Help with analysis on a 2 family with a life estate

[Cody Rohland]

Hi all! We have the opportunity to purchase a 2 family in a very desirable area (due to it's proximity to public transportation) close to Boston. 2 bed/1 bath on each side. Rehabbed, this property would probably sell for $850,000-$900,000. The kicker is we have to give the owners, who live on one side, a life estate. They are both in their 70s and he is experiencing some dementia and will probably go to a home soon. His wife would stay. It is in need of updating on both sides (the rehab will probably be $50,000-$75,000 for each side), but we would only update the vacant side to put a tenant in it initially. Rent (depending on the upgrades) would be $2500-$3000/month. We would have to bring $250,000 cash to the deal to pay off their HELOC and a tax lien. After that the owners are willing to carry the note for the additional income. We have not negotiated the interest or the purchase price at this point, but figure that a 7% interest rate is what they would probably want. We are not really sure how to analyze this deal to figure out what to offer for a purchase price as the 2nd unit is valuable, but we don't know how long the owners will live. Properties do appreciate better than average in the area so this would be more of an equity investment, at least initially. Anyone out there know how to do this?