Dear MSM Reader,

Is your credit or financial history less than perfect? Don’t let it stop you from building your real estate fortunes. Take a cue from the tips in today’s article.

The Money Men - Part II
By Justin Ford

In my last essay, I showed you how, if you find the right real estate deal at the right price, you can get the financing to close the deal. This week, we’re taking the discussion a step further.

This week we’ll look at how you can do successful real estate deals even if you’re not a typical “qualified” borrower. If you’ve changed jobs recently… or set up your own business… or even have bad credit… there is a way you can still find the money to do a profitable real estate deal.

Now, instead of just looking for a good deal, you’ll have to work harder in order to find an excellent deal. Then, you’ll probably have to find your money outside of the bank market, using private—or non-institutional—lenders.

Remember, all mortgage lenders (institutional and non-institutional) principally evaluate two things: the buyer and the property (collateral). So if you’re not qualified as a buyer, you either need to find a partner or partners who are qualified to get the money… or, if you want to do it on your own, you need to find a property that is very qualified.

That is, you have to get a property under contract at a deep discount to market value—at a price that gives you plenty of “instant equity.” Then, at the very least, you’ll be able to negotiate with “equity lenders,” also known as “hard money” lenders.

These are private lenders who lend exclusively based on the value of the property. Let’s say there’s a house that is worth $100,000—on a no-nonsense appraisal. And let’s say you get it under contract at $70,000.

Even if you have bad credit, there are hard-money lenders who will lend you the full $70,000. It’s 100% of your purchase price, but only 70% of the market value… so they have a significant margin of safety if they have to foreclose on you.

Trouble is, these hard money lenders tend to charge twice or more what banks charge their good customers. Their financing fees also tend to be three or four times what you’d pay in a typical bank transaction. The good thing is—even if you have bad credit—they’re not necessarily your only source of financing.

It is now a very competitive mortgage market and you may find other private lenders who do not charge such high rates. Instead of 6% or 8% more than typical bank loan rates, you might only pay 2% or 3% more if you put up a small down payment, even just 5% of the purchase price in some cases.

Lower Your Interest Rate

Or if you want a lower rate still, you can turn to your “FAFA Network”—Friends, Family and Associates. You can show them what an excellent deal you have under contract and invite them in on the deal, with the understanding that they’ll put up the down payment and apply for the loan.

Some might say you shouldn’t mix business with friendship or family because you can damage your personal relationships. But I’ve had pretty good experiences investing with family and friends. And I know quite a few investors who feel likewise. When you team up with friends and family, the key is to be sure to spell out responsibilities in writing when you go into the deal.

Who will steer the deal through closing… arranging for inspections, survey, title insurance, etc? Who will handle renovation and repairs if any are needed? Who will be responsible for leasing out the property if it’s going to be a rental… or putting it on the market if it’s going to be a quick flip?

And once you’ve done one successful deal with your FAFA Network, you now have another source of potential financing lined up for your next deals—at good rates.

But, whatever source of financing you pursue for a given deal, always remember… buy right first…then borrow right. Borrowed money will only make you money if you’re a sharp buyer first.

When Losing A Deal Is A Good Thing.

In real estate, you need to be ready to submit offers that get rejected. As an investor, you’re looking for great values, and some sellers just aren’t motivated enough to acquiesce. Now, you may have already spent a good deal of time and effort analyzing said property by the point you’ve submitted an offer. You may be very excited about the prospect of making the deal happen, and thus be tempted to increase your offer price. Just remember, you already know what that property is worth to you. Don’t pay more than that number just because you’re afraid of letting the deal go, or worried a better deal won’t come along (it will.) In the end, it’s better to lose out on buying ten overpriced properties than to buy one.