Jul
22
Your LLC Loan is Gone!
July 22, 2008 | 2 Comments
For almost two years now I’ve been advising anyone who will listen to begin a refinance strategy to peel residential investment property loans off of their personal credit into portfolio loans in the name of their entity or LLC. No one listened. I heard a bunch of excuses such as “it’s too expensive” or “I don’t have enough equity” or “I don’t think I need to do that.” Well, a couple of things have happened in the last month or so to prove that (once again) I was right. Hate to say I told you so, but…
Beginning August 1st, Freddie Mac is limiting the number of financed properties an investor can have to 4. Fannie hasn’t yet announced a reduction but some Fannie lenders have voluntarily reduced their max to 6 in anticipation of an announcement.
Yesterday, Wachovia announced that they are no longer accepting loans. Wachovia was the bank that did the residential LLC loan. So, now all those investors that have been calling in a panic in response to the Freddie Mac rule have waited too long. Ix-nay on the efinance-ray. That’s pig latin for “no can do an LLC loan.”
So, what to do now? If you have more than 4-6 financed properties on your personal credit and you want to employ this LLC refinance strategy, your broker can’t help you. I get at least two calls a day from investors that are looking to buy or refinance a property and they are essentially unfinanceable with conventional financing. They always ask me to “be creative.”
Well, my creative solution for those investors ended yesterday. If you are in this boat, you may be able to help yourself by developing a relationship with a portfolio lender on your own. A lender that will loan in the name of your entity and doesn’t sell their loans into the secondary markets. But I can only think that if you could do that, wouldn’t you have done that already?
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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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