Real Estate life contingency

February 23rd, 2013 at 9:31:25 AM permalink
Pacomartin
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In 1965, aged 90 years and with no heirs, Jeanne Louise Calment signed a deal to sell her former apartment to lawyer André-François Raffray, on a contingency contract. Raffray, then aged 47 years, agreed to pay her a monthly sum of 2,500 francs until she died. He figured it was a good contract since he was half her age, and she would have to lived well past age 100 until he paid full price for the apartment

She died 4 August 1997 with the longest confirmed human lifespan in history, living to the age of 122 years, 164 days. Raffray died two years earlier at the age of 77 from cancer, and his widow made the final two years of payments. Needless to say in almost 33 years they ended up paying double the value of the apartment.



Christian de Guigné IV age 76 is trying to sell his estate near San Francisco for a whopping $100 million with the stipulation that the new owner can only move in after De Guigné dies. The home has been in his family for 150 years. The big attraction for developers is the 47 acres in an area where multimillion dollar homes are commonplace.

Who would be insane enough to enter into a deal like this?
February 23rd, 2013 at 1:40:34 PM permalink
Face
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The first deal seemed like a gold mine. Hell, 90yrs old? I'd think that was a no brainer, but that Ensure sure is a bitch.

The second...well, what if the property is worth several times that? At 76, he could go at any moment. Would you tie up a large portion or all of your worth for 5-10 years when you have a good chance to double/triple/quadruple it?
Be bold and risk defeat, or be cautious and encourage it.
February 23rd, 2013 at 6:03:50 PM permalink
Pacomartin
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Quote: Face
The first deal seemed like a gold mine. Hell, 90yrs old? I'd think that was a no brainer, but that Ensure sure is a bitch.

The second...well, what if the property is worth several times that? At 76, he could go at any moment. Would you tie up a large portion or all of your worth for 5-10 years when you have a good chance to double/triple/quadruple it?


The French apartment was for 2500 Francs in 1965. At the time that was equivalent to US$500 which is about $3600-$3700 in today's dollars. While that is not an insignificant amount, it was probably affordable for a lawyer with a good practice. I am sure that the lawyer was thinking at age 90 she probably would not make it 10 years let along 32 years. The lawyers widow kept up payments the final 2 years to secure the apartment. It is important to note the difference between a monthly payment, and tying up huge amounts of capital for decades.

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The California property has an estate nearby on sale for $29 million, with a giant estate house built in 1932 and 6 acres of land. The area has several houses with 1/2 acre plots with homes on sale for $3.5 million apiece.

The 19th century mansion with roughly an acre of square footage and a 47 acre lot is probably worth $100 million today or even if you had to make payments for a few years. The town of Hillsborough California is about 4000 acres, with about 4000 homes, and is one of the wealthiest communities in the USA. The minimum size home permitted is 2500 square feet on half an acre of land. The median sales price is $1.5 million.

Of course, the neighbors probably have the means to fight tooth and nail over development plans that they feel will devalue the neighborhood.

But while he could go at any minute, he could live for decades. I can't imagine any individual or corporation tying up $100 million for that length of time with no surety as to the time limit.
February 23rd, 2013 at 7:07:03 PM permalink
Face
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To be honest, I was mostly playing devil's advocate. I couldn't fathom doing anything of the sort (at least not the second example). Once you supplied more math as to houses and prices in that area, it seems to not be near the worth to tie up that much money.
Be bold and risk defeat, or be cautious and encourage it.
February 24th, 2013 at 6:25:24 AM permalink
Pacomartin
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Quote: Face
To be honest, I was mostly playing devil's advocate. I couldn't fathom doing anything of the sort (at least not the second example).


There is a secondary market in the death benefit of life insurance policies that became very visible when AIDS was diagnosed. The sick person sell his death benefit for some fraction of it's total value. The dying person has some money while he is alive, and the benefit to the purchaser obviously depends on how long the person lives. If you purchase a $100K death benefit for $40K and the person lives 6 weeks, it is clearly a better investment than if he lives 6 years. Clearly to assess the purchase value you need access to good medical records. To make this market less macabre, it is better to buy into a group of sellers, so that the purchaser is not essentially waiting at his hospital room to see if you hit the jackpot.

The traditional means of raising money to support an older estate is to sell some of the land to give you funds for maintenance and repairs. In Europe it is common for the owner to retire to a wing of the house, and turn the main estate over to a business (tourism, or renting the place for parties).

I would also think that someone might be willing to pay $50K week for the first right of refusal to purchase the home for an agreed upon price (possibly less the moneys paid to date). That more closely resembles the agreements on commercial properties (as on the Vegas Strip).
March 1st, 2013 at 10:42:00 AM permalink
theodores
Member since: Oct 28, 2012
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That's funny, there was question on the bar exam about this. (A multiple choice one. Most of them are stupid for example about a person who keeps a tiger in their house and it escapes and startles someone who falls down the stairs and hits a painter who is on a ladder which had a manufacturing defect, which breaks and the painter is injured and the medical helicopter crashes on the way to the hospital because the pilot was drunk. Is the painter liable on the contract?

It was a good bet. She could have died the next day and he would have gotten a superb deal. Actuarially speaking, the lawyer had an advantage. (Which is probably what he was thinking).
March 1st, 2013 at 11:33:47 AM permalink
Nareed
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Quote: theodores
That's funny, there was question on the bar exam about this. (A multiple choice one. Most of them are stupid for example about a person who keeps a tiger in their house and it escapes and startles someone who falls down the stairs and hits a painter who is on a ladder which had a manufacturing defect, which breaks and the painter is injured and the medical helicopter crashes on the way to the hospital because the pilot was drunk. Is the painter liable on the contract?


Oh! Oh! Who is Rube Goldberg?

Yay! Now I'll take "Stupid Questions" for 400, please, Alex!
Donald Trump is a fucking liar