A life estate is a form of interest in a property that allows the person with the life estate
to retain full interest in the property until their death, but vests legal title in another person.
It is most commonly used when an elderly parent wants to transfer his or her home to a child
before their death, but wants to continue to occupy the property until that time. But it's also a
great, creative way to put together deals with older sellers who want to pull the cash out of
their home but have the right to live in it until the end.
Yes, the holder of the life estate has the right to lease¡ªor even sell¡ªthe property, but the
lease or sale is always subject to the life estate. In other words, the tenant or buyer gets the
rights to the property only for the lifetime of the person to whom the life estate has been
granted. And yes, the owner of record (you) has the right to enter the property for the purpose
of inspection with notice and at reasonable intervals. If the "life tenant" (as the holder of the
life estate is called) isn't maintaining the property, or is doing anything that will permanently
damage the value of the property, the "remainderman" (you) can sue the life tenant for
damages. You, however, are the one ultimately responsible for paying taxes, insurance,
assessments, and so on.
Buying a property that is subject to a life estate on a property has one clear risk: it's entirely
possible that the holder of the estate could outlive you, or outlive the usefulness of the
property to you. Remember Jeanne Calment, the French woman who lived to be 122? In her
80s, she sold her apartment to Andre-Francois Raffray, who gave her a life estate and promised to pay
her $500 per month until her death. By the time of HIS death in 1995, he had paid twice the
market value of the property. Her comment: "Sometimes in life, you make a bad deal."
Perhaps of greater concern to you is the possibility that the expenses that you pay on the
property might exceed the value of the property by the time you actually get possession. For
this reason, you need to put pencil to paper before making an offer and figure out exactly what
will happen if the life tenant lives 5 years, 10 years, 20 years, or until he's 122. In all
likelihood, you will discover that your offer will need to be significantly below market to make
the property eventually turn a profit.
By the way, there are 2 other strategies that might be better suited to your ends. One is called an Estate for
Years, which grants the seller an ownership interest in the property through a certain date¡ªwhich can be as
long as makes the seller comfortable, and gives you the ability to plan when you will get ownership. You can
then agree on the price of the property based on the length of the period. The other is a reverse mortgage,
where instead of paying the owner a lump sum for the property, you make him monthly payments for some
period while he continues to live in the property. Either of these should meet an elderly seller's need to
continue to live in his home while receiving an income for it.
Source: www.regoddess.com
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