Why Real Estate and Mortgage Brokers Are Interested in Reverse Mortgage Loans
The housing market today is not what it was just a few short years ago. Commercial real estate is still being developed. Banks no longer provide immediate commercial loans and financing has become a problem. Commercial real estate brokers and commercial mortgage brokers must be more innovative in order to find financing for their clients, whether building on acreage or for already commercially developed property that they wish to upgrade, maintain or sell outright.
The fact that commercial reverse mortgage loans are attractive to sellers and buyers is a factor in keeping the businesses of commercial realtors and mortgage brokers alive today.
Can Commercial Property Receive Reverse Mortgage Loans?
New rules and regulations have recently allowed the commercial and nonresidential real estate market to enter the reverse mortgage arena.
The commercial reverse mortgage loan applies to properties that are to be sold or refinanced during the loan term.
Which Types of Commercial Properties Qualify for a Reverse Mortgage Loan?
Property types, such as apartment complexes, office buildings and complexes, ranches, farms, residential or commercial acreage, mobile home parks and RV parks all qualify for reverse mortgage loans.
There is no age restriction for commercial property reverse mortgages. What is needed is a viable reason for the use of funds from the commercial reverse loan. A commercial reverse mortgage is given on the basis of property type, need for funding and value of the commercial property involved.
Some examples of where and how commercial reverse mortgages work
1. Development – A Contractor/Builder/Developer owns a large tract of land that is zoned for multifamily and commercial use that is debt-free and is listed for sale at $6.5 million. He needs funds to be able to purchase other property and needs a cash flow. He needs a commercial reverse mortgage and will have it done through a commercial mortgage company or qualified mortgage broker who understands the commercial reverse mortgage market.
The commercial reverse mortgage that is available to him is $1 million cash, paid up front, with a $10,000 monthly commitment paid to the owner.
2. A Family Trust – Several members of the family have been left several parcels on commercial property valued at about $800,000. The family is in need an up front sum of $75,000 and approximately $2,500 a month to consolidate bills and cover living expenses. The property could be sold at a greater value if there were city utilities extended by the county, but the process would take almost two years.
While under a commercial reverse loan, the family is able to accept an offer for one of the parcels. An agreed upon amount would then be paid to the reverse mortgage lender to release the parcel and the balance of the reverse mortgage terms will be adjusted accordingly.
For this type of private commercial reverse mortgage, the lender would have to be someone with sizeable cash deposits and an ability to extend cash ‘going out’ as opposed to simple conventional lending. As it would entail a lender using private funds, there is a risk to the lender. For such reverse mortgages, it is not uncommon to see interest rates at around 11 to 13 percent per annum, and four points added. It is often the case that the loan to value is approximately 35 percent.
3. Owners with Medical Challenges – If an owner has a medical challenge and owns an apartment complex that is only one-third rented and needs repair in order to get more tenants into the building, he/she can be eligible for a commercial reverse mortgage.
A commercial mortgage broker can help the owner to obtain $125,000 that will be disbursed as repairs are completed. There will also be $3,000 disbursed monthly funding to the owner for help with his/her medical bills. When all the repairs are completed and the property is occupied fully, the owner can list the property for sale with a commercial real estate broker (possibly the same person who established the commercial reverse mortgage loan) and can then pay off the loan.