Helping Parents Through Retirement in Denver

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Helping Parents Through Retirement in Denver

Quoc Tran
Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes

Hello BiggerPockets!

My parents have worked hard throughout their lives to put their kids through school and pay down the mortgageby the end of this year they will have finally paid off the house and are hoping to retire May 2018.

Here's the problem. They do not have 401k/IRA accounts, so they would depend fullyon social security income. And I know, I know, you're probably frowning on them for not having a retirement savings account, but they were notfinancially educated or hadRich Dad Poor Dad in their lives. Investments were never their thing and I'm afraid to say they were stuck in the Rat Race all their lives. Although the house will be paid off, they are afraid social security income will not be enough to cover for other expenses, such as car payment, utilities, property taxes, insurance, and hopefully a little vacationing so they can enjoy retirement.

So I'm trying to help them, and here's my plan. Their current house is not in bad shape and is in an up and coming neighborhood in a decent school district. A coat of paint here, drywall there, laminate flooring throughout and the house will be a perfect rental. We live in a suburb of Denver, and the rental market is pretty hot. I was thinking they can refinance the house, and use the cash for rehab and a down-payment on a decent multifamily. Since it's just the two of them and they don’t need much space, they can house-hack the multi-family and rent out their current home as well. I believe this would give them a pretty good monthly cash flow. My goal is to analyze deals to get them an extra $1000 per month.

What do you all think of this plan? Are there better alternatives?

Thank you very much,

Quoc

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Matt M.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
9y

You are right. That is a tough job. Could she take on employees and just manage? Just an idea if she has a good book of business. 

I just checked my heloc at Elevations. It's at 5% right now. They will lend up to 90% of their "computerized" value. That value was close, if not high compared to what I thought my home was worth. No appraisal, I can't remember any costs, and we closed in 2 weeks. 

If they pulled $300k out, they could pickup 2-3 condos that would rent from $1k-$1500 a month. Just be wary of the complexes with high HOAs. 

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  • Josh Cuthbertson
    Professional · Redding, CA · Member since 2017 · 123 posts · 81 votes
    9y

    Hi Quoc -

    What happens if / when a big fix or repair needs to be done in the new multi-family. Can they cover such an expense?

    0Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    With a big repair, such as new roof or HVAC, this would have to come out of the CapEx budget. If that's not enough I would have to step in with my own money to help them. To me, this is what novice investors would have to face regardless.

    0Reply
  • Josh Cuthbertson
    Professional · Redding, CA · Member since 2017 · 123 posts · 81 votes
    9y

    I totally agree. My parents are north of that area about an hour and 30 mins, but in Wyoming, and we're looking to do the same. Curious how you would handle that situation, but based on your response that would be my impression as well. I'm interested to see what others think of this model.

    0Reply
  • Account Closed
    Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
    9y

    @Quoc Tran My Mom and Step Dad were in the same predicament.  They ended up moving from a condo on Federal & Mississippi (behind where the Albertson's used to be - not the best of areas) and bought a condo over at Windsor Gardens (Havana and Alameda).  They paid off that Condo.  My Mom was almost 20 years younger than my Step Dad and he wanted her to be taken care of when he passed.

    He passed away in 2008.  During that time, my Mom met someone else (the guy that lives in the unit above her) and they moved in together.  She uses her unit for parties (Christmas, Easter, etc.) and for visiting relatives to use and they live in his Condo.

    I was also surprised to learn about a month ago that she managed to scrape up enough money to buy another condo at Windsor Gardens IN CASH....on her social security income.  She paid $147,000 for it and is working on fixing it up herself (minor items such as paint and carpet).  She has a property manager in place and she is on the waiting list to be able to rent it out.  Planned rents are about $1,400 per month.  She is really proud of doing this by herself (I had to help her out for a few months when my Step-Dad passed away).

    I'm not sure if an option for your parents would be to sell the place in Lakewood and move into a similar community with the difference in price being a reserve fund for them, or even do a cash out refi on their house in Lakewood to buy a condo in a similar community with plans that they move there once they get tired of lawn mowing and other similar chores that come along with the house.  Might be something to consider.

    Good luck!

    1Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    @Account Closed Thank you for your input. My parents are in a very similar situation. My step dad is 10 years older than my mom, so it would be very important that she is taken care of financially after his passing. It's a morbid subject, but it's definitely necessary to plan for.  

    That's AWESOME that your mom was able to do that by herself! No small feat at all. 

    Selling their current house is an option, but considering my mom's age (55), I feel she is far too young to live off of the difference. I believe the current value of their house is around $350k. Perhaps a HELOC on their current house to afford a property managed condo/multifamily would be a better choice? Estimated rent for their current house is ~$2000 per month.

    1Reply
  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    If she's only 55, can she really afford to retire? She'll probably live another 30+ years. It will be easier to work now as opposed to when she's older. Not trying to be an a$$, just putting that out there.

    My grandmother blew through hundreds of thousands after my grandfather passed away. She had to go back to work at age 65. She worked another 10 years before she couldn't work anymore. The family stepped up and helped her until she passed.

