2011 was a bad year for home prices. As a matter of fact, it was the worst ever. As a real estate investor looking for bargain properties that can be scooped up, fixed, and either sold or rented – that has to music to your ears. There’s only one problem: Mortgage bankers have gotten a lot choosier about giving out credit and approving loans for buyers.
Many experts believe at a time when the economy needs more buyers and borrowers there are much less than ever because banks are pickier about lending money. The Federal Reserve recently surveyed a group of mortgage brokers to get their inside scoop about mortgage lending practices. The Fed’s survey found that lending standards went up sharply after the credit crisis in late 2008. Since then credit hasn’t gotten any easier as banks maintained their strict requirements about mortgage qualification.
As you read into this, an obvious conclusion can be drawn. Finding distressed properties is the easy part. According to Inside Mortgage Finance, 46.1% of all home purchase transactions are distressed properties including short sales, damaged, and non-damaged REOs. Getting credit is the hard part.
So my advice to you is this… Focus on 3 things :
#1 Raise private capital. Every rehab I do today is funded by private lenders from my network I’ve been building for years.
#2 Invest in distressed properties at bargain prices. There are REOs and short sales everywhere to buy. There are also 26 million homeowners who cannot sell because they have no equity. They want to sell but can’t sell through traditional methods using bank loans for their buyers. Using a lease option assignment strategy fee is the fastest and safest way for investors to profit in today’s market. This is where a real estate investor takes over the property using a lease with option to purchase agreement and then wholesales that contract to a lease option buyer for an assignment. The average profit on a transaction like this is about $6,000 for a $150,000 property.
#3 Have multiple exit strategies including selling without bank financing (lease options or owner financing). Rent rolls are higher today than they’ve been since 1999. Consider selling on a rent with an option to buy or with owner financing. Often times, properties will sell in 1/10th the time if they are sold with a large deposit and monthly payments with a 2 year option to purchase. When we market a property on Craigslist “No Bank Qualifying, Rent to Own”, we will typically get 50 calls within 1 week. Real Estate Investors can expect that 3-5 of those buyers will have good credit (600-700 score), 3-5% to put down, and a stable job. They, for multiple reasons, can’t get a bank loan in today’s market. Maybe they have a small bruise on their credit from a late payment or too many open lines of credit. Once they clean that up over the next 18 months they will qualify for a traditional bank loan and cash the deal out.
There just aren’t nearly as many buyers who can cash you out of your properties using bank loans today. If and when bankers start to ease up and loosen up credit then the market will be primed for the real estate investor to make a killing. When there are still bunches of REOs and short sales and there are buyers who can get credit, profit spreads will shoot up 25%, 50%, or even double. I expect that to happen in the 3rd and 4th quarters of 2012.
~Always expect the best outcome~
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For more data and support for these concepts visit these links :
Tight-fisted mortgage lenders pressure home sales – The Bottomline
New-home purchases fall, 2011 worst ever for sales – MSNBC.com
Senior Loan Officer Opinion Survey on Bank Lending Practices – Federal Reserve Board