Author Topic: Inheritance, Real Estate Investment, and SSDI  (Read 1378 times)

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Inheritance, Real Estate Investment, and SSDI
« on: July 14, 2018, 10:08:50 AM »
Hi folks,

I've been reading up on MMM for a while now, and I'm attempting to get more into this lifestyle.  It has major appeal.

In this case, though, I'm trying to utilize the little financial literacy I've picked up to help out my father.  I'd appreciate some thoughts and advice.

My father has a lot of health problems, including crushing two disks in his back quite a few years ago (15-20 now?).  He has made some very poor decisions historically that have left him with nearly nothing but his house (self-built, 50k owed).  He gets 800/month from SSDI and that is effectively his only income.  His house payment alone is 750/month (500 of which is basically taxes).  I help him out here and there, and his father helped him as well.  He is 56 years old, and does get around OK movement wise, just needs to be careful and not lift a ton.  All of his skills involve physical labor, as he went into business with his father straight out of high school doing concrete work.

That said, a few months ago, his father passed away.  He is now dealing with the estate.  There was really no cash, so the only real asset to speak of is a property worth ~125k per recent appraisal.

I'm trying to figure out the best way to utilize this newly found asset to get some additional income (per his wants, and it makes sense).  He wants to get into rentals, and thinks that it would be best to rent out his father's old house.

We expect that he could get roughly 1000-1200 per month for it, as it is a very nice piece of land, but otherwise in a pretty out of the way area.  Looking at the 50% rule of costs for real estate rentals, that puts him at 500-600/mo extra with no mortgage.  That's significant compared to his current income, but will not break him out of poverty.

Instead, I'm thinking that he would be better off selling the property and investing in some existing small apartments.  This would spread his risk (single vs multi-unit), better utilize the money currently sitting as equity, and allow a much greater cash flow.  Here are a couple samples I was looking at (real on market right now):

ListedDownpaymentTotal Rent (as listed)Profit/Mo after 50% expenses & subtracting Mortgage
185k462502540482
95k237502200695
97k242502715944

That totals about ~95k downpayment, which leaves him a bit after selling the house for improvements, savings, etc.  It also has a monthly cash flow estimate of about 2,100.  Now, these aren't hopping city properties, surely.  The first property has a GreatSchools rating of 4, and the other 2 2-4 depending on school.  I actually went to the school of the first one growing up and it wasn't bad at all - just a small country school.

Unfortunately, as part of SSDI, he can only make so much money before he loses his benefits.  I believe that number is ~1180 or so/mo.  While most could live reasonably in general on 2100/month estimate above, I think that it would be very hard for him due to medical expenses, and losing all the assistance he currently gets.  That probably deserves a case study by itself.

All that background to boil down to a few questions:
   1) Should he invest in the other properties in this manner, rather than renting the single home?  Do the number above add up as I believe that they do?  Is there an alternative we aren't considering?  Index fund at 4% safe withdrawal is only 400/mo, so traditional doesn't seem like a good option.  I think we need to be a bit aggressive.
   2) Since he cannot earn more than 1000/mo or so without losing benefits, would it make more sense to funnel these investments through a business?  Starting some type of corp (as it couldn't be an individual proprietorship, to my understanding) would allow his investments to grow, allow him to pull a small payout (1k/mo), and keep his subsidies.  My thought is that with the remaining 1000/mo or so sitting in the business, it could easily buy a couple more properties over the next few years, allowing him to truly break out of the poverty world he is in and more comfortably give up all his benefits.  Is this possible/make sense?
   3) If he does manage to get the above successful and breaks out, any advice on healthcare?  He has massive healthcare costs, and should expect to max out any plan he is on.  Do individual health insurance plans (ACA?) increase in cost per year based on usage, like auto insurance?  This may well deserve its own thread in another section.
   
I really appreciate any thoughts you folks may have.  I know that increasing income is the opposite of the normal cutting of expenses, but he really is well below needs at the moment.

Thanks for your time.

Dr Kidstache

  • 5 O'Clock Shadow
  • *
  • Posts: 64
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #1 on: July 14, 2018, 10:38:07 AM »
I don't have any real estate advice but I would encourage you to double-check that he is receiving SSDI and not SSI. SSDI is not asset-tested and so you're correct that there's a limit to earned income (not sure how/if rental income applies to this). But if his only income is $800/month, is he not SSI-eligible? [don't know - maybe his personal house as an asset makes him ineligible?] If he is in fact receiving SSI or any other asset-tested assistance, that might impact what he should do with the inherited property.
Also, if he truly has such significant medical expenses, losing Medicare coverage by losing SSDI could end up exposing him to so much in healthcare expenses that it could eat up the inheritance quickly. I've just gotten on Medicare after the waiting period for SSDI and the ACA marketplace was not a pretty place to be. The plan I had refused to cover anything (literally - they paid $0 of my health care expenses 1990's HMO-style) so my out-of-pocket expenses were enormous. I'm a Texas resident, though, so he may have better options. You can search for plans in his zip code online on healthcare.gov to get an idea.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #2 on: July 14, 2018, 10:51:51 AM »
Hi Dr Kidstache,

I've been told that he has pursued those other options in the past, but frankly, he is terrible at nuanced activities like that.  He is really struggling as executor of the estate.  It may be worth looking into.

