Real Estate Financing

Someone asked me on Twitter: “@george_lerner Are you able to get financing? My So Cal Realtor friends say getting a loan is next to impossible. What do you think?”

Absolutely right, getting a loan from Banks is next to impossible, despite them receiving $billions and federal guarantees. See Where’d the bailout money go? Banks aren’t saying and In 2009, Economy Will Depend on Unlocking Credit for more.

There are, however, People who have $100,000 or more in an investment account, who would Love some way to make more than they have been getting from investing in stocks or mutual funds. (Most stocks and mutual funds are Losing money, fast; a positive return would be Great!)

How can someone with an IRA invest in Real Estate?

You can switch to a self-directed IRA. Talk to your investment advisor about how to do it, and what the rules are. (Of course, make sure you have an advisor who understands investing. If they don’t Find Another Advisor! Ask the wealthiest people you know where to find them…)

Then instead of you taking money out to buy property, you Leave the Money IN the account. The account (your IRA, or 401K, or other investment account) buys the property, it owns it, just like the IRA you have now has been buying stocks. The investment returns stay in the IRA too.

Isn’t real estate a Bad investment now?

That’s not what savvy investors think. The people who have money and know how finances work are very excited now.

Yes, as USA Today reported October home prices drop to March 2004 levels – but as an investor looking to buy property, that means America is On Sale. Ever heard the investing rule: Buy Low, Sell High(er)? With the number of houses sitting vacant owned by the banks, and the number of properties that are still facing foreclosure, you can buy properties at very low prices, if you have (or can get) cash.

What if I don’t know how to pick investment real estate?

You need to buy property 20% to 30% below Current market prices. This is Not the time for wishful thinking, hoping the price will go up. Are there properties available at those prices? Absolutely.

I have systems in place for locating properties, evaluating what price the property should sell for quickly today, make offers on only the best potential deals, and inspect and appraise the property (and re-negotiate if the inspection or appraisal doesn’t meet my standards).

I have money, how can I participate?

There are two basic ways:

1) I find the property, verify the property is a deal, you pay me for bringing the deal to you, you buy the house (and then lease it or rent it, the income going into your investment account).

2) You fund the initial purchase of the house and any rehab needed, your investment guaranteed by the property. I find a buyer who can pay cash (either from their investment accounts or they get a loan) to cover our expenses.  I carry a note for the remainder of their purchase price (still substantially below market price); I pay back your investment plus interest.

There are numerous ways we can have the investment work. I will go over options that fit each property individually, and you pick the property and investment option that makes sense to you.

Helping Home Buyers

Banks have huge inventories of REO property, “real estate owned by the bank”. But banks are not meant to be in the real estate business, they are supposed to be in the lending business. Normally banks own mortgages, not houses. Real estate they own interferes with their ability to lend money. So we can negotiate great prices with banks.

Houses we pick carefully, purchase well, fix up if needed, and market, are available to home buyers.

We can then get home buyer’s financing:  since we own the house, no mortgage on it, we can set any financing criteria, down payment, and terms that work for us! You can earn interest just like banks do.

Are there people who have money to pay for the house, maybe some credit blemishes from years ago that are from circumstances that have passed, good people, who want houses? Absolutely. We can find out what happened that hurt their credit score, and many people turned down by banks would seem to Us to be good credit risks — especially since we purchased the house at such a low price.

We are helping the entire economy when we get houses from banks to home owners.

Comments? Questions?

Either write comments below, or contact me in private.