Aug
11
Five Strategies to Get Your Real Estate Investment Income Property Financed … Even in a Credit Crunch
August 11, 2008 | Leave a Comment
News Flash: financing is getting tougher and tougher to come by, especially for real estate investors. However, when the real estate market faces challenges it may also present you with opportunities – but you’re probably going to need the cooperation of a lender to turn those opportunities into deals. What can you do to maximize your chances?
1. Get Real
Don’t expect to walk into a lender with a tiny down payment and have them even pretend to be interested in financing your deal. In hard times, lenders become “risk-averse.” One way to make them fall in love with your deal is to show that you have some skin in the game, that you are putting your own money on the table. Some of you – especially those who have read a ton of get-rich-quick real estate books or are trying to be a “creative” investor – don’t want to hear this, but you can’t expect the lender to take a risk in a tough market if you’re not prepared to do the same.
2. Check Your Facts
Do your due diligence and have it ready to show to the lender. Not only should you verify a property’s income by examining its leases, but you should also get an independent take on your local rental market to confirm that the rents are realistic. Visit rentslicer.com as a potential source of apartment rent data. RealtyRates.com should be able to give you info about prevailing capitalization rates in your market. RSMeans’ CostWorks can help you with construction costs if this is a development project.
3. Join the Pros
Consider joining one of the trade associations for your specialty. There’s NAA (National Apartment Association), and ULI (Urban Land Institute) to name just a few. Yes there are membership fees, but the data and trends you acquire can be a great help in building a successful strategy.
4. Sell Yourself
With investment property, a lender’s first concern is the viability of the property, but they’re going to be interested in you as well. This is where a detailed personal financial statement comes in. You should have it in a profession spreadsheet format and keep it current with all of your accounts, income, assets and liabilities so that it’s ready to update and use whenever to need to seek financing.
5. Make Your Case
I can’t tell you how many emails my company gets that say something like, “I saw a building on LoopNet that is listed for $500,000 and the NOI is $95,000. What kind of financing can I get?” You need to give me more to work with than that. You need to build a professional presentation to show the lender the ACTUAL financial details of the project.
For income-property investments you should provide at minimum, the last two years’ ACTUAL (not proforma or projected) income and expense statements and a current rent roll.
Make sure you write a good, solid Executive Summary. This will give the lender an overview of the deal. As the deal progresses, the loan officer or banker will ask, “How did you come up with this projection?” or “Where did these numbers come from?” That is when you start pulling out detailed reports to support your projections. You’ll not only answer the questions, but you’ll also demonstrate that you have a firm handle on this deal and you know what you’re talking about.
Of course, not every deal is going to qualify for financing, and that’s true even in non-crunch times. Still, you can stand out from others who are competing for limited funds and maximize your chances of success by using the kind of thorough, professional approach I’ve outlined for you.
More information about qualifying deals, running the numbers and preparing executive summaries and financial statements is available in my Finance It Right course.
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Jul
13
The Death of Real Estate Investing?
July 13, 2008 | 3 Comments
Banking regulators seized IndyMac Bancorp last week. IndyMac is the 5th bank to fail as a result of the mortgage crisis and is currently the 3rd largest bank to fail ever in the US. This is scary folks.
IndyMac will reopen under FDIC management and control but this just means more bad news for real estate investors. I closed millions of dollars of loans with IndyMac both on the residential and commercial side as recently as last month. As more banks fail less conventional financing options become available to investors which in my opinion will lead to the death of real estate investing as we know it.
If you don’t already see the writing on the wall, here’s the deal:
1. More banks fail leaving less options available for investor financing.
2. The ONLY buyers of mortgages become FHA, Fannie Mae and Freddie Mac.
3. FHA does zero investor financing. Freddie Mac now limits investors to 4 financed properties and nothing can be refinanced if it is or has been titled in an LLC. Fannie Mae is suspiciously quiet but Fannie lenders are voluntarily limiting max properties financed to 6 and adopting the LLC rule in anticipation of Fannie following Freddie. AND there is strong talk in the media about the fact that Fannie and Freddie are on the verge of failure.
What will your strategy be when this happens? Will you be able to qualify for a conventional loan to purchase OR refinance a property? Or maybe the better question is will there BE conventional loans available to real estate investors?
Creative investing strategies are back. Unless you have 30% to put down on a property, a great credit score and a ton of LIQUID reserves to satisfy the conservative guidelines of a portfolio lender that loans outside of Fannie, Freddie and FHA, then you *must* educate yourself about three things:
1. Raising private money.
2. Lease Options and Master Lease Options
3. Subject-To’s.
Then let’s talk about selling your properties. FHA is the new subprime. If your buyers can’t qualify for FHA then you have to know how to sell your properties using seller financing. Wrap mortgages, performance notes and deeds of trust and shared appreciation mortgages have to make an appearance in your investor tool box.
Maybe “The Death of Real Estate Investing” is a little too strong for this situation. Maybe we should call it Real Estate Investing 2.0. Whatever we decide to call it, the bottom line is that you need to do something fast to adapt.
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