Subject to on reverse mortgage with intentions to hold as rental.

[Steven Vega]

Hey everyone!

Very excited to share with you my very first investment deal my wife and I are currently working and we are in need of some input.  

We have an off market deal (actually owned by a family member) currently on reverse mortgage which we are looking to purchase, renovate, and either hold onto as a long term rental or sell depending on loan options after reno.  Because its owned by a family member we were able to workout that we could have her move out while we renovate it and get it under contract with a subject to.  I am working to grasp the potential funding situation and what my options may be all said and done.

Purchase Price $215k (Reverse Mortgage Owed ~$180k)/Current Market Value $235k

Reno $25k

ARV $305-$310k

An issue we are running into is that I have enough cash on hand to either buy on conventional loan @$215k or renovate but not purchase with conventional loan and renovate.  I really don't want to use hard money because as a first time investor I know rates and fees will result in high carrying costs.  Additionally, I am trying to run this deal so that I can recoup as much money as possible at the end of the deal if we elect to hold vs selling.  Ideally, with the subject to in place, we would renovate using cash and then post reno with take out a conventional loan for purchase price+rehab cost.  Because we will not actually own the property I am curious as to what that process would look like from a mortgage standpoint and if I would still be required to bring a large down payment for a conventional loan-which I do not have the cash for.

Does anyone have any insight on a deal like this or have any advice on how I could structure it as to limit my cash investment and carrying cost? 

[Mike Hern]

Quote from @Steven Vega:

Hey everyone!

Very excited to share with you my very first investment deal my wife and I are currently working and we are in need of some input.  

We have an off market deal (actually owned by a family member) currently on reverse mortgage which we are looking to purchase, renovate, and either hold onto as a long term rental or sell depending on loan options after reno.  Because its owned by a family member we were able to workout that we could have her move out while we renovate it and get it under contract with a subject to.  I am working to grasp the potential funding situation and what my options may be all said and done.

Purchase Price $215k (Reverse Mortgage Owed ~$180k)/Current Market Value $235k

Reno $25k

ARV $305-$310k

An issue we are running into is that I have enough cash on hand to either buy on conventional loan @$215k or renovate but not purchase with conventional loan and renovate.  I really don't want to use hard money because as a first time investor I know rates and fees will result in high carrying costs.  Additionally, I am trying to run this deal so that I can recoup as much money as possible at the end of the deal if we elect to hold vs selling.  Ideally, with the subject to in place, we would renovate using cash and then post reno with take out a conventional loan for purchase price+rehab cost.  Because we will not actually own the property I am curious as to what that process would look like from a mortgage standpoint and if I would still be required to bring a large down payment for a conventional loan-which I do not have the cash for.

Does anyone have any insight on a deal like this or have any advice on how I could structure it as to limit my cash investment and carrying cost? 

 Without addressing the numbers, here is what you need to know:

1. On a Reverse Mortgage no monthly payments are being made

2. A Reverse Mortgage is set up so that when the borrower moves out or dies, the loan is due. When the bank learns that the borrower has moved out, they will try to foreclose and sell the property. You will receive a 30 day notice to pay off the debt. 

I have done a lot of Subject To's and have only 2 called in decades of investing. The 2nd one was a year ago on a Reverse Mortgage. I solved the problem by just paying off the Reverse Mortgage. You can also have the borrower move back in to resolve the issue.

Your question will be: "Can you assume a Reverse Mortgage"? Probably not. You should read the loan agreement to be sure.

[Steven Vega]

Quote from @Mike Hern:

Quote from @Steven Vega:

Hey everyone!

Very excited to share with you my very first investment deal my wife and I are currently working and we are in need of some input.  

We have an off market deal (actually owned by a family member) currently on reverse mortgage which we are looking to purchase, renovate, and either hold onto as a long term rental or sell depending on loan options after reno.  Because its owned by a family member we were able to workout that we could have her move out while we renovate it and get it under contract with a subject to.  I am working to grasp the potential funding situation and what my options may be all said and done.

Purchase Price $215k (Reverse Mortgage Owed ~$180k)/Current Market Value $235k

Reno $25k

ARV $305-$310k

An issue we are running into is that I have enough cash on hand to either buy on conventional loan @$215k or renovate but not purchase with conventional loan and renovate.  I really don't want to use hard money because as a first time investor I know rates and fees will result in high carrying costs.  Additionally, I am trying to run this deal so that I can recoup as much money as possible at the end of the deal if we elect to hold vs selling.  Ideally, with the subject to in place, we would renovate using cash and then post reno with take out a conventional loan for purchase price+rehab cost.  Because we will not actually own the property I am curious as to what that process would look like from a mortgage standpoint and if I would still be required to bring a large down payment for a conventional loan-which I do not have the cash for.

Does anyone have any insight on a deal like this or have any advice on how I could structure it as to limit my cash investment and carrying cost? 

 Without addressing the numbers, here is what you need to know:

1. On a Reverse Mortgage no monthly payments are being made

2. A Reverse Mortgage is set up so that when the borrower moves out or dies, the loan is due. When the bank learns that the borrower has moved out, they will try to foreclose and sell the property. You will receive a 30 day notice to pay off the debt. 

I have done a lot of Subject To's and have only 2 called in decades of investing. The 2nd one was a year ago on a Reverse Mortgage. I solved the problem by just paying off the Reverse Mortgage. You can also have the borrower move back in to resolve the issue.

Your question will be: "Can you assume a Reverse Mortgage"? Probably not. You should read the loan agreement to be sure.

Thanks for the reply!  My understanding is that she is allowed to move out to allow for renovation of the home.  Once renovation is completed she would have to move back in or sell it.  The goal is to purchase it post reno and I am trying to navigate what the conventional loan process looks like at the point based on the new ARV.  I am trying to navigate if I would still be required to put 20% down on the loan based on the new appraisal?  Also, looking to see if theres any creative insight someone might be able to offer as to how to best structure this so that I could pull my money out at the end and set up as a LTR.

[Wayne Brooks]

@Steven Vega When you actually buy the property sub2…

1) you Do own it, as title would pass to you

2) the RM Will be called due, as title has changed hands

3) you can refi conventional, since you own it, after 6 months

[Steven Vega]

Thank you for the response!

[Maurice George]

Quote from @Steven Vega:

Thank you for the response!

Steven, if homeowner moves out of the property in reverse mortgage situation, it is considering as default and bank (per HUD guidelines) must initiate the foreclosure. If you do a super quick turnaround (for resell or quick refinancing), you can do that. Otherwise, sub to is not a good idea for reverse mortgage.