Even before all the sturm and drang about the mortgage market began in earnest, the process for investors to get mortgages had already begun to tighten. The problem wasn't caused by actual investors, it was caused by inexperienced and overly optimistic "speculators" who, when presented with no money down options, didn't buy just one property but bought 3 and 5. They bought pre-construction and then when the properties came on the market thought they could unload them immediately at a 20 to 30% profit.
Oops! What happened instead was a massive number of foreclosures as not only did their 5 units hit the market but so did hundreds more and ultimately, no body sold anything. Lenders we stuck holding the bag on thousands of defaulted loans adding up to billions of dollars. Oh those terrible deadbeat speculators!
Well... not so fast. Those speculating people followed the rules and obtained what the lenders were willing to offer. They also chose to follow really bad advice (read more below) and were blinded by the lure of a quick profit - but that's another story. Had the lenders really looked at who was buying, where they were buying and what the market conditions were in that area, they would have been able to anticipate that these were speculative investments. These are things that an appraisal tells you if you bother to read it.
Investors, especially less experienced ones, must find people who give sound advice - not just enough to get the current deal done but some one who will look at your goals for the next several years and will help you achieve them.
Recently, a less experienced investor chose to go to another lender after I had run down several options - in their mind - figuring that the lowest possible payment was their prime consideration - we're talking a reletively small difference between the programs. The other lender had also mis-informed (often, we call this lying) my investor that after buying a new investment property with 20% down, that they would be able to turn right around and borrow against that property and use the proceeds for their next investment. Great strategy - except that for the past 18 months and more, investors have been shut out of this strategy.
In fact, right now an investor can't get any money out of a new property even if they bought at 50% below market value, until they have owned it for at least 12 months. Unless they sell but that's not really the point for a buy and hold invetor is it?
But wait! Logically you instantly have 50% equity because you bought below market value, right? WRONG! To the lender, your purchase price is the market price, especially in the current weak real estate market.
Now the investor who has come back to me for help, is faced with a great deal but no cash. Had he listened to the full impact of the advice I gave him, he would have cash in his bank to do the next deal. So, in the end, was the lowest rate and monthly payment key for this investor? No, liquidity was.
The sad part is that this guy's investing plans are stalled for 12 months because some shady character told half truths (o.k., lies) and wanted to make one deal. My goal was to help him do a lifetime of deals.
Basic rule: You can never ask too many questions, but many people ask one too few.
What's happening in your area? Lemme hear what you think! Curt
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