Is anyone familiar with a Life Tenancy

Discussion in 'General Property Investment Discussion' started by Julian Sonnessa, Mar 13, 2017.

  1. Julian Sonnessa

    Julian Sonnessa New Member

    Morning,

    I've just joined the forum and thought i'd test the water.

    I wanted to find how how many members were familiar with Life Tenancy investments?

    If it's something you have have heard of, perhaps you could tell me what you know?

    Anything from anyone would be really helpful.

    Many thanks

    Julian
     
  2. Nicholas Wallwork

    Nicholas Wallwork Editor-in-Chief Staff Member Premium Member

    Hi Julian,

    Firstly welcome to the Property Forum!

    I've not invested in life tenancy investments myself but I'm aware of what they are. They are used by investors who are looking for a long term capital growth investment as they are not income producing. In my opinion this is a risky strategy as you are relying 100% on the market to get your returns. I personally choose to invest for passive income regardless of the market by adding value to investments, this way I have a very defined exit strategy both in terms of return AND time wise.

    A property open to a Life Tenancy Investment is made available to an investor at a substantial discount to the open market vacant possession value. An investor is able to purchase the property and will be the named owners on the title deeds. The ownership will be subject to the lifetime lease granted to the Life Tenant.

    The property continues to be occupied by the Life Tenant who is aged 60 years or over. The Life Tenant has a lifetime lease on the property entitling them to live in the property rent free until they pass away (i.e. No income for you as the investor, I'm assuming your an investor here?).

    At the point that the Life Tenant vacates the property permanently, the Life Tenancy ends and the investor has vacant possession of the property making them free to sell the property and realise their investment.

    The investor is entitled to all the sale proceeds unless the Life Tenant has retained a percentage of the property value in which case the investor will send the Life Tenant’s proportion of the proceeds to them once the sale completes. If the Life Tenant has retained a percentage this is reflected in the investor’s purchase price of the investment.

    So as I said it could be attractive to a very cash rich investor who doesn't require any income (as returns or indeed to pay a mortgage) if they fancy a bit of a long term gamble on the market.

    Were you looking to invest in one yourself? Keen to hear your experiences along the way so far and in the future of you decide to pursue it...
     
  3. totallyproperty

    totallyproperty Administrator Staff Member

    Interesting topic...

    If i understand correctly, the investor would purchase an entire property (as you couldn't use a mortgage because the tenant isn't paying any rent?) then effectively sit on it for 10-20 years and wait to benefit from potential capital gains?

    So it's really an alternative to using a high interest rate savings accounts... to people who want to park their money somewhere more rewarding than a bank, and have no intention of being a hands on investor?

    It does sound like a bit of a gamble... at least with a buy-to-let or HMO you are generating income (a profit) whilst waiting to see what happens to the property market over time, hoping for good capital gains as well.
     
  4. realdeals

    realdeals Active Member

    Dont forget that inflation will also be eating into your (hopefully) long term returns.

    No rental income would kill your cash flow and I cant imagine there is a very liquid market if you had to sell one of these investments?
     
  5. Julian Sonnessa

    Julian Sonnessa New Member

    Great reply Nicholas, spot on.

    HPI, which we have seen year in year out should counter inflation.

    Its not a cash flow investment, its a mid to long term investment.

    Apart from the initial outlay, its a pretty risk free investment.
     
  6. Yannick

    Yannick New Member

    Hi All,

    I am new to the forum and read the thread with great interest.

    I am keen to know where I can find out more on Life Tenancy Companies and who would be deemed to be the biggest/best in the UK and further afield?

    I am just curious as I can't seem to find many firms that specialise in this apart from private investors who are cash rich? Is that correct??

    Many thanks,

    Yannick
     
  7. Longterminvestor

    Longterminvestor Active Member

    Hi @Yannick

    Welcome to the forum. Are you thinking about some form of collective investment or purchasing property leads off a third party?
     
