Hey all, I thought I'd seek the advice of people much smarter than me regarding this potential scenario...
I recently came across a property in an up-and-coming area, where the current owner is a mentally handicapped older gentleman who inherited the property from his father and is tended to by a live-in caretaker. The house needs some TLC and they cannot really afford to pay for upkeep or repairs. He is about 8 years behind in property taxes and neither the owner nor caretaker are in any financial situation to pay them off. He has been taken advantage of his entire life by other family members so he has nobody to turn to for help. If someone doesn't clear that tax balance soon the county is going to foreclose on his property and he will be kicked to the curb (I don't know how it hasn't happened already, frankly). I really want to buy the property, but have no desire to move into it, and would prefer to let him continue living in the house he has called home for years. I was trying to come up with a creative way in which I buy the property but let them continue to live there without having to charge them rent.
I realize that in a typical Land Contract, the buyer makes a down payment to the seller, occupies the property, makes monthly payments to the seller, and obtains ownership after say 5 years. In this situation, could we set up a Land Contract such that my down payment would be used strictly to pay off the property taxes, and my monthly payments to the seller would essentially be equivalent to what I would charge a tenant to rent? So basically my monthly payment to the seller would be offset by his monthly rent to me, so no money would ever be exchanged. I would take care of property taxes and insurance, make repairs, and after 5 years obtain ownership of the property, without actually paying the seller, and without the seller paying me rent.
Benefits for me: I own the property in 5 years, free and clear, only having to pay off property taxes and making some repairs--by that time I'm predicting the neighborhood will have appreciated quite a bit
Benefits for the seller & caretaker: outstanding tax debt is washed away, a huge weight is lifted off their shoulders, and they can continue living in the house for another minimum 5 years without having to pay a dime
I'm still quite the noob at the whole REI game, and it sounds really weird but it seems like a win-win for both of us. But I still feel like I'm missing something. Has anyone ever been in a situation like this? Would I be the landlord to the seller while we are in the land contract, and be responsible for example if the furnace breaks. Would I be crazy to fix this place up for them without even living in the property, and not owning it for another 5 years?
And obviously I would seek legal assistance with all of this, I just wanted to get some feedback from BP first before presenting my proposal to the property owner or consulting an attorney. Thanks and look forward to hearing everyone's thoughts...
I would consider paying for an option to buy the house at a future date. Your option cost would be the amount of back taxes owed. At the time you specify the option is to be exercised, your option payment would go toward the agreed purchase price. This way, you don't have the liability of owning the property at this time.
Make sure that you have your closing agent conduct a title search, buy title insurance if you want it, record the option, and pay the back taxes directly to the county from your proceeds to ensure they get paid.
If you could buy it cheaply for taxes but give the owner a life estate that might work
@Rick H. are awesome creative guys
@Brian Gibbons My first thought was life estate second was some form of living trust if possible
In common law and statutory law, a life estateis the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death when ownership of the property may revert to the original owner, or it may pass to another person. The owner of a life estate is called a "life tenant".
Awesome, thanks for the feedback guys!
@Brian Gibbons @Account Closed the option idea sounds intriguing. Let's say agreed upon purchase price is $25,000 and unpaid taxes are $2,500. So my "option cost" is $2,500 and goes directly to the city for taxes? Let's say option is "exercised" January 1, 2020--would that $2,500 come off of the $25,000 so I would then owe $22,500 on Jan 1, 2020? I just would like to not owe a balloon payment of $20k+ in 5 years. I would also like to pay for some repairs on the property up front, which the current owner/caretaker cannot afford. Would it be OK paying for these repairs now, knowing that I will be buying it in the future?
I'm trying to figure out a way to do this where:
- I obtain ownership within ~5 years by only paying off the property taxes
- Owner can stay in the house at least another ~5 years and doesn't have to pay rent
- I pay for much needed repairs up front that they can't afford
Maybe we need a combination of life estates, lease options, and land contracts?!?
If this guy might be heading to a nursing home, stay away from a life estate, convoluted deal, his home is exempt when attempting to qualify for state medical benefits to pay his nursing home bill, you could end up getting him kicked to the curb later on.
Loan him the money to pay the taxes or just pay them as he will owe you the tax bill. Do an option on the side. If the option is taken, he agrees to finance it to you, seller financed.
That note will be an asset to him if he needs to qualify, two routes:
One, make the note so that it is not marketable as the asset is assessed to it's market value, or;
Two, set the note up to be purchased later on at a discount if he needs to qualify, the note is sold and all funds then go to his care until expensed.......this is the better alternative.
If you just bought it, there will be a 3 to 7 year contemplation rule as to his disposal of assets and he may be obligated to use the sale proceeds for his care, which he won't have, say in year 7. Can't pay, out you go if the state won't pick up the tab and they will go after the estate.
He can also sell you a half undivided interest, joint tenancy with rights of survivorship and your investment can be protected and you can have his interest Willed to you or. use a Trust, but don't take him off title as with a sale. This is probably your best solution. If he leaves he can simply quit claim the remaining interest.
See your attorney! :)
See an Elder Care attorney :)
again thanks for the responses guys. @Bill Gulley he is not headed to a nursing home anytime soon--I was just saying if we set up a life estate, he could end up in one in 10 or 20 years and that would definitely complicate matters. I would like to pay the tax bill for him as the "down payment" or "option fee" in order to not only secure the property but ensure that they can still live there without threat of being foreclosed on. Ideally I want to make it so he does not have to pay anything back to me.
I like the Joint Tenancy with Right of Survivorship idea! So he & I would be 50/50 owners, and I would own the property free and clear whenever he passes away? Or if he decides to move out he could quitclaim the deed over to me? I would still need to compensate him for obtaining my "half" of the property. Perhaps I could offer to A. pay off the tax bill, B. pay for all repairs, and C. send him something like $100/month for 5 years so the poor guy had a little extra disposable income. You think that would make sense??
Besides stealing the property, yes that will work, I suppose when someone is doesn't care about family heirs and just wants to be taken care of, such arrangements can be fine. I've had stranger things happen. Good luck :)
I've had nothing but problems logging in on iPad ever since BP decided to add the chat feature (bandwidth hog).
I agree with Bill G. (it happens sometimes) that the Life Estate is a poor plan.
The basics are that the Life Estate owner (really just a conditional ownership as opposed to Estate for Years - which is time certain) will almost assuredly become messy if that owner looses capacity and must be dealt with.
Who wants to be on the 6 oclock news as guy/gal evicting Mrs. McGillicutty?
I thought the bandwidth hog was the video commercials, I can't post until it stops!
Anyone can end up in a nursing home, not just elderly, but a half interest puts you in control, somewhat, better than an option or leasing or an installment deal.
That's why new investors need to understand the principles of RE, deeds and interests are kinda important stuff to know....LOL :)
Another possible way of obtaining the property is buying any tax certificates that may exist on the property. The taxes become current, and you can foreclose on the property once the redemption period has expired. Here in Florida, you have up to 7 years to start foreclosure proceedings on the property. If you go this route, though, if you choose to make repairs on the home, it would be out of the kindness of your heart, as you won't actually own the property until it's foreclosed on. :)
Join the Largest Real Estate Investing Community
Basic membership is free, forever.