    Multifamily is at a high premium right now with everyone under the sun looking to invest. It will be difficult to find something in an area they probably will feel comfortable in.

    If you go down this route, make sure you have them speak to a lender to see if they can qualify for a heloc and a new mortgage. And please, don't let them retire without putting this plan in place. They won't be able to qualify if they do. 

    0Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    Hello @Matt M., 

    I agree with your concern. Step Dad is 65 and Mama's 55. He's ready to retire, but she will likely be working until at least 60, depending on her health and how well she can manage her labor-intensive job. She has a house cleaning business, so while it's not as extreme as picking-up-bags-of-cement and digging holes, it requires a healthy body to do the job well. Grease can be stubborn :)

    Another option is to have them stay at their current house and use the HELOC to buy a few properties. If you happen to know, what is the typical rate right now? My stepdad has maintained perfect credit for a number of years, so I'm pretty positive at this point.

    0Reply
  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    You are right. That is a tough job. Could she take on employees and just manage? Just an idea if she has a good book of business. 

    I just checked my heloc at Elevations. It's at 5% right now. They will lend up to 90% of their "computerized" value. That value was close, if not high compared to what I thought my home was worth. No appraisal, I can't remember any costs, and we closed in 2 weeks. 

    If they pulled $300k out, they could pickup 2-3 condos that would rent from $1k-$1500 a month. Just be wary of the complexes with high HOAs. 

    1Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    @Matt M.

    Funny enough, taking on employees was actually an idea I've pitched to her before. I like your thinking! :)

    The condo market might be better for them, rather than multifamily. Something I'm not clear on is this. Would the HELOC pay for the 20% down payment and they would have to leverage a mortgage for the other 80%? I'm also researching the idea of doing a BRRRR to pay off the HELOC.

    0Reply
  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I would use the heloc to buy the condos cash. Then use the cash flow to pay off the heloc asap. Then once it's paid down or off, rinse and repeat. 

    The BR.. way is a little more involved because they'd have to fix up the units and really find the deals (which is hard right now). Then qualify for the refi which they might not be able to do since they are retired. With the heloc, once you have it, I don't think they make you requalify. 

    0Reply
  • Susan Maneck
    Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
    9y

    It is not enough to make sure one's spouse has enough money to get them through retirement. One also needs to make sure the surviving spouse understands how to manage that money.  If only one spouse always pays the bills, does the taxes, etc. that is not likely to happen. 

    0Reply
  • Kevin Grinstead
    Realtor · Denver, CO · Member since 2016 · 499 posts · 129 votes
    9y

    Hi Quoc, sepending on the price and value of the current home, they might be able to sell it and buy a condo or home using a reverse mortgage where they could invest half the cost of the new condo and own it until they are no longer able to live there. 

    With the remaining proceeds they could buy a rental and have a small about of cashflow while the rental is being paid off but they will not have to pay a monthly mortgage and they would have a place to stay until the end. 

    In this scenario, they would only need to pay Hoa and taxes and insurance on the property they would have as their own and then they could have a rental, pay it off quickly and then increase monthly income from the rental. After it is paid off they can buy another rental or just keep with the one depending on need and the market. But they know that they are safe in the home they are living in and it is not at risk if they have renter problems.

    The only challenge in house hacking a multifamily unit is that they would have to maintain it and manage it. For, my parents who are now in their 70's that is not possible for them. At some point your parents would need to pay a property management company. 

    0Reply
  • Jean BolgerPro Member
    Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    So competitive for small multi-family right now. I agree with Matt that a condo might be a better fit, both financially and personally. I'm actually pretty familiar with Windsor Gardens and it is still a very good value for retirees although prices are going up there. Refi and renting out the bigger home seems like a good  line to look in to.
    As far as the numbers, and whether you'll be able to hit that extra $1000/mo, so much depends on the neighborhood and condition of the house. LMK if you'd like me to run a few quick comps for you.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Most economical approach is to sell the home and move them to an affordable condo that they can themselves rent. There is no point in sinking money into ownership at their age when renting is less expensive, no maintenance responsibilities and the money from the home can be invested in a conservative fund that will produce a secure income stream. They are not at a age to begin risking their savings on investing in real estate.

    The market turn could conceivably wipe out their savings and situations could arise with tenants that would force them into bankruptcy. This is not a time in their lives for you to decide to gamble their savings.

    0Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    @Susan Maneck, I agree. My stepdad has always been the person doing the bookkeeping for the last 20 years. My mom has been a frugal woman and doesn't get dragged in by the shiny things, but wouldn't hurt for someone to show her how to do taxes and pay bills (Most likely me).

    @Kevin Grinstead Yes, property management is absolutely necessary at their age, and the fees would be calculated in the monthly budget if they go forward and buy a rental property. 

    @Jean Bolger I checked out Windsor Gardens online and the units seem nice and cozy. It would a good place for them. The $500+ monthly HOA fee, however, blew me away. Luxury never comes cheap, I guess :)

    @Thomas S. What other conservative funds exist?

