Dear Karen: My folks are in their mid-80s, and recently shared with me their list of investments. The advisor they have been with for over ten years has about half their funds in "trust deeds." It looks like they are real estate loans for apartment complexes, small office complexes, a couple of vacation home rental buildings, and a few single-family homes. Each deed has about 15-20 investors, and my folks' share ranges from a couple percent to over 12%. Most of this money comes from IRAs.

The other half of their investments are also invested with this guy in mutual funds and a few blue chip stocks. He is 75 years old and seems to have a sole practice. He sends them a letter every month or so detailing the interest they've earned and what's happening on the properties that defaulted (at least two did in 2009, but they continued to invest in more properties). He also tells them of new deals he's investigating. He flies around in his own plane and checks them out himself.

The whole thing sounds fishy to me, but they are happy with him. I don't want to rock the boat if this is normal. Your thoughts? — Worried daughter

Dear Worried: Your parents are invested in a form of Real Estate Investment Trust (REIT). In your case, the trusts are small (few investors and few properties), closed (not likely traded on an exchange) investments in loans (rather than outright ownership). Investors hold real estate and mortgages for a couple of reasons. For example, retirees and others see the rental payments as stable income. Secondly, they reason that no matter what happens to stocks and bonds, the real property is tangible, so the value will "always" be above zero.

On the surface, then, the investment is not necessarily "fishy." Nevertheless, I see several potential red flags with this relationship.

First, most advisors will tell you that keeping tabs on any particular "alternative" investment (such as trust deeds) should be considered a part-time job if your holdings are greater than five or possibly 10% of your portfolio. Perhaps your parents are retired real estate professionals or mortgage brokers and they stay active in the field. Then a 10% allocation or even a bit more might be reasonable.

The defaulted properties are obvious red flags. 2009 was a particularly difficult year for real estate, but the fact that he is able to convince them to keep adding to their holdings despite the fact that these properties have still not sold or generated income means he is very convincing.

One major downside of real estate is that it is highly illiquid. Defaulted properties have turned them into landlords with all sorts of potential costs from maintenance to updating to the necessity of insuring against disasters. These properties are generating no income but are nevertheless generating costs, which may not be totally be recouped when the property is finally sold.

For the real estate trusts, there are a couple of figures that are imperative in analyzing particular investments. One is the loan-to-value ratio. This tells what percent of the value of the property is being funded. Most professionals won't accept a ratio of more than 65% of the property value. In addition, if any of the loans are not First Trust Deeds, there are other parties ahead of your parents' batch of lenders. You would want to know these facts for each of the investments.

Besides my questions about the investments, I have concerns about their advisor. Perhaps this guy has a well thought-out and viable succession plan. At the age of 75 and flying his own private plane, his investors should be made well aware of this plan and to whom they can direct questions if case of an emergency. Furthermore, they should check out his record with the SEC at this website. If he has even a minor mark against him, they should ask him to discuss it frankly, and they should listen carefully to his explanation.

Finally, the fact that he continues to soft-sell more real estate investments and further reduce whatever diversification they have makes me uncomfortable. If they have so much money that they rightfully can have little fear of running out, and neither can be said to be cognitively impaired, then I suppose they have the right to spend their money the way they want. But if they depend on their portfolio to generate income for their support, then you are right to be concerned.

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