American home is folding…
http://biz.yahoo.com/rb/070803/americanhomemortgage_closing.html?.v=1
employment is slowing in the econmy also.
It’s all good!!!
We’re TOO NEGATIVE here. :rolleyes
Realnew,
Renting that apartment instead of buying a house is looking smarter and smarter everyday isn’t it???
My big concern with all of this is how am I going to get the funding to pick up all these good deals?
Banks are going to run as soon as I mention investment home. I am sitting on a decent amount of cash, a house I own outright, great credit…what should I do now to improve my odds of obtaining financing during the storm?
Banks have to make loans, they will simply tighten up on their credit/risk standards. Which means RE investors have to bring solid, well documented deals to the table in order to get funding.
All of the fallout is simply the natural cleaning up process for the growth and lax underwriting years we’ve enjoyed.
THAT is a great question.
What you need to do is go out right NOW and establish a relationship with a small local bank. The big guy’s can’t make decisions on their own, manangers at giant banks have loan commitees, VP’s and lot’s of other hurdles, and they could care less about little guys. Your small local bank is the way to go. Mike aka (propertymanager) swears by them and I don’t use ANYTHING but small banks.
Banks will still loan money to people who can pay back those loans, remember that, it’s how they stay in business.
In your situation, I would go out TODAY and start the approval process for as high a line of credit as you can get on your home. I know that sounds scary but your going to use it SMART. Get it opened and DO NOT use it. Just wait. What is going to happen here is this price drop is going to pick up speed. Then using your line of credit, you can step in and buy these homes VERY QUICKLY. You won’t need an approval, a mortgage, appraisal, inspection (you should get it for yourself though) You’ll pay some money for the line but who cares? Getting it established is key.
Once you find that screaming deal you use the line to buy it, then have it appraised and go for a traditional loan.
Remember one thing…If your buying a $100,000 home for $50,000 your apraisal should come back at let’s say $95K to $100K your only asking the bank for $50K …it’s not any different than putting down a 50% deposit. The other advantage?? You can make improvements to the property BEFORE the banks appraiser comes out FURTHER increasing that appraisal. What most investor then do is take out some of that equity when they get that mortgage. THIS IS TAX FREE MONEY FOLKS!!! It doesn’t get any better than that.
Example…your $50K/ $100K house needs some work, before the appraisal you fix those things, the banks appraisal comes in at $120K! You only need $50K to pay off your line. But…you borrow $75K, put $25K tax free in your pocket and rent out the home. Tenants pay the mortgage and you wait for better days 10 years from then. 2 or 3 of these and your banker wil be your new best friend.
At your closing you pay off your line, put $25K in the bank and start looking for the next one. You then have a $75K loan on a rental home that appraises for $125K, or don’t take out the equity and pay that sucker down fast for monthly cash flow to improve your life.
Get ready folks the REAL real Estate boom is coming. BOOM is the PERFECT word too!!!
GET YOUR LINES…LINED UP NOW!!!
Thanks pete, I’ve actually already got a business line of credit that doesn’t report to my personal which is nice. Low interest and more than enough to buy a house outright for a rental here then REFI.
I just called a local bank here, lady was a Bit&&ch!!! When I asked her if they keep the loans inhouse or sell them on the secondary she said nobody keeps them inhouse anymore and if they did they would have a 5 year call and why did I want to know this? So I told her I am trying to get ready to buy up any good deals that may come along as the result of the bad lending in the past and she raised her voice and said they probably aren’t any good deals and we wouldn’t be interested financing anything like that. Bye bye, click…I think that has to be like the 10th bank to turn me down, great credit, net worth 6figures, and good income, so you can see what i’m getting nervous about getting anything financed. What if I buy with my LOC and can’t REFI out?? I know it sounds crazy but I really think we may see a brief moment of time where NOBODY touches investment homes, and that might be the time I need them the most.
There are not many more small banks here in raleigh…but I’ll keep going at it.
Raleigh??? as in North Carolina???
IT’S NOT CRAZY…You bring up a great point. I personally believe you’re seeing the beginning of the liquidity sponge drying up into a cracked, dusty, pile.
As you correctly point out things could get so bad that NO BANK will go near anything with Real Estate attached to it.
Think I’m being too negative??? Search NJREstudents recent posts, he had a link to a VERY prominent Swiss Banker who makes THAT EXACT PREDICTION.
As far as banks go, there ARE banks out there who keep what they create. Your local REI club maybe able to turn you on to some. There will always be banks who are willing to go where no one else wants to. These guy’s are no different than we are, they see opportunity were others see none. Digging them out may take a while but they ARE out there. KEEP LOOKING, you have to, if you plan on buying during the MESS we will soon be facing.
Incidentally…If, in fact you are in Raleigh, N.C. based on what the banks just told you I think the “Everything is different down here, we never saw a boom.” theory just went out the window. Some guy’s here have posted that they think it’s different down there because they didn’t get huge run ups in prices. They might be right. I have no knowledge of that market, but from what you just related, I’d be scared “you know whatless” If a string of banks laid out that rosy assessment for me.
It’s going to happen in places a LOT of people don’t expect it to. Watch and see. The bomb has been lit, we just don’t know how long the fuse is.
Remember how loose lending standards got in the last 5 years??? There will NOW be an EQUAL INVERSION as far as TIGHTENING goes. So for all those banks out there that would loan anyone, anything, we will soon see what you’re NOW describing only much more widespead. This you can take to the BANK.
