Making ends meet is no easy feat. Making ends meet as a senior on a fixed income can be even more challenging, particularly when onerous property taxes come due or the roof suddenly springs a major leak.
Enter Irene Home Equity Solutions, also known as Irene Retirement. The startup is buying homes of equity-rich, cash-poor seniors for a percentage of their market value, usually 30% to 60%, in an upfront payment. In exchange, the sellers can live in or rent out the properties for the rest of their lives without paying a cent. Irene pays for all of the property taxes, remaining mortgage balances, insurance, and other big maintenance costs.
Basically, everything but the cable bill is covered.
Some believe the market could be ripe for programs such as this, which are similar to reverse mortgages, as baby boomers are getting older and starting to think about retirement. This will be the largest generation to ever retire.
Irene launched in late January in New Jersey. The New York City–based company plans to expand nationally.
Seniors “get to spend their time in the place they love, the houses where they raised their families, and they get to do it with peace of mind,” says company co-founder Fabrizio Tiso. The Italian-born Tiso got the idea for the company from similar ones he saw in Europe. He was attracted to the idea that despite mounting expenses, older homeowners don’t need to worry about “losing their home.”
But these homeowners do lose out on the full amount their abodes could fetch on the open market. And selling their homes to Irene means they won’t be able to leave them to their children or other family members. So is it a wise decision?
How is Irene different from a reverse mortgage?
Irene is similar to a reverse mortgage, designed to help older Americans turn their home equity into cash. In reverse mortgages, homeowners 62 and up can receive monthly or lump sum payments, or a line of credit for their homes up to $625,000. They remain responsible for the property taxes, insurance, and other costs on the home, although set-aside accounts can be established to cover these expenses through reverse mortgages.
But the debt must be repaid before the owner sells the property, moves away, or passes away. If it’s not, the owners or heirs will owe the balance. That’s not a danger with Irene, because the company will own the home outright. Once the owner passes away, the property will be held, rented out, or sold.
(Irene is funded by venture capital and plans to use REITs funded by investors to help purchase the residences.)
Irene is also seeking older homeowners, with a target age of about 70. And they are free to move away and rent out their property and collect the rental income, something that isn’t permitted under reverse mortgages.
“The real core difference is we pay taxes, insurance, and maintaining the home,” says Tiso. “[We] help them use their home equity to retire at home.”
What to consider before signing up for Irene or a reverse mortgage
No one should hastily sell their home to Irene or get a reverse mortgage without thinking it through, says Stephanie Moulton, a public policy professor at Ohio State University, in Columbus.
“Don’t just jump into any product,” she says. “Compare it against other alternatives, and seek advice from a financial counselor.”
Homeowners should figure out how much money they’ll need, come up with budgets, and research the programs thoroughly. They should also consider that a hefty upfront payment could also be bad for those on a fixed income who receive public benefits.
But tapping into home equity does make sense for older folks trying to make ends meet as it’s often their “primary financial asset,” Moulton says.
“It doesn’t make sense for seniors to be cutting pills to afford their prescription drugs when they have $150,000 in equity in their homes,” says Moulton. “It is important to figure out how to help seniors on a fixed budget have access to their home equity in a safe way.”