Here's a real estate investment idea that's so new that a lot of people have never even heard of it: Buying multi-unit property with an FHA reverse mortgage -- living in one unit, renting out the others, and NEVER paying a dime in monthly principal or interest costs.

That's right, FHA now permits seniors 62 years and older to purchase residential real estate using a reverse mortgage. Until recently, reverse mortgages insured by FHA were only available on homes already owned and occupied by eligible borrowers.

But since this spring, the agency has offered a new twist: You can go out and buy a house -- a duplex, tri-plex, or quadruplex -- using a reverse mortgage.

Consider this real-life example provided to Realty Times by Harry Gordon, a reverse mortgage specialist with Lake Tahoe Mortgage in Reno, Nevada.

A married couple in their early seventies is planning to downsize from their long-time home in Reno, which they sold late last year for about $850,000.

They're now looking at a $500,000 tri-plex, with the idea of living in one unit, and renting out the other two for about $1,300 a month each.

Gordon says the tri-plex would have sold for about $750,000 at the peak of the boom, so the buyers are getting an excellent price for the property.

How could they do all this and never make a mortgage payment?

Here's how: To qualify for FHA's new “home purchase” reverse loan, they'll take a portion of the sale proceeds from their previous home, and make a 35 percent downpayment on the tri-plex.

Then they move into the unit they've chosen for their own personal use, and rent out the other two units in the building for a combined $2,600 a month -- a rent roll that Gordon says is realistic and attainable under current market conditions.

Since it's a reverse mortgage, the couple never will have to make a principal or interest payment. Of course they will have to pay their local property taxes and insurance, and maintain the property in good condition.

But bottom line, they've got positive cash flow every month that they can use for living expenses. And with any luck, they'll own an appreciating asset that may be worth more in later years.

Plus, when and if they choose, they can refinance the property, pay off the reverse mortgage debt, move out and convert the unit into all-rental so the entire building is investment property, eligible for a 1031 tax-deferred exchange.

As with all reverse mortgages, before plunging into a strategy like this, get solid financial and estate planning advice from an experienced professional.

Published: July 3, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.