I think the banks have something to learn from the independent real estate investor. Our flexibility is one of the keys to our success.
Based on that statement, I’d like to say that I’m a full time real estate investor. I’m not a speculator, I don’t chase appreciation (though I’ll gladly take it when it comes), and I rarely flip properties. My goal is to buy and hold and on occasion, to help people qualify over time to buy my properties with either lease options, or rent to own programs. Whether the government believes it or not, we’re in a recession. The stock markets are down, the housing market is down, and unemployment is up. It’s starting to sound like the USA is about to nationalize the auto industry, airlines and who knows what’s next. Times are tough, and to add insult to injury, the banks are not lending.
What can we do in a market where banks want 25% down and a large number of otherwise credit-worthy would-be buyers can’t scrape together that kind of cash? Buyers can’t find financing and so they can’t buy. Sellers can’t find buyers with financing, so they can’t sell. It’s a real problem, or is it? For a well trained or seasoned investor, it just might be an awesome opportunity!
As an experienced real estate investor, I coach several student investors each year on creative investing strategies and alternative financing options, among other things. The number one question I hear right now is “how can I buy and sell houses when money is so hard to get? The banks just aren’t lending.”
One answer: “You become the bank.”
What is banking really, anyway? Put simply, they take money in the form of deposits from one person and then lend it to another for a profit. The problem comes when the collateral or the borrower are unfit…that’s what got us where we are today. The key to this real estate market is to learn how to be a transaction engineer. A person who considers the exit strategy just as much as they think about how and what to buy. One of my favorite techniques in this kind of market is to focus on helping sellers: sellers who own their houses free and clear. According to the US Census Bureau, over 33% of owner occupied homes are owned free and clear, meaning, no mortgage. Statistically speaking, one in three home owners with whom you speak owns their home free and clear. This is a perfect opportunity for a real estate investor to facilitate a seller financing transaction. You can pay the seller for their equity over time and they get an income stream while you get a property with financing already in place.
When a bank is not involved in the transaction, everything becomes negotiable ;you don’t have to charge lender fees or points. You can roll closing costs into the loan or not. Also, there is not a set down payment requirement, and a seller can also be more flexible with the terms, interest and payment schedule. While facilitating seller financing deals won’t help the banks, it certainly can help to get the housing market moving again. Many times you can then re-sell the property while keeping the existing financing in place which benefits the original seller because they keep their income stream. Your buyer benefits because they can buy with financing in place and you, you get the profit along with a possible interest rate spread. Wow, a triple play where everybody wins!
Just remember to think outside the box. When traditional methods of financing dry up, be creative, and keep the engine moving.