Beyond the traditional ways of buying a home where you make an offer, get it accepted, close escrow and then move into a home is the Life Estate. A Life Estate is a legally binding contract that allows the current owner to live in the house even after the property is sold. This turns to be a good deal for the owner but not such a good deal for the one who is buying the property. This has recently been made news headlines with the sale of the Playboy Mansion in Los Angeles where the current owner, Hugh Heffner, wishes to stay in the house until he dies.
When marking a home for sale with a life estate, one of the negative side effects this may cause is a very limited number of buyers that would be willing to purchase a property with a Life Estate attached to it. As a result, the real estate value of the property can be significantly lowered. This is a true to a Newport Beach property located at 310 Fernando Street unit #402 & #403 in the upscale Balboa Peninsula area. The condo is being sold with a second neighboring condo that has a life estate attached to it. The Life Estate states that the owner is able to live in the property for the rest of his natural life for a payment of $500.00 a month. The listing goes on to say that they are selling at "a huge discount" due to this. Unit #402 is being sold for $1,000,000 while the life estate property is being offered for half that price at $500,000.
There are some positive aspects to buying a Life Estate First, if the owner is older then the time they are actually in the property may be a short time frame. During that time property values have the potential to increase. Also, owners tend to take very good care of the property which will limit maintenance cost. The biggest consideration is the cost to carry a mortgage and to have enough money to cover taxes and insurance. Paying all cash does help lower these costs but keep in mind taxes in California are 1% of the purchase price so a $500,000 property would see roughly $5,000 or more a year in taxes or roughly $416.00 a month.
Would you be willing to purchase this ocean view condo for $500,000? Ultimately, it will be up to the buyers to decide.