I haven't uncovered anything under the rocks yet. It really is a tight lending market beyond belief. Here's what I've run across so far after talking to about a half dozen lenders:
While Fannie Mae and Freddie Mac loosened up their requirements as to the number of properties one can hold (to 10), lenders have not followed suit...at least not the ones the brokers I've contacted deal with. They are still restricting to a mere 4 properties owned and/or mortgages held. That disqualifies me from virtually all of the well-known lenders.
The loophole I was pursuing with FHA looks closed. Yes, a non-profit can apply for an FHA 203K rehab loan, but they must have at least 2-years of low-income redevelopment and rental provision experience. That's not in my history, and I would be just forming the non-profit.
I'm still trying to get word from USDA on the rural rental lending guidelines to see if there's any stipulation for a single-family unit. The instructions denote multi-family (4 or more units), but I'm trying to find out if there are exceptions.
I just got an offer in the mail from from a national lender for up to $15,000, unsecured for up to 60 months at a supposed 9.88% fixed. Not great, but could be useful for the rehab funds. I believe in divide and conquer, so this lead, while not all that great could go in the file earmarked as a credit line for the rehab....maybe down payment funds if I can find a lender who doesn't care about the source of down payment.
Anyone interested in lending $84,900?
Wednesday, June 17, 2009
Monday, June 8, 2009
First stop on the financing quest
You utilize every resource available to you. I began with my circle of influence.
My first stop was a friend and business partner who indicated an interest in putting about $25,000 to work. If he's willing to do it, the amount would be sufficient for the 25% down payment if I could get a bank first mortgage. In fact, it would be enough for the down payment and a portion of the renovation costs. No commitment yet.
My second stop was the realtor who sold me my personal residence. He used to play professional football and is still connected to that industry. Like I said...you use every resource you have at your disposal! This contact is really promissing because of his connections. He had indicated on a number of occasions that he knew players who were interested in real estate but who didn't want to buy properties themselves. So, I candidly mentioned I would be interested in talking with them and that I would be interested in amounts anywhere from about $18,000 to approximately $100,000 secured by the property.
My job is to keep on top of him - apparently pro football players are exceedingly busy, even off-season, and he suspects it will take a while to connect with any of them.
I also contacted a mortgage broker in Palm Springs who was supposed to be a "creative" lender who could put deals together where others couldn't. When I explained my situation, he didn't skip a heartbeat in telling me he couldn't deliver. While he did have investor financing that required 25% down, the number of properties I hold disqualifies me for his financing sources. He doesn't do FHA 203K loans, so I need to look for another lender for that. He does do USDA loans, but knows nothing about what I believe is a rabbit in a hat I want to pull - namely utlizing a loophole in USDA loans set up for non-profit corporations. You see, many (not all) USDA loans are for first-time home buyers. But, there is a provision for non-profits who provide reasonable housing to apply for loans. Between this being a somewhat historic rehab, somewhat rural, and that I can rent it to seniors or modest-income folks, I think there's a chance for one of those loans if I form a non-profit corporation. Alas, he knows nothing about that avenue, so I have to do some groundwork there first.
So, out of the gate, I've planted two seeds for private money, but no commitments yet. One lender seems to have been a waste of time.
Week one ends with nothing solid.
My first stop was a friend and business partner who indicated an interest in putting about $25,000 to work. If he's willing to do it, the amount would be sufficient for the 25% down payment if I could get a bank first mortgage. In fact, it would be enough for the down payment and a portion of the renovation costs. No commitment yet.
My second stop was the realtor who sold me my personal residence. He used to play professional football and is still connected to that industry. Like I said...you use every resource you have at your disposal! This contact is really promissing because of his connections. He had indicated on a number of occasions that he knew players who were interested in real estate but who didn't want to buy properties themselves. So, I candidly mentioned I would be interested in talking with them and that I would be interested in amounts anywhere from about $18,000 to approximately $100,000 secured by the property.
My job is to keep on top of him - apparently pro football players are exceedingly busy, even off-season, and he suspects it will take a while to connect with any of them.
I also contacted a mortgage broker in Palm Springs who was supposed to be a "creative" lender who could put deals together where others couldn't. When I explained my situation, he didn't skip a heartbeat in telling me he couldn't deliver. While he did have investor financing that required 25% down, the number of properties I hold disqualifies me for his financing sources. He doesn't do FHA 203K loans, so I need to look for another lender for that. He does do USDA loans, but knows nothing about what I believe is a rabbit in a hat I want to pull - namely utlizing a loophole in USDA loans set up for non-profit corporations. You see, many (not all) USDA loans are for first-time home buyers. But, there is a provision for non-profits who provide reasonable housing to apply for loans. Between this being a somewhat historic rehab, somewhat rural, and that I can rent it to seniors or modest-income folks, I think there's a chance for one of those loans if I form a non-profit corporation. Alas, he knows nothing about that avenue, so I have to do some groundwork there first.
So, out of the gate, I've planted two seeds for private money, but no commitments yet. One lender seems to have been a waste of time.
Week one ends with nothing solid.
Monday, June 1, 2009
A personal creative financing quest
Does creative financing still work? Right now? In June of 2009, in the worst economic climate in 60 years?
I'm going to set out to prove that it does, and at the same time create for you an incredible learning experience on how to finance properties.
With that in mind, let's take journey together. I'm going to get away from the instruction for a while. Basically, for the next several weeks, I'm going to chronical my personal, real-world, nearly real-time experiences trying to put the financing for a deal together.