The health insurance is truly a big deal.  He has several appointments a week, including regular therapy for his back that will never go away.  That's why I think it has to be an all-or-nothing experience.  Pulling just enough to lose SSDI/Medicare is a disaster scenario.  I've always had employer health insurance that was reasonable - its a whole other world without it.

Thanks for your thoughts.  I'll definitely keep them in mind.

better late

  • Stubble
  • **
  • Posts: 227
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #3 on: July 14, 2018, 08:46:32 PM »
I agree you need to know *exactly* what program(s) he is enrolled in currently.

My understanding with SSDI and medicare is that there are no limits to the amount of passive income you can make, but you can not earn more than $1180 a month.   

$1,180 is SGA, and social security administration looks at that and says "oh, he can go to work and earn $1180 a month, he is no longer suffering from a physical disability"

But don't take my word for it -- I am learning as I go while helping a family member myself. 

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #4 on: July 15, 2018, 03:03:09 PM »
I agree you need to know *exactly* what program(s) he is enrolled in currently.

My understanding with SSDI and medicare is that there are no limits to the amount of passive income you can make, but you can not earn more than $1180 a month.   

$1,180 is SGA, and social security administration looks at that and says "oh, he can go to work and earn $1180 a month, he is no longer suffering from a physical disability"

But don't take my word for it -- I am learning as I go while helping a family member myself.

Hey Better,

Thanks for these thoughts.  I didn't realize the difference between passive and earned income here!  That's interesting, and makes me lean even more towards putting his inheritance in a business.  If my understanding is correct, this means that he could put 100-120k after house sale into the business as an investment, and we could run the business basically as a property management company (perhaps paying ourselves a small bit?) and we could payout whatever to him in dividends, without it impacting his medicare/SSDI.  Does that sound right?  Perhaps we could also pay him as a contractor if he wanted to dub on a few small projects here and there, as well.

On the SSDI versus SSI, I looked into it a bit.  Unlike SSDI, SSI appears to have an asset test, which he barely fails (owns a small lot outright, and a few k in an IRA).  It seems like we could free up the land thing (been harping on him for that), but the cash in reserves is a bit scary.  Less than 2k at any given moment doesn't seem like a thing to aspire to for a few hundred more a month.

Appreciate continued thoughts.

better late

  • Stubble
  • **
  • Posts: 227
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #5 on: July 15, 2018, 06:03:56 PM »
Please don't put much weight on any of my comments -- I am really learning as I go here. I think a lawyer who deals with disability would be able to help determine what passive income is possible and how to structure it.

I want to say flat out that a mistake where your dad loses SSDI and Medicare due to making a few hundred bucks over SGA is as you mentioned a disaster scenario. Dealing with that now with my relation and it's really scary.  I believe even one month of earnings above the SGA starts the wheels moving.

I believe SSI and Medicaid kick in only once you have spent down your assets and have less than $2,000 to your name (not including home and modest car)

Your dad's property taxes seem high. Are there any programs where he lives that give property tax relief for disability or senior citizen?

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #6 on: July 16, 2018, 04:58:14 PM »
Please don't put much weight on any of my comments -- I am really learning as I go here. I think a lawyer who deals with disability would be able to help determine what passive income is possible and how to structure it.

I want to say flat out that a mistake where your dad loses SSDI and Medicare due to making a few hundred bucks over SGA is as you mentioned a disaster scenario. Dealing with that now with my relation and it's really scary.  I believe even one month of earnings above the SGA starts the wheels moving.

I believe SSI and Medicaid kick in only once you have spent down your assets and have less than $2,000 to your name (not including home and modest car)

Your dad's property taxes seem high. Are there any programs where he lives that give property tax relief for disability or senior citizen?

Hey Better,

Understood.  It's definitely a very bad scenario.  My comments were actually around doing some reading after reading your comments on the government websites, and it seemed to agree with you.  You are right about consulting a lawyer first, though.

The property taxes are, indeed, high.  The result of some stupid town decisions.  They wanted a massive reno on the high school for 7-10 years, and every year the voters turned it down for being too expensive.  Every year they came back with a higher number.  Unfortunately, last year some voters bad at math managed to get it through.  It double to tripled everyone's taxes for the foreseeable future.  I don't believe he is eligible for any relief, though it's worth looking into again.  Either way, he didn't sign up for those taxes when he built 12 years ago - it just hit everyone a year or so ago, unfortunately.

Appreciate any insight from anyone else, too!

