Is taking out a reverse mortgage a great way to find the money you need to start investing in real estate?
Are reverse mortgages the key and secret investing tool of aging property owners, and their families? How do they work? What other solutions might be able to help you achieve your financial goals?
Unlocking the Captive Equity
Many U.S. real estate markets have been cash driven over the past decade. That, in addition to how long many have owned their homes, means many homeowners are equity rich, and cash poor.
Many recognize that now may be the best time to invest for the next decade, and many aging homeowners are realizing that their children or other heirs may not want their home when they pass on. They certainly don’t seem to build houses like they used to. What are your friends’ heirs doing when they leave a property? In most cases, they probably can’t sell it fast enough.
Then there is the simple math of leverage and compound gains. All of our financial resources should always be working hard, at their maximum potential. If not, they are normally losing ground. Compare how the equity in a home is contrasted with cashing it out to put a down payment on 10 other properties. Appreciation and equity can both work in your favor, on multiple properties.
Aren’t Reverse Mortgages Bad?
Reverse mortgages haven’t always had a good reputation. Just like any other financial tool or mortgage, there are good ones and bad ones. Individuals who take out a reverse mortgage today will have to be diligent about maintaining property insurance and taxes. That isn’t really any different to what should be happening anyway. In some cases, borrowers far outlived their expectations, and found they borrowed too much and had no equity. That made it difficult for many to sell or move when home values dipped.
However, the biggest pitfall for reverse mortgages has come in good times, when equity reaches highs beyond expectations. Some of the reverse mortgages of the past contained prepayment clauses that were definitely predatory. Some homeowners found they had over a million dollars in captive equity, yet had to shell out hundreds of thousands to refinance out of their reverse mortgages. That doesn’t have to be the case, but it is important to check all of the fine print when shopping for a loan.
The Advantages of Today’s Reverse Mortgages
One of the few great benefits of the mess of the early 2000s is that loans like these are far more regulated than before. There are definitely more consumer watchdogs and regulators ready to pounce on any hint of predatory lending practices. There are now even government backed reverse mortgage programs.
A reverse mortgage can definitely be a great move for those with little other cash and assets to invest with. By tapping into that equity, homeowners can diversify their assets to avoid being completely wiped out by any natural disaster, eminent domain seizure, or a neighbor that drives down local home values.
Angella Conrard of reverse-your-mortgage.com says there are now reverse mortgage credit lines which can’t be frozen by lenders, and have no payments. So homeowners can tap as little or as much of their equity as they like, save some for emergencies of healthcare costs, and not worry about having to pay a mortgage from their earned income.
What to do with Your Money
Any money tapped with a reverse mortgage can be used for virtually any purpose:
Alternatives for Finding the Cash to Invest
Those that are not comfortable with taking out a reverse mortgage loan or line of credit can look to a variety of other resources and tools to invest in, including:
Approached wisely, reverse mortgages could be a powerful financial tool that could make a world of difference in the lives of many. Check them out, but read the terms carefully. If a reverse mortgage isn’t for you, explore some of the other options here to gain leverage and start growing your real estate investments.