For some reason or other, people act as if the banks should have the last say about what they buy, how much they pay, how much they pay down, and how much insurance they cover on a house. Oh, I know that the reason people let lenders run all over them is because they think that’s the only way they can buy a house; but this simply isn’t true. It’s one of those urban myths that give people an excuse not to buy houses. It’s what I call a failure of the imagination.
Before I quit counting, I had bought over 500 houses and only used bank financing to get a mortgage one time in order to take advantage of my VA loan. All the others were bought with a combination of seller financing and taking over the payments on existing financing. In none of these cases did I let the lender dictate what I would do. I didn’t ask permission to take over the payments, nor did I fill out any forms. I didn’t guarantee my payments or fill out any kind of credit application or financial statement. I got to set the terms that I needed to make the house cash flow, and I turned down a lot more houses than I ever bought.
What’s the key to being able to do all of this? I didn’t deal with unmotivated lenders. I was fortunate enough to start out in just about the same kind of economic climate as we are experiencing today in the housing market. There was an oversupply of houses for sale and a shortage of both buyers and bank loans. In short, it was a buyers’ market and I took full advantage of it. You should be doing this too in this market, rather than sitting around waiting for the boom to resume.
Those who aggressively buy houses now with feasible financing will be the big winners over the next five years.
Who will provide this financing? The same people who now have it languishing in the bank earning less than 5% at best. I’m such an investor. When I finance an acquisition for a seasoned entrepreneur, I have to like the property and like the price, then I put up all the money for half the profit. I look for a 3-4 month turnaround of my cash. If I can recycle $100,000 three times a year, I usually wind up with about 40% annual yield. If you can do show a successful track record to an investor, and demonstrate that his money will be earning high yields, you’ll be able to get all the money you want. On the other hand, if you don’t know how to do this, you’d better start learning all you can about finance and management.
