Dallas TX · Member since 2020 · 15 posts · 2 votes
I have an interesting/very uncommon situation I would love to get some comments on what you all think. While looking for properties I found an elderly man who has no family left. He never got married or had kids. He currently has Chronic Kidney Disease and although he is on Medicaid he needs money for his monthly expenses. His house is worth around 180-200k as of right now. He wants someone to pay him $1,200 per month until he passes away. He has said he can add me to his will and make it irrevocable or do an irrevocable transfer of death deed for his home and a 25k stock portfolio. He is currently 70 years old and as I said doesn't have the best health. He is very old school and does not want to do a reverse mortgage. Any Ideas?
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
5y
I think it would be nice to help the guy work through his situation but I would not agree to this deal. There's just too many ways this could go sideways. Some pharmaceutical company may have been working on a medication to reverse the kidney disease. He takes it and lives to age 96. Or he may die in a month and as others stated, people come out of the woodwork to lay claim to the house. Either have him sell it to you or someone else outright or pursue another solution.
Assuming my math is right, at $1200 a month, you'd pay him $180K in about 12 years. Figure that is interest free, it could be a good deal. Talk to a lawyer and if they say yes, have everything written up so it is iron clad. You'd want to find out who pays property taxes and utilities, etc.
Dallas TX · Member since 2020 · 15 posts · 2 votes
5y
@Theresa Harris
Only thing I would be in Charge of is the $1,200. He still owns the house so he is responsable of all expenses/taxes. Everyone has told me to just talk to a lawyer but wanted to hear what the BP community thought about this.
Also: If anyone knows any RE Lawyers in Texas. Their info is appreciated.
Only thing I would be in Charge of is the $1,200. He still owns the house so he is responsable of all expenses/taxes. Everyone has told me to just talk to a lawyer but wanted to hear what the BP community thought about this.
Also: If anyone knows any RE Lawyers in Texas. Their info is appreciated.
Thanks
You'd want to have a way to make sure taxes and any bills tied to the property are current and he's paying them.
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
5y
You're also going to want to talk to a lawyer about what happens if there are family members after all as you could end up in a probate situation. There are situations where people become estranged and think they can just cut family members out because they don't really understand the law. So even though he says he has no family, there could be some out there who feel they have a claim to the property. I'd make sure to ask a real estate attorney about planning for that possibility.
Rental Property Investor · Souderton, PA · Member since 2020 · 124 posts · 106 votes
5y
@Jose De La Macorra
That seems like a potentially awesome opportunity!
Like everyone else said make sure the contract puts the responsibility on him to be taking care of taxes and insurance. I would also add into the deal that there is an end point. Me personally I would make it 10 years max. 144k total in an account that isn’t producing anything for you in the mean time. However if he outlives 10 years it will put you in a ****** situation. Could you kick a sick 80 year old man out? As morbid as it sounds, he could live until 100 and put you in a really bad position. Just my 2 cents I’m honestly not sure what I would do.
Dallas TX · Member since 2020 · 15 posts · 2 votes
5y
@Jacob Lapp
I agree. This is something I have to talk to him about but have a feeling he does not want to cap it to a certain amount of years and in his defense saying even if I live 20 years more not only will my Stock portfolio have exponentially increased but so has the value of the house.
This guy I met in person is sadly pretty sick but mentally he is fine. I will be speaking with a lawyer see what he/she recommends me and will have to see if its something worth putting my time into.
Thanks for the comment love seeing different peoples point of views!
Rental Property Investor · Souderton, PA · Member since 2020 · 124 posts · 106 votes
5y
@Jose De La Macorra
That’s a good point. Either way you can’t really lose.
He lives for 20 years - At 20 years it still wont be a loss maybe just not the best ROI. But on the flip side you were able to help an older man with no one live his last years in peace. And that's of extreme value to him and to you. Good karma is real.
Or he passes sooner- Could be one of the best investments ever made.
Either way you were able to provide the financial comfort to this guy in his last years and I think that’s definitely worth it. Especially if the $1200 a month isnt putting a burden on you and better yet is paid for by other cashflowing rentals!
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
5y
I think it would be nice to help the guy work through his situation but I would not agree to this deal. There's just too many ways this could go sideways. Some pharmaceutical company may have been working on a medication to reverse the kidney disease. He takes it and lives to age 96. Or he may die in a month and as others stated, people come out of the woodwork to lay claim to the house. Either have him sell it to you or someone else outright or pursue another solution.
Rental Property Investor · Ocala, FL · Member since 2017 · 138 posts · 100 votes
5y
@Jose De La Macorra why not just have him add you to the deed in addition to the will? If you’re on the deed, it shouldn’t matter what family comes out of the woodwork, at least I would think so.
Tempting, but I wouldn’t do it. Figure out what you could buy it for that makes sense for both of you, rent it back to him, and just make this a clean sale.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
I'd want to seal the deal & write it up as a seller financed mortgage for $1200/month. Because you never know if Medicare Recoup could arise... we did exactly that with a very frail elderly couple who didn't want to move, but it's inevitable that one or both could end up in a nursing home.
