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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2008

Target: Investors

Learn the options available for investor clients and how they can draw in business

Like many mortgage brokers, I can’t resist the urge to search the Internet for the latest count of the lenders who have closed or will soon close their doors. They’re disappearing overnight.

This decrease in lenders, as well as the dramatic reduction in loan programs, presents a challenge for brokers. Loans that used to seem easy are no longer viable.

For those who want to continue closing deals, a new marketing plan is in order. Brokers must start looking for clients, such as real estate investors, who qualify for the funding programs that are still available. They also need to become familiar with the alternative-financing options those investors present.

One option is to work with borrowers who may be more likely to qualify for loans: investors. These are not investors seeking 100-percent-loan-to-value (LTV), non-owner-occupied loans. You need real investors -- those willing to put 20 percent to 30 percent down.

The current market of pre-foreclosures, lender-owned real estate and other distressed situations has created ideal conditions for investors to be selective and negotiate the best deals from the vast inventory of available real estate. Partnering with a real estate agent familiar with the market can make it easier to locate these deals.

In addition to individual investors, brokers can work with groups of smaller investors who pool their resources to form tenancy-in-commons. These can work together to generate deals and take advantage of opportunities generally reserved for wealthier investors.

Once you decide to work with investors, you must learn about the funding options available to them. Here are three alternative-financing ideas for investors:

  1. Seller carry-backs: With investor assistance, buyers who no longer qualify for 100-percent financing may still have a mortgage option in seller-carry-back financing. This is how it works: Investors purchase a home and flip it to the buyers. You arrange a new first mortgage at the highest LTV for which the buyers qualify. The investors use their built-in equity to carry back a second mortgage for the buyers. Investors who can provide this service are in high demand.
  2. Real estate-owned (REO) properties: An REO, real estate owned by the lender, is a property the lender has acquired, typically through foreclosure, and is liquidating. Investors can buy these properties directly from the lenders, which are often anxious to sell.
  3. Short sales: When homeowners owe more on a mortgage than the property is worth, and they are attempting to avoid foreclosure, they can often sell their property to investors for less than the mortgage owed. The sale must be approved by the lender, however, because the lender must be willing to accept less than the face value of the mortgage.

An example: If a home is worth $300,000, but the mortgage on the property is $350,000, a lender must be willing to accept $50,000 less -- a “short” payoff. In most short-sale situations, the amount the lender accepts includes the reduction for the market value, as well as real estate commissions and other costs of the sale. The lender may be willing to grant a short sale to homeowners who demonstrate a genuine hardship compounded by a clear loss in property value.

Whether your investors are purchasing REOs or negotiating short sales, buying properties at deep discounts provides immediate equity and the ability to flip the property or rent it for positive cash flow. These transactions are much easier to facilitate, however, when you can close quickly.

Determining the appropriate purchase price is crucial for making smooth and successful investments. You can assist your investors in planning their investment strategies by using generally accepted formulas to calculate their offers based on their goals and the market.

Offers that are 15-percent less than market value in active markets, and as much as 30-percent less in slower markets, are usually reasonable. Your real estate agent can help determine what is appropriate in your market.

All in all, great fortunes can be made in down markets if you know how to take advantage of them.


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