Viatical settlements to buy RE at a discount? - Posted by Clare


#1

Posted by Clare on November 04, 1998 at 13:28:52:

Has anyone used a viatical settlement contract to do a deal and purchase real estate at a discount? A viatical settlement, for those who don’t know, is the sale or transfer for value of a life insurance policy by a terminally ill person, (viator) to a third party investor. The investor gets the face value at maturity (death), and the terminally ill person gets the cash while they are alive to use as they see fit. The amount they receive, or the investor pays, is determined by the life expectancy of the viator, the longer they have to live, the less they receive, or the investor pays. Kind of like a “zero coupon” bond but with an estimated maturity. For more info on viaticals go to http://www.capitalfl.com I thought about this strategy while studying CS real estate course. A deal might go like this: A property is listed for sale at $65,500 which is about FMV. The owner has a small mortgage and wants 10% down cash at closing. I agree to pay 15% more than the asking price, $75,325 with 15% of the sellers asking price, $9,825, paid to the seller at closing if the seller will accept a viatical settlement contract written on a 3-4 year life expectancy for the balance of $65,500. I may have to educate the seller on the merits of the viatical contract, but essentially they would be the beneficiary on a “A” range rated policy written on the life of a terminally ill person who is medically estimated to have a life expectancy estimate of 3-4 years. As a buyer, I don’t have cash but I have this contract which I can transfer to them if they agree to the terms. Meanwhile, the contract costs me approximately 56.5 cents on the dollar or about $37,007 for the $65,500 face amount needed. I obtain a “new” mortgage for 75% of value or $49,125 which I use to “reimburse” myself for the viatical contract, pay the seller his $9,825 cash at closing, with an additional $2,293 for myself. The deal could be enhanced a number of ways if the seller needed more. Maybe additional interest could be paid until maturity of the contract or if the contract exceeds the life expectancy estimate. Has anyone successfully tried this approach? Does anyone who has done a number of deals think it could work? What suggestions might you have to make it work? I would appreciate the insights or comments you might have. Thanks, Clare