    0Reply
  • Jean BolgerPro Member
    Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    @Quoc Tran those fees vary based on the size of the unit, I think the lowest are 350 or something. But it includes a lot of things you'd be paying for separately anyway in a SFR like property insurance, heat, water, maintenance.
    I understand where @Thomas S. is coming from, but in Denver it's actually cheaper to buy than rent in a lot of cases. I would be terrified to be a renter going in to retirement on a limited budget in our rental market, even if I had a nest egg.

    0Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Quoc Tran so I don't think the rental market is so hot in the price point of your parents home $2,000 per month. There are literally thousands of apartment units being added in that price point each month. Getting $2,000 in rent is going to be a tough sell IMO. While I know houses are not apartments there is still price pressure there. That is something to consider. You might "offer" it for rent and see what kind of response you get.

    0Reply
  • Bill Manassero
    Rental Property Investor · Mission Viejo, CA · Member since 2014 · 230 posts · 113 votes
    9y

    @Quoc Tran

    I had a very similar experience as your parents. I spent the last 12 years in the mission field in Haiti, were getting ready to move back to California to retire and had very little funds for retirement. I knew I would never be able to buy in California so started researching emerging markets around the US to become an out-of-state investor. After assessing our options, I started investing in rental properties while in still in Haiti. When we moved back to the states, I already had 4 properties in Atlanta, Memphis and Indianapolis (2 SFRs and 2 duplexes). Was able, last year, to do a cash out re-fi on those properties to purchase a 22-unit in Indianapolis. This year, I am looking at purchasing 100 plus units, with my end goal to be 1,000 doors by 2020. I know it sounds a little aggressive but we are also trying to help fund our 501(c)3 in Haiti. I turn 62 in May and can draw Social Security if necessary. Fortunately, my properties are generating enough cash flow to support us now. All this to say, your parents do not have to buy in Denver. They are still young enough to learn how to invest smart and build up a great out-of-state portfolio. With the properties being located out-of-state, they don't have to worry about the 3 am plugged toilet calls. It is possible to start investing at an older age. In fact, it's a blast! I love learning something new, finding great properties, negotiating deals, leveraging to reduce expenses and grow income and overseeing my out-of-state teams. If I was them, I would stay in their house, get a HELOC, get educated and start investing wisely.

    1Reply
  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    9y

    Has the OP investigated a reverse mortgage to help his parents in retirement?  Myths abound about them, so be sure to seek the input of an experienced mortgage broker (such as myself) to explain them to you.  

    0Reply
  • Adam M.
    Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes
    9y

    @Bill Manassero. Very impressive...you must have quite an income to make those kind of moves without any savings?

    0Reply
  • Bill Manassero
    Rental Property Investor · Mission Viejo, CA · Member since 2014 · 230 posts · 113 votes
    9y

    @Adam M. My first properties are cash flowing pretty well but I purchased my first 3 with cash.  They were in good markets and appreciated significantly.  Right now, I have leveraged off of my own properties.  I am hopeful that the value-add play and upgrades on the 22-unit will double that property's value in 2-3 years but time will tell.  However, this year I will have to use OPM for the 100 plus units and I'm sure for all future properties.

    0Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    @Bill S. Thanks for the advice, Bill. I tried to do some comps in the neighborhood and that's how I got the number. I also came across this site called "Rentometer" which lists out properties in the vicinity and the going rent, and $2000 was around the average (Disclaimer: I am not advertising for this website)

    @Bill Manassero I find your story very inspiring! Seems like my first step is to encourage my parents to embark on this path. My mom's all for it and is very excited about the idea. My step dad is doubtful and pessimistic. I'll have to help him get over the fear and show him the benefits of real estate investing and how to minimize risks. Bill, any advice on how to encourage my step dad to take the leap of faith?

    0Reply
  • Bill Manassero
    Rental Property Investor · Mission Viejo, CA · Member since 2014 · 230 posts · 113 votes
    9y

    @Quoc Tran I'd be happy to chat with your dad if you think that would help.  As I mentioned, I know where he's at because I've been there.  You might also have him listen to my interview on BP.  It explains a lot about my decision to become an investor later in life.  https://www.biggerpockets.com/renewsblog/bp-podcas...

    0Reply
  • Quoc Tran
    OP
    Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
    9y

    @Bill Manassero I'd love for you two to chat! Only problem is... and I did not mention this before... both of my parents have English as their second language and speak mostly Vietnamese. Maybe I should invest in a translator... :)

    I just finished listening to your BP podcast and enjoyed it thoroughly. Your turnkey approach gave me another idea I might present to my parents. Thank you for sharing your experience!

    0Reply
  • Andy Monaghan
    Investor · Denver, CO · Member since 2015 · 17 posts · 4 votes
    9y
    Quoc Tran I recently got 2 HELOCs. The one on my primary residence was through Vectra Bank and the one on a rental was through Westerra Credit Union (both Colorado banks). Both are based on The Prime Rate. Vectra is Prime plus .25 (I think) and Westerra's is Prime plus 0!! At Westerra if your Experian FICO is above 760 they don't add any margin and will lend up to combined LTV of 70% on a rental. My strategy right now is to use the HELOCs to pay cash (and get a slightly better deal) and then refi into conventional loans within 6 months. And then do it again.
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