Some people think this is hysteria. The really scary part of it is… it’s soon to be REALITY. Think about those implications???
One thing I’ve been doing lately is turning assets into cash. I sold a Porsche 911 Turbo, a boat, some vintage guitars, stock, and anything else I see being able to replace at a lower cost in the future. When I see the Vice President of PIMCO, one of the countries biggest bond traders has sold his own HOME and is now RENTING??? Yea, that’s a wake up call folks. It’s brilliant really, you KNOW he’s going to be able to buy that house, or one near it for a lot less 3 years from now. (or maybe a lot sooner the way Wall St. is going lately)
When you have extremely intelligent people voting with assets most of us would never dream of selling, THAT is not good, it just is not good.
Although I don’t follow his advice JIM CRAMER just did the EXACT same thing. (sold his own home and now rents)
Greets…
Negative? Nooo that’s good news. I posted as information, not to be down in the mouth.
Yes, I am still walking the renter route. Still trying to find a landlord who will let me have a m2m or shorter term, renewable lease. Everyone wants a 1 yr committment.
Pete, I had an opportunity to get a house with $40k in equity. I passed on it. Admittedly, if another comes along with that much equity, it’s going to be hard to pass it up whilst I plead to rent. lol
I’m seeing home prices drop $10k. The way I see it, those are the ‘back to spring’ prices - u know before the summer price hikes. So another 10-15 overpriced for the boom… seller had better be pretty motivated to see me, or have a boat load of equity.
I’m also considering the fixer route. Buying below market now. gradually fixing up during the lull/purchase-o-rama. We’ll see how this plays out. I have to move in the next 3 weeks.
I look forward to more closures etc. I look at them as clearance sales at my favorite stores. I’ll post more economic news as it comes up. Remember, it’s not negativity guys, it’s good for business. I am a little concerned about where interests rates are going – back to the double digits of the 80s? /90s? But, I’m sure there will be some creative strategies to combat this.
RN
Remember folks, this isn’t the end of the line…it’s the tip of the iceberg. Many banks will follow this one down the crapper. Let me do my best bank impression… :flush
This of course is why sub2 investing was invented. This of course is also why the DOSC was invented and when it is more likely to be enforced. If the bank is getting 6% out of you when they can get 12% you can bet your britches they will do everything they can to get 12% even if it means calling your loan due prematurely.
RN,
I was just joking about the negative thing. I like your attitude.
Keep posting and I’ll try and help you anyway I can.
I wouldn’t worry to much about that $40K in equity you passed on. If it was a $200K house (which if I remember right it was) a big chunk of that would have been gone with realtor commisions, holding costs, and a falling market. You’re going to see a LOT of houses with more than $40K equity next spring. As banks face mounting financial pressures they will be FORCED to get these homes OFF their balance sheets.
THERE IS NO BETTER WAY TO DROP PRICES IN A MARKET THAN BANKS UNLOADING INTO IT!!!
I can’t wait to hear about your deals this winter and next spring when 4 TIMES as many ARM’s hit their first re-adjust in a falling market with liquidity drying up and interest rates climbing. (I’m too negative)
As far as interest rates go…I’ll take $100K discount EVERYTIME to 2 or 3 points on rates. You don’t pay back what you don’t borrow!!!
I wouldn’t put a lot of weight in what a swiss banker has to say about the US housing and RE market. Don’t go to a commercial bank looking for RE funding, find a local Savings & Loan chartered bank. Their charter requires them to have 65%+ of their assets invested in housing related assets. Their whole business revolves around the US housing market. Not many of them use the old S&L name anymore, not since the 80’s, but they will typicall be called Federal Savings Bank or maybe State Savings Bank depending upon their charter. Just check out the FDIC website and search for banks headquartered in your area, then talk to the loan officers.
I just called a local bank here, lady was a Bit&&ch!!!
Sounds like she’s feeling the credit crunch.
She’s probably realizing that with the more stringent lending criteria that’s been handed down to her, it’s going to curtail a lot of the Target® spending sprees she had gotten used to in the last few years.
-Mike
I doubt that I’ll ever use bank financing again, even though it remains available to me.
I have private investors who will loan me money in 24 hours at 12% with 3 points (payable on the back end) and 80% LTV based on my opinion of value.
Why would I ever use a bank? Sure, the cost is a little higher, but not by much when you factor in lower closing costs.
Hey Paul, I’m interested to know more about your private lending source. Can you send me a PM?
Thanks
I have private investors who will loan me money in 24 hours at 12% with 3 points (payable on the back end) and 80% LTV based on my opinion of value
OUCH! 12% and 3 points is enough reason for me to never use private lenders! Even my commercial ARMS are capped lower than that!
Mike
Isn’t it interesting that guys like Jim Cramer and the PIMCO guy have no problem selling their homes in a down market.
It IS interesting!!! I think they sold months back because the story was from April. But think about it, they’re in markets that sell to Wall St. millionaires. Up until a few weeks ago those guy’s were ROLLING in money, Literally!!!
However if its done right that money is tax deductible. I would rather pay money upfront and close a deal in a few days than have to potentialy wait a few months for a bank.
I would rather pay money upfront and close a deal in a few days than have to potentialy wait a few months for a bank.
A few MONTHS? My last bank loan for two houses closed in two weeks. Maybe you need a new bank.
Mike