Author Topic: Reader Case Study - from reddit: "25, inherited estate, undergrad, freelancer"  (Read 3692 times)

realifethrowaway

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Life Situation: USA, NYC. 25 years old sole dependent. Inherited IRA with a minimum distribution each year starting with just over 600k

Gross Salary/Wages: Student. Freelancing I've only had a minor job this year, also negligible.

Pre-tax deductions: None yet.

Other Ordinary Income: Currently i have just over 900k in a Merill CMA managed by the same group managing my familys assets for 30some years, my intention is for that to create 4k-6k a month (compound whatever little is left) to pay my current lifestyle bills. I haven't had the money there for even a quarter yet, so I haven't seen anything yet.

Qualified Dividends & Long Term Capital Gains: None yet, except that I have the minimum distribution from the IRA every year.

Rental Income, Actual Expenses, and Depreciation: Home owner maintence in a COOP building for 4,200/mo, various bills and food for about 800/mo, health insurance about 1000/mo (cobra) but is saving me roughly 1000 a month on my perscription medications.

Adjusted Gross Income: -6,000/mo

Taxes: Thus far I haven't had to take a distribution and this year have only been a student, so my account claims the 20k deductable from owning the apartment negated any taxes I have. Same guy has done my family taxes for awhile so he's familiar to the situation.


Current expenses:
Home ownership 70%
Health insurance 15%
Misc: 6%
Electricity/Heat/Water/Internet (dont have cable TV): 5%
Dog: 4%

No mortgage.

Expected ER expenses: Low if it happens while I'm covered by Cobra.

Assets: NYC Apartment - valued at 2.7m for probate probably closer to 3m (1800-2100 sqft 2BR 1 1/2 BTH view over looking central park city and fireworks). Inherited IRA valued at 640k, and an investment account I'll be calling my FA today about investing with about 950k. 175k in a 1% CD waiting for me to move it somewhere better (emergency fund). 30k dwindling cash (day to day fund)

All of my investments are invested across a broad range of stocks by some wealth managment group. On paper they both are moderate, 50-70% in equity, 0-50% in bonds. In reality, the IRA will likely compound and the distribution fill in any losses on the CMA while the CMA (hopefully) makes the 6% I need. I'm about to call my FA and have been talking to him, so suggestions on how to invest this that I should mention to him could help?

Liabilities: No loans.

Specific Question(s):

I wan't to rent out my old families apartment as I finish school so that I can move back here later on in life, build up my fiscal equity, and feel in general like I've done right to my family. It seems to either be this or sell, since it's not maintainable as a student. Possibly before money runs out I'd find the cushy CS job I needed but that's a guessing game with my motivation and plans on getting a degree.

My hope is to be able to passively mantain it with investments until I rent it out. This could take several months, maybe even a year as the transfer process in a coop is long and extensive and still not quite done, and then there's also the approval process for tenants. What I plan to do in the meantime as it transfers to fix up the parts of the house that need fixing.

I figure I'd do this regardless of rent or sale, so it's definitely what to do. This apartment has been in the family for 70 years, so there's alot of clutter, bookshelves filled to the brim. What kind of apartment should I be trying to create to create the ideal rental? My target would be a family, not college students. I've lived in with roommates before and would rather not be owner to the disaster it can become.

How bad an idea is it to hold out and rent given my situation? Some seem to think it's a bad enough idea that I sell the apartment outright with no future plans made. I may want to transfer schools, move to an entirely much cheaper state, or just follow the CS relocation jobs as I've heard is very lucrative.


I think this is feasible, and won't burst into flames sanz I do something stupid with the money like an expensive startup, but at the same time I'd like to be able to invest in such a thing if I think it's actually gonna turn out well.

So, I feel like I have a property with some potential for rental income, and even if not, I'd like to keep it due to sentimental reasons. I understand that there is a possibility I'll have to sell it if I plan to keep a certain lifestyle.

Anymore information I can give you?


If this plan does rock bottom, the stock market crashes while I'm unemployed and I find myself without an apartment, I'll probably go grow weed.

lostamonkey

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Are you at all interested in FIRE?
Your assets:
640K IRA
950K taxable account
30K emergency fund
3M apartment
Total=$4.6 million dollars

Seriously you are set for life and have more assets than most of us will see in our lifetime.

sunday

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You need to clean that apartment up and rent it out. With the rental income from that apartment, you could cover your own rent in a much smaller space, or a roommate shared space, as well as most of your other expenses. If it were me, I would not sell that apartment, but many on here would disagree.

realifethrowaway

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The same wealth managment group one side of my family has used for awhile, the other people are more recent but about a decade old, and the same accountant the other side used for quite awhile. Mixed and matched advisors from both sides of the family the estate lawyers are the most recent.

