When you can't get it from a bank....Where do you go?

Question

How are most people funding deals right now.  Are people looking to Hard Money, Private Money?  If you want to keep the pipeline full of deals what are some really creative ways to get cash?

Vincent Polisi · Answer

While certainly I am not sitting in judgment or pointing fingers because I have been guilty of many financial, investment and spending mistakes in the past, it never ceases to amaze me that the largest majority of the population never pays anything ahead to ensure financial peace.

It is reminiscent of Parkinson's Second Law, "Expenses always rise to meet income".

I think it was his third law that stated, "With credit, Expenses always exceed income".

America is going through a painful Financial Renaissance. The sad part is that it would seem that everyone is clamoring for the way things were and the understanding of the mistakes that led to the current situation have not yet been mentally absorbed.

The addicts are going through withdrawals and pleading for more access to debt and don't yet realize that it is the debt drug that caused the withdrawals, not the absence of debt.

Those who don't learn from their mistakes are destined to repeat them.

Man, I hate sounding like someone's father.

Jeff Tumbarello · Answer

Stop spending it, you will have it to invest

Lee Common · Answer

I have also had success with reading the legal news and contacting people who are dilenquent.  Many of these individuals are just walking away from properties and are happy to sign over thier interests in the hopes that at least they will not get a foreclosure on their credit.
            
            The best ones have large seconds that when faced with the first foreclosing will sell their interest for pennies on the dollar.
            
            In this way you can have a house now in the range the market will bear with a minimal investment couple $$$ to bring current couple $$$ to buy off the the second (not in that order).
            
            Seller does not get a foreclosure & you can reach an agreement as to what percentage of the profits they will get.  Most people do not expect anything as they where walking anyway, we still cut them a check none the less.
            
            If you have $10,000 you can make this work with a little research & legwork.

If you do not have ten g's go to your locol REIA I'm sure you can find a partner there once you have located a property.

Jon Holdman · Answer

I don't think the government is telling banks to lend.  In fact, they are using all this money they're being given to gobble each other up.  Lending guidelines do not appear to be loosening up.

New York Times had an article on this yesterday.  May have to register to read the article.  A Chase exec was asked in an employee conf call if lending guidelines would loosen up with the new cash infusion.  He didn't actually answer the question, but did say the money was going to be used for acquisitions.

I think owner finance deals -- subject to, installment land contracts, lease options -- are going to be more important, both for buying and selling.

Vincent Polisi · Answer

It is a forced savings plan, not a self imposed savings plan.

Or maybe people finally got their bailout check, perhaps that was it.

And, touche regarding our URL. One thing to note regarding our program is that it is a program that facilitates home ownership through owner financing (sellers who cannot sell because most buyers cannot qualify for conventional mortgage financing any longer) and is yet another example of the capital markets correcting themselves without governmental intervention.

How?

Through market stabilization that negates the necessity for price deflation due to short sales and foreclosures in the current restricted lending environment.

Unlike a mortgage that the banks have restricted to purposely disable your ability to pre-pay monthly installments, we actually advise clients to pay their owner finance contracts ahead to develop a financial buffer. The greatest fear a homeowner has is losing their home. We are not in the eviction or foreclosure business and don't want to be. The problem is, most Americans have never received any type of professional financial guidance and the current credit system is rigged against them in a moronic attempt to protect the lender. In reality, it has the opposite effect of not protecting the lender. When lenders wake up to the fact that by instituting programs to protect the borrower it has the added benefit of protecting the lender. Case in point, which is better for lender? Massive down payments to create the perception of an artificial equity position or the "down payment" going into a reserve account held by the lender backed by an insurance policy that would facilitate X number of payments on the buyer's behalf in the event of job loss, disability, etc.?

With that type of program, foreclosures in a non-ARM upward adjusting environment would be all but non-existent.

In any event, the Wall Street Journal may be right presently, but loosen up credit again and watch what happens.

