A recent article on CNBC made a significant declaration:
“Gone are the days when almost anyone could get a loan with a down payment of less than the traditional 20%.”
In combination with the massive increase in foreclosures, this is a very significant development for creative real estate investments. Here’s why:
- More pre-foreclosures are available now than ever before, and these deals are very easy to get under contract for creative purchase (such as Subject-To, Lease Option or Contract For Deed).
- There will likely be many people interested in purchasing a home in the next few years, and while many of them will have decent or even very good credit, most of them will not have access to the cash to make a 20% down payment
- This leaves a huge opportunity for investors to “flip” creative deals for quick, significant income…
This type of flipping could work like this:
- The investor gets a desirable property under contract for lease-option or contract for deed purchase
- The investor finds a buyer who has good credit but not a whole 20% down payment
- The investor sells the entire deal to the buyer in exchange for a healthy fee of 3%-10% of the property value. (This will likely best be done via an assignment of the contract mentioned in point #1.)
I can easily envision this as being a simple way to generate $5,000 to $15,000 at the time. And I suspect this type of transaction will be in strong supply in coming years.
As always, be sure to consult with your attorney to confirm the proper way to make this transaction happen.
What are your thoughts about the effect of tighter mortgage lending standards on investors? Share your thoughts below…
Lending is getting much tougher due to the losses sustained by sub-prime lending and other easy money practices. Actually, the pendulum is swinging back to normal more conservative lending practices.
Commercial lending is almost non-existent. Banks are struggling to remain solvent as are many lenders. Times are not going to improve untill the energy crisis stabilizes or more likely consumers adjust their spending to the new realities.
Very interesting analysis! I don’t expect the mortgage market to ever become the source of brainlessly easy money that it was in the 90′s. Thanks for your comments! -Bryan Ellis
Many deluded sellers today are still living in the easy money past because those times lasted for so long they’ve become to think that that was the normal way how real estate is bought and sold. The reality is what we’re in now is more towards normacly.
Bring on creative re financing.
It will slow down transaction but will not stop persistent Investors.