Retirement Planning Secrets: How Reverse Mortgages Can Empower You

John Harcar (00:01.861)
All right, hey guys, welcome back to our show. I’m your host, John Harcar, and I’m here today with Ken Pitts. And what we’re gonna talk about, besides his journey in business and real estate, we’re gonna talk about reverse mortgages, some of the myths and misconceptions of that product. Remember guys, here at Investor Fuel, we help real estate investors, service providers, I mean really every real estate entrepreneur, two to five X their business.

We help grow the business they want to grow, which helps live the life they want to live. Ken, welcome to our show.

Ken Pitts (00:36.418)
Thank you, thanks for having me.

John Harcar (00:38.803)
Yeah, man, I appreciate you coming on here. Excited to learn more about reverse mortgages, especially the older I get. But before we get into all that type of stuff, tell our audience a little bit about you, right? You know, your background, how you got into, you know, finance or real estate or just what brought you to today.

Ken Pitts (00:57.07)
So it’s been a long journey. I’ve been in lending for 35 years. I was a realtor for three years prior to that. it’s interesting that when I got into real estate, I entered the real estate market as a buyer’s agent. And that was brand new to the East Coast. It was familiar out on the West Coast, but it was brand new to the East Coast.

Of course, I have the arrows in my back to prove that I was first one in the buyer agency world. I did that for a few years, but one of the things that I had to do as a buyer agent was understand how my clients can qualify for a mortgage. And that kind of transitioned me into the mortgage business. And I’ve been in the mortgage business for the last 35 years.

John Harcar (01:29.161)
Right.

John Harcar (01:48.029)
Okay. And I don’t know if you’ve ever watched any of my podcasts. you know, I like to go backwards a little bit. So in your life, right? Were there any influence in real estate cousin, uncle, aunt, best friend, someone who bought houses, old houses, your parents, don’t know any, any, any like long planted seed a while back, like something in real estate that you were, you were exposed to.

Ken Pitts (02:12.942)
I think it was actually my oldest brother is the one that got me interested in real estate and real estate investing. And that’s kind of how I transitioned into that world. he would just, was giving me books, Robert Allen’s book and different materials like that that he would really give to me. And I would start to read them and kind of got the hook in my mouth. That was kind of…

where my interests were.

John Harcar (02:44.829)
Got it, was Rich Dad Poor Dad one of them?

Ken Pitts (02:47.98)
Yeah, although that was much later in my career. I was already elbow deep at that point by the time that came out.

John Harcar (02:51.755)
Okay,

John Harcar (02:57.171)
Got it. I just like to ask that because I…

No, I’m sorry, go ahead.

Ken Pitts (03:04.097)
I was going to say, Robert Allen, from a real estate standpoint, he was one of the first, you know, buy property with no money down. You he was, he was one of those advocates for, finding houses where a seller could hold financing and things like that. So I, I’m, I’m dated way back.

John Harcar (03:23.217)
Got it. Okay. No, I like to ask that that question because I’m curious on how people got planted a seed in real estate, but I’m also curious and I think I have a running like, poll going on in my head of how many people say rich dad, poor dad and how many don’t, cause it’s always been a popular thing. So, all right. So you were, you were a buyer’s agent. Did you like doing that? Did you like, you know, being a realtor?

Ken Pitts (03:47.264)
I did, I didn’t really, as I understood the financing side of it, I think that interested me more. And I really realized that that was the straw that stirred the drink. If you didn’t have the money, you didn’t buy the property. And so that’s kind of where my head landed and why I got into the financing side of the business. it’s a lot of problem solving, which is really just, that’s what motivated me trying to.

Trying to get somebody qualified who maybe is running into problems and there’s always easy deals out there to do, that’s great. really trying to figure something out for somebody and trying to figure out a financing program that worked for them. I think that’s probably what interested me the most was solving problems.

John Harcar (04:36.393)
Well, I think it’s too, you know, it’s a lot lends to financial literacy, right? Is that some of the people when they’re buying a house don’t necessarily have that literacy. And I’ll ask you, did you have education on that financing piece or is it something you just kind of learn as you as you went?

Ken Pitts (04:51.682)
Yeah, there’s no real school for mortgages. It’s really something that you learn as you go. I had some financial background. I had worked for my father’s business for a while and had run the books for his company. So I had some finance background, but really understanding the mortgage finance world was really something you kind of had to learn on your own and you had to experience it. There was no real…

John Harcar (04:56.68)
Right.

