Reverse Housing: alternative method of financing for senior individuals
Reverse Housing, one of the latest terms added to the real estate sector, is an alternative method of financing for individuals, focused on senior citizens. It consists in the sale of the property and the signing of a lifelong rent agreement based on the person’s life expectancy, deducting this rent from its market value, and allowing the seller to live in their home indefinitely.
Every transaction is different as they are negotiated individually with each owner. In addition, transactions take into account different scenarios, which attempt to maximise the owner’s benefit, for instance, if they decide to leave the property before, the amount corresponding to the remaining rent will be paid back.
This financing method is based on the fact that there are over 9 million senior citizens in Spain, of which 70% live off the government’s pension. The product aims to offer liquidity to enjoy retirement.
In Spain, Almagro Capital is the pioneer in offering the product, with a current portfolio of 200 assets valued at c.€100 million. Moreover, the company announced last year its plan to raise €500 million in the next three to five years in order to multiply its number of assets. Although Almagro, is the market leader, other firms such as Inhome Prime Properties, will also start investing in these assets.
Advantages of this product include:
- The owner continues living in their home, abiding by a notarized rent agreement paid in advance.
- The received amount ranges between 55% and 85% of the appraised value of the property.
- If the owner leaves the property earlier than expected, the amount corresponding to the remaining rent is reimbursed.
- In case of an early decease, heirs receive the remaining rent.
Overall, alternative financing options for senior citizens, which represent considerable figures in other European countries, are expanding throughout the promising Spanish market, since it is one of the countries with the highest live expectancies, and will continue establishing as a new investment product in the real estate sector.