Thanks!

powskier

  • Bristles
  • ***
  • Posts: 312
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #7 on: July 16, 2018, 06:32:48 PM »
Forgive me for being blunt and understand that I mean this in the kindest way, but if your Father is in poor health and has a history of making poor decisions becoming a landlord is a bad move. Some people are not cut out for managing more responsibilities, it's ok.
 Landlording is not as passive as people like to suggest and it doesn't sound like he has the time/health or ressources to deal with problems/repairs that will come up.
You could sell the property and but some bonds/index fund/bond mix/ whatever and have the dividends go directly to his account just to create some more income for him. You could sell the property and pay off his mortgage and still also invest and this would immediately reduce his expenses without affecting the income side although he would have to have the discipline for putting aside money for taxes.
In short I would recommend making this money work for him in the safest, easiest way, adding more to his ( or yours) plate will likely make the situation worse. This is a case where pursuing the biggest bang for your buck is not the best choice but pursuing the best course of action that can suit the person maybe.
 Maybe buying steroid injections out of pocket and a new mattress with some of the money, while not a cure, is a good option also?

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #8 on: July 17, 2018, 04:48:20 PM »
Forgive me for being blunt and understand that I mean this in the kindest way, but if your Father is in poor health and has a history of making poor decisions becoming a landlord is a bad move. Some people are not cut out for managing more responsibilities, it's ok.
 Landlording is not as passive as people like to suggest and it doesn't sound like he has the time/health or ressources to deal with problems/repairs that will come up.
You could sell the property and but some bonds/index fund/bond mix/ whatever and have the dividends go directly to his account just to create some more income for him. You could sell the property and pay off his mortgage and still also invest and this would immediately reduce his expenses without affecting the income side although he would have to have the discipline for putting aside money for taxes.
In short I would recommend making this money work for him in the safest, easiest way, adding more to his ( or yours) plate will likely make the situation worse. This is a case where pursuing the biggest bang for your buck is not the best choice but pursuing the best course of action that can suit the person maybe.
 Maybe buying steroid injections out of pocket and a new mattress with some of the money, while not a cure, is a good option also?

Hey Powskier,

Appreciate the thoughts.  I understand it isn't easy.  We are definitely walking the line on if its too much, but at the same time its actually something he would enjoy and generally be good at.  With a career in construction, he would enjoy small odds-and-ends work on houses.  It's a pretty big consideration, though.

I'm not sure on the stock market investments via selling both, though, especially by reducing expenses.  I just looked at Craigslist for an apartment within 20 miles of his zip, and the shittiest one-bedroom apartment is already 100/month more than he pays in mortgage and taxes.  I don't think he is going to find cheaper housing in the area.  The area matters, too, because he does have relief on medical with local hospital, utilities, etc.  He'd probably only net about 50k with the sale, so while he would be up very slightly a month with investments, it would be a much worse situation overall.

Only selling the inherited property will only yield ~400/mo via 4% withdrawal, which still isn't really enough to live on by himself.  That's why I think we have to be a bit aggressive to get through this.  Else I'm just going to end up needing to support him the rest of his life.

On the medical front, while I appreciate the thoughts, I don't think we need advice on that front unless from a doctor.  He had injections a number of years ago and lost feeling in his feet for 10 years.  He already has a really good mattress (sleep number or whatever custom one).  It's pool therapy on a weekly basis that helps him keep moving.

I don't want to come across as simply excuses.  You make totally valid points.  I just don't think the approach is enough.  Do I really think he would be better just investing and living off that if it was an option?  Absolutely.  If he did, though, it would just mean I was supporting him still for the most part.  I'd greatly prefer to attempt to be aggressive and break him out of this completely. 

Any investing option for stock would only yield ~400-500 more a month.  The entirety of his existing income goes towards mortgage/taxes.  Even MMM has a barebones rate of 22k/year living (https://www.mrmoneymustache.com/2017/05/19/2016-spending/).  Subtract his housing expense for equivalency and at about 20k/yr or ~1666/mo.  That's not counting major medical (though higher insurance), either.

Another 1-1.5k/mo would completely change his life.  I'd love to find a way to get him there.

Sibley

  • Magnum Stache
  • ******
  • Posts: 3085
  • Age: 32
  • Location: Chicago, IL
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #9 on: July 19, 2018, 10:37:59 AM »
As someone with parents who are bad at making big decisions and are currently landlords, NO. This is a terrible idea. If your father wants to putter, he can build bird houses or whatever.

Talk to a lawyer who does disability. Get all the facts, figure out what he can/can't do with the money. Keep whatever is done as passive as possible.

Finances_With_Purpose

  • Bristles
  • ***
  • Posts: 475
    • Finances With Purpose: deploying resources wisely to live vigorously
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #10 on: July 19, 2018, 04:26:44 PM »
As someone with parents who are bad at making big decisions and are currently landlords, NO. This is a terrible idea. If your father wants to putter, he can build bird houses or whatever.

Talk to a lawyer who does disability. Get all the facts, figure out what he can/can't do with the money. Keep whatever is done as passive as possible.

