The benefits of non conventional financing
This is a subject I find particularly interesting because it can both help a beginning investor who would otherwise not qualify for conventional financing and serve a niche as well. Before going any further, I should clarify that this post deals primarily with private money. It has also become a goal of mine to purchase all future investment properties using non conventional financing. First I would like to discuss what I see as the cons to conventional financing in the current market.
- Limits: You are currently capped at a maximum of ten conforming loans per person. In addition, it gets more difficult the more homes you have.
- Skin in the game: Banks for the most part are lending on purchase price rather than FMV (fair market value). This means that even if you find a great deal, well below market, you still need to come up with some money to get a loan.
- HVCC guidelines: These are the new(er) appraisal guidelines that all banks must use. In short, given the state of housing in many markets, it can be difficult to even get a great deal to appraise which makes getting a loan all the more difficult.
- Credit/Cash position: These are obvious barriers that can and do discourage people from investing. I am not advocating buying real estate though without having the proper reserves in place to carry both PITI payments and maintenance. I am also of the opinion that you shouldn't be buying real estate if you can't manage your own finances but I know full well that people get into tight positions outside their control that affects their credit.
Comments (3)
great post Brian! Let's start the private financing revolution!
Kevin Kaczmarek, about 13 years ago
Nice post Brian...I couldn't agree more with your points about keeping liquidity and people not buying if they can't manage their own finances.
Bryan Hancock, about 13 years ago
There is a private money revolution going on right under our noses. The beauty of the free market system is that capital will find ROI, and with the banking system sick, there is a giant opportunity for private money investors and RE investors to remake the grass roots capital markets.
Jon Klaus, about 15 years ago