Investor Profile: The Caregiver

The client is in his mid 70’s and owned a single-family home in Ross, CA. Over the past few years, he has developed Alzheimer’s and has been in an assisted living home for the past 2 years. His daughter contacted us to see if it made sense to sell her fathers home or continue to rent it out for $7,000 per month. The property was debt free and represented around 80% of her fathers net worth.

We reviewed 3 different markets. His daughter was comfortable reinvesting in Oregon where the returns were higher than the Bay Area, and there was a growing economy. We reinvested approximately 2.45 Million into a 10 unit building in an A+ area of Portland.

The Problem

The client’s daughter needed more income to cover her fathers assisted living cost each year. They were running a deficit of around 40,000 annually and needed to build up their savings in case of an emergency.

If they sold the rental home without reinvesting the proceeds, she would have a large tax bill of around $350,000 in capital gains. Selling outright would also mean losing the monthly income they needed.

The Solution

A 1031 Exchange is a great solution to this problem. It allowed our client to defer any capital gains taxes otherwise due on the sale while trading up to a better performing property that will help achieve their long-term goals.