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Over a few weeks, my 91 year old mother has gone from healthy, independent, and living in her own home to needing to move to assisted living or skilled nursing facility. She is now in the hospital and we will know which type of facility in a few days.

The cost of care will be between $2,000 and $3,000 per month. Her monthly income is about $1,500 a month and she owns a condo.

The condo can be sold for between $280,000 and $300,000. There is a loan balance of $40,000. The condo can be rented for about $1,600 per month. The mortgage, home owners and property tax is about $700.

Should I sell and invest the sale proceeds. If yes, what do you recommend for investment?

Should I rent, make up the montlhy difference for my mother, and be repaid for the difference in the future by her estate?

What type of professional should I consult to get help with these decisions?

Thank you for you help.
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You probably will need the services of a CPA to work out what is best in your case. That's because you have some major tax issues to consider.

A few thoughts--

Right now you mothers condo will be inherited on a stepped up basis, so no income taxes are due on any appreciation. Similarly if she has owned the property 5 years and lived there at least 2 years, she will be able to exclude any capital gains when she sells it. However, renting the property will convert it from a home to a rental. This will complicate some aspects. So I would think a CPA could work out for you which is the best overall for you.

If she sells the property, investment at 8% yield in corporate bonds (ie laddered maturity bond portfolio) should come close to financing her current needs (after income taxes). However, there is no inflation protection and decreasing interest rates could cause slow erosion of this income. However, it seems unlikely that her assets will be depleted under the circumstances.

Of course in addition to her care costs she probably has other expenses such as property taxes, insurance, and maintenance fees on her condo. These expenses should also be factored into your thinking.

The key to rental property is often finding good tenants. If you know some one who would take good care of the property, or if you are experienced in managing rental properties, that would be major pluses in making the decision.

Overall, I would favor selling the property and investing the proceeds unless the CPA finds clear advantages to renting it.
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2-3 thousand per month could turn into 4-5 thousand per month, if your mother's health changes.you might want to consider this too.2-3 thousand sounds low.more nursing and more medications drive costs up quickly.
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While I have managed rental properties and think it can be an ok investment, perhaps you could consider the value of "renting out your mney." That is, With all the issues and expenses of renting out a spare dwelling, could there be simplification issues with selling the property and putting the money into something that generates income in a cleaner way?

There is something to consider though. Is there any chance mom could return to the property? If there is.. and you've sold it.. she might be a little ticked.

OiVey
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Thank you for the reply. She has owned and lived in the California property for 11 years. It does seems that renting can easily become complicated. There is no possibility of her returning to her home. Next week,I have an appointment with a tax attorney who is also a CPA. I will provide info on what the attorney advises.
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Original Message

Subject: Re: Managing Money to Cover Nursing Home Costs
Author: cobi Date: 6/3/01 7:25 PM Number: 30042

2-3 thousand per month could turn into 4-5 thousand per month, if your mother's health changes.you might want to consider this too.2-3 thousand sounds low.more nursing and more medications drive costs up quickly.



Thank you for the reply. We have been looking into facilities and it appears that $3,650 is the going price for the facilites that we have seen. I hadn't considered extra expenses such as medications. I will make a list of other possible expenses. Thanks again.
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Original Message

Subject: Re: Managing Money to Cover Nursing Home Costs
Author: oiveyisme Date: 6/3/01 8:27 PM Number: 30045
While I have managed rental properties and think it can be an ok investment, perhaps you could consider the value of "renting out your mney." That is, With all the issues and expenses of renting out a spare dwelling, could there be simplification issues with selling the property and putting the money into something that generates income in a cleaner way?

There is something to consider though. Is there any chance mom could return to the property? If there is.. and you've sold it.. she might be a little ticked.

OiVey

Thank you for the reply. It does seem that renting can get complicated quickly. There is no chance of her returning home. I will be talking to a CPA/tax attorney to get advice on the tax and other implications of renting and selling. I am also looking at appropriate investments for the sale proceeds given the circumstances.
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