The lemmings who just got whacked over the head with a frying pan will go running right back over the credit and debt cliff.

Now, please stop making me sound like someone's old man. I don't turn 40 until next Monday!!!

Vincent Polisi · Answer

Josh:

Jon and David both provide excellent solutions. The solution you need depends on the type of transactions you are looking to do.

Educating people to self directed IRAs as a means of generating investment capital is great if you are looking to actually purchase for flip or for long term hold for cash flow. The present market tone is somewhat reminiscent of the way it was back in 2003 when the Baby Boomers were fleeing the stock market in droves looking for investment alternatives. The key with these deals is understanding self directed IRAs to the point that you can present them effectively to an investor as well as preparing a prospectus of the deals you want to fund with rates of return so the investor can see the benefit.

Presently, Jon's solution provides the perfect storm of opportunity for an investor without either cash or credit. Through variants of owner financing you can option, control, lease, buy, sell, etc., properties with absolutely no cash, no credit, no carrying cost, no liability, etc. And, make a great profit.

Mike C · Answer

Josh,

I would agree with Jon completely. Lenders are getting the money to lend BUT, they are getting so conservative with their guidelines it is tough to get loans. I have friends who have 800 credits scores, no 30 day lates ever and are still jumping through hoops to get a loan. One is at 2.5 months to refi and counting. It is even harder for them to refi a couple of businesses (8 months and counting on one). As is expected, the typical over reaction in both directions but it will loosen up eventually. If you have less than perfect credit you are in big trouble IMHO (as a lot of people do). It will be a while before lending regs loosen and then the cycle will begin anew.

I also have a few friends in loss mit at a very large bank who still havenâ€™t done one of the supposed streamline mods Obama and company say will really help people. They say and I quote â€œ We are getting really close to doing our FIRST one.â€ I wonâ€™t name the bank specifically but just think of banks with numbers and you should be able to figure it out. Not to mention the high default rates of the ones already done but I digress. Things are going to get worse before they get better IMHO in the housing market.

As far as where to get money now, the less you have to deal with a bank the better off you are. I would recommend private funds, either in an IRA or otherwise depending on the deals you are trying to do. If you have a track record of success, you should be able to find people willing to lend you money secured by real estate if you have a low LTV. The key to making it easier is a track record. With all the financial turmoil if you are new it will be tougher to get the money with all the scams in the headlines these days, but not impossible if you will â€œkiss a lot of frogs.â€ The first place I would look is private clubs in your area like country clubs, tennis clubs, etc. If you belong to one or both, so much the better. If you have an in to local Dr.â€™s that also could be a good area. The people who make good money but are too busy to worry about investing because they work a lot or worse, just donâ€™t have any interest in finance who believe the best defense is a good offense. But be warned some of these people are too conservative and even if you show them a great secured by RE investment, they wouldnâ€™t invest with you out of fear or conservativeness even if you could guarantee a return (which of course you shouldnâ€™t necessarily do).

Also as Jon says, I think owner finance deals will become very important to your business for a while. The more creative you are, the better off you are. This area is certainly the best for those getting started as they can learn a lot here at BP and at their local RE association. This is my favorite area as well.

Best of luck

Mike C

Lynn Z · Answer

What is a real estate investment if not a forced savings plan?  Especially those 15 year mortgages.  
If you had parents who lived throught the depression you really don't have to get financial counseling because they lived the depression and spouted savings to their children.

Jon Klaus · Answer

And Vincent, it's ironic given your post, that your website is called financethedream.
          
          Not throwing stones, I was just on the Amerisave and Bankrate websites checking out mortgage rates.

Jon Klaus · Answer

"Amazingly, this market is turning all of us debt mongers who lived large on leverage into our grandfathers and great grandfathers who survived The Great Depression and then paid cash for everything."
          
          The Wall Street Journal just reported that the US savings rate in May was the highest since 1993.  We pretty much quit buying new cars.  Maybe we are learning.

When you can't get it from a bank....Where do you go?

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