"...Federal law requires the state to attempt to recover the long-term care benefits from a Medicaid recipient's estate after the recipient's death. If steps aren't taken to protect the Medicaid recipient's house, it may need to be sold to settle the claim...."
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
5y
Sounds messy and I would avoid. High likelihood he somehow taps the equity in the house and brokerage account before dying or a family member you don't know about makes claim to it. You also aren't a licensed lender so the family could say you were predatory, etc.
Dallas TX · Member since 2020 · 15 posts · 2 votes
5y
@Henry Lazerow
If I go forwards he would add me to his will and make ir irrevocable. I would also be put as an irrevocable deed or trust to the house. A lawyer would also make a contract that goes with the deed or trust. I have not talked to the lawyer but he/she would better give me an understanding on this case!
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
5y
@Jose De La Macorra. As others have said you are making this too complicated. You could seller finance it with zero money down at 0 interest for 12 years at 1200 a month or pay something up front with a low interest rate.
At the end of the day you need to own it today, not maybe tomorrow. Anything short of that isn’t worth the risk.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
This is a hard pass. He could end up in a nursing home and Medicaid could put a lien on the house. Maybe he is on Medicare today, but he would need to go on Medicaid if he went into a nursing home. All that needs to happen is he deteriorates, ends up in the hospital and the hospital refers him to long term care. Medicaid is able to put a lien on his house and I think there is a 5 year look back period. That is to prevent people from shielding their assets in preparation to live off the government.
I fear you are banking too much on his imminent death. People in his condition can hold on for many years. Let's say he lives ten years. You are paying $144,000 in payments and getting no return over that time period. Even if the property is worth $244,000 in ten years, you are getting a $100,000 gain. Looking at it from a return perspective, that $144,000 in ten years growing to $244,000 is less than 10% annualized return on cash. That same $144,000 could buy you three houses over that ten years using leverage and you could get solid double digit cash return.
I also don't understand the comment that he doesn't believe in reverse mortgages. The agreement with you is really not much different, aside from the fact that a reverse mortgage can give him access to more money faster. There is also a fixed time factor on a reverse mortgage, so he could be afraid he will live too long. That should be a major red flag for you too.
Any agreement you make should not be $1200 per month in perpetuity. You need to define a time period and formalize it in a document. Basically you want to write up a purchase contract and you are paying installments. You also want a lien on the property to secure your interest. I am not sure the exact number of years to make it work financially, but less than ten years for sure.
As far as the $25K stock portfolio, what stops him from spending that money? He could draw $1200 a month from his stock portfolio and live on it for 20 months, so obviously he sees a longer future than that.
The reason people are telling you to talk to an attorney is because this is situation is filled with legal traps. The complexity is not worth it.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y
As others have indicated, buy the house with seller financing. Length of term should be expected remaining life duration plus a margin.
Note $180K, 10 year, 2.5% is $1697. If you are paying him $1200, he is in effect renting the unit back at a cost of $497. I suspect that is a little cheap even if he is paying for all upkeep. This is probably OK though because of the nothing down, minimal closing costs, no hassle of upkeep, no hassle of vacancy (at least until death), etc. Virtual no effort RE investment.
Of course, if he dies early and debt is forgiven at death, it could work out well for you, but I do not want to be the investor who is hoping someone dies early. Therefore, I would stay with the 10 year straight financing with tenant responsible for all upkeep (a little like an NNN investment).
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
5y
@Jose De La Macorra sounds overly complicated and there are probably many ways this could go wrong: everything people have mentioned above like healthcare costs causing problems, unknown heirs or past business partners coming out of the woodworks with title claims... plus if he dies next week in a freak accident that doesn’t look great for you either if you benefitted financially from his early death. Or if he starts to lose his mental capacity over the years it could also look like you took advantage of him. Too many ways for it to get messy with whoever becomes his power of attorney. Not saying that’s the case by any means, but you want to prepare for the worst in this situation and there’s too much that could go wrong that you can’t control. I would just offer a clean, mutually beneficial seller financing scenario that you can both agree on: close the deal, title goes in your name, promissory note, lease back, simple structure that removes all the risk of unknowns.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
5y
Could he sell you the house now and he buys an a guaranteed annuity at closing with the cash that would guarntee him $1200 month until death? You could rent it to him for $1 month and you pay taxes and insurance....so you know that gets done. Then you both get what you want.
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
@Jose De La Macorra
I would counteroffer. Find a smaller house, cheaper, and rent out to him for “taxes/insurance”. Buy the house paying installments of 1200,00.
This way its a clean purchase. You have control of the asset. A house is an incredible asset IF properly maintained. The way the guy proposes seems to be a great deal... but if he does not take care, it will depreciate. Termites, roof, and many other issues could arise... then it wont have the value of 180-200 you assume now.
San Jose, CA · Member since 2020 · 15 posts · 15 votes
5y
Agree with others: too many complexities and too many scenarios where it could go wrong.
And as @Dan Heuschele mentioned, I wouldn’t want to be in a place where I’m hoping someone dies so that I can benefit financially. That sounds like a pretty toxic mindset to be in. If you like this man as a human and want to help him out, explore seller financing options that could be a win-win situation. Good luck and I hope things work out well!