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Real estate financing strategies: Senior citizens’ reverse mortgages

While long/short strategies dominate the real estate hedge fund arena, some have emerged that are best considered as financing strategies.

Alternative investment: US hedge funds look to short side

These tend to encompass managers that act as banks, providing bridge or start-up loans to property developers. Reynolds Opportunity Partners is even deeper in its niche. Tony Reynolds was originally a homebuilder in Ohio and has recently established a hedge fund that develops property earmarked for senior citizens that are entitled to reverse mortgages from the US government.

US citizens over the age of 62 with equity in their homes are entitled to reverse mortgages of up to 70% of the value of the house.

The fund aims to purchase land earmarked for senior-citizen developments and build properties. Such properties are sold at a premium to their cost, depending on the location and quality. "A property might cost $50,000 to build, but it is appraised at $170,000. We deed the properties to the senior citizens for free, who now own 100% of the property. With the power of attorney, the government then pays us the 70% in a reverse mortgage, which will be at a profit to the cost. In this case they would pay us $119,000 – $69,000 in profit per property.

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