Those of you who know me personally, know that I am a big fan of Robert Allen's classic book from the 1980's, The Challenge. I'll go so far to say that, in my opinion, it's probably the single best beginner's real estate investing book ever written, because it takes away all the excuses people usually create for themselves. I won't ruin the book by telling you what it's about, but I will say, "get a copy!"
That said, I always wondered what it would be like to be part of such a challenge, and I've often toyed with the idea of creating one of my own. So... here I am...in a bassackwards way...challenging myself, publically. Tounge in cheek, I say, it's time to "put up" or "shut up", put a bit of my reputation on the line, and see if I can do what I know how to do. And, all the while providing you with a roadmap for how to do it yourself!
You see, I believe with every fiber of my being that knowledge of creative financing is the most vital tool a real estate investor can posess. I professed that - even during the crazy bubble of easy money...those days where you could get 110% financing for any purchase just by fogging up a mirror when you breathed on it. I knew that "easy" conventional money was fun, but that it wouldn't last. What's an investor to do now - when, even if an investor loan is available, you probably wouldn't want the terms? In my book, it's right back to what I've preached all along - the assertive use of creative financing.
The question is, does creative financing still work? In particular, can it work in this real estate climate? The skeptics - even lots of the supposed investing gurus - say that none of the old-school creative financing stuff is viable anymore. The worst skeptics say that the days of real estate, as a viable investment are over. Do you believe that drivel? What the skeptics don't understand, never did understand, is that mortgage bubbles aren't the secret to successful real estate investing. Our secret weapon is knowledge of creative ways to finance purchases.
I'm going to set out to prove that creative financing is still the investor's secret weapon. My objective is to show, once and for all, through personal experience and illustration that creative financing can still be done. My objective is to demonstrate - to you...through this deal - if I can creatively finance a purchase, in this lending climate, in this economy, in this housing market, then it can be done at any time, and by anyone. The excuses will be torn down once and for all.
So, here's what I'm up against;
the property is a single family home in the Palm Springs area. It's a keeper, about 2/3 rds of market value, with a purchase price of $84,500. It will need about $15,000 in rehab which I'm also trying to finance.
Here are my basic parameters:
I'm going to set out to prove that it does, and at the same time create for you an incredible learning experience on how to finance properties.
With that in mind, let's take journey together. I'm going to get away from the instruction for a while. Basically, for the next several weeks, I'm going to chronical my personal, real-world, nearly real-time experiences trying to put the financing for a deal together.
Those of you who know me personally, know that I am a big fan of Robert Allen's classic book from the 1980's, The Challenge. I'll go so far to say that, in my opinion, it's probably the single best beginner's real estate investing book ever written, because it takes away all the excuses people usually create for themselves. I won't ruin the book by telling you what it's about, but I will say, "get a copy!"
That said, I always wondered what it would be like to be part of such a challenge, and I've often toyed with the idea of creating one of my own. So... here I am...in a bassackwards way...challenging myself, publically. Tounge in cheek, I say, it's time to "put up" or "shut up", put a bit of my reputation on the line, and see if I can do what I know how to do. And, all the while providing you with a roadmap for how to do it yourself!
You see, I believe with every fiber of my being that knowledge of creative financing is the most vital tool a real estate investor can posess. I professed that - even during the crazy bubble of easy money...those days where you could get 110% financing for any purchase just by fogging up a mirror when you breathed on it. I knew that "easy" conventional money was fun, but that it wouldn't last. What's an investor to do now - when, even if an investor loan is available, you probably wouldn't want the terms? In my book, it's right back to what I've preached all along - the assertive use of creative financing.
The question is, does creative financing still work? In particular, can it work in this real estate climate? The skeptics - even lots of the supposed investing gurus - say that none of the old-school creative financing stuff is viable anymore. The worst skeptics say that the days of real estate, as a viable investment are over. Do you believe that drivel? What the skeptics don't understand, never did understand, is that mortgage bubbles aren't the secret to successful real estate investing. Our secret weapon is knowledge of creative ways to finance purchases.
I'm going to set out to prove that creative financing is still the investor's secret weapon. My objective is to show, once and for all, through personal experience and illustration that creative financing can still be done. My objective is to demonstrate - to you...through this deal - if I can creatively finance a purchase, in this lending climate, in this economy, in this housing market, then it can be done at any time, and by anyone. The excuses will be torn down once and for all.
So, here's what I'm up against;
the property is a single family home in the Palm Springs area. It's a keeper, about 2/3 rds of market value, with a purchase price of $84,500. It will need about $15,000 in rehab which I'm also trying to finance.
Here are my basic parameters:
- The seller accepted my contract which cast a 120 day net to obtain financing suitable to me.
- The seller does have the right to take backup offer which can accelerate the 120 days to 30.
- I am commited to no more than 5% of my own money into the deal.
- There is no avenue at the moment for seller financing. The seller and I have been down that road three times - no owner carry, no lease option, no land contract. He needs the cash proceeds. So, it appears the funds will have to come from the outside.
- I won't utilize hard money because it's too expensive for a long-term hold. Can't stand hard money anyway!
- I never, never, never look to my personal residence or retirement account to pledge as collateral for an investment. I've always been commited to the idea that your personal residence and your retirement (liquid) funds should remain sacred.
- Beyond that, I will investigate any combination of financing that I can put together to make the deal work.
- Did I mention that this is an out-of-state purchase, in one of those notoriously down markets in California? Salt on the wound there.
The clock is already ticking...........
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