The Lending Market Survival Guide

31 Dec

Posted By: Sean Terry | December 31, 2008

How To Adapt to The Never Ending Guideline Changes

Lending Market Changing TimesThe Lending Markets are changing every day, so how does a full time real estate investor adapt to the mania.  Well I can tell you it’s not a walk in the park. Back in 2003 and 2004 we built a ~$36,000,000 rental property portfolio and managed to sell the entire portfolio in 2005.  Times were easy and the money was flowing. We sat on the sidelines until early 2008 when we saw home prices at levels that would allow for cash flow. We currently own ~$12,000,000 worth of rental properties here in Phoenix and are adding to the portfolio every month.  Our business model outside of building our own property portfolio has always been delivering fully renovated cash flow properties to investors at below market prices.  With this model, we’ve been affected by the every changing lending market.  Here are several methods we use to improvise and adapt through this fluid market.

1. We accept the fact that change WILL happen and it’s out of our control.  To focus on something you can’t control produces unnecessary stress.  Focus on things that you can control, like what price you buy a property for, how much the renovation will cost, the amount of qualified investors you have in your data base. etc..

2. When a change does happen that makes an impact on your business, don’t go into a depression. Validate that the change is true and look at every positive aspect you can about the change.  I’ll give you an example, our current business model is to purchase distressed properties, renovate them and sell them to investors for $7,500 total out of pocket.  They get a property that has 25% built in equity, a tenant in place that cash flows and we get the spread from our “all in” cost vs. what we sell it for.  It’s a win-win.  Now Fannie and Freddie recently changed their guidelines that limits investors to only 4 properties on their credit, completely wiped out stated income loans and reduced the LTV to 75%.  So how did we adapt? Well, we didn’t freak out, we were bummed for all of 30 seconds and then we dove in to find a positive solution.  The result was to develop an Owner Occupied model where we offer a home buyer the ability to pick out a bank owned property in a neighborhood they like.  Our design team working with our renovation crews will renovate the property to the clients specifications, basically a semi custom remodel.  We then sell them the property for only 1% out of pocket which beats FHA’s 3% down.  The result for us is the owner occupied refinance will be at 90% vs. 75% which is a big difference in profit.  We would have never considered this without the guideline change.

3.  Have several lenders/brokers that are good and can get deals done.  We are always looking for new lenders that can offer solutions to the current lending market. We try to spread the business around the best we can but the bottom line is results, I hate excuses.  You need someone with an attitude that will not take NO for an answer.  If someone tells us it can’t be done we won’t sleep until we find a plausible solution.  Again, BE RELENTLESS…..It pays

Lean more on how to Buy Cash Flow Properties For Only $7,500 Out of Pocket 

Happy Investing


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One Response to “The Lending Market Survival Guide”

  1. Matthew Coates 18. Jan, 2009 at 5:10 am #

    Sean, working with investors I am constantly looking for lenders that don't require 20% down. That's alot of money. Would like to talk with you about investor lenders that will let you go in with 10% down or less, most likely in the arena of private money. Pros and cons discussion. Great blog by the way, you are doing a really great job on here. I'd like to buy you coffee in the next week or two.