In recent years, getting financing for almost any house deal was a piece of cake. There were innovative program to fit any situation (and lets be honest programs that were plain stupid giveaways.)
While the years of easy money made lots of people - including savvy real estate investors who unloaded their speculative holdings at the right time - that world has been changed remarkably.
First there were tightening credit standards - requiring things like proof of income and proper debt to income ratios. They there were the bank and finance company bailouts. Now there is the $700 billion bailout plan.
There is already rumbling about bailouts of states and industries.
Needless to say, all this financial contraction and new debt obligations on the U.S. taxpayer are dramatically changing the financial landscape. Hopefully for the better. (But probably not since it is likely the same bunch of legislators will just keep getting elected again and again. But that’s another story.)
For those who started investing in the early 21st century, this monumental tranformation that is occuring is devastating. But for old timers, the folks who had to work in the old financial system where a 10% down mortgage was a great rarity, you are going to be coming back to all the techniques that you used in the distant past.
I’m sure as new finance rules start coming out and money gets a bit looser, there will be many traditional and some new ways to operate in the financial markets to buy and sell real estate as an investment. But until that happens, you will have to get fairly creative to make many deals happen unless you are sitting on a great cash flow or a big pile of cash.
Options you will need to be considering include:
Seller financing - You need to explore why the seller is moving, how much equity they have in the house and if any sort of deal can be arranged where the seller can carry back either a partial or complete mortgage on the property.
Lease-Options You might find lease options to be more popular right now too. Many sellers have already moved to a new house and are eating two mortgages in a market where that problem could last for many more months or even longer. Contact such an owner at the right time and you may find them very amenable to a lease-option situation on very favorable terms.
Partners - Do you have friends or business associates who trust your skills enough to partner with you on various properties? If you do, you might have a nice pool of money and credit standing to move forward on many deals that you couldn’t do before.
REO - More and more properties are going back to the banks. They don’t want them on their books. If the bank is financially strong enough to give a loan on an REO and if you make an interesting enough proposal on the house, they may be favorably inclined to give you a mortgage on favorable terms. After all, the last thing they want on their books is an empty house that is potentially deteriorating or attracting vagrants.
Retirement Plans - Assuming your retirment plan is of the type to allow real estate investments - and assuming that it still has value after this huge stock market collapse - you can get it restructured so that you can use it as a source of funding. You have your retirement account give you a loan on the property and you repay the retirement account the principal and interest just like you would do to a bank.
There are many other creative alternatives when money is tight. One of the best places to learn more is to go to your local library and find some of the older real estate investing books - books written in the 1970s and 1980s. Many of them are filled with creative ideas that could be dusted off and applied in this time.
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