This.  Your dad made choices that got him to here, and it doesn't sound like adding landlord duty on top is going to help.  That may be true even if you take on a lot of it yourself (and I assume you will be the one taking it on yourself). 

I agree: you need to consult someone who knows these various government programs. 

Also, I wouldn't dismiss the rental idea so quickly: $100 less is probably a discount.  When you rent, there's no maintenance, and I assume you're paying more than $100/month of maintenance over time.  That saves both of you *both* time and money: you don't have to help maintain things as much and he saves some money. 

I'm sure you've considered this, but maybe he could room with you as a means of lowering his living costs?  (Though consider that carefully, as that type of thing is difficult/nearly impossible to unwind if it doesn't work out.) 

He may like owning a house, but be wary of the sunk cost problem - thinking it's the best because it's what you have done/are doing.  It's especially difficult with aging because capacity declines and things need to change in order to be more automated/simpler.

If you want to be aggressive, be aggressive.  Is he going to become eligible for SSI or other income later, because if so, you could use the money to supplement his income (more than 4%/year) until then, then save the rest at that point and use it more passively.  It might help you bridge the gap rather than continually grow or be permanently reliable.   

FrugalRealEstateGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 2
  • Age: 49
  • Location: San Antonio, TX
    • FrugalRealEstateGuy
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #11 on: July 23, 2018, 02:01:10 PM »
What about selling the property with owner financing???
It would be like he had a rental, but without the headaches. Make sure that the buyers put 5% or 10% or maybe even 15% down so that you know that they are committed. On 120k sale price you might get 10-15k down and about 750 per month, most of it, in the first 10 years, will be interest which is passive income. 25 years of payments gets him set for a little while.

Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1868
  • Mustachian-ish in Live Music Capital of the World
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #12 on: July 26, 2018, 11:19:50 AM »
If he likes doing repairs, why not sell the inherited property, invest in financial assets (stock fund/bond fund), and let him earn the allowable $1170 doing local handyman work?

Your first-draft plans all add risk into a risky situation. It seems you are hoping to get a higher return but engaging in wishful thinking. You will likely end up with more problems, not more income.

I sympathize that his skills are manual, and landlording includes some manual fix-it labor. But the other aspects make it too risky. 

Before you do any plan, please consult a very skilled expert (attorney?) who truly knows the details of how all of your father's benefits can be disqualified. That is the part you have to get right. Then choose the path that involves the least number of screwup options.

Happiness is possible here but not guaranteed. Don't let wishful thinking lead you astray.

If you just sold the house and he got a $400 check per month (withdrawal from the resulting investments that you set up for him), you might not feel he's out of poverty. But how would he feel? Would he be glad to get the check?

If you then knew he is allowed to earn up to $1170 in handyman income, how would he feel about that?

Your original post said "he wants to get into rentals."  Is that because he wants to feel like a big shot property owner? Wants the pride of owning a business? Wants to feel he is doing something worthwhile with his hands? Would he change his mind if his rent was considered income because he is an active owner, and it made him lose his benefits?

Since his feelings are as important here as his skills, I suggest investigating them as well as the benefit impacts of the different income options. Good luck!!
« Last Edit: July 26, 2018, 11:43:22 AM by Bicycle_B »

Finances_With_Purpose

  • Bristles
  • ***
  • Posts: 475
    • Finances With Purpose: deploying resources wisely to live vigorously
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #13 on: July 26, 2018, 08:52:52 PM »
That's some solid input from @Bicycle_B

Papa bear

  • Pencil Stache
  • ****
  • Posts: 662
  • Location: Ohio
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #14 on: July 26, 2018, 09:01:54 PM »
Not sure if I missed this... if you sell the property for a down payment for other apartments, have you thought through that loan?  Can your dad even get another mortgage with his income level? Or if the apartments are higher number of units (more than 4 typically) you may be looking at commercial loans. 


Sent from my iPhone using Tapatalk

Dicey

  • Walrus Stache
  • *******
  • Posts: 8053
  • Age: 60
  • Location: NorCal
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #15 on: July 27, 2018, 07:23:38 PM »
Another landlord piling on to the growing "NO!" pile. Too risky.

Also, kindly watch the snark, please. People you don't even know are taking time out of their busy lives to answer your call for help.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #16 on: July 28, 2018, 01:51:29 PM »
As someone with parents who are bad at making big decisions and are currently landlords, NO. This is a terrible idea. If your father wants to putter, he can build bird houses or whatever.

Talk to a lawyer who does disability. Get all the facts, figure out what he can/can't do with the money. Keep whatever is done as passive as possible.

I've talked to a laywer before.  I'm happy to talk to an expert here - I'd love it, honestly.  That said, I've tried this twice now.  Once with a localish Laywer (~hour trip) that we paid for 1.5 hours of bad/incomplete advice.  The other time I tried to go to an online service, but they weren't able to truly answer my questions, especially from a local perspective.

