In my last post, I gave my thoughts on the crisis but we’re still trying to have a business and Congress certainly isn’t looking at helping the real estate investor. What can we do?
First, keep on marketing to generate leads and keep flapping your gums. There are plenty of great deals out there and they keep getting better. Just remember to be a reluctant buyer, not a motivated buyer. Take your time, be selective and know your exit strategy. In this market, my favorite strategy is to buy and hold because when the next round of inflation hits, paper money won’t keep its value but hard assets (like gold, houses, even securities) will rise. Additionally, we can now buy properties that cash flow.
There are still millions of homes in America that have not gone into default and do you know why? Many are owned free and clear. That’s right, they have no mortgage. These properties allow the seller to become your financier. When banks don’t lend, sellers do! Owner financing to be my favorite form of financing because sellers have only one goal and that is to sell their property. Banks look at the property as collateral; they don’t care what property you buy. The seller truly has a vested interest.
You can negotiate a better deal with a seller than with a bank because banks have little creativity. As a matter of fact, banks aren’t very good with creativity because they tried it and now need to be bailed out! When dealing directly with a seller we can negotiate interest rate, term, payment amount and when the payments begin. Sometimes we can even get them to provide us repair money. Think of it, a $100,000 house that needs $10,000 in repairs and you could borrow all of the money (they only have to come up with $10,000 because the rest is in the equity of the house). You complete the repairs, get a tenant and then begin making the payments. Could you ever do that with a bank? Granted that is an extreme example but with a motivated seller, they may be happy to have their problem solved.
Something more standard in today’s market would be to negotiate owner financing without a due on sale clause which could then make the mortgage assumable. This effectively allows you to re-sell the property with owner financing or via lease option or on a wrap around mortgage.
In part 2 of this post we’ll explore the details of how to leverage Seller Financing and include examples of how to use.