Need LTC $ for Mom: Become a Landlord?

[LitGal]

This question relates to another thread I started, re. applying for VA aid/assistance benefits. If you have already read that one, please bear with me while I give a little background.

Mom has finally agreed with the dr. She needs to either pay for regular in-home care (IF she returns home after a current stay in a rehab. facility); or she needs to move to assisted living.

Complications: I live in OH; she lives near Sacramento; DB lives about 30 min. south of her. He has an impossible work schedule. (He's a CFO for a corporation that is currently being sold; he may be unemployed within a year. He can't RE because of kids in college.) Plus, he runs a side business which helps pay for their college.

His wife has been a saint, helping our mom whenever she needs it. PLUS, she still has a son at home, and she takes care of her own mom, who has many needs daily.

So, they are maxed out. I have offered to help as much as I can from a distance, and DH and I will probably spend about a mo. next summer helping prepare Mom's house for either rental or sale. (DH is disabled, though; so he won't be able to do much of the physical work involved.)

The facility the family likes best costs $3,700/mo. Her income is $1,400; we're HOPING (yes, hope does spring eternal) she might get VA aid/assistance for ~$1,000/mo. DB thinks we might be able to rent her house for ~$1,200-1,400/mo.

We agree it would be easier to sell it outright, then bank the cash to pay bills. However, Mom is only 86, and her dad lived till 98; so we could need monthly income for her for many years.

So, here's the question: has anyone here rented a parent's property in an effort to provide LTC income? If so, what worked? What did not work? Did you hire a property manager? Are there books you found helpful?

Any and all info. would be appreciated.

(Also-- a little more background. She has $170,000 in savings, $70,000 of which she gifted to DB and me in 2005 before Dad had to go on Medi-Cal. He has since passed away. DB and I agree that the gifted $ is there for her care; it's just convenient to already have it in our names if we need to have her apply for Medi-Cal.

Her house is only worth about $150,00; but Sacramento real estate has been appreciating again. So it could be in her best interest if we don't sell it yet.

We have hired an elder-law atty, a close friend, who will draw up some plans for us for funding her care while protecting her assets. If we need to apply for Medi-Cal, he'll help us do that ASAP. I know the CA look-back period is 2.5 years; but with her family's longevity, the look-back could be irrelevant for us.)

The rest of her affairs are in order: a current will with powers of atty. for DB and me; prepaid funeral; all her current bills are paid up. She has a living will.

Thanks again, in advance, for any insights you can offer.

Do I want to be a landlord? One who is about 2,600 miles away?

 

[Dash man]

Being an out of state landlord has a lot of challenges, so I would recommend a property manager should you decide to go that route. When things go well, rental income is a great way to supplement other income. But since your family has their plates full, you must consider what happens if things don't go so well. I've been a landlord for 18 years and consider myself fortunate to never have had a bad tenant, largely because of using screening services (credit, employment and criminal background checks). All but one of my tenants have always paid their rent on time and taken good care of the property. The one tenant that missed a rent payment had lost her job, but let me know ahead of the rent due date that she would not be able to make the rent payment. She asked me to let her out oft he lease, which I did, and she left the house in immaculate condition. I've been lucky. I believe California's landlord tenant laws tend to favor the tenant, so eviction may not be easy if you have a problem tenant. Would you be able to manage financially if this were to happen? Home maintenance is another issue to consider, especially since your mother may have been neglectful with home maintenance as she aged. I plan on 5% of the rental income to be used for maintenance expenses. Some years are minimal, but some years it can be significantly more. In one home last year, I had to replace a $4,000 window and the stove, plus some plumbing repairs. In another home that is out of my state, we found mold and had to remediate that before I could get a new tenant in, and that cost over $4,000. Fortunately I had a great property manager. Property managers are another expense that range from 7.5-10% of the rent plus a fee to help find tenants of 75-100% of a month's rent.
The bottom line is rental properties are a business that can be profitable, but you need to have money and time to handle the unexpected.
Good luck with whatever you decide!

 

[clifp]

Short answer no you don't want to be a absent landlord. Especially given how you describe the situation for you brother. Rental seldom is much more than 1% of house price so $1,400 is probably on the high end and $1,200 is probably realistic. After management fees, fixing it up, vacancies, taxes and insurance clearing $800 is probably an optimistic number. Some of the benefits of rental properties are best for high income people which your mom is not. . Plus it makes mom's taxes more complicated, screws up the capital gain exclusion and host of other problems. My rental properties are 3,000 miles away and while I'm sure I got a good deal I have no interest in adding more

You have a shortfall of $2,300 a month or call it $26K a year. It sounds like she has a $100k in saving not including the money she gave you.

