Jul

13

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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3 Comments so far

  1. Allen Taylor on July 13, 2008 12:34 pm

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

  2. George Blackburne, III on July 13, 2008 5:22 pm

    Attention Ben Bernanke and the U.S. Treasury: In a recent blog post called The Death of Real Estate Investing, Susan Lassiter-Lyons has brought up a very important issue.

    Unless the Fed and the Treasury develops some sort of financing mechanism to help investors and speculators buy real estate using high-leverage mortgage financing at favorable rates, this meltdown in real estate values is going to continue. And its not inflation that keeps Ben Bernanke up at night … its crushing deflation.

    In my recent book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, our banks get scared and stop lending. Over a trillion dollars in annual payments on existing loans kept flowing back to the banks, but the banks stopped rolling over their interest receipts into new loans.

    Since the multiplier effect today is around 20, and since the multiplier effect works in reverse, the money supply of the United States started to disappear. Homes fell over 70% in value, and the banks started foreclosing on most of the homes in the United States.

    Well, folks, I fear the scenario that I described in my book may be coming true. The book was written in early 2007, when gas prices were $2 per gallon. I predicted $6 gas and a complete real estate estate meltdown, even more dire than that of today, by the year 2010.

    Fortunately the Fed … continued at my blog Commercial Real Estate Loan Tips at http://www.blog.c-loans.com

  3. Jon Christopher on July 14, 2008 9:01 am

    It’s definitely getting tough for investors. I have never had to use hard money but I think that is about to change. Jonathan Christopher of Short Sale Way

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