Using Equity to Provide for the Future
A lot of talk about reverse mortgages focuses on helping senior citizens cope with the dual edge problem of a reduced income and increasing bills due to medical issues. Honestly, this is a fair assessment that many people face in their twilight years. But there is another way of using a reverse mortgage that does not get a lot of attention. With significant equity some seniors could use the cash from a reverse mortgage to purchase income producing assets that will greatly enhance their financial standing.
Benefits of Reverse Mortgage, Doubled
Just for an example, suppose an elderly couple has a home worth $225,000 that they own free and clear. They qualify for a loan of $150,000 and choose to get $100,000 up front and leave the remaining $50,000 on an equity line.
Using the cash, the couple could do a few different things. They could choose to flip some investor homes by paying cash for each home. Buying a home that is worth around $75,000 but paying only $60,000 due to the seller’s need to get rid of the home would leave the couple some room to make a profit. Assuming they sell the home within 90 days and make a profit of $7,000 they could easily make $15,000 to $20,000 extra per year.
Another option would be to simply buy one or two small properties for cash. They could choose to handle the lease on their own to new tenants or hire a property management firm to do the leasing. Either way, they would have two homes, paid for, that are being rented out.
And all of this income is being earned without the need to pay a mortgage on a home.
Not Just for Rental Property
However, there is no rule stating that the couple must use the funds from the reverse mortgage simply to purchase a rental home. Depending on their location they could buy a nice property in a vacation spot such as the mountains, near a lake or near a beach. The idea would be to find one that they could buy for cash and they rent out the place in the peak periods for extra income.
Of course there are other ideas as well. The only limit is the amount of equity available to use from the reverse mortgage. Rather than simply paying off a few medical bills now, it could be wise to see what investment opportunities are available to help boost a person’s income when considering a reverse mortgage.