Need advice on reverse mortgage

7 Replies

I know someone with a property that's currently worth over 1 million and the area is growing like crazy, they don't want the house anymore. BUT the house needs over 500k worth of work AND it's in a reverse mortgage. I don't know much about how to get the house with the reverse mortgage ties and my funds are not great to make the purchase. I'm not sure what to do. Any tips? Or someone willing to give serious advice so this deal doesn't go to waste?

Originally posted by @Dymond Johnson :

I know someone with a property that's currently worth over 1 million and the area is growing like crazy, they don't want the house anymore. BUT the house needs over 500k worth of work AND it's in a reverse mortgage. I don't know much about how to get the house with the reverse mortgage ties and my funds are not great to make the purchase. I'm not sure what to do. Any tips? Or someone willing to give serious advice so this deal doesn't go to waste?

 In most reverse mortgage agreements, the bank will call the loan if the borrower is no longer living in the property. There shouldn't be a payment since it's a reverse mortgage but there will still be property taxes and insurance. In theory you could make a deal with the seller that they keep they keep the mortgage intact, you do the rehab and then the two of you split the proceeds when you sell.

Do the math. The house may be worth $1M. It needs $500K in repairs. That means that if the reverse mortgage, which is a lien, is anywhere near $200K, then there is zero meat on this bone. I suggest you find another deal.

Thanks @Account Closed The seller is family and they are willing to make that deal (keep the mortgage). They are also willing to sign it over to me at no cost other than what's already accrued/ repairs. They want nothing to do with the property even the possible profits. I want to do the rehab and pay down the mortgage but not sure what direction to go for repairs since I only have what I was saving to buy another home which isn't much.

Originally posted by @Anthony Dooley :

Do the math. The house may be worth $1M. It needs $500K in repairs. That means that if the reverse mortgage, which is a lien, is anywhere near $200K, then there is zero meat on this bone. I suggest you find another deal.

 I am unsure of your math. If the property is worth $1,000,000 and you subtract $200,000 reverse mortgage and $500,000 in rehab you still have $300,000. When you subtract 6% cost of sales that's another $60,000 leaving $240,000 gross profit, well worth doing in my book.

Originally posted by @Anthony Dooley :

@Mike M. You should do it then. I was using the 70% rule. If everything goes perfectly as planned, you would be right. 

 I'd do that deal in a heart beat, but it was the OP's deal not mine. ;-)