Financing Investments in the Current Climate

Hello everyone, this is Bill Flood, and welcome to another edition of the Coast to Coast Real Estate Investor.

Today, I’m going to begin a multipart series on how to finance properties. Knowledge of creative financing techniques is a dying art, and given the current credit crunch is absolutely necessary to finance your acquisitions. I want to do a brain dump on how to finance deals whether it's with conventional finacing or with the dozens of other techniques that don't involve banks and mortgage companies!

Let's go back 5 or 6 years. With the advent of mortgages at 5%, interest only, and the only qualification being you needed to fog up a mirror when you breathed on it, other forms of financing really fell by the wayside.

But, times are different now, and the sub-prime game is all but over. It’s essentially difficult for even the best qualified investor to get 100% institutional financing for purchase right now. 95% financing is remotely available to those with good credit, income and assets, but even that is shrinking to the point of non-existance. Ten percent down is the norm for those with good credit, and often lenders want 6 to 12 months of payments in reserve. You can see that, right now, institutional financing is problemmatic at best - useless at worst.

Another problem, which is exacerbated by out of state buying is that sooner or later, no matter how qualified you are, you will run into a ceiling on what you can borrow conventionally. So, if you want to continue investing past your own qualification ceiling, you need to find ways other than banks and mortgages companies to finance your deal. Buying a second home with conventional funding is still pretty do-able, so if you haven't pursued a second or vacation home, that's something that should be on your radar. Getting into your first true investment property, on the other hand, will pose lots of new challenges related to financing.

So, the successful national (or local) investor needs a repertoire of tools at their disposal for the financing of property purchases.

Creative Thinking
I am always amazed at the current crop of supposed real estate gurus who are touting that the old-school real estate methods are dead. This self-proclaimed experts want to convince you to buy expensive websites, subscribe to high-dollar leads subscriptions and a myriad of other tools that you supposedly can't live without in the current real estate game. In fact, the reality is that the old school folks had it right all along! Go back to the early books on real estate investing and you will find all you need to be successful investing...over your lifetime. Sure, things change, but the underlying bedrock principles never change.

One of those bedrock skills is having a creative mindset when it comes to making deals - and in particular, to financing properties. Bank financing is not the only way to go, and you need to be open to many different avenues for how you can put a deal together. For example, over the next few editions, I'll be talking about lease options, least purchases, owner financing, credit lines...this list is quite long.

A creative mindset recognizes that there's more than one way to get a job done. It's the old adage of "looking outside of the box" for novel ways of solving a problem. By way of example, could you actually be better off renting a person's property as opposed to buying it? Could there be a way of making payments to the owner at zero percent interest? Could you control a property for several months without having to make payments? These are all the kinds of strategies I'll be discussing.

Win-Win
Another of the old school philosophies that I consider to be bedrock is that your deal making needs to be win-win...that is, to benefit both parties. I'll take that thinking one step further and suggest that your highest and best deal will be found when you uncover and try to solve the seller's problem.

Right now, there are thousands of people all over the country with their budgets strained due to escalating mortgage payments...losing their homes to foreclosure...who had to move out of state to pursue direly needed employment but who've now been saddled with two house payments. You can come in and solve those problems in a way that truly helps the other party while at the same time creates a winning opportunity for you.

This, again, is where I differ from the current crop of gurus who seem to be all about grabbing as much equity as possible so they can flip a property and take a Caribean cruise. I've seen vulture investors who think absolutely nothing about putting the proverbial "little old lady" out in the street through a one-sided deal that benefits them while taking advantage of the homeowner...and there are gurus out there who have no trouble in professing such tactics. That's unfortunate, because you don't have to be a vulture. Win-win always has been, and always will be the best strategy by which to operate your investing, and is the crux of nearly any kind of creative financing. I'll say it again...you don't need to take advantage of people. You will find your highest and best deal by solving the problems of the seller - that your best profit-making solution will be found in the solution of the owner's problem if you have a creative eye.

So come with me over the next couple of weeks and learn dozens of ways to put deals together with and without banks. From this point forward your investing need not be driven by what's going on in the mortgage market!

Get in touch if you have any questions:
william@thecoasttocoastinvestor.com

Until next time, this is Bill Flood, for the Coast to Coast Real Estate Investor. Live your real estate dreams!