The distressed-property niche presents a potential opportunity for willing brokers

N. Xavier Arnold, founder, Real Smart Investment LLC

As published in Scotsman Guide's Residential Edition, May 2010.

Now is a great time for mortgage brokers to provide creative funding solutions for investors who want to take advantage of today's large distressed real estate market. To do this, brokers must be knowledgeable, build extensive relationships and understand investors' desires.

In many cases, investors face downpayment requirements of 20 percent to 30 percent. Those can increase further for properties requiring renovation. Moreover, many banks have stopped doing investor loans altogether, and many sellers give extreme preference to cash buyers.

Although all-cash offers provide several benefits to sellers, including quick settlement, investors unable to pay cash still want to buy. With some creative effort, brokers can provide effective funding solutions for these investors and tap a huge market niche.

One way to do this is by offering real estate investment seminars regularly. Seminar attendees should include real estate agents and investors.

Seminars offer brokers a way to educate people about the investment climate and to meet those seeking financing solutions. Often, these investors want to make a purchase soon and have good credit but lack cash.

Brokers can help these investors tap other resources, such as cross-collateralizing the purchase with other properties they own. This works by combining the equity from the other properties to back a new loan. It can be most-effective when the equity taken out of the other properties equals the purchase price of the desired investment.

Another option for investors could be a home-equity line of credit (HELOC) on their primary residence. This can allow investors to borrow funds from themselves. Much like cross-collateralization, HELOCs can provide relatively inexpensive access to capital. This method, however, puts investors' primary residence at risk, and multiple exit strategies should be considered before moving forward with such a plan.

A third option is to seek private financing. These funds often come at a high cost -- in some cases, 15 percent and 5 points. But investors who see today's property prices as the market bottom may be willing to pay.

One downside of private funding is that many lenders have small pools of money that can take six months or longer to turn over. In addition, many private lenders prefer to continue doing business with successful investors with whom they've worked previously. This can leave new investors in the cold.

In many cases, especially those involving properties needing repairs, brokers will find themselves working closely with their clients' real estate agent. Brokers should consult with clients early on and explain available financing options to ensure clients understand the risks and benefits of each. Brokers also should have access to lenders that can provide the options discussed.

Ideally, clients will make an informed decision, succeed with their investment and become repeat customers. Brokers willing to spend time helping them can become a part of today's distressed-property market and find their niche in this sizable arena.

N. Xavier Arnold is founder of Real Smart Investment LLC and a licensed real estate broker and real estate appraiser with 23 years' experience. He is a successful businessman, real estate investor and entrepreneur. Contact Arnold at (301) 292-3636 or by visiting www.rsibestmethodever.com. He's also the author of the real estate book The Best Real Estate Investing Method … Ever! He resides in suburban Maryland with his family.