The housing crisis of 2008 and 2009 radically shifted the landscape in the mortgage industry for a number of reasons. First, the regulations that went into mortgage approval multiplied overnight. The subprime loans that had been available to a variety of borrowers and the easy approvals that went through with only scant attention to income requirements were no more, because the loans that had defaulted had, in most cases, been approved without much due diligence at all. Second, the amount of income that banks could count on from mortgages plummeted, because new approvals were going through the floor. Third, people who had plenty of money to make a solid down payment no longer had access to mortgage lending if they were self employed, without having to jump through rigorous hoops, or if their credit did not match lender guidelines. This means that there are many potential borrowers looking for investors in real estate.
Here’s how it works. Even though thousands of mortgages went into foreclosure in the United States and Canada in 2008 and 2009 (as well as the subsequent years), mortgages still bring in more reliable returns than other investment vehicles. Third party financial firms are looking for real estate investors to match up with borrowers who, for one reason or another, cannot find the funding they need through traditional institutions.
Why would you consider this as an investor? You’re not actually putting your money out on the table for 30 years, like traditional lenders do in the U.S., or for as long as 10 years in Canada. Private mortgages usually have terms that last one or two years at most. Also, their interest rates are higher than traditional loans. Because you would be putting your money to work for a borrower who is seen as a riskier investment, your rate of return is going to be higher. You also get your money back sooner than a bank does, making your investment more liquid than the traditional mortgage.
You may have read in the news that lenders are starting to relax those standards. That is somewhat true, but that relaxation is taking place at a glacial rate of speed. There are many borrowers looking for investors in real estate, for a number of reasons. One of the more common is the borrower looking for a loan as an owner-occupier. This is the person who wants to buy a home but has credit that is somewhat below what traditional lenders want to see. However, his down payment is higher than normal — 30 or even 40 percent. In situations like this, the private lender comes in and provides funding for the rest.
Another situation in which people are looking for investors in real estate involves the chance to flip a property relatively quickly. An investor sees a property that is for sale well below what a property in that situation could be worth, but he does not have the funds on hand to buy the property. This investor will look for other investors in real estate to help with the funding while he manages the flip. He will use those private funds to buy the property and make any necessary improvements, flipping the house at a profit and paying back the loan within the term of the financing.
Looking for Property Investors
As an investor, you might be wondering why you should put your private funds toward loans when banks will not. First, if you’re dealing with an owner-occupier. you’re dealing with someone who wants to avoid foreclosure at all costs. It is true that this borrower’s credit history might not be on par with what the banks want, but the fact that he was able to put together a 30 or 40 percent down payment shows some skill with managing money (or a significant increase in income). The numbers on foreclosure rates still show that mortgages are an investment well above that of the stock market or other investments when it comes to a reliable rate of return.
Money Investors for Real Estate
If you have money on hand that you are looking to invest, talk to one of our professionals today to find out how you can get considerable rates of return with much less risk than many of the other vehicles in the market today. Amansad Financial is looking for Real Estate Investors to help borrowers make their dreams come true.