How to Get Private Lenders & Lines of Credit to Fund Your Business

This isn’t about private lending, but this scam is so dangerous, I felt I had to warn you about it.

I recently heard a webinar about investing in the Gulfport-Biloxi area of Mississippi.  The marketing story is that the US Treasury is providing generous tax breaks for investors that buy property down there (true).  However, remember that you have to Make Money Before you can Pay Taxes on it!  And the truth of the matter is  that Biloxi is being sold by desperate speculators and developers to the unwary investors.

Here’s how the scam goes.  The developer is offering very attractive terms to purchase the property and build a townhouse.  10% cash down and the rest financed.  Once the property is built, it will be managed by a local management co. and all the investor has to do is pick up the check.  The only “fly in the ointment” is that these properties cannot be sold for the cost of the build out, and cannot be rented to anything close to the mortgage payment, operation costs and management fee! 

For example, I saw a developer claim that a $250,000 townhome could rent at $2050 a month! Really??  I don’t think you’d get that in Florida in it’s heyday–in Mississippi, one of the poorest states in the country–come on!  In fact, students tell me that getting even $1000/mo for rent would be a stretch.

And oh yes, even if you were in fairy land and got $2050/mo, your net cashflow would only be $67/mo!  Heck, if your home went empty for 2 weeks you’d be in the red for the entire year!

Bottomline: the developer has unloaded his massive debt and the investor is stuck paying a large fee on an empty property until he is forced into foreclosure!

Here’s the hard evidence as shown in the 2 graphs: the first is an inflation adjusted home price index.  I shows that home prices have peaked and are starting to fall. 

The second-the more telling one plots the home price appreciation index.  This graph clearly shows that appreciation rates peaked late in 2006 and have been falling precipitously ever since.  In fact, home values are now depreciating.

We also have gotten reports from students who have gotten burned by swallowing the hype and are now stuck with big mortgages and property they can’t rent or sell!  This is the classic losing scenario–buy high, sell low.

My advice, stay away from the Gozone - it looks pretty, but it will kill you financially.  If you really want to invest in this area, wait about 18-24 months, then pick up these newly built properties which will now be in foreclosure with a short sale from the lenders, and then flip them or rent them out.

Posted to Institutional Lending, Marketing in Real Estate, Seller Financing
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I read an article where Donald Trump was quoted as saying:

“The problem that I see with the United States is that we’re no longer respected, we really aren’t,” lamented Trump, pointing out that there is plenty of blame to go around, starting with the political leadership. “I think that [perception] can be changed. We have the greatest people, the greatest businesses”

Now, Trump may be correct about less foreign investment in US real estate, but it’s not because we’re “no longer respected”.  That’s complete crap.  Whether we are respected or not, is not what determines how an investor invests.  It really has to do with Poor Marketing.  Now, the US government is certainly to blame for part of it.

For the rest, if you want to sell your property, you have to market.  And in a time of tight credit, you have to market harder.  That means understanding in detail  your target market.  And then with laser like accuracy, inundating that group with super-effective marketing campaigns.

So, stop worrying about what everyone else is doing or thinking.  Focus on increasing the power of your marketing.

Posted to Commercial Lending, Institutional Lending, Marketing in Real Estate
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Developing sustainable energy sources and reduction of greenhouse gases is a laudable goal that many share with the “green movement”.  Now, whenever trends become popular, marketers jump on the bandwagon to try to profit from it.  The latest addition to this trend is “green loans”.

Some banks (mostly community banks), and some larger institutional lenders are making noises about funding “green” commercial developments. What does this mean, aside from the press it’s designed to generate for the bank.

The answer is –not much.  If you and your project doesn’t qualify with the current restrictive criteria–credit, cash, debt coverage ratio, etc, no amount of green is going to help you get funded.  Now if you’re a A type borrower, going green may get you a marginally reduced interest rate.

Is it worth it?  Well remember, going green will help the environment and may marginally reduce operating costs, but the building cost is definitely going to be higher.  Are the green bank going to loan you more money?  Not one penny more than the underwriter’s LTV dictates.  And will appraisers recognize an increased value in a green development–nope.  Nobody’s changed the appraisal standards to bump the value of green construction. 

So if you’re looking for an edge, build green if it will help you sell or rent your property.  But don’t hold your breath for the banks to come running to help. 

By the way, if you want to know how to fund every deal you do, I’ve created the absolute best and most comprehensive funding manual you will ever see called “Show Me the Money“.  It contains step by step instructions on how to get money from private lenders, high net worth individuals, lines of credit, financial institutions, buyers, sellers, notes, and much, much more.   And, it’s a ridiculously low investment (for now!).  Click here and Get in NOW.

Posted to Commercial Lending, Institutional Lending
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The media has been bombarding us about the “mortgage meltdown” or the credit crisis, and banks have been wringing their hands and denying investors credit because of the terrible situation–Hypocrites!  It’s the institutional lenders that caused the credit crisis by handing out adjustable rate mortgages (ARM’s) like kids in a candy store.

What they did was actually quite clever–they exploited a loophole in their own underwriting rules.  You see, one of the key factors about whether a borrower will qualify for a loan is whether their income is sufficient to pay the mortgage they will be taking on.  Now, with ARM’s the initial mortgage payment for the first 6 months, 1year or longer, is very low.  It’s the teaser rate.  This is the rate the underwriters used to qualify applicants.  There were situations where a buyer earnign $30K could qualify to buy a $500,000 home!

However, when those rates readjusted to some base rate (prime, libor) + 5 to 10 points, the payments skyrocketed, often to many times the monthly payment.  For most, it was “game over”.  Foreclosures and bankruptcies ballooned to the full-fledged “Foreclosurethon” we have today.

Now the banks have “tightened” their lending requirements to show how concerned they are.  My prediction is that this will last for about a year.  Then, there will be some new scheme, because unless lenders lend, they can’t make money.

By the way, if you want to know how to fund every deal you do, I’ve created the absolute best and most comprehensive funding manual you will ever see called “Show Me the Money“.  It contains step by step instructions on how to get money from private lenders, high net worth individuals, lines of credit, financial institutions, buyers, sellers, notes, and much, much more.   And, it’s a ridiculously low investment (for now!).  Click here and Get in NOW.

Posted to Commercial Lending, Institutional Lending
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