Thread: Future of financing for RE

Originally Posted by andviv

With the current issues with financing, and the amount of people getting their applications rejected, new rules form Fannie and Freddie, and the deep financial hole that FHA is facing, I got to think today about what the financing situation will be for people wanting to buy an owner-occupied residence in the near future.

If analysts' predictions about FHA, they will need a huge cash infusion by the federal government to be able to keep helping first time home buyers. The expectations go anywhere frm 18 to 36 months before it implodes. How true is it? no real idea, but these speculations usually start when it is already too late.

If these factors are still issues for buyers then the market has nowhere else to go than lower.

What do you think will be the new reality for the owner occupied financing market?

Do you agree with my assessment of a future of lower prices in the next 25 years? no? why not?

And then, after having this conversation started --and hopefully the experts will chime in here-- I'd like to address my favorite question, How to profit from this?
How to "short" the SFH market?

excellent topic-
1. I agree the RE market prices continue its downward trend.

2. going "short" the market via stocks: short homebuilders. I believe existing home sales will continue to outpace newly built homes. All asset values still have to be marked down and banks have not done that so they still remain unstable so their share prices will probably remain volatile.

3. a 25 year time frame is a long period to make a realistic guess but on a macro scale, the RE pricing in the USA will feel pressure due to a couple of the factors you mentioned

4. the FHA is very unorthodox in lending practices... for starters, they don't even have a damned risk officer! This is a government sponsored organization run with a politcal arm and disregards business sense b 3.5% down payments, higher credit risks, lax income requirements.

5. FHA loan defaults are skyrocketing. Here's a chunk of info about their future: The New York Times > Business > Image > A Troubled Portfolio ... FHA will absolutely need a bailout. The only question is how much. I like how FHA CEO went on record denying any problems a couple of months ago.... that's exactly what FRE's CEO did and we know what happened shortly afterwards

6. as a result of FRE, FNM and FHA self imploding the credit markets will continue to suffer. Mortgages have already become much harder to obtain due to newly implemented regulations

7. make money from the market: find banks who are able to and in fact doing mortgages. The yield spreads are some of the highest in decades

8. make money in biz resulting from downturn: supply credit counseling services or debt consolidation services, become a bankruptcy lawyer, wholsesale flip properties, buy tax lien certificates.

9. I recently put an offer on a home (my family and I are looking to move) that asked for seller financing. the owner was going to use his retirement fund to buy out what's left of the mortgage and then hold back the paper for e. 3500 sq ft houses with 4bed/2.5ba on .75 acres are plentiful. The ability to sell them is not entirely depending on how well the property looks as much as how easy it will be to buy it....

we're in for some interesting times and there are many more opportunities now then there were just a couple of years ago in the height of the bubble.

find the cash! If you can find it now and put everything you can buy on owner finance you are now the bank.

People have problems that don't allow them to finance a house unless under owner finance situations. Take the 3%-5% down and see if they really want to buy the house. If they do, great they can figure out how to refinance that house. The market is all about who has 20% down on a cash flowing property.

In my opinion, creative financing will make or break you in the current economic situation. When conventional financing becomes the barrier to doing deals, you must develop work-arounds to take advantage of the deal-flow.

A few things we are currently working on, as examples:

• Work with an Entrust/Guidant investor (self-directed IRAs) to provide some or all financing on bank-owned deals. You find and negotiate the deals with bank and then partner with IRA investors at either a fixed rate of return or equity split. Either have the bank continue to hold the note or buy it outright. If you can get the bank to leave the note in place, the investor need only supply the down payment, construction and reserve account funding. Short or long term deals.
• Selling one of your own properties by using owner-financing. This may work better if the property is seasoned and you have some equity. By selling, you may be able to achieve a higher monthly income (in the form of a monthly mortgage payment) than you were collecting in rent. Consider that you will also no longer be responsible for taxes or maintenance and repairs.
• Work with motivated sellers to have them hold paper on your flips. They are looking to sell but the property isn’t moving – perhaps it is vacant (owner has already left) or the property might need some work. You agree to a price but then have the owner hold financing while you prepare the property for re-sale. Find out why they are selling. It is not always the case that a seller needs a large lump sum of money right away. Seller may be satisfied with a monthly payment and agreement to cash out, upon re-sale of the property.

