Reverse mortgage: Low investment, strong profit
Your dream property is closer than you might think
Purchasing property is not only an emotional matter, but also one that requires calculation. What can I afford? How much do I want to spend? And: Is the property worth it to me? As an owner-occupier, you have to weigh things up: When you move into your own four walls, the rent burden is eliminated, but it is replaced by homeowners’ association fee, interest and repayment. And in addition to the expected return, investors must above all correctly assess the future opportunities and potential of the property in order to invest successfully.
An alternative investment
If you have some time to spare as an owner-occupier or investor, you can now afford the dream of owning your own property without a lot of debt and with less risk. The key to this is purchasing by means of life annuity, also known as reverse mortgage: This model enables the immediate purchase of an inhabited real estate against monthly annuity payments to the seller. Because of the seller’s continuing right of residence, this model is decoupled from immediate use and therefore rather future-oriented for time periods starting at about 10 years. But this model is also suitable for investors with a longer investment horizon because the purchase is made at a fixed market value that takes the seller’s right of residence into account in monetary terms using an exact calculation formula. In addition, rent losses are excluded with this model. Thus the buyer, whether owner-occupier or investor, benefits from future increases in value and notional rental income. All this reduces the purchase price and so the buyer can later enjoy an attractive property at an even more attractive price without the current issues regarding social environment protection and rent control.
Choice of two models
There are two basic reverse mortgage models to choose from, both of which have their advantages. With life annuity, the buyer pays the seller a fixed monthly amount until his or her death. In some cases, certain minimum and maximum rates can be agreed in order to guarantee a minimum sum to the seller’s heirs in the event of an earlier passing of the seller. The alternative to life annuity is temporary annuity, which provides fixed monthly payments for a certain duration. In both options, the seller retains his right of residence and uses the property as if it were their own.
Duration vs. financing
The long duration of the real estate pension of usually 10 years or more requires some patience from the seller, however thanks to the division of the instalments into at least 120 months, it can even be partially paid off with regular income. In addition, the owner benefits from a possible increase in the value of the property. Furthermore, no equity capital is tied up, and by waiving a bank loan, there is no interest on the loan. The fixed, calculable capital investment provides additional security, because this annuity model is not subject to fluctuating interest rates.
For whom is the model worthwhile?
Both owner-occupiers and investors can benefit from reverse mortgage. The life annuity model is particularly interesting for four target groups: Firstly, for parents who acquire the property as a long-term investment. It also offers a cost-effective entry into owning real estate for young families who wish to use the property themselves in the more distant future. The model can also be attractive for buyers looking for an alternative to expensive real estate offers. And last but not least, investors benefit from this form of investment, which enables good returns and avoids measures such as social environment protection and rent control. Moreover, due to the lower, very attractive purchase price, all buyers enjoy the advantage of being able to afford their own home without the need for large equity. We will be happy to advise you on an assessment of your property, regardless of whether you wish to buy or sell it. To this end, we cooperate with notaries and lawyers who already have a great deal of experience with real estate annuities so that you are given the best possible advice.
David Borck Immobiliengesellschaft