Professional residential real-estate investors are having trouble right now in their original financing plans for building their property portfolio, and they are in a holding pattern right now. It may be the time that beginners take advantage of this.
You see, many investors have found that the best deals that come available on homes many times need very short escrows (escrow is the time from which they contract to buy, to the time the money/funds are sent to settle the transaction). That being said, traditional lending for permanent loans was not designed for quick turntimes and most of the time these homes are not in good enough shape for a permanent loan lender to fund on. So, successful investors have credit lines with local smaller banks, or cash readily available for when that perfect deal comes along. After that home is targeted, bought, and funded with cash or the credit line, fixed up to at minimum average condition that permanent loans require, they refinance the credit line or cashout refinance the new buy to reimburse their bank account with enough liquid funds for the next great deal that comes along. That plan has worked great for the past 10 years now, but things have changed. Most regular banks and lenders would allow a new borrower to have up to 10 FINANCED properties and then they would not loan money to those borrowers anymore, and that is when those borrowers would have to work with an "alt lender" that had unlimited property financed guidelines, and they would charge a little bit higher interest rate, but not so high that it kept the real-estate investors from making rental properties cash flow. OOOOPSSSSS! Mortgage market falls, foreclosures run rampant, and guidelines change. The first thing that happened was that the lenders that held their own "portfolio" loans/alt loans that allowed unlimited properties, they completely cut these loan programs out of their loan opportunities and stopped lending on those programs. This meant that any investor that had a portfolio of rental properties more than 10 could no longer reimburse themselves for cash they recently put into a home, or payoff their line of credit they recently used to buy a home. Even more recently, major banks and lenders have cut back their "10 properties financed" guidelines to just 4. What might this have to do with our real-estate market right now? Maybe this is one more way that will slow down the buyers market even more as many of these investors can't or wont choose to pay cash for properties they can't reimburse themselves with shortly after.
A thought to leave you with. Beginner investors always struggled with getting that super deal because the professional and more seasoned investor could steal a property with their quick purchase style, escrow cash or credit line purchase, because the seller would take those offers over an offer where the buyer was needing 25-30 days to acquire financing in the traditional way. Is it possible that beginner investors have a window in time right now to get that steal while large investors sit back "licking their wounds" waiting for the lending world to turn around and reimburse them for those last properties they sank their cash and credit line teeth into?
As an experience loan officer, I have a number of investors in this situation and know first hand, my investors are not buying homes now for that very reason.
Best of luck in your investing!
Brad
Friday, August 15, 2008
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Testimonials & About Me
- Brad Lynch
- Frisco, Texas, United States
- In 2002, Brad Lynch began energetically consulting families in finding the right mortgage plan for their needs. In the beginning years, he was trained by a mentor who led by example, and this example was the epitome of integrity. Brad learned in the beginning by his mentor that many prospects may not consciously see what good intentions he has for them, do to the “wrap” many have caused w/in this industry, but always do what is right for the customer and in the end it will payoff. Integrity coupled with an energetic nature to nurture relationships, Brad has created clients for life. Through these clients for life, referrals have become the lifeblood of his business.
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