I am learning lately that you need to be able to come up with multiple options for making money on any given deal. Find out where the pain is (for the prospective seller or buyer) and make it go away. I think the most important skill we can possess these days is that of the deal-maker.

There are some amazing opportunities but the rules are changing. We looked at 6-7 single families or duplexes today. 3-4 of them were vacant (owner has left.....moved out of state). It’s a whole different way of thinking…… I have a lot to learn........reading and talking to as many people as we can.

Portfolio loans are also a decent option. You will likely pay higher interest rates and need more down, but you will be dealing directly with the underwriter (aka the bank VP) in many cases.

This year my rentals were picked up with hard money and refi'd into a traditional mortgage. Downside is they want 6 months cash reserves for every single home you own.(reserves include mortgage, taxes, insurance and utilities) I'm trying to figure out a way around this so I can pick up a few more rentals this year. I will likely sell one for the cash reserves needed.

Also they are beginning to go after owner financing and short sales. There are so many contrary bills in congress right now it would make your head spin. Unfortunately its hard to predict what direction were going until some of those pass. For instance there is a push to extend the tax credit and allow anyone to use it. They also want to bump the income cap to $250k. That would blow the lid off the lower end housing market.

I don't even think those in charge of the decisions have any idea what will happen next.

oops, sorry, I meant 2 to 5 years so I thought I had typed "2-5", but my keyboard ate my dash

Great info everybody... Rep++

Originally Posted by phlgirl

Work with an Entrust/Guidant investor (self-directed IRAs) to provide some or all financing on bank-owned deals. You find and negotiate the deals with bank and then partner with IRA investors at either a fixed rate of return or equity split. Either have the bank continue to hold the note or buy it outright. If you can get the bank to leave the note in place, the investor need only supply the down payment, construction and reserve account funding. Short or long term deals.

I am not sure I understood this one correctly....

I buy the note from the bank with investors' money, but ask them to keep servicing the debt? I assume you see this as a strategy for non-performing loans to buy at a discount, but if they are not performing then there is no income... at that point makes more sense to buy it outright and re-sell the property after foreclosing on the owner or get a deed in lieu from them. Is this what you meant?

I probably should have broken that one down further..... it's really two (or more) different approaches.

The first approach is to assume the note (typically non-performing) at a discount and then use the investor money to carry the property through the transition period. This might mean rehab, finding tenant(s) or a combination of both. The intention would be to assume this property post any type of foreclosure/eviction proceedings. Once the property is performing, you could sell or hold long term.

Second scenario is to buy the note outright from the bank. This would require cash in the form of purchase price in addition to any transitional costs/reserve funding. Here, if the property is still occupied, you might need to handle foreclosure proceedings or deed in lieu. Again, get the property producing and either sell or hold long term.

We are finding that there are all types of investors out there right now. Some people are willing to sign up for long term financing while others are looking for quick turns. Some are pooling their money with others and taking advantage of the ability to collect cash-flow properties. We are doing our best to be in touch with a few of each - this way, we should be able to finance any type of deal that comes our way.

Hope that makes more sense.

Lots of ways to get things done, you just have to be creative. Everyone gets lazy in a good market, no we can't be lazy anymore.


I'm seeing a lot of stuff get financed with cash and/or hard money. Lots of money came out of the stock market and is looking for a home.

Originally Posted by hatterasguy

I'm seeing a lot of stuff get financed with cash and/or hard money. Lots of money came out of the stock market and is looking for a home.

So, what terms are you seeing over there for hard money?

I just met with my banker.

In his words -- "If you just walked in off the street, I'd have to send you packing."

But, since we already have a working relationship and existing mortgages, I should be able to do a cash-out refi on my two properties.

And my rate will likely be a bit lower than it was (7.3% versus 7.65%).

The only downside is it is 75% L-T-V versus 85% from before. The good thing is that the "V" is higher.

Originally Posted by andviv

So, what terms are you seeing over there for hard money?

Varies widely. When I need it can get get $150k as a personal line @ 10%. But I don't have to make payments on it until I sell a property. I could probably get a lot more if I asked.

I know people that are paying I think 3%ish on larger lines of credit, say $2m-$3m.

It depends on your risk. I'm new so I'm high risk, the LOC I'm talking about is a small private bank line for its best customers. If I start to use mine and give the investor a good ROI naturaly I'll start to put pressure on him to lower the rate.