One of the more interesting aspects of HUD’s new program which allows seniors to use reverse mortgage financing to purchase real estate is that it’s open to investors.

Not all investors — you have to live in one unit and it has to be your principal dwelling unit — but you actually can use an FHA-insured reverse mortgage to buy properties with two, three and four units.

The new purchase option raises a number of interesting questions.

The first, of course, is whether you should be buying real estate at all. Declines in home values during the past year have been steep in many markets and there is little to suggest that additional drops will continue in 2009. Why? Because 2.6 million people lost their jobs in 2008, 11.1 million are officially unemployed and even more people are officially discouraged. It’s tough for home values to rise when an increasing number of people do not have income.

Not all areas of the country have declined equally — or at all. For example, the National Association of Realtors says “In the third quarter, 28 out of 152 metropolitan statistical areas showed increases in median existing single-family home prices from the same quarter in 2007; four were unchanged and 120 metros experienced declines.”

The real interest in two to four units should concern income. While home prices have fallen significantly, that’s not true with rental rates. Rents have largely held steady nationwide according to a study by Reis.Inc. of 9.5 million rental units, down just .4 percent in the fourth quarter. This result is so low that you have to suspect that in many markets there was, in fact, no reduction and that in others rental rates actually rose.

In other words, it may be possible to buy property at less cost than in the recent past — but to get rental income which has been stable and perhaps even rising.

To go further with this idea you need to speak with local brokers and investors to determine the strength of your market. If you don’t have a lot of would-be renters pounding on the door then buying investment property is unlikely to be a good idea.

Also, you need to realize that your tenants will also be your neighbors. That can raise issues of privacy, and also management concerns — you don’t want to be at the beck and call of tenants at all hours of the day.

Lastly, there is the matter of whether or not you even want to be in the rental business. There are, after all, vacancies, repairs and sometimes unstable tenants.

But the good news is that the ability to buy property with reverse mortgages at least opens the door to a new option — and in this economy new options should not be lightly ignored. For specifics, speak with reverse mortgage lenders and get advice from an attorney who specializes in elder law before signing any paperwork.

This entry was posted on Wednesday, January 14th, 2009 at 3:46 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.