If you stick the $100K in Penfed 3% CD that is $3,000 income. Take the $150K from the house and stick in Wellesley figure a 6% average from adds another $9,000 in income. So now you have $14K shortfall, which will increase due to spending down principal and inflation. Still you have $250k in assets which should be enough for a least twelve more years. If she makes it until 100, than yes you'll probably have to use some of the $70K she gifted you, and/or get assistance.

Smart of you to get an elder care attorney, I am sure they can give better advice on qualifying for aid.

 

[jerome len]

Sell the house! Sell the house! You could have more problems with a rental then you have with Mom's health. And, the 150k plus cash should cover expenses for the remainder of Mom's lifetime. You and your family should enjoy Mom's last years, and you have the funds to do it. Good Luck to you.......I wouldn't hesitate a second before putting the house up for sale. And, if you rent it you'll have to pay house taxes, maintenance, improvements which would eat up a large percentage of your rental income anyways. Houses need new roofs, furnaces, etc.....a major pain you don't want in the future. So, again......Sell the house!

 

[Newventurer]

Don't forget to back out the sales commission and any likely expenses to fix up the house (stage) for sale, also the monthly cost if any for storing any of mom's stuff that you are not ready to part with yet.

Best wishes.

 

[REWahoo]

Do I want to be a landlord? One who is about 2,600 miles away?

No, you absolutely, positively do not. You are getting some very good advice about selling and investing the proceeds to fund your mom's needs. Worrying about and caring for an elderly parent from half way across the US is tough enough without the stress and aggravation of being an absentee landlord. Your best alternative, by far, is clean the house up and put it on the market.

 

[calmloki]

Landlord as primary income source for over 30 years. Sell. Management is way more than banking the money - I'd say a more reasonable profit would be in the $500-600/month range after expenses. If your Mom sells now she is looking at no federal tax on sale of her primary dwelling - if you rent it for a while you get into paying fed taxes* EDIT: at the time you do sell the house* which can more than offset any rental profit.

You all have other things to think about - don't add rental stresses to your plates.

 

[Bestwifeever]

No, you don't want to be a landlord, but more importantly, your poor stressed out brother probably doesn't want it either, as he or your sil is surely the one who would really need to deal with any ASAP problems being only 30 minutes from the house vs your 2600 miles. You are being really helpful taking on what you can, but realistically he is the one who is there.

Does the state take back from the sale of the house after the owner passes away anyway if your mother uses medi-Cal (see this post and the one following it: http://www.early-retirement.org/for...-in-the-aca-signup-69845-8.html#post1402599)? Why not sell it now, add back in the $70k she already gave you, spend that chunk on the nursing home care, and defer going on medi-cal until her assets are really depleted?

 

[LitGal]

Thank you, Everyone!

Wow! These are details I wanted to hear about, and they pose very good questions for DB and me to consider. We do want to enjoy Mom during her last years, rather than running around frantic about whether someone has paid their rent.

You have given us a very good list of questions to discuss with the elder law atty., making our first meeting with him much more specific.

Many thanks to all--

 

[daylatedollarshort]

Why not sell it now, add back in the $70k she already gave you, spend that chunk on the nursing home care, and defer going on medi-cal until her assets are really depleted?

+1. From what you have posted this would probably be my plan A. You may want to interview a few different elder care attorneys California and see who has the best advice. Your friend may or may not be the best attorney for your current situation.

 

[powerplay]

Another thing to think about is the ongoing level/cost of care you mother will need. Costs will go up and her care needs are also likely to increase over time so the budget you are looking at today may be higher in 5 years.

If there is rental income from the house or proceeds from a sale how does that impact qualifying for the VA assistance? Your elder law attorney can likely address that for you.

Good luck, these are difficult times to work through. I'm in total agreement with previous posters that you should focus on enjoying time with your mother in her later years.

 

[Walt34]

We have hired an elder-law atty, a close friend, who will draw up some plans for us for funding her care while protecting her assets.

I think this is a crucial first step and you are wise to hire the elder law attorney before a crisis. We just went through that wringer with FIL. There are facilities that will accept Medicaid after one's own assets are exhausted and the elder law attorney can help preserve some of the those assets. At least in Maryland they could. In our case it turned out to be irrelevant as FIL passed just before he would have qualified but our crystal ball is as cloudy as the next person's.

Not all facilities will accept Medicaid patients because the payment really isn't enough to pay the expenses so they have to charge the private pay patients enough to cover that shortfall. The facility where FIL stayed was great, but they lost $130/day for Medicaid patients. The good part was that once you're in, you're in, and they won't throw you out after your assets are exhausted. The downside is you have to show enough assets to get in in the first place.

Agreed on selling vs. renting. One of the lessons we learned is that geography makes a huge difference - most of the work fell to DW because she was close and had the time. And most of the work will fall to whoever is physically closest. That's just the nature of it. What you will be able to do from 2,600 miles away is limited.