WWYD? To sell or rent? (funds, pay, million, taxes)

[cis_love]

need some advice. my parents recently moved into an assisted living facility that costs about $8K a month. their pensions cover about $6K a month. they currently have $750K in savings.
i have two options. i can renovate their house (which will cost about $180K) and rent it out for $4500-5500/month and use that money to help pay for their assisted living.

option two is sell the house as is with no renovation for about $1M. subtracting capital gains tax and realtor fees maybe net $800K. add that to their current savings for $1.5 M. Invest that so make about $2500 in interest per month and use that money to help pay for their assisted living.

my sister wants to go with option number one b/c she is afraid the nursing home fees will increase as my parents get older and have greater medical needs.

i want to go with option 2 b/c neither of us want to deal with renovating and renting out the house (i also live in a different state).

what would you do?

[MrRational]

Originally Posted by cis_love

need some advice. my parents recently moved into an assisted living facility
that costs about $8K a month. their pensions cover about $6K a month.
they currently have $750K in savings.

How much income does their $750,000 portfolio produce?
Certainly enough to make up the $2K difference and then some... right?

Currently... Vanguard income funds are turning at about 3% ~ $22,500
It shouldn't be too hard to do at least that well.
And it isn't against the law to draw down some principal either.

i have two options.
what would you do?

Option 3... rent out the home as is. Without renovating it.

Fix what really has to be fixed (if anything)... get the best rent rate you can AS IS.
During the course of that occupancy do some other (tax deductible) "repairs"

Eventually they'll pass and when they do the property passes with a stepped up cost basis.
Talk to your CPA about that... balanced against the time frame involved.

[cis_love]

thanks for your ideas. the home hasn't been renovated in 40 years. it needs a lot of work. seriously. we may be able to rent as is due to the desireability of that area but it's kinda old and nasty right now.

for the vanguard is that $22K a year? right now like $500K is in a savings account b/c we thought we needed some liquidity. $250K is invested with Schwab and makes about $500. so if we took the all the money after selling the house and invested it into Schwab, that does make up the shortage right now but my sister is concerned in the future their care will increase which means the costs will significantly increase as well.

[MrRational]

Originally Posted by cis_love

the home hasn't been renovated in 40 years. it needs a lot of work. seriously.

Then explore selling the place AS IS.
The NET proceeds, selling without doing work, might be almost as good on the cash basis alone.

If it's a Million Dollar property in a desirable area... you'll find that most buyers at that level would prefer to do
any renovation work to their own taste and trying to anticipate what that taste might be a fools errand.
Don't remodel or improve a property being sold on spec ...even if you have the time/experience to manage it well.

..if we took the all the money ... and invested it into Schwab...
that does make up the shortage right now

Unlike many here I make a point of never recommending investments or discussing my own choices
but at face I suspect Mom and Dad could be doing better. Certainly they could be doing better wrt income produced.
Talk it out with your CPA and/or other trusted financial adviser.

but my sister is concerned in the future their care will increase
which means the costs will significantly increase as well.

Cross those bridges when you get to them.

[cis_love]

the house is in the Highest COL city in the states. It would def sell for 1M as is.
I assume we would pay capital Gaines tax on this too

[MrRational]

Originally Posted by cis_love

the house is in the Highest COL city in the states. It would def sell for 1M as is.

Then have Mom & Dad sell it for 1M as is... and move on

I assume Mom & Dad would pay capital Gaines tax on this too

Some. The excess beyond the threshold is taxable.
But again... talk to your CPA to know the specifics.

Capital Gains Tax On Real Estate | Bankrate.com

[cis_love]

lol I say we bc I am handling all their finances right now as a POA

[harry chickpea]

Sell unless you are a glutton for work, hassles, and dealing with tenants. The red flag is that you are out-of-state with only one property. IIRC, some nursing homes may still require an applicant to sign over any property if there is an expected shortfall, so the value of it in such a situation would be working against you. (This may no longer be the case, but I have seen it happen in the past.)

[rjm1cc]

I would sell. Could be a lot of work and problems to renovate. Are older homes in your area torn down and new homes built or are they just sold?

[cis_love]

Originally Posted by rjm1cc

I would sell. Could be a lot of work and problems to renovate. Are older homes in your area torn down and new homes built or are they just sold?

no, houses in my area are renovated and then sold for $1.5M. literally 1960s 1500 sf house. as i said it's in the highest COL city.