Where would I find an investor for this project?

[gpdrasnin]

I have an amazing 81 yr old client in San Diego searching for a cash investor open to generating an immediate 20-25% equity gain on a cash investment of approx $280k. Here’s how it works…..she is single, no children or heirs. She wishes to buy a 1-2 BR condo in the UTC area (approx value of $350k). She will have approx $75k from the sale of her current condo to put in to the purchase and is looking for the investor to put the remaining ~ $275k in cash toward the purchase. The condo will be titled in both my client’s and the investor’s names, and my client will pay all maintenance, HOA, upgrades and all or partial property taxes. In return this is a “life estate” wherein she is able to live in this condo until she dies–at which time 100% ownership goes to the investor. What a win!

There are many seniors in the same situation and this could lead to several opportunities for both the seniors and investors! Rents and home prices are so high that seniors cannot sell their current home and afford the cost of rent or a mortgage in addition to living expenses for any length of time. I love helping seniors and I truly believe that my client has come up with a wonderful solution that may work well for many others. Are there investors that would consider this type of Life Estate scenario? Is it a good deal for them? Please feel free to pick it apart….THANKS!

[Anonymous]

Lol, “anyone here want to speculate on how long this woman will live?”

But it’s an interesting idea. I see the win-win.

[njtosd]

My real estate law is rusty, but my recollection is that a life estate is a tenancy that is created with a deed from the owner. Life tenants do not get title. If the woman gets title it would not be a life estate. Life estates are very weak rights – it sounds a bit fishy to me. I’m sure there are others here who will chime in who know more than me – this is not legal advice.

[livinincali]

I ran some numbers and it looks like a terrible deal for an investor. Let’s compare it to the obvious alternative. Somebody investing in a rental property with a cap rate of 5% after all expenses. That way we can ignore the appreciation aspect of real estate (both investments would appreciate the same). So if you assume investing $275K and a 5% cap rate you collect $13,500 per year in rent. Here’s what 10 year of collecting rent looks like.

Year Total Rent Collected
1 13750
2 27500
3 41250
4 55000
5 68750
6 82500
7 96250
8 110000
9 123750
10 137500

This lady is giving $75K in equity so what this means is right after year 5 as an investor you would have been better off just buying the property outright and renting it rather than entering this deal. In addition this investment is completely illiquid while a investment in rental property is liquid. You’d probably want a better return for the illiquid aspect of the the deal. It’s great for the lady is she can find an investor dumb enough to enter into this kind of arrangement.

[svelte]

If an investor had $275K cash, they could put it in the stock market and earn 8-10% a year.

Even at 8% they could earn $22K a year on their money in the market.

That means if the lady lives more than 3 years, the investor will have done better in the stock market since she’s only putting in $75K.

I wouldn’t take her deal even if I had $275K burning a hole in my pocket.

[(former)FormerSanDiegan]

Let’s turn this around:

If you had $275K to invest and were looking for a $350K property would you rather:

a). Take 5 years of up-front rent payments to cover the rest of the purchase price in exchange for i)forfeiting rents in years 6 through 9 (on average); ii) freezing the liquidity of the investment; iii) the possibility that you forfeit rent for years 10- 20 if the person survives into their 90’s; and iv) depend on the person with the free rent paying expenses for which they have no down side if they cease paying (other than possibly eviction… good luck with that)

or

b) Take a loan for 75K and have immediate cash flow of maybe $600 – 700 per month.

for me it seems like a steep price for the investor to pay for such little benefit. We’re talking $75K here.

[La Jolla Renter]

livinincali’s thought process looks accurate to me.

I did a quick search on the internet and found that a 81 year old woman’s life expectancy is 9 years.

Way better play to put 40% down on 2 condos that you own outright.

A 350k condo should rent for $1,800 – $2,000 per mo.

[livinincali]

[quote=FormerSanDiegan]
b) Take a loan for 75K and have immediate cash flow of maybe $600 – 700 per month.
[/quote]

I forgot about that aspect of the deal as well. You aren’t even cash flowing. You have to wait until the end of the deal before you see any money.

Probably best to just advise your client to move to a lower cost of living state. Albuquerque, NM might be a good option. Property taxes are low you can get a condo for < $75K. Climate is pretty nice year round although it is at elevation. You aren't staying in San Diego for the kids or grand kids.

[scaredyclassic]

Are her medical records avail. For review?. For the right level of extreme decrepitude, it could work. Of course, then , she’s probably be in assisted living

[Coronita]

Pass. Extremely crappy deal for the “investor”

$275k not generating any cash flow, no chance or raising rents until the person dies. God knows when she dies.

Top much risk for the “investor” to take on.

Investor would probably be better off putting $275k as a down payment and take a loan out for $75k loan on 3-3.5% 30 year.

Why would anyone in their right mind want to get involved with something so complicated when loan rates are solow and loans are so cheap right now?

The old lady, if she wants to live in UTC, can rent herself.

[moneymaker]

Isn’t this type of deal already available. Get a loan, then get a reverse mortgage. Oh maybe the reverse mortgage people want you to have more equity, right! Mobile home maybe for your client? I don’t really know about the reverse loan equity so if anyone else cares to chime in.

[ltsddd]

I think it’s a great investment idea. Where do I sign up?

[Coronita]

I still think the winner of the most creative real estate deal attempted was the guy that tried to rent one of my homes for the only purpose of turning it into an AirBNB rental without telling me, putting all the liability and costs for upkeep on me.

Jackass. Don’t try this shit with me.

If it sounds to complicated for something that should be simple, walk far far away.

[Myriad]

Reminds me of a story I read once about these deals in France where the buyer gets the property after the death of the owner. In exchange, the buyer just pays the owner a certain amount each month.

Well this guy went into this deal with a lady who was 60. 40 years later, the buyer is already dead and his kids are still paying the lady living in the house.

http://parispropertygroup.com/blog/2013/occupied-paris-property-forthcoming-movie-my-lady-puts-spotlight-french-real-estate-law/

[Coronita]

[quote=Myriad]Reminds me of a story I read once about these deals in France where the buyer gets the property after the death of the owner. In exchange, the buyer just pays the owner a certain amount each month.

Well this guy went into this deal with a lady who was 60. 40 years later, the buyer is already dead and his kids are still paying the lady living in the house.

http://parispropertygroup.com/blog/2013/occupied-paris-property-forthcoming-movie-my-lady-puts-spotlight-french-real-estate-law/%5B/quote%5D

Lol.

Yeah like I said, pass. For all we know the nice old lady cold be the OP’s relative

[Author]

Posts