have taken in this scenario, and how they got started...

- Invest in an out-of-state apartment complex and have a property manager run it?

- Invest in an Air Bnb in California?

- Drop an ADU in the backyard?

I'm sure the answer to this post could be along the lines of "depends on what you want", but would love to hear feedback from members who've been in a similar scenario! Appreciate all your insights! - Grant

I actually have helped my parents get started in RE for their retirement here in Ohio. I have helped them buy several properties in Columbus and I am helping them expand into the Cleveland markets. It has been great and now I have them hooked. They cannot wait to buy more properties.I am more than willing to help you if you have any questions. 

Hi Grant! Investing out of state in some of the mid west states is a strategy I used to scale my portfolio. Long distance investing has never been easier than it is now with all the tools available to get started. Feel free to connect if you are interested in talking about investing in Cleveland, OH. 

Trigger warning: bigger pockets heresy incoming. 

The heresy: 

She's 60. Let her retire. 

If you are her son and want to play with $2m, go earn $2m.

For mom, go look at things that are actually passive income, which direct ownership of real estate is not. If she wants it to be real estate related (which isn't crazy, rents hit an upwards inflection point a few months ago due to rising consumer-facing mortgage rates and how "substitute goods" work, and all the real estate builders switching from SFR to multifamily tells you where they think the football is going to be in 2-3 years+), look at shares of some of the Wall Street megacorporation landlords that everyone loves to hate. Blackrock pays a 3% dividend (to pick one that everyone loves to hate, that I have no personal vested interest, or shares, of). If we're talking $2m (I made that number up), that's $5k/mo, more if the builders are right. There are also some ETFs which aggregate/pool the risk of one company making bad choices. 

If she wants to increase the risk and return, without giving up it being passive, while still in the real estate realm, lots of mortgage stocks are completely in the dumps right now. It's a "too big to fail" industry that's indifferent to anti-landlord and anti-investor legislation ("ok, so we do more loans for primary residence owners, and less for investors, whatever"), adding a layer of safety. Some of the mortgage stocks have gotten so cheap they are paying a >10% dividend (share price is the denominator in the ROI division, so as that goes down without the dividend decreasing proportionately, it forces ROI up, because math).

What did she plan on doing with the money once she sold the house? How much does she need each month? Rentals require work and money even with a good property manager. If she wants her privacy, I wouldn't do an ADU. Air BNB require a lot more work than a long term rental.

Quote from @Grant Nelson:

Hi BiggerPockets! My mom is in her 60s and just sold a home in San Francisco that's essentially her retirement. The next step is to reinvest the income into something that'll cash flow to pay for monthly living expenses. From what I can see, California isn't really the best cash flow state. Curious to see what routes Bigger Pockets members have taken in this scenario, and how they got started...

- Invest in an out-of-state apartment complex and have a property manager run it?

- Invest in an Air Bnb in California?

- Drop an ADU in the backyard?

I'm sure the answer to this post could be along the lines of "depends on what you want", but would love to hear feedback from members who've been in a similar scenario! Appreciate all your insights! - Grant

The options you list are not passive even with the use of a PM. OOS apartment complex is full of risk especially related to the PM. Even if you get a good PM, they often get bought, retire, or just get complacent. Air BNB in CA is at risk of anti STR regulations, require a lot of effort to setup and get started, and in CA do not have good initial cash flow. Adding an ADU is typically a value subtraction meaning in most CA markets the ADU will add less value than the hands off cost of adding the ADU. There is also the subtraction of now sharing a property.

Retirement should be passive; a time to enjoy life without the obligations of a job.  There are many passive non-RE investments that produce various returns.  S&P 500 has lifetime return approaching 10%. 

For RE, the passive option that likely produces the best return for least effort is as an LP on a syndication.  There are numerous successful syndicators that project near 20% annual return and have a history of achieving better than projected.  If you go this route, do your research on the syndicator.  There are many syndicators that do not have much history and the risk of them not achieving projection is high. 

NNN investments are also low effort after acquiring, but acquiring a NNN that will provide good returns IMO requires more effort than identifying a good RE syndication.

Good luck

Quote from @Grant Nelson:

Hi BiggerPockets! My mom is in her 60s and just sold a home in San Francisco that's essentially her retirement. The next step is to reinvest the income into something that'll cash flow to pay for monthly living expenses. From what I can see, California isn't really the best cash flow state. Curious to see what routes Bigger Pockets members have taken in this scenario, and how they got started...

- Invest in an out-of-state apartment complex and have a property manager run it?

- Invest in an Air Bnb in California?

- Drop an ADU in the backyard?

I'm sure the answer to this post could be along the lines of "depends on what you want", but would love to hear feedback from members who've been in a similar scenario! Appreciate all your insights! - Grant

If it is investment property that hasn't closed yet, you can get a 1031 intermediary to set up a 1031 exchange. Otherwise, I velieve it's too late for that.
One her CPA has figured out how much she winds up with after any taxes, it's easier to give direction. 

My play right now is to get out of cash and into assets. Inflation hurts savers and helps commodities like real estate, gold, silver, transportation, etc. I choose real estate for a variety of reasons, but it has to be cash flowing real estate. She may want to consider the same. If she wants cash flow, DM me and I'll point you to some options.

I think it's a risky time to rely on appreciation for real estate and I personally don't consider appreciation in any market, good or bad, and certainly not now.

People can use 401(k)s, IRAs, Pensions and cash set up correctly to produce cash flowing income and reduce their exposure to the stock market. It's all in knowing what she wants and what her goals are.

@Grant Nelson1031 exchange it and buy all cash out of state or do an airbnb depending on where you have connections/how much risk you want to take