Things are rough for investors, but not impossible...

By
Mortgage and Lending with Envision Mortgage Solutions

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

Comments (2)

Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros
Great blog as long as the investor is not over entended they can ride out a storm. We always work with investors and tell them to invest at a level they are comfortable with
Sep 29, 2007 12:29 AM
Anonymous
Keeping it within the comfort zone

The guy in the example is well within his comfort zone. He has full occupancy on his rental right now but because of poor advice, he's really having to kill himself to find a way to buy this other property.

Since the market is pretty ripe for buyers - who buy smart and stay within their comfort zone - to find great deals right and left, he's just frustrated that the other loan guy rather than helping him for the long term basically built him a road block instead.

It is critical to recognize when some one is taking care of you versus just taking care of themselves.

For me, I think the first step is when I show somebody the entire cost of doing a deal, appraisal fee, typical title fees, escrow deposits, lender fees, broker fees, origination vs ysp, etc etc...

To me its all about the long term and doint things the right way. 

Curt

Sep 29, 2007 04:30 AM
#2