House rich, cash poor

There are many senior citizens who own their own home free and clear but have no money to live on. It may be possible to buy the properties from them and then allow them to live there for as long as they want. You could rent it back to them for $10 a year on a long-term lease. The lease would have to terminate if they vacate the house or die.

You may even want to do this with your own parents as this can get an asset out of their estate for Death Transfer tax purposes. (This is only material if the estate is larger than the tax free limits.)

Obviously you have to get a considerable discount from the current market price because you could wait around for many years before the property is vacant. You will not get any rental income in the mean time. Obviously this should only be done with money that you will not need for some time. But perhaps it would be perfect for a self-directed pension fund or IRA.

Morbid as it sounds, the older the person the less time you can expect to wait, so the lower the discount you need from market price. You could also do this by letting the homeowner keep a life interest or life estate in the house while you buy the remainder interest.

Also consider giving them a down payment and then letting them owner finance the remainder to you. The money you pay them would be monthly income to them. Probably at a low tax rate. They would typically want a short term mortgage. Although they might be happy to have the uncollected payments going to their next of kin.

We have an Excel®  spreadsheet on this topic available for you free on this web site. Click here to download it. Note it is a self-extracting compressed file. Just copy it into a suitable folder on your computer and double click on it. It has been checked for, and does not contain any computer virus.

Please remember that women live longer than men so this spreadsheet it a guide at best. We have also made some assumptions as to the costs of sale, for excessive predictions about current market value and the cost of fixing up a possibly neglected house. But it will help you in evaluating the economics of a particular transaction.

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