Tuesday, January 28, 2014

The Hidden Keys to Financing Certain Homes in Real Estate Investing

In many areas of the country developers bought tracks of rural land and developed these into new home subdivisions. New homes cropped up across the landscape and were sold with financing from conventional lenders. All in all, these projects were successful if done pre-2007. Projects after this time period were often fueled by rampart investor speculation and many homes were completed but large percentages of these were never occupied, or only occupied for a few years as the market fell and these homeowners abandoned their homes.

States like Florida and Arizona had vast areas of abandoned houses dot the skyline in some rural areas that were intended to be self-contained suburbs of major cities often called bedroom communities. There exists an opportunity for real estate investors to buy and sell these homes after a foreclosure has taken place or a short sale is completed.

So, if you are an investor reading this, ask yourself why other investors aren't jumping all over these pristine properties that are slowly decaying because of no buyers. There are essentially two reasons, first, investors can't find buyers who want to live in virtual isolation in these communities. Secondly, the ability to have end-buyers finance these properties is very limited, especially to buyers with challenged credit.

There is an expression in real estate investing that says that if the price is right, someone will buy it. This is true especially if the marketing effort shows the property to enough people. Marketing any property is the key to making profits in real estate investing and this goes beyond the usual method of using the Multiple Listing Service. The most powerful investors have the largest buyers list and can dispose of their properties in days instead of weeks or months.

The first issue is finding the buyers and many investors overlook international buyers because they are more difficult to find. However, they are generally cash buyers so there is no problem with financing a property or getting an appraisal acceptable to a lender. Financing is the second issue that is often a problem in making these deals happen. Conventional lenders, often the same lenders who financed the original project, do not want to loan on a property where they already lost 80% or more of their original investment. But a few investors have found a secret to getting financing for these properties.

As I mentioned in the beginning, many of these sub-divisions have been built in rural areas. Not just rural in the sense of way out in the country, but also for zoning purposes. This is the key to financing these wayward properties. The USDA (United States Department of Agriculture) has loans available for properties located in designated rural areas. Originally designed for farmers, these loans can be used by anyone who qualifies and where the financed property is in a designated rural area. Currently, and this is subject to change, the credit score requirement is a 640 FICO score and they will finance 100% of the purchase price.

In summary, if you are looking to purchase distressed homes where developers have failed, be careful that you can resell them by developing a buyers list beforehand and look to lenders who will finance in these areas. Retired individuals are excellent candidates for these projects as they are living in their homes and are not traveling back and forth to work - so there is almost always someone in the community to watch out for vandalism. The reason these properties are so attractive is that they are selling literally at 10% to 20% of the original financed amount and well below the replacement cost of a similar property located in a "normal" community. Many investors are finding these communities are a terrific new source of profitable deals.

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