John Harcar (05:18.334)
Right.

Ken Pitts (05:20.408)
college courses that you could take that really…

John Harcar (05:22.481)
Yeah, right. There’s a lot more resources now than back then.

Ken Pitts (05:26.104)
Then back then, yeah. Yeah. That’s for sure.

John Harcar (05:29.705)
As you got into doing more mortgage or you got into mortgages and you started to progress along, like what were some of the struggles or maybe some of the things that were more difficult for you to grasp, to learn, or you just kept coming across?

Ken Pitts (05:43.822)
The mortgage industry like any industry goes through changes. It’s never the same. Regulations change, programs change, risk profiles change. probably the most challenging thing about the mortgage business is you need to evolve with it. You’re never doing the same thing year to year. There’s always something new coming out. There’s something you need to learn. There’s some regulation you got to be familiar with.

how it’s going to affect your clients and moving from there. I have a lot of investor clients that I work with who buy investment real estate and that product has changed almost continuously. What kind of financing is available to you? And it goes from getting 100 % financing to having to put 30 % down to back to 20%. It’s all the risk evaluation of lending.

John Harcar (06:28.977)
Always, yes.

Ken Pitts (06:42.754)
Where is the market at that time? Where is regulation at that time? And you’re constantly adjusting. mean, the new hot button for investors right now is the DSCR loans. If you have a debt service ratio, that’s a really unique, interesting product. How long it lasts, I guess we’ll have to see how good the portfolios are, how consistently they continue to return.

versus foreclose. so that’s kind of the newest thing that’s out there from an investor standpoint is being able to cash flow property and be able to use the cash flow as the reason you get the loan.

John Harcar (07:25.713)
Yeah, man, don’t think rents, I don’t think rents in a lot of areas, I mean, I rent’s gonna be pretty stable for a while. I mean, if not go up, even continue to go up, you know what I mean? So I could see where that the DSCR loans come in. I think they’ll stick and I think they’ll stick for a while.

Ken Pitts (07:42.926)
Yeah, I do too. But I’ve been in this long enough to know things. It never lasts forever. Take advantage of it. Well, let’s hear take advantage of it.

John Harcar (07:48.325)
Yeah, you never know. Yeah, Yeah, you’re all.

Exactly. Get it why it’s hot. That’s what I call it. So cool. So now you’re working for a mortgage company. Are you currently working for the same mortgage company? Have you started your own?

Ken Pitts (08:06.382)
I have my own mortgage brokerage. I just recently merged in with a Philadelphia mortgage company who’s been around a long time. I might actually be the youngest loan officer in there at 62. It’s a lot of really experienced people, which is a lot of fun because man, when somebody comes up with a problem, everybody jumps in with answers and you got hundreds of years of lending experience in there.

John Harcar (08:23.123)
Really? Yeah.

John Harcar (08:34.269)
Yeah.

Ken Pitts (08:34.518)
It’s been a really good experience to be back in the fold of a group of lenders, all of whom are just open to share their knowledge and help out. it’s been kind of fun. I loved being on my own as a broker. I just came to the realization that compliance was getting to be too expensive and it was not going to be sustainable for one main shop like I was running.

John Harcar (08:52.393)
huh.

John Harcar (09:04.125)
Well, let’s be honest, right? We can do this business alone, but we’re not meant to. We’re meant to do it in community with other people. That’s how we all grow, right? Because like you just said, a problem comes up, everybody jumps onto it. You have a quote unquote mastermind being able to solve those problems. Okay, so that’s awesome. So let’s touch a little bit on our topic or what was it? The reverse mortgage piece. Tell me about it. First off, just for folks that maybe are on here that don’t know.

What’s the reverse mortgage?

Ken Pitts (09:35.768)
So a reverse mortgage, I always explain it this way. It’s the opposite of everything you know about a mortgage. It’s in reverse. And it’s most often utilized, it was set up for seniors to be able to tap the equity of their home to help assist them during retirement, help supplement their retirement plan. That’s the original play for it. There have been many great new applications.

John Harcar (09:46.505)
It’s in reverse.