The executor of the estate is an is a close friend and a lawyer as I understand it, they don't do much with the estate as it's not there expertise. There's a trust created in the will for the estate which the transfer is in flux over because the coop has asset requirements for transfer and they were improperly distributed in the will for it to be smooth. I'm in a situation of this trust where I'm the "trustee" and family member the "trustor", I'm not the beneficiary.

MissStache

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Your situation is probably well beyond what people here are equipped to handle. You said your family has used the same advisers for the past three decades? Start by talking to them. Who's the executor of this estate?

Agree!  If you already have a financial adviser, this sounds like a good opportunity to use them, especially as you are managing a substantial estate.  Don't take our advice!

realifethrowaway

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Your situation is probably well beyond what people here are equipped to handle. You said your family has used the same advisers for the past three decades? Start by talking to them. Who's the executor of this estate?

Agree!  If you already have a financial adviser, this sounds like a good opportunity to use them, especially as you are managing a substantial estate.  Don't take our advice!

That's why reddit sent me to you guys xD I wasn't happy with the situation with the wealth managment group, as my family wants me to sell it. My FA seems to think it's doable with the investments but I cant seem to get those things started until later, busy guy. Till that gets going I'm hesitant to transfer my cruddy 1% CD into vanguard and thats what takes the 6000/mo hit

Roots&Wings

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The feasibility depends on the numbers and your goals. What will this apartment rent for each month relative to expenses (maintenance/taxes/insurance/management)? Have you spoken with a realtor familiar with your building?

If it is such a prime location and if your goal is to keep it long-term, then connect with the appropriate professionals and post the numbers :)

velocistar237

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$6K/month out of $1.6M principal is a 4.5% withdrawal rate. That sounds fine to me, except that your wealth management team will take a cut of that and you'll end up more like 5-5.5%, which is a little more risky. Your rental income (~$2-3K, depending on the place, after the 50% rule) will help, so why not decrease your upper bound on withdrawals a little bit to make sure the capital lasts? Or is the $6K/month a short term thing until you can establish the rental and other income?

Long-term investment works best with something like an 80/20 or 90/10 stock/bond split.

Any idea how much return you'd be giving up by becoming a landlord rather than selling? I'm guessing it's quite a bit.

You seem to be in a robust financial situation. If you make small mistakes now, you'll learn and recover from it. Just don't eat away at your capital.

So the IRA is yours, but the CMA and property are in a trust? Who is the beneficiary? How can you get the benefits without being the beneficiary?

realifethrowaway

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Or is the $6K/month a short term thing until you can establish the rental and other income?

Short term, although the 1800/mo on top of my current home maintence is a solid upper bound of my costs. Health insurance is half of that and ends in somewhat soon. Some people even tell me to transfer to new health insurance now, thats something I'll ask my doctor about.

Long-term investment works best with something like an 80/20 or 90/10 stock/bond split.
I'll try to post a full list of my IRA's investments, it seems about that and fairly standard. Maybe less in bonds...

Any idea how much return you'd be giving up by becoming a landlord rather than selling? I'm guessing it's quite a bit.

It'll cost about 500-5,000 to fix the apartment up for minimal sale, maybe 15,000 to fix it up specifically how I'd like it - which I'm not sure is ideal for rental. I think I could return about 2k-3k in rental income after expenses, utilities, etc. I have gotten a realtor to appraise it, but only for probate, so I'll do it again for renting or selling because the appraisal was low and the apartment a bit of a mess. I've heard very different things about rent here and that I could probably rent it for 6k-8k+

I'd probably get about or under 2m if I sold it due after taxes and all, considering my current assets it doesn't sound very appealing. But it would be quite a jump.

So the IRA is yours, but the CMA and property are in a trust? Who is the beneficiary? How can you get the benefits without being the beneficiary?

Not quite, it's a bit confusing.... The IRA I'm not sure is in the trust, I don't think it is.... There was supposed to be a trust investment account, I don't think there is one right now. The only thing in the trust is the apartment, and I wrote my trustor back as the beneficiary...

realifethrowaway

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If I might pry, did you just inherit this recently? Did a parent or grandparent die? Because if this is a recent event, I think I'd sit tight for a year or so, draw what money you need to maintain your current lifestyle, and not do anything rash.

And in the event you want to hang out with the proletariat, come to my apartment in Queens and my husband and I will feed you. You're about our age, anyway.


Ha! Food sounds quite good! My shopping list is pretty basic.

I've been doing this for about a year now and over the course of about 6 months I spent just about 41000 and over the holiday season to so 6833 about adds up, the other part of the year had some unforseen costs so I'll be keeping track from here on