Aug
11
Five Strategies to Get Your Real Estate Investment Income Property Financed … Even in a Credit Crunch
August 11, 2008 | 2 Comments
News Flash: financing is getting tougher and tougher to come by, especially for real estate investors. However, when the real estate market faces challenges it may also present you with opportunities – but you’re probably going to need the cooperation of a lender to turn those opportunities into deals. What can you do to maximize your chances?
1. Get Real
Don’t expect to walk into a lender with a tiny down payment and have them even pretend to be interested in financing your deal. In hard times, lenders become “risk-averse.” One way to make them fall in love with your deal is to show that you have some skin in the game, that you are putting your own money on the table. Some of you – especially those who have read a ton of get-rich-quick real estate books or are trying to be a “creative” investor – don’t want to hear this, but you can’t expect the lender to take a risk in a tough market if you’re not prepared to do the same.
2. Check Your Facts
Do your due diligence and have it ready to show to the lender. Not only should you verify a property’s income by examining its leases, but you should also get an independent take on your local rental market to confirm that the rents are realistic. Visit rentslicer.com as a potential source of apartment rent data. RealtyRates.com should be able to give you info about prevailing capitalization rates in your market. RSMeans’ CostWorks can help you with construction costs if this is a development project.
3. Join the Pros
Consider joining one of the trade associations for your specialty. There’s NAA (National Apartment Association), and ULI (Urban Land Institute) to name just a few. Yes there are membership fees, but the data and trends you acquire can be a great help in building a successful strategy.
4. Sell Yourself
With investment property, a lender’s first concern is the viability of the property, but they’re going to be interested in you as well. This is where a detailed personal financial statement comes in. You should have it in a profession spreadsheet format and keep it current with all of your accounts, income, assets and liabilities so that it’s ready to update and use whenever to need to seek financing.
5. Make Your Case
I can’t tell you how many emails my company gets that say something like, “I saw a building on LoopNet that is listed for $500,000 and the NOI is $95,000. What kind of financing can I get?” You need to give me more to work with than that. You need to build a professional presentation to show the lender the ACTUAL financial details of the project.
For income-property investments you should provide at minimum, the last two years’ ACTUAL (not proforma or projected) income and expense statements and a current rent roll.
Make sure you write a good, solid Executive Summary. This will give the lender an overview of the deal. As the deal progresses, the loan officer or banker will ask, “How did you come up with this projection?” or “Where did these numbers come from?” That is when you start pulling out detailed reports to support your projections. You’ll not only answer the questions, but you’ll also demonstrate that you have a firm handle on this deal and you know what you’re talking about.
Of course, not every deal is going to qualify for financing, and that’s true even in non-crunch times. Still, you can stand out from others who are competing for limited funds and maximize your chances of success by using the kind of thorough, professional approach I’ve outlined for you.
More information about qualifying deals, running the numbers and preparing executive summaries and financial statements is available in my Finance It Right course.
Bookmark to:
Aug
8
Housing Bill Signed by President- Changes Go Into Effect October 1st
August 8, 2008 | Leave a Comment
Last week, President Bush signed into law a sweeping housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.- The cost of the program which would begin on Oct. 1 and be in place for just a few years will be funded by fees from Fannie Mae and Freddie Mac, along with fees paid by both lenders and borrowers.
- The law authorizes FHA to insure up to $300 billion in loans.
- A permanent increase in conforming loan limits. The law will permanently increase the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,500 from $417,000. This will help those looking for higher loan amounts as the “jumbo market” interest rates have taken a beating as of late.
The FHA maximum loan limits for high-cost areas would also increase to a maximum of $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because those mortgages are more likely to be traded if they are considered conforming. At this point, we do not know what the maximum mortgage limit will be in the Denver Metro Area. I will keep you informed once I hear.
- A new home-buyer credit. The new law includes a tax refund for first-time home buyers worth up to 10% of a home purchase price but no more than $7,500.00. Essentially, this is an interest free loan that has to be paid back to the government over 15 years (i.e. $500 per year). This is available to anyone between April 8th, 2008 and June 30, 2009
- A new affordable housing trust fund. The law establishes a permanent fund to promote affordable housing. The fund will be paid for by fees from Fannie Mae and Freddie Mac.
- Grants to states to buy foreclosed properties The law grants $4 billion to states to buy up and rehabilitate foreclosed properties.
- Fannie and Freddie guarantee the purchase and trade of mortgages and own or back to $5.2 trillion in mortgages.
- The biggest change of all: FHA Seller Down Payment Assistance Program is going away October 1st. The new minimum down payment is 3.5%.
Bookmark to:
