Fractional investment platform, DomaCom has announced a new solution for seniors who are running short on cashflow by offering them an equity release model that takes a different approach to the more traditional reverse mortgage model.
Under this scheme, seniors would be able to sell part of their property to one or more investors, while remaining in the property for as long as they want, and instead of raising a debt where the interest is capitalised against the property like a reverse mortgage, the fractional model would be a shared equity structure, the firm said.
DomaCom said it launched a campaign to gather expressions of interest from seniors to who would prefer to access equity in their home instead of raiding their superannuation or selling other assets such as equites in today’s depressed market.
Its model would assume that, although there was no interest capitalising against the future value of the property, the owner would pay rent on the share they sold to the investor which would be fixed for life. The base fee is 4.4% and would include a small platform fee of 1.4% to cover fund administration and annual valuation costs, property management, longevity risk and insurances, leaving 3% being paid to investors.
Following this, fees, including rent to the investors, would be taken five years in advance to eliminate any concerns the senior may have about the payments and after five years another fraction would be sold to cover the fees and rent for the next five years. In the meantime, the advance fees would be earning interest.
This would allow other members to purchase part of the property using savings or even money from their self-managed super fund for those seniors who wanted to keep their house in the family.
Unlike other equity release models there would be no postcode restrictions in the fractional model, but if there was a mortgage on the property that would have to be settled from the proceeds of the equity release before any money could be distributed.
According to DomaCom, the model would offer flexibility including the ability to move out and rent the home to other people and retain the rent which would be particularly handy for seniors considering retirement living as they could road test retirement village living and still return to their home if they wished.
“It is an ASIC-registered financial product that operates in similar fashion to a syndicate,” DomaCom marketing manager, Warren Gibson said.
“The only difference is that the title stays with the owner, and DomaCom protects the investors’ interest with a mortgage instrument over the property. When the senior decides to sell the property, the investors will receive a share of the net sale proceeds in proportion to the amount they invested.”