How Reverse Mortgages Could Become a Vehicle for Real Estate Investment

In spite of the reputational difficulties faced by the reverse mortgage product and the professionals in the business, the fact that the housing market is performing as generally well as it has been may end up leading real estate investors toward a new method they can use to fuel such investments: reverse mortgages. This is according to a column published at finance website ValueWalk, and republished by Entrepreneur.com.

“In the last decade, several real estate markets in the U.S. have been money-focused, while many homeowners, despite the equity of their properties, are cash poor,” the column reads. “This is especially so among many owners above 60, who might weigh the option of borrowing against their home’s equity, to invest in real estate and secure a decent income flow.”

Some are also simultaneously realizing that certain heirs may not necessarily want their home when such seniors pass away, the column says based on input from real estate investor Than Merrill.

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“The possibilities for reverse mortgage[s] are something to look at, bearing in mind the rebound in Real Estate Investment Trusts (REITs),” the column reads. “The COVID-19 recession is officially over, with the U.S. economy showing signs of a comeback through continued low-interest rates. In 2020, the retail sector was shaken to the core by the COVID crisis, with all ten biggest REITs in the U.S. seeing their market caps decrease. However, according to Kiplinger, the current plan of the Biden administration to hike taxes could also give REIT another push.”

For Merrill, this presents an interesting opportunity that could be leveraged through the use of a reverse mortgage, he says.

“[Reverse mortgages highlight] how the equity in a home is contrasted with cashing it out to put a down payment on 10 other properties,” he tells the columnist. “Appreciation and equity can both work in your favor, on multiple properties.”

Also worth keeping in mind is the evolution of the reverse mortgage product category, with the column citing comments made at the recent National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting as reported by RMD discussing how more financial planners are starting to more readily consider a reverse mortgage option for their clients.

“[L]enders today cannot freeze reverse mortgage loans. This way, homeowners can use as much equity as they see fit, save for healthcare costs, and also avoid paying for a mortgage from the earned income,” the column reads. “Further, people can use a reverse mortgage calculator to see what their reverse loan would approximately look like, depending on the estimated value of the property, the person’s age and that of their partner, among other variables.”

Read the column at Entrepreneur.com.

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