#8 - Senior Life Settlement Anatomy 101

There is a reason the cliché, “It’s hard to teach an old dog new tricks” exists. For many, the task of keeping up with the rigor of daily life is quite enough without tackling any new learning projects. It helps sometimes to compare a new idea with one that’s already familiar to you. Especially for me…5th grade was the only thing that kept me out of 6th.

So, what’s more familiar to you than your own home? You went through a lengthy process with specific role players on both sides of the transaction to attain it. Brokers, escrow bankers, lawyers, title companies, appraisers, etc. are all part of the business model.

If you own one, then you are a real estate investor. Setting aside the emotional attachment of your family’s HQ, as an asset in your overall investment allocation, your home has these financial characteristics:

• Contractual ownership (owner holds title)
• There is no liquid trading-exchange (bid & ask sales process)
• Does not produce income (owner occupied)
• Debt leveraged (mortgage)
• Required capital calls (maintenance & repairs)
• Market volatility and other risks affect pricing (remember the Credit Crisis)

Is it any wonder why there’s no monthly statement for your house like there is for your 401k? People would blow their heads off!

So, here’s the pitch. Boy do I have a deal for you. How would you like to own an illiquid asset, that you have to go deeply in debt to buy, pour money into for as long as you own it and maybe you’ll make money on it some day?

Alright, I’m playing around here to make a point. I am completely discounting Maslow’s first rung on the ladder as we all have the basic need for shelter and safety and of course, home is where the heart is. But beyond that, everything written above is true.

Let me change the narrative a little. Would this investment proposition sit a little better with you if we struck the last three bullet points but added one more…A predetermined price appreciation receivable in the future?

That’s how a Life Settlement and real estate differ. You know in advance what a life settlement is worth. The investor is the contractual owner of a life insurance contract. The spread between the investor’s acquisition cost and the face amount of the policy is the store of value. Premium or capital calls are removed by Capstone’s exclusive Premium Reserve Management solution providing the asset with a known cost and a known yield.

Because a life settlement is backed by highly rated legal reserve life insurance carriers, this alternative investment is a reliable capital growth mechanism that is highly non-correlated to most all manners of risk except time.

Maybe someday, somebody will come up with the idea to use a life settlement portfolio to create the capital to pay off their mortgage?

To continue following us, please subscribe to our News and Views blog by visiting our section on our website. To learn more about us and how we can be a resource in this space, contact Jason Bokina at 404-504-7006 or email contact@capaltstrategies.com.