Any advice on finding a good lawyer?  I'm happy to pay the couple hundred bucks to get real answers, I just haven't been able to find someone capable of doing so.  I'm trying here.  It doesn't help that we live in a relatively rural state with no really major cities at all.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #17 on: July 28, 2018, 01:58:22 PM »
As someone with parents who are bad at making big decisions and are currently landlords, NO. This is a terrible idea. If your father wants to putter, he can build bird houses or whatever.

Talk to a lawyer who does disability. Get all the facts, figure out what he can/can't do with the money. Keep whatever is done as passive as possible.

Also, I wouldn't dismiss the rental idea so quickly: $100 less is probably a discount.  When you rent, there's no maintenance, and I assume you're paying more than $100/month of maintenance over time.  That saves both of you *both* time and money: you don't have to help maintain things as much and he saves some money. 
Can you clarify on the 100 less is probably a discount part?  I'm not following your intention here.

Honestly, the maintenance has been very, very small.  He built the house himself around ~2005, so it's still very new for a house.  There isn't even a lawn to mow.  I fully acknowledge we are likely to get into real repairs as the years progress.  Even so, he left to basically live with his father before he passed away for ~3 years.  During that time, I stayed at the house a few times, and otherwise it was empty.  He moved back in afterwards with no extra waiting repairs or maintenance.
I'm sure you've considered this, but maybe he could room with you as a means of lowering his living costs?  (Though consider that carefully, as that type of thing is difficult/nearly impossible to unwind if it doesn't work out.) 
Yeah.  I've offered that, or similar (maybe build a duplex or small house on same land?).  He wouldn't go for either one.  It's still probably the better idea, but I couldn't convince him to go for it.
He may like owning a house, but be wary of the sunk cost problem - thinking it's the best because it's what you have done/are doing.  It's especially difficult with aging because capacity declines and things need to change in order to be more automated/simpler.
Agreed in general.  If its better to sell it, that's fine (need more information on your earlier statement to fully understand).  Based on my current assessment/understanding, he gets way better house in way better condition for within ~100/mo.  To find a house that was in a decent neighborhood and livable would likely be more than his current taxes/mortgage.
If you want to be aggressive, be aggressive.  Is he going to become eligible for SSI or other income later, because if so, you could use the money to supplement his income (more than 4%/year) until then, then save the rest at that point and use it more passively.  It might help you bridge the gap rather than continually grow or be permanently reliable.   
He should be eligible for SS at retirement per normal.  The real problem is bridging the gap.  Honestly, the income isn't the problem, it's the health insurance.  800/mo in income isn't going to make a significant difference in the end game, but several thousand a month in medical will.

Appreciate the thoughts.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #18 on: July 28, 2018, 02:01:22 PM »
What about selling the property with owner financing???
It would be like he had a rental, but without the headaches. Make sure that the buyers put 5% or 10% or maybe even 15% down so that you know that they are committed. On 120k sale price you might get 10-15k down and about 750 per month, most of it, in the first 10 years, will be interest which is passive income. 25 years of payments gets him set for a little while.

I definitely hadn't thought of that.  It has its own risks, but it may actually be a very good bridge for him.

That said, can you please help me with your math?  At 120k sale with 15k down, that's a 105k mortgage.  At 4.5% interest and 25 years of payments (I think that's what you meant?), I'm getting about ~584/mo in payments.  Where are you getting the 750?

Thanks for the interestingly difference perspective.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #19 on: July 28, 2018, 02:13:28 PM »
If he likes doing repairs, why not sell the inherited property, invest in financial assets (stock fund/bond fund), and let him earn the allowable $1170 doing local handyman work?
It's a great question.  There are several other questions I'd need to figure out, such as 100% do the financial investments count against his potential handyman income.  Either way, I think the biggest consideration is long term.  Right now he could potentially earn a bit more cash if he tried, but his retirement is the same 800/mo.  He can't work forever.  That's one of the main reasons I'd like to be aggressive in getting him a bit ahead while he still has at least a little time.
Your first-draft plans all add risk into a risky situation. It seems you are hoping to get a higher return but engaging in wishful thinking. You will likely end up with more problems, not more income.

