Re: life interest in real estate - Posted by phil fernandez
Posted by phil fernandez on March 01, 2001 at 16:18:42:
Methusulah ? Now I’ve never heard of that term. LOL.
I don’t really have a formula for putting these together. I know that the life insurance companies have their actuarial tables and graphs on life expectancy etc. And your deal should be based on the time value of money.
The three that I have done were buying a $50,000 house for $30,000 and giving the 89 yr old woman the life estate. The $30,000 was in the form of a low, very low rate owner financed mortgage. She lives to be 104 before I get the house out to rent. Now as she is living there, she has to pay all property taxes and other utility expenses plus repairs. Of course no repairs were done. LOL. When she passed at 104 and I got possesion the house was worth about $75,000.
The next one I did. I bought the $72,000 for $12,000 cash. You can see now I’m smartening up a bit. But not much. This woman lived there for about 8 years. When I gained possesion it was worth about $85,000 Again she had to pay taxes etc.
The third one I did was about 2 years ago. I gave this party not a life estate but a 17 year estate. I’ve learned it’s probably a pretty good idea to somehow install a cap for the time limit. I bought this one for $3,500 cash plus I have to pay the property taxes on this one. House is worth about $70,000. This one could go another 15 years as the couple aren’t all that old.
This type of investment strategy should not be the corner stone to your investing and you do need patience, but it’s neat to be picking up big chunks of equity.
Above all make sure your sellers who participate in these life estates have their own legal council so no one can come back on you. To date I have not had any problems.