portfolio update

We made a fairly significant change to the portfolio. My parents wanted to get their house and farm out of their name in case they needed to qualify for nursing home assistance. Instead of gifting it to my sister and me, I set up what appears to be a fair market value purchase but eliminated the actual transfer of most money by renting it back to them. I don’t feel like going into detail on all of that, but they were willing to part with a property that I had estimated to be worth at least $750k for $250k (enough to live comfortably for them). I bought out my sister’s half for $210k (a good deal for her considering we can do nothing with it until they no longer live there, and she’s free from potential realtor fees). I only have $460k tied up in the property. After crunching some numbers on comps in the area, I’m placing the value at $825k for accounting purposes (indexed at three times the zillow home value index of the zip code). Optimistic, perhaps. The downside is that a great deal of our post-tax liquidity is now tied up, and I must explore new ways of getting to 59.5 without incurring penalties or affecting our healthcare subsidies (HELOC? SEPP? PT Work?). I’ve also adjusted the way I calculate SWR and portfolio value.

Before the transaction, I based the SWR off of the investment portfolio (3%, approximately $40k of $1.2M). Since I’ve recently come to see our own home as a potential source of income in worse-case scenario (i.e. a reverse mortgage since we have no heirs), I’m going to start including the value of both real estate properties in the portfolio (our home will be indexed at two times the zillow home value index of the zip code) and slightly compensate by reducing the SWR to a target range of 2-3% (approximately $40k-$60k of $2M). We’ll be assuming my student loans now, so those payments, as well as interest payments from temporarily holding payments to my parents will increase our spending slightly. With the pre-inheritance, we can also feel free to waste quite a bit if we ever desire to do so. I must also bear in mind that SWR is traditionally based upon stock index returns, which are typically better than real estate in the long run. The rough portfolio breakdown from the new starting point is as follows: $740k (pre-tax), $320k (post-tax), $825k (farm), $440k (home), -$320k (loans) = $2005k (NW). Currently: $760k (pre-tax), $320k (post-tax), $830k (farm), $445k (home), -$320k (loans) = $2035k (NW).