For those other meanings or connotations. I strictly speak in terms of RE… eat, breath, sleep it, and any other connotation is meaningless to my myopic being…
But I get it… and I wasn’t trying to make a pun… Sorry.
Regarding the parking of funds… In my opinion, this should only be done by those with lots of funds to park, and only with funds that will not create any hardship if parked for an exceptionally long time. As David indicated, these deals can sometimes turn out to be considerably longer than the accuarial tables estimate, and if that were to be the case, this should have NO impact on the investor, ideally.
Posted by Kristine-CA on April 15, 2003 at 14:28:29:
Greetings. If I wanted to buy from the seller and complete the purchase now, but give the seller the right to reside at the property until death, is that called a life-estate? I’ve been reading about life estates online but they seem to mostly involve charitable giving.
What are the pitfalls, besides the seller living to be 122?
They define Life Estate as:
A limited right in a property, to use or occupy the property for the life of the person holding the estate after which title reverts to the grantor or a named third party.
Posted by Robert TX on April 16, 2003 at 24:09:51:
Don’t always trust the tables. My 97 year old great aunt sold on a life estate agreement to the local school district when she was 65. They are still waiting and she is still living alone with no help in her own house.
Kristine,
You might be able to buy insurance to make payments to you in the event the lady lives longer than the arcturial tables indicate.
In the past we bought many properties like this in Santa Barbara near Canon Perdido and De la Vina Streets area corridor. There were many old houses that were on R-3 properties. The deal would be that we would buy the place at a good discount, fix up the existing house and allow the l.o.l. (little old lady) to live in it. We would be allowed to condo the rest of the lot and add 2 more units at 150-200K each and sell them. When the l.o.l. passed away, we would get the last condo and upgrade it if necessary then sell it too. Worked great. This was in the 80’s. Using the insurance method, if the l.o.l. outlived the arcturial tables, the insurance would kick in and provide a return for the remainder of the time.
Good luck,
Bill
Re: Definition of life estate - Posted by John Merchant
Posted by John Merchant on April 15, 2003 at 14:40:55:
Yes, this is life estate that she would still own, her conveying you only PART of the title, reserving the LE for her life.
One precaution: since she’s elderly (I’d guess, from your being willing to leave her a LE!), if I were you I’d get her Dr.'s or her lawyer’s written statement that she’s mentally competent to do this…or you might be facing lawsuit from her estate, who might just claim you defrauded the dear old soul, “who’s been incompetent for years, suffering from alzheimer’s, etc., etc., etc.”
With her Dr. or lawyer signing off on it, it makes it mighty tough for any of her descendants to come back and attack you for taking advantage of Mom.
And, as somebody pointed out, on this subject, recently: if she can’t come up with a report from her Dr. or lawyer that she’s OK…you better go very slow.
If they won’t back what she’s doing, how safe is it?
Bill, this makes a lot more sence… - Posted by David Krulac
Posted by David Krulac on April 16, 2003 at 19:32:54:
because of the multiple units, but for a SFH, I haven’t seen any deals in life extates and I’ve been looking. Multi-units, condos, farm or house with extra land, yes there are possible good deals. But singles, I haven’t seen it and I’m not looking to be betting on somebodies demise.
Re: Definition of life estate - Posted by Kristine-CA
Posted by Kristine-CA on April 15, 2003 at 14:52:53:
John Merchant: thank you for your reply. When you say the seller conveys only part interest at the time of sale, what part is that? Is it a partial interest with contingencies? How much of an interest? Can you suggest where I can read about this so I understand it better.
No problem with the lawyer/doctor signing off, I think. The owner passed a competency “test” yesterday as the county was considering appointing her a guardian or conservator. Indeed, she is elderly and will probably die intestate with no known heirs. She is very leery of a reverse mortgage, but I think she might go for a life estate (as will her advocates (neighbors) who will do just about anything to get her condemned property cleaned-up).
Anyway, it’s just another offer that might come to something, but this time it’s in Santa Barbara county–where property values are much higher than where I usually work.
“her advocates (neighbors) who will do just about anything to get her condemned property cleaned-up).”
Does this mean that you will fix it up and maintain it for the rest of her natural life…? I think that it does… with limited knowledge of the situation here. How would doing so for say 20 or 30 years impact the overall imvestment return…? Does the expected result, should that come to pass, fit with your objectives in the deal…?
Think of a life estate this way… You get to park your money in the deal, but not your car… The elderly gal will receive all the benefits and enjoyment of the property, as if she owned it… but on your nickel, for the most part. Of course, a worst case (huge) discount can make these palitable, but not for everyone. In most cases these are for folks that have lots of bucks to park, in search of better than average yield.
Re: Definition of life estate - Posted by Gerald-DC
Posted by Gerald-DC on April 15, 2003 at 18:12:08:
A life estate is just that, for as long as the lady lives, she has complete ownership of the property. She cannot convey it, but neither can you (the remainderman).
It appears that what you want to do is buy the property from the old lady, then give her a life estate for the remainder of her life, then get full ownership when she passes.
If this is the case, I would get both the doctor, and lawyer to sign affidavits that she is competent and have a videotape of her signing the papers stating that she is competent.
Question, if the property is condemmened, why does she need a life estate? Are you going to fix it and move her in it?
Re: Definition of life estate - Posted by Kristine-CA
Posted by Kristine-CA on April 15, 2003 at 21:03:35:
JT: I’m still not getting the whole picture with a life estate. Not for your lack of trying to make it clear. It’s just that where I come from, “parking your money in the deal, but not your car” has a different connotation.
How does the life estate really work? I was assuming I pay for the property and that there is some kind of contract that allows her to live there. I would pay the taxes, maintain the property (per what/whose standards?) and at the time of death, there is a full reconveyance?
This would be 300K for a property worth 600K ARV. I agree with you and David K. though, that parking the money for an indeterminate number of years is probably not the best way to get a good yield.
But the thread is educational, to say the least. Thanks for your thoughts. Sincerely, Kristine
Yes and most people don’t understand… - Posted by David Krulac
Posted by David Krulac on April 15, 2003 at 20:25:59:
life estates.
The discount for a person’s age and gender is so little understood that probably 99% don’t understand.
The younger a person the MORE of a discount. Its done with acturial tables and for example an 80 year old female would take a 30% discount per the tables.
Besides all the already written stuff about a person’s competency, that elderly person would be taking a 30% discount. Also usually the settlement is in CASH. I could never pull myself to give an 80 year old woman $70,000 in CASH for her $100,000 houses AND let her live in it rent free and expense free for the rest of her natural life. It would almost put you in the position of wishing for her early departure. I’ve know several such women who lived beyond 100 years. If that happened in this case, you not only would give her $70,000 in cash, let her live there rent free and expense free, but you would have to wait maybe in excess of 20 years to get control of the property.