Ken Pitts (10:05.678)
for that product that financial planners have come up with and Mortgage lenders have come up with so there’s a lot of ways to apply it Why I got? Involved it the way I did was I just I had some of my own clients my age Right late 50s early 60s calling me asking me questions about a loan that mom and dad had and it was a reverse mortgage and They’re like, I don’t know what to do with this. What is it? And they were just frightened of it

And I said, it’s just a loan. It’s like any other loan. And your parents have passed, you have to pay the loan off. It wouldn’t matter if it was a home equity, a straight mortgage, or a reverse. But I did tell, but they were like, well, it just seems like it’s such a large loan amount. I said, yeah, your mom never made a payment on that loan. She was able to pull money out of it and it deferred interest instead of her having to make a payment. So she got access to money through her equity and she never had to make a payment on it.

I said, let me ask you something about your mom. Did she ever have to come to you for assistance? They were like, no. I said, that’s why. She took care of supplementing her income using the equity in her home. said, so mom did you a favor? I said, you you have to go through the process of selling the home and paying this loan off, but mom did you a favor for the last 25 years. She never had to come to you for assistance. I said, because she found it in her house and that’s how she supplemented herself.

John Harcar (11:10.281)
down.

John Harcar (11:24.297)
All right.

Ken Pitts (11:32.692)
As that proceeded, I would talk to clients, past clients, and they would just, I’d tell them a reverse mortgage. They look like deer in the headlights. like, no, no, no, that’s a bad loan. I’m like, a bad loan? There’s such thing as a bad loan. There’s bad applications of a loan, but a loan is a loan. And I was struck by that immediate knee jerk reaction that it’s a bad loan. And it just…

John Harcar (11:44.616)
Yeah.

Then I don’t understand.

Ken Pitts (12:01.386)
It just kept eating at me to the point where I wrote a book, Kinetic Wealth. And I wrote that book specifically to educate people on what a reverse mortgage is and how to apply it to their financial.

John Harcar (12:15.143)
Why is there such a negative connotation against reverse mortgages?

Ken Pitts (12:19.95)
Well, I would say there is I would split the reverse mortgage world into prior to 2014 and after 2014. And the reason I picked that date is there were some regulations put in place that created some safeguards that I think were the problem prior to and nothing negative. I’ve been in this business a long time. Mortgages come out, they get used.

and then they get re-regulated because they find that, we didn’t think about this, we didn’t think about that. I think part of the problem with the reverse mortgage was they never expected people to live as long as they’re living. I can tell you that when it was instituted in the 80s in the Reagan administration, they were not thinking people were going to live into their 80s as a regular course of business, for one. So they didn’t put a mechanism in place.

John Harcar (13:03.665)
Right.

Ken Pitts (13:19.032)
How much money you can get out of your house in a reverse mortgage is tied to three things. The appraised value of the property, the age of the borrower, and the current interest rate. The age of the borrower, that actuarial piece, they did not do enough in terms of analyzing that. And so they, you know, in many cases, people were outliving the equity in their property. that was one thing that I think created a negative because you’d see mom and dad had a

mortgage outstanding of 250,000 and the house was worth 225,000 and you had a deficit. What a lot of people didn’t realize is that when you get into, if your parents were in an FHA, a government-based loan, they actually had insurance for that and that would cover them. I had to counsel a bunch of people on that. I said, send me your mortgage statement. No, and dad in an FHA, you have insurance. Don’t worry about it. You don’t have to pay the difference. But there was a lot of private money out there.

that didn’t have that and they over lent. so 2014 was a good demarcation for me for that. There was also a really interesting case. Are you basketball fan at all?

John Harcar (14:29.759)
yeah, not as much, but yeah.

Ken Pitts (14:32.974)
So an old 76er, Colville Jones, he was a great sixer player, retired, 61 years old. He actually took a, he lived in Atlanta, took out a reverse mortgage. His wife was younger than him, so she wasn’t old enough to take out a reverse. If you’re taking out like an FHA reverse mortgage, you gotta be 62. There’s some privates that allow you to get on the 55, but at 62, the methodology back then was, you want,

You want the person that can qualify for it on the loan to have to leave the wife off. A year later, he has a heart attack, passes away. Well, when you die, that’s a trigger point to pay that loan off. His wife was not on the loan. So she had to sell the property, which she didn’t want to do. And she didn’t qualify to get financing to pay it off. So she went to court. And this case went, it went through the court system for

several years until finally a judge said hey the mortgage company is right they need to take that house and sell it or you need to pay them off that’s the piece because I don’t think this was ever HUD’s intention and in fact that led to a change in 2014 where they have a non-borrowing spouse and a non-borrowing spouse gets to stay in that house even if they were even if they were too young to be on the loan they weren’t on the loan

they get to retain control. I think that happened to a number of people. That same situation. And even she taking it to court, still lost in court because by the guidelines of the program and what the servicer had to do, it was right they to sell that house. But that’s a big change. That’s a big protection change from a regulatory standpoint that a lot of people aren’t aware of. And they think the house will be taken to them. But I mean,

John Harcar (16:17.885)
Right.

