Become a Qualified Buyer During the Great Credit Crunch

One of my banks cut me a nice check the other day. It was a refinance loan for $412,500 on a property I had bought for $397,500 a little more than a year ago. This during the worst credit crisis in 75 years.

The check will help me accomplish a number of goals at once, and boost my investments far beyond this one 14-unit building.

First, it decreases my interest rate (fixed, of course) and still allows the property to cash flow comfortably.

Second, it enables me to return a little more than half of my equity investors’ capital in short order. Meanwhile, they’ll still have valuable stakes in a cash-flow apartment building in an improving neighborhood that has operated at 97 percent economic occupancy for over a year now. (It was at 12 percent occupancy and in need of rehab when I bought it.)

Third, as I give back, I expect to receive. I expect that most, if not all, of my investors will reinvest that money – and more – with me since I am preparing a real estate opportunity fund to take advantage of the huge discounts now becoming available on cash-flow properties in promising areas.

Fourth, it is part of a track record that banks increasingly scrutinize. They can see I have a history of taking non-performing assets and turning them into money makers, creating value in the process. And that’s important for banks, because – despite all the doom and gloom you hear – they desperately want to lend money.

That’s right. Even in today’s environment – in fact, especially in today’s environment – banks want to lend money.

Become the Borrower of First Resort

Banks can’t keep their doors open if they do not lend money. Yes, they are now becoming choosier than ever. But if you happen to be an investor and borrower with a good track record, your options today are better than at any time in a generation. You may be one of the few buyers willing to buy deeply discounted cash-flow properties (while others are paralyzed with fear)… one of the few with the cash to do it… and one of the few who has the actual backing of banks and other lenders to be able to close the deal.

So how do you put yourself in this position?

It’s fairly simple. You partner with people who have that kind of track record.

Star Investors Want to Work With You

To find those people, just keep your eyes open for potential opportunities to work with someone who has already spent years successfully doing what you’re trying to do.

Some years ago, for example, when I was just getting my real estate investment business off the ground, I contacted the owner of a lakefront house – a retired developer who had made a fortune in real estate in Pennsylvania. The house had belonged to the famous lawyer F. Lee Bailey, and now the new owner was about to demolish it. I told him that I would take the house away for nothing – that I would move it off the property and save him the cost of demolition. He was open to the idea, but I wasn’t able to pull it off. It turned out that the water was too shallow for the barge and the private community had too many tight spots to take the house out by land.

Still, a valuable connection had been made.

Not long after that, the son started developing real estate in South Florida with his father’s guidance – and this opened up another opportunity for me. They were interested in having me act as a scout for them on some of their larger deals in exchange for equity.

This is just one of several such possibilities that I’ve come across in my career… the chance to earn and learn alongside experienced and serious real estate investors and build my own track record and portfolio with their help.

You can do the same thing – no matter how old you are, no matter your level of experience, your credit or cash situation. And when you do, you’ll be part of a team that has the financial wherewithal to act… and get the financing… to close deals in this opportunity-laden real estate market.

Here are a few guidelines for connecting with the right investor:

1. Identify the type of deals you want to do (small residential, apartment houses, commercial, etc.). Then look in the property tax records, sorting by name, and see if you can find owners of multiple properties. Especially if they’ve owned for a while (more than just a few years), these are potential partners.

2. Go to the right meetings for your type of property. Go to real estate investor groups for residential. Go to industry meetings or groups like your local Building owners and Managers Association (BOMA) if you’re interested in larger commercial deals.

3. Network with bankers, mortgage brokers, real estate lawyers, and title agents. They know who is closing the deals in today’s difficult market. A good word from them may help start a very profitable mutual relationship.

4. Advertise in the residential real estate section of the paper with an ad as simple as this: “Cash-flow homes, 30% below market value. Call xxx xxx xxxx.” Then have a packet of information to e-mail to people who respond, with the emphasis on working with qualified investors only, with proven track records and financial resources. If you’re interested in commercial deals, do the same thing. Just swap the words “commercial properties” for “homes” and put the ad in the commercial real estate section. You can also test various types of ads on heavily trafficked websites like CraigsList.

Another excellent alternative is to build up your bank of private lenders. But, private investors are as cautious with their money as banks are. And in today’s environment, if you don’t have much experience, that may be tough sledding. You’re more likely to be successful by developing the right strategic partnership with an experienced investor – a relationship that will help you become part of a rare qualified buying team during one of the best buyer’s markets in decades.

Justin Ford is an active investor in real estate and global stock markets. He is also a veteran financial writer. He has published, edited and written for over a dozen international investment newsletters, including launching the US version of the Fleet Street Letter, the oldest continuously published newsletter in the English Language. He is the author of Seeds of Wealth, a program for getting children to adopt good money habits from an early age. He is the editor of the Seeds of Wealth Quarterly Investment Update Bulletin. He is a contributing editor and author to a number of books on personal finance, including Michael Masterson's Automatic Wealth and Dr. Van Tharp's Safe Strategies for Financial Freedom.