How to invest 200k in Washington State for highest cash flow?

[Angelea Weihs]

Hello,

My parents have recently asked me to become the POA and Representative Payee for my grandmother. My grandmother has been in an adult family home for the past two years out of necessity. Prior to the adult family home, my grandmother had a savings of over 300k. She now has a savings of 200k due to the AFH costs. Once the money runs out, Medicaid will cover her expenses, however this will eliminate all flexibility that private pay provides. My parents know I am passionate (though inexperienced) about real estate and have asked me if I would be interested in solving this problem. My solution is to purchase rental properties. In order to cover my grandmothers expenses (after social security), I need to make as close to $2800 dollars in cash flow as possible. One concern I have with leveraging, is that if something goes wrong, I will not be able to cover both the rental property expenses and my grandmother's bills at the same time, so I would prefer to make cash purchases. Does anyone have any suggestions for how they would invest 200k in order to get the most cash flow possible, specifically in Washington State?

[Chris Newman]

Hi @Angelea Weihs

I have to pretty much agree with the above opinions. You're looking for a simple 16.8% ROI and, in the Puget Sound market, even 12% (the 1% rule) is pretty much non-existent. The ratio between rents and property costs just doesn't pencil out. I wish that I could offer an easy solution.

However, while this isn't strictly a real estate subject, there's another consideration that you should get clear on: Medicaid's strict requirements. In addition to an escalating need for assistance care, medical costs can explode in the final years. If I recall correctly, about 90% of a person's medical costs occur in the last five years of life, ultimately to no avail. 

I went through a similar situation with my elderly mother back in the late 90's: She owned a F&C house worth about $175k at the time, where my wife (at the time) and I were living. Mom was in an assisted living center at a fairly ambulatory level and her $1,600 social security checks covered that cost. 

But, her condition slowly deteriorated and the facility notified us that she would have to be moved to a different section that provided a lot more help and that the cost was going to significantly exceed her SS income. Clearly, there was a financial pinch coming. Not wanting to lose the house, our first thought was for her to quit-claim it to us and let Medicaid pick up the final costs. 

But, that idea turned out to be a non-starter: Medicaid is onto this type of maneuver and they backdate financial resources - if I recall, it was for three years. Whatever type of financial arrangements had been made in that time period would have to be unwound or Medicaid simply would not pick up any costs. For Medicaid to step in , the patient has to be well and truly penniless and have also been so for the backdate period. We met with an attorney who specializes in this subject and he could offer no solutions, which was a complete waste of $250. 

Ultimately, we ended up doing the quit-claim, moving her back home and using her SS checks to hire caregivers to drop in several times a day for the truly gritty needs. The attorney never mentioned this option. This was risky in that, if her needs got much greater, we'd have had to sell the house. But, it at least forestalled that eventuality. 

Finding reliable caregivers was challenging, but we eventually landed a good private caregiver, who did daily rounds, for mornings and evenings, plus a student nurse who was exceptional for mid-days. (If I had to do this again, I'd start looking for caregivers at nursing schools.)

Ultimately, the timing "worked out" and, while exhausting to manage, we didn't have to sell the house. And, my mother passed peacefully in her home, with family nearby, about the best that any of us can hope for. 

This may not be an option in your case, but it's the only Medicaid workaround that I know of that doesn't require years of pre-planning that we don't know to do until it's too late. Your only option may be to give up on the idea of preserving the $200k wealth, spend it down and let Medicaid to its thing. 

Good luck!