  8. Yannick

    Yannick New Member

    Hi,

    I am interested to know if there are companies out there who specialise in Life Tenancy. Its more for a collective investment.

    Alternatively any good links that would give me more information "generally" around life tenancy?

    Many thanks for your help!
     
  9. Peter Davis

    Peter Davis New Member

    Hi

    I actually own one of these.

    No property investment is short term but this one is very long term. You are effectively gambling on the life expectancy of the person or two people living there. It is a completely rent free investment so you need to do the maths. Current life expectancy for men is 83 and women 86. Assuming you buy a property for £100,000 and it has an open market value of £300,000, and there is a couple who are aged 63 and 66 (man and woman). It follows that you will have to wait 20 years to get your investment back.In blunt terms you have to wait for them both to die or have to move out permanently into care. Assuming you are looking at a return of 7% then you will need to sell the house for at least 400k in 20 years time. My view is that there is a good chance of being able to do this based on current value.If you want to resell it that is an option. If you have only bought a percentage, then the legal paperwork will cover the price you will have to pay for the rest at different time frames if this is offered.

    Most of these are bought by grandparents such as myself who do not need the income and want to leave something for the grandchildren. In the example above if you have 4 grand children all young, then a house with a value today of 300k, would (when sold) provide the equivalent today of 75,000 each as a deposit when they are in their late 20's.

    If you are unlucky then one of the tenants could live 40 years in which case it will be too late for the grand kids. Hopefully I will have checked out by then so they will not be able to complain to me

    Peter
     
  10. Hi @Peter Davis

    Is a 66% discount the norm on life tenancy properties?
     
  11. Peter Davis

    Peter Davis New Member

     
  12. Peter Davis

    Peter Davis New Member

    Hi
    Yes if the circumstances fit. Mine has a couple in it. I bought it in January 2015 for 60k as an 85% share on a couple aged 64 male and 67 female at the time.
    The OMV at that time was 200-210k.

    I always look for something extra
    What really sold it to me is that it is a 2 bed bungalow on a good size corner plot overlooking Portsmouth harbour in an area called Portchester. It would be possible to turn it into an upside down house with fantastic views and 4 bedrooms very cheaply. This would increase the value to around 325-350k in today's value. I thought the value at the moment is not much more than when I bought it.
    This would fall into permitted development. I would love to do this but am only 5 years younger than the owners, so I do not think this is likely.
     
  13. diyhelp

    diyhelp Active Member

    If you look at this from a distance, this is purely a figures and forecast situation. Factoring in the loss of rental income over the years, against the expected increase in capital value together with various carrying costs. Do you have a spreadsheet for this type of calculation?
     
  14. Peter Davis

    Peter Davis New Member

    I am quite good at maths so do not need a spreadsheet. If you compound any amount of money over 10 years at about 7.5% then that amount will double. In my case I expect my investment to grow at 7.5% (this is something i look for across the board). In 20 years it should be worth 240. I think it unlikely that it will not reach target. The real variable is the fact I have no idea when the investment will "mature". There are no carrying costs. The tenants have to insure the property every year and give me proof of the same and that is all.

    We have a property portfolio which is quite diverse, but I will not invest unless I am confident of achieving at least 7.5% every year. Mostly this is a mixture of capital growth and rental income.
    A life tenancy is genuinely the only hassle free property investment there is.

    The only sensible approach is to say to yourself that you are prepared to kiss goodbye to the money. An exit strategy is possible but very few life tenancies come onto the market with the tenants aged 80 or over.

    Mine is a present for the grandchildren, so like all the money I have spent on their parents over the years, I am happy to let some spill over to the next generation.

    Peter
     
  15. diyhelp

    diyhelp Active Member

    I suppose if you do a few of these and work on average life expectancy in a particular area then across the properties it should average out - some will come early, some will come later.

    That is a useful figure, 7.5% over ten years is equal to a doubling of an asset value.
     
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