I sympathize that his skills are manual, and landlording includes some manual fix-it labor. But the other aspects make it too risky. 
Can you please clarify on the risk?  Are you thinking we are looking at bad properties, or that there is too much ambiguity on his benefits?  Something else?
Before you do any plan, please consult a very skilled expert (attorney?) who truly knows the details of how all of your father's benefits can be disqualified. That is the part you have to get right. Then choose the path that involves the least number of screwup options.
Any advice on finding a good lawyer for this?  I just replied in another post, I have tried this in the past.  Finding a competent lawyer seems really hard here.  Locally they don't seem to exist, and internet ones don't seem to have enough local knowledge.  I'll happily pay the lawyer fees to get the information locked down, I just haven't been able to find one to pay that actually knows the answers.
Happiness is possible here but not guaranteed. Don't let wishful thinking lead you astray.
Completely agree.  That's why I wanted the sounding board.  I know real estate can have better returns, but there is a reason.  That's a big reason I wanted the sounding board here.  I guess I should also consider the opposite case, in what happens if the investments don't work out.  While he wouldn't be in a bad place, it could certainly put me in one if I had to cosign.
If you just sold the house and he got a $400 check per month (withdrawal from the resulting investments that you set up for him), you might not feel he's out of poverty. But how would he feel? Would he be glad to get the check?
He has told me he basically needs another 1k/mo to feel comfortable, assuming he keeps all his benefits.  I currently give him 800-1000/mo to keep him living.
If you then knew he is allowed to earn up to $1170 in handyman income, how would he feel about that?
It's not sustainable long term.  He already has major health problems.  I figure he could push for another couple years and get settled on things, but he does also need a retirement strategy.  I agree that the handyman income could help him survive on his own for another few years, but it doesn't get him ahead, in which case he is back in a huge problem with no changes in a few years.
Your original post said "he wants to get into rentals."  Is that because he wants to feel like a big shot property owner? Wants the pride of owning a business? Wants to feel he is doing something worthwhile with his hands? Would he change his mind if his rent was considered income because he is an active owner, and it made him lose his benefits?

Since his feelings are as important here as his skills, I suggest investigating them as well as the benefit impacts of the different income options. Good luck!!
I think the most accurate statement is feeling he is doing something worthwhile with his hands.  He wants to not be dependent on me.  On changing his mind, I think it depends on how much the income was.  If it covered his needs he would be fine, but he is very worried about his health, for good reason.  At this point, though, he has lived in this world for a long time (not being able to cover his own expenses), and is finally ready to try to get himself covered.  He was asking his father for help for a long time before he passed away, along with me occasionally.  Now it has all fallen on me.  He frankly should have been set for life with a good lawyer since he became permanently disabled on the work site and lost all his usable skills, but that is yet another thing on his list of things poorly handled.  He pushed through/settled so he could "get back to work" even though it was obvious he could never fully work again.

His feelings are a huge reason that I am considering the rentals.  I know that honestly I'd probably end up doing more of the work, but he would feel useful, and the income could potentially cover his expenses rather than coming straight from my income.  It's a huge balancing act.

Thanks for the detailed thoughts.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #20 on: July 28, 2018, 02:14:44 PM »
Not sure if I missed this... if you sell the property for a down payment for other apartments, have you thought through that loan?  Can your dad even get another mortgage with his income level? Or if the apartments are higher number of units (more than 4 typically) you may be looking at commercial loans. 


Sent from my iPhone using Tapatalk

I have, indeed.  It's extremely likely that I would need to cosign.  It's yet another angle here that is making me try to think this through rather extensively.  It's not just his life in the balance, but potentially mine, if I have to go in with him.

ZeroToRetire

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #21 on: July 28, 2018, 02:19:22 PM »
Another landlord piling on to the growing "NO!" pile. Too risky.

Also, kindly watch the snark, please. People you don't even know are taking time out of their busy lives to answer your call for help.

Hey Dicey,

Can you please elaborate on the risk?  While I appreciate the advice, I really need to understand where the risk lies to make informed decisions.  Are you referring to his potential loss of benefits?  The properties themselves?  Going this deep as a first-time landlord?  Something else? 

I apologize if you feel there is 'snark'.  I'm trying to understand all the perspectives and weigh many different options.  It's a complex situation, and there is no ill will intended.

Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1868
  • Mustachian-ish in Live Music Capital of the World
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #22 on: July 28, 2018, 03:51:50 PM »
Your responses make it clear you are indeed working hard at this! Keep up the effort. 

TL; DR - not sure I have all the answers, can only share my thoughts. Doing so for questions raised, all of which are very good questions:

Your first-draft plans all add risk into a risky situation. It seems you are hoping to get a higher return but engaging in wishful thinking. You will likely end up with more problems, not more income.

I sympathize that his skills are manual, and landlording includes some manual fix-it labor. But the other aspects make it too risky. 
Can you please clarify on the risk?  Are you thinking we are looking at bad properties, or that there is too much ambiguity on his benefits?  Something else?

Something else:
1. Belief on my part that real estate is more of a business than a passive investment, coupled with the perception that the team of you and dad is not yet knowledgeable enough to make success likely.
2. Since I feel that real estate is a business, and you say he will not be able to sustain much work, I assume that over the long term you and he would add relatively little value. Or more accurately, there's a risk that you wouldn't.
3. Costs. From what I can tell (longtime landlord, just one property; medium amount of reading) costs over time are often higher than inexperienced landlords estimate.
4. The effect of leverage. It magnifies the good and the bad. If you borrow to buy a profitable property, and do so at a cost that is less than the property earns (your cost of funds is less than the capitalization rate), leverage raises your profit. But if your cap rate turns out to be less than your borrowing cost, leverage magnifies your losses relative to other investments at that cap rate.

