REAL Exclusive Magazine

Seniors And Real Estate Investing

By Jeff Riddell

Last article, we discussed real estate investing for those folks in the 50-65 age range. Next is the 65-80 group—with due respect because I am one of them, I’ll call them seniors. If you are in this age bracket, it goes without saying that you should have started your real estate investing career earlier. At this age you will not be able to use the power of leverage and compounding to create wealth from real estate to the same extent as those who started young, but you should still have some real estate in your investment portfolio. Passive real estate investments may be most attractive at this age. This is the capital preservation stage of life for most people, so seniors should avoid riskier real estate investments—either personally or as part of a group. Nevertheless, even at this age, real estate in your portfolio will provide diversification; and diversification hedges the loss potential of a concentrated portfolio.

There is a source of funds for real estate investing that many seniors have not explored; it’s called a reverse mortgage. If all of the owners of your home are at least 62 years of age (both you and your spouse, if married), you may be able to take out a reverse mortgage. By taking out a reverse mortgage, you could buy income producing real estate which would then provide additional monthly income while both your home and these investments continue to appreciate and grow in value. You don’t have to make any payments on a reverse mortgage while you are alive; the mortgage is paid off when your heirs sell the property, and of course, you could get rid of the reverse mortgage at any time (sell, refinance, etc.), but for a few seniors there may be another real estate investment funding source. It involves life insurance. If you have a life insurance policy, it may be possible to borrow against it to buy real estate. If you can earn more on your real estate investment than the interest you pay on the policy loan (positive leverage), a policy loan may work in your favor.

But for some seniors there is something even better—it’s called “life settlement,” and it may be attractive to those who have a life insurance policy that they don’t need anymore. Reasons for no longer needing a particular life insurance policy might include: your spouse is gone, your children are well-to-do in their own right, you have other assets to leave to the children or you have a life insurance policy that was part of an earlier estate plan but it is no longer necessary—or even a “key man” policy for a business that no longer needs it. Here’s an example: a 78 year old had a $5 million policy and the premium had to be paid each year. He was tired of paying the premiums and didn’t need the policy as much as when he was young and his wife was alive and the children were growing up, but he didn’t want to let the policy lapse because it had surrender value of about $285,000. He thought about cashing in the policy and using the $285,000 to invest in real estate—until he was told about “life settlement.”

The policy was shopped to several life settlement brokers who took all of the information about the policy and the insured. The life settlement companies then evaluated the man’s age, health and life expectancy; and when the analysis was complete, the highest offer for the policy was $1.5 million. He took the offer, the life settlement company took over the premium payments and the policy’s prior owner invested the $1.5 million in REITs and other real estate; his monthly income increased as a result. This is not for everyone, but any senior who has a life insurance policy that has outlived its usefulness should know about life settlement. However, policy purchase prices vary widely and the tax consequences of a policy sale need to be considered.

Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com. www.us1031.com