Ken Pitts (16:31.214)
I’ve had financial planners say to me, well, when you take out a reverse, the bank owns your equity. I was like, where did you get that? The bank doesn’t own your equity. You own your equity. You own the home. The bank doesn’t own it. So I think there’s a lot of these misconceptions, but I think some of them actually came out of real life things that were wrong with the loan that hadn’t been anticipated, that changes were made later and it made it a safer product for people.

John Harcar (16:42.344)
Yeah.

John Harcar (16:45.885)
Right? Right.

John Harcar (17:02.131)
Got it. Yeah, it makes sense. What advice, you know, before we wrap up here, what advice would you give to someone, let’s say they have elderly parents or they inherited a property in their, I don’t know, what advice would you give someone who is looking into a reverse mortgage and what kind of things do they need to consider prior to kind of moving forward?

Ken Pitts (17:22.584)
So my advice to folks looking to get a reverse mortgage is let’s make sure you have a plan for the money. Right. There has to be a good use of the funds. If you’re going to use the equity in your home. Let’s make sure it’s being used in a good way. So everybody’s situation is a little bit different. Some people may need to retire some debt and stop. So it stops draining their assets. That’s one good use for a reverse mortgage. Another

may be to set up a line of credit that you have access to when you need it. Maybe to pay real estate taxes and homeowners insurance. Keep some of your expenses down by using the house for that. A great use is what they call a sequence of risk. We recently had a rough stock market. Well, if you don’t have to pull money out of your IRA during a downturn, but you can turn to the house and pull the money out then, and then when the market comes back,

start pulling from your IRA, stop pulling from the house. That’s a great sequence of return activity that you can utilize as a hedge with the reverse mortgage. I just did a reverse for a client that we closed a couple weeks ago. Dad was 88 years old. The one thing he did not want to do was go into a home. Daughter was paying for in-home care for him, ran out of money. House was paid off.

We tapped into the house for a few hundred thousand dollars. That’s gonna last him really probably as long as his doctor expects him to live. But he’s got an opportunity to stay in his house, age in place, and they have money to pay for it. Because that’s expensive. I mean, that could be $12,000, $14,000 a month to have coverage in home. It’s a big expense.

John Harcar (19:08.617)
Yeah, yeah, yeah, that’s so awesome.

Ken Pitts (19:12.43)
So the reverse has all these different applications and I just always tell people let’s have a good plan for what we’re going to use the money for and both now and in the future. I think that’s if you have a good plan, it’s a good one.

John Harcar (19:28.497)
Yeah, 100%. And I love it. And I love everything you shared about it. gave me some knowledge I didn’t necessarily know. If there are some folks that are on here listening and they want to reach out to you for more questions, right? Talk more about it. They maybe are in the situation where that would benefit them. How do they get in touch with you?

Ken Pitts (19:47.48)
So I actually have a website for the book. It’s kineticwealthbook.com kineticwealthbook.com All my contact information is there. They can reach out to me by phone, email, whatever they can order the It’s sale through Amazon. I’ve just I made it as easy and comprehensible as I could in terms of how I wrote it.

I actually had a financial planner wrote me an email yesterday. said, hey, I’ve been using your book in a tax planning class. So he he goes, really, he said it was very easy to understand. And he goes, I found an immediate need for it. so I, yeah, I just really want it to be out there as an educational tool. And you can even, when you go to the site, when you go to kineticwealthbook.com, you can actually download a free chapter and read it.

John Harcar (20:25.778)
Very cool.

Ken Pitts (20:44.072)
And it gives you just to get a feel for the book and see if it’s something you want to get.

John Harcar (20:50.745)
Awesome. Well guys, take advantage of that man. Jump on, get the book. I appreciate you coming on here, sharing all that knowledge. Guys, I hope you took some good notes at home and enjoyed the show like I did. We’ll see you on the next one. Cheers.

Ken Pitts (21:04.824)
Thank you so much, John.