In other words, I'm worried you guys will try your best but lose money.

I took care of my dad in his older years. It took a lot of time and involved numerous twists and turns. One of them was an owned property that he didn't live in any more. We ended up with no rent and three years of expenses followed by selling at a loss. I'm glad my own property has been profitable, but his wasn't. Financially it was a time suck and a money sink.

Before you do any plan, please consult a very skilled expert (attorney?) who truly knows the details of how all of your father's benefits can be disqualified. That is the part you have to get right. Then choose the path that involves the least number of screwup options.
Any advice on finding a good lawyer for this?  I just replied in another post, I have tried this in the past.  Finding a competent lawyer seems really hard here.  Locally they don't seem to exist, and internet ones don't seem to have enough local knowledge.  I'll happily pay the lawyer fees to get the information locked down, I just haven't been able to find one to pay that actually knows the answers.

That's a problem. I grew up in a town near big rural areas, so I sympathize.

Still, are his benefits federal? If so, wouldn't that mean an expert anywhere in the country could explain the rules?

If so, it seems like the internet must lead to someone competent. When I researched issues related to my dad, usually the internet had multiple sources.

I'd start like you did - search for something like "can i work and still collect ssdi"

I got:

https://www.google.com/search?q=can+i+work+and+still+collect+ssdi&rlz=1C5CHFA_enUS692US692&oq=can+i+work+and+still+collect+ssdi&aqs=chrome..69i57j0l5.14145j0j7&sourceid=chrome&ie=UTF-8

Several sites explaining the basics look like they give overview.

Then I'd search, perhaps using LinkedIn if I didn't like Google's results, for lawyers or consultants using various search terms from the discussions. Figure out who has real experience with this work. Maybe look for "reviews" of these people. Maybe contact multiple ones - five, ten, twenty. Seems like expertise to back up the general websites should be findable for major federal programs.


If you just sold the house and he got a $400 check per month (withdrawal from the resulting investments that you set up for him), you might not feel he's out of poverty. But how would he feel? Would he be glad to get the check?
He has told me he basically needs another 1k/mo to feel comfortable, assuming he keeps all his benefits.  I currently give him 800-1000/mo to keep him living.
If you then knew he is allowed to earn up to $1170 in handyman income, how would he feel about that?
It's not sustainable long term.  He already has major health problems.  I figure he could push for another couple years and get settled on things, but he does also need a retirement strategy.  I agree that the handyman income could help him survive on his own for another few years, but it doesn't get him ahead, in which case he is back in a huge problem with no changes in a few years.

Ok, clear and understandable target. So the $400-500 from selling the house and investing the proceeds in financial investments would cover part, but you and he would still want him to have another $600/mo or so.

If you don't have a better option, "he earns about $600 while he can" would then limit your contribution lower amounts and fewer years. You'd still face the pride issue, but only farther down the road. As my dad got weaker, he became more accepting of help, but you could have a different experience.

I wish I had a better suggestion, other than set up the $400-plus-handyman thing and urge him to save during months where he earns more than $600. Still, my personal opinion is that "huge problem" and "my son loves me and helps me out with $500/mo now that I can't work any more, while I get $800 in benefits and $400 from investments" are two different things.
[/quote]

I very much respect your consideration for Dad's feelings. You obviously love him, and his situation sounds like his desires are greater than his resources. You will decide in the end what you can contribute and how. You'll find out from experience what works and what doesn't. We can only guess what will work, what the pitfalls are. You're the one who will really do it, so in the end, do what you think is right. In any event, your dad is lucky to have you. Best wishes in this.

Fwiw, my experience of aging parents is that everyone suffers from aging in ways they don't like. It varies from case to case what the specific suffering is, but some of the suffering is inevitable. I took solace eventually in distinguishing between inevitable pain versus avoidable pain. Some of your dad's pain is unavoidable, so - yes feel empathy, but don't try to fix the unfixable if it puts the avoidable pain at risk.

I guess I really saying that I suspect the landlord route is adding avoidable pain, risking loss of the investment. But possibly you will pull it off and be glad that you ignored my guess. Best wishes either way.

Dr Kidstache

  • 5 O'Clock Shadow
  • *
  • Posts: 64
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #23 on: July 29, 2018, 12:41:35 PM »
Re: your frustration with lawyers, I'm wondering if you've overcomplicated getting your dad's benefit information. Have you talked directly with the Social Security Administration? Any correspondence that he's received from SSA identifies which office he is assigned to. He can make an appointment at his assigned office (maybe even get the info by telephone) and you can accompany him. SSA is not out to get him or trick him. They can give you very straightforward answers as to what his benefits are, what the eligibility criteria are, how earnings would impact his benefits, etc. You also made a comment about him going to get SS at age 65 but that may not be accurate. If he's already receiving SSDI, I believe he will continue to receive the same amount after age 65 - no new money. If your goal is to understand his benefits in order to avoid jeopardizing them, go straight to SSA.

