Should I use a reverse mortgage to invest?

Question

The person I know is 76, he has $300k of equity in his property and wants to stop working full time .

My thought process for him is if he gets a reverse mortgage lump sum, he can invest that money into cash flowing multifamily, and can live off of the cash flow and when he dies the investment can be either (1) Sold to buy his equity back, or (2) the reverse mortgage refinanced and the cash flow paid for by the investment property.

What are your thoughts on this? Any holes/flaws? I'm searching for the best way for him to to utilize his equity NOW so he can stop working.

Account Closed · Answer

I recently flipped a property with a reverse mortgage. The owner didn't need to make any payments on the reverse mortgage as part of the agreement with the bank. He didn't do any maintenance on the property and he would just watch Judge Judy all day long. Not my life style, but it suited him. With the neglect over the years, it was not a property that was suitable for the MLS without substantial renovation, which he couldn't afford.  Since the property had gone up in value over time, he received cash out equity when I bought the property from him even though I used Subject To. He then went to live with his daughter (he was 94)

He could have used the original money from the reverse mortgage to invest for cash flow.

His kids could have sold the property after his passing, paid off the reverse mortgage and had some cash in their pocket. If the property hadn't gone up in value, they could have just let the bank have the property.

Just be aware that with a reverse mortgage, if the borrower moves out of the house or dies, the loan is called due. I had it on a Subject To, he moved out of the property, the bank found out and called the loan due. I paid off the reverse mortgage and evrything worked out fine. Just have a plan in case you need to pay off the reverse mortgage.

Rosston Smith · Answer

This answer isn't adding any value. What would be a better options and why?

Rosston Smith · Answer

Great advice! Thanks for the input. My thought process is as long as the asset purchased is performing, it can be sold at the time of death, OR the reverse mortgage can be refinanced as an owner occupant 95% LTV with the cash flow from the investment property paying the mortgage.

Sergey A. Petrov · Answer

There are lots of other ways of pulling equity from a piece of real estate and reverse mortgage isn’t the cheapest.