A property reversion is basically when you purchase a property but you have an agreement with the people you are buying it off that they can still continue to live there for a specified time, normally until they die or some other significant agreed event happens. As you can imagine this sort of deal is normally done with the elderly.
If the elderly could only sell their homes, they would easily have enough money to live out their days comfortably. But if they sold their homes, they would have nowhere to live. And besides, this is their home.
This is the place where they brought up all their kids. This is the place they love and they don’t want to move, and why should they! But they also don’t want to consider remortgaging or anything like that, because the last thing they want is debt at their time of life. Plus, because of their age is might be unlikely that they can remortgage anyway.
These sorts of people are ideal candidates for property reversion deals. Typically, their kids have grown up, and, even though originally the plan was to leave the house to the kids when they die, the kids are doing ok for themselves, and just want to see their parents live out the rest of their lives without too much financial hardship. There are many benefits to reversions for both the sellers of the property and the buyers. We have listed just a few below.
Benefits for the seller (normally an older couple)
- They get to live out the rest of their lives in their own home
- They get cash (normally a lump sum) to help them have a financially more independent and enjoyable retirement.
- The elderly couple’s family get to have peace of mind that their parents can enjoy their retirement more and will always have a roof over their heads.
- The elderly couple’s kids don’t have the financial burden of having to support or supplement their parents’ pensions.
Benefits for you as the buyer
- The price you are buying the property for is often reduced by as much as 60%
- You will have tenants that will normally be elderly and care for your property (mainly because they still psychologically see it as their own) so there should be less tenant problems
- Under the terms of the lease they are legally responsible for all repairs and maintenance.
- Their properties tend to be well maintained already and be in better areas
- You don’t have to be a property expert to do these deals because the current owners become your tenants and are responsible for the repairs and maintenance. There is in fact very little for you to do.
- When you do eventually get the property you should have at least 60% equity, not even counting any price rises since you made the purchase in the first place.
As with anything there are pros and cons, and one of the biggest cons with a property reversion is that you will not be receiving any rental income at all from the property. The tenants live there rent free until either they die or they are taken into a nursing home or somewhere similar.
The exact details of in what circumstances you take over the property will be made clear on the lease and at the outset before you buy the property.
Below is an example of how reversions work:
- You buy a house off a retired couple ‘Sue and Bob’ in 1998
- The market value for this house is £300,000. You buy it on a property reversion deal with 60% discount for £120,000
- Both Sue and Bob die in 2005, so you get the property to do what you like with.
- Because of capital appreciation in the seven years between 1998 and 2005 when you first bought the property, the property is now worth £450,000
- You sell the property straight on for £450,000
- The result is that for the £120,000 that you put in you get £330,000 profit (bear in mind that you would normally have a mortgage; it doesn’t have to be £120,000 in cash)
This is obviously an excellent return for your money especially considering most, if not all, of the £120,000 could have been on a mortgage.
Something to keep in mind is that the average time a property reversion is in place before the investor takes full control of it, because one of the clauses in the contract, such as the death or the removal to a nursing home of the tenant, has been triggered, tends to be between nine and eleven years.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.