Finances_With_Purpose

  • Bristles
  • ***
  • Posts: 475
    • Finances With Purpose: deploying resources wisely to live vigorously
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #24 on: July 30, 2018, 01:42:39 AM »
As someone with parents who are bad at making big decisions and are currently landlords, NO. This is a terrible idea. If your father wants to putter, he can build bird houses or whatever.

Talk to a lawyer who does disability. Get all the facts, figure out what he can/can't do with the money. Keep whatever is done as passive as possible.

Also, I wouldn't dismiss the rental idea so quickly: $100 less is probably a discount.  When you rent, there's no maintenance, and I assume you're paying more than $100/month of maintenance over time.  That saves both of you *both* time and money: you don't have to help maintain things as much and he saves some money. 
Can you clarify on the 100 less is probably a discount part?  I'm not following your intention here.

Honestly, the maintenance has been very, very small.  He built the house himself around ~2005, so it's still very new for a house.  There isn't even a lawn to mow.  I fully acknowledge we are likely to get into real repairs as the years progress.  Even so, he left to basically live with his father before he passed away for ~3 years.  During that time, I stayed at the house a few times, and otherwise it was empty.  He moved back in afterwards with no extra waiting repairs or maintenance.
I'm sure you've considered this, but maybe he could room with you as a means of lowering his living costs?  (Though consider that carefully, as that type of thing is difficult/nearly impossible to unwind if it doesn't work out.) 
Yeah.  I've offered that, or similar (maybe build a duplex or small house on same land?).  He wouldn't go for either one.  It's still probably the better idea, but I couldn't convince him to go for it.
He may like owning a house, but be wary of the sunk cost problem - thinking it's the best because it's what you have done/are doing.  It's especially difficult with aging because capacity declines and things need to change in order to be more automated/simpler.
Agreed in general.  If its better to sell it, that's fine (need more information on your earlier statement to fully understand).  Based on my current assessment/understanding, he gets way better house in way better condition for within ~100/mo.  To find a house that was in a decent neighborhood and livable would likely be more than his current taxes/mortgage.
If you want to be aggressive, be aggressive.  Is he going to become eligible for SSI or other income later, because if so, you could use the money to supplement his income (more than 4%/year) until then, then save the rest at that point and use it more passively.  It might help you bridge the gap rather than continually grow or be permanently reliable.   
He should be eligible for SS at retirement per normal.  The real problem is bridging the gap.  Honestly, the income isn't the problem, it's the health insurance.  800/mo in income isn't going to make a significant difference in the end game, but several thousand a month in medical will.

Appreciate the thoughts.

If rent is $100 less than his house costs, then that's probably a discount - cheaper than home ownership - because maintenance costs alone are likely higher. 

I say this for a few reasons.  First, you said the house is worth about $125k, so at 1%/year (rough rule of thumb for estimating), that's $1,250/year, or $125/month.  Second, he's losing his ability to physically do as much and has health problems.  Based upon personal experience, he may need to plan to outsource more and more of his maintenance eventually, which raises his costs too.  Third, none of this accounts for the time spent or the other home ownership costs, like mowing and so on, which also cost money. 

That's tough about your dad not wanting to look into more affordable options, such as living on your property.  It sounds like you may have to have some tough conversations ahead.  I wouldn't push him, though, just warn him of the consequences of some of his decisions if needed. 

Roadrunner53

  • Handlebar Stache
  • *****
  • Posts: 1293
Re: Inheritance, Real Estate Investment, and SSDI
« Reply #25 on: July 30, 2018, 05:54:48 AM »
I read thru this quickly and would suggest you go to an elder attorney or an attorney who knows Social Security rules. First I would contact Social Security and talk with them, then see an attorney.

I don't think your father should pursue any handyman activities with his health issues. You know he will get himself into a situation where he will push himself to do something like lifting something too heavy or the tenants will ask him to move a piece of furniture he shouldn't tackle. Like another poster said, as he gets older or less able, he will have to hire people to do things.

Also, if he isn't good in business management, this is not something he will do well at.

I would also call your local Senior Center to inquire about housing for low income older people. In my town we have some apartments for low income people. Not sure what the age requirement is. Even if it is 62, maybe you can get your father on a waiting list to get in. They typically have a sliding scale for monthly rent that figures what your income is and they charge a percentage. Maybe you could find an alternative living situation for your father like renting a room in someones house. Have you checked into mobile homes in your area. Some are very nice and you can buy used ones pretty cheap. I would NOT go with an old clunker but one that is maybe 10 years old. They start needing TLC like roofs and other things just like homes do. Compare the monthly costs to what your father is paying now to see if it is worth it. The lot rent might be so high that his taxes might be less.

Whatever you decide to do, I would make his stream of income as easy as possible. Nothing complicated. If you should not be around to help him for some reason he may end up mismanaging everything you put in place. Good luck!