Today’s housing and mortgage financing market have gone through dramatic changes since the mortgage meltdown of 2008-9. Millions of homeowners have lost their homes to foreclosure and the banks are saddled with real estate owned properties that are hurting their balance sheets. The banks also do not take care of the properties they foreclose on. At the same time, banks are having a hard time making money off their deposits, so they are paying almost no yield to their depositors and investors creating a void for monetary income streams for investors.
This has created several opportunities in the real estate marketplace. Most investors are buying properties and trying to flip them or rent them out. The problem with flipping property when the foreclosures are rampant is that the market value for property is depressed and current appraised values are depressed even further making the sale with a profit, after the property is fixed up to receive a certificate of occupancy, slim on the margins. The government has taken control of Fannie Mae and Freddie Mac and already had control of the FHA and they have made qualifying for a mortgage more difficult than ever today.
Other investors are trying to purchase the REO properties, fix them up and rent them out to wait until the market improves and then someday in the future hopefully sell them for a profit. That makes the investor become a landlord and also deal with renters who have no vested interest in the property. Renters have a tendency to deteriorate properties much faster than owners do. Pride of ownership is missing and the properties suffer and many of the profits to be made are eaten up by repairs required to be completed before the property is sold.
The Federal Government is now opening up FHA, Fannie Mae and Freddie Mac REO available to investors with bulk purchases offering Wall Street investors and even small investors a way to profit from the depressed real estate market place. The biggest problem is that managing individual properties as rental properties is expensive and in many cases eats up the profits from the rental income stream. Then when it is time to sell the property, there are many new required repairs in order to sell the property, causing downtime, expense and a loss of income stream.
Construction Lending LLC has developed a way to earn a solid income stream off real estate, provide pride of ownership to communities, revitalize neighborhoods, and profit handsomely doing so. The problem today is with mortgage financing. Fannie Mae and Freddie Mac and the FHA are all ratcheting up their lending guidelines, making most borrowers ineligible to receive mortgage financing. Millions of borrowers bought into the real estate boom and because of foreclosure or bankruptcy are currently not eligible for financing, even though their debts are cleared. Under Fannie Mae and Freddie Mac most borrowers in a 3-7 year time frame are eligible again to buy housing through those entities. Many of these homeowners would qualify for financing now if the carrying cost to own a home was reasonable. The real estate market today is plagued with restrictive lending practices that hinder home ownership when prices are at all time lows. Communities are being deteriorated because of this and all that needs to occur is a rotation of ownership. People that should be able to obtain a mortgage cannot now unless private financing is provided for the purchase of properties.
The single family home of 2-4 bedrooms that are bank owned need to be put into homeowner’s hands at reasonable prices. This company is set up to rotate bank owned properties into homeowner’s hands at reasonable rates where the investor not only receives above average rates for the private mortgage provided, but participates in the profit after the mortgage is paid off based on predetermined profits from the sale of the home. People that own a home at affordable prices will save off of rental rates, have pride of ownership and rebuild communities and localities that are hurt by the economic downturn. In addition we create jobs for those communities when we revitalize and occupy the currently vacant homes.
This is an example of what type of real estate investments are available today. A property in Daytona Beach, Fl was purchased from the bank for $34,000. It is a 3 bedroom 2 bath cinder block home is a nice neighborhood. The property needed $7,500 in improvement expense and carry to resell the property. The property was sold with owner financing for $67,000 with $10,000 down payment by the buyer. Taxes are $859 annually and insurance costs were $650 per year. No appraisal was required since the property was owned outright and the seller provided the financing.
The property was sold for $67,000 and the buyer was offered a 6% mortgage of $57,000 after a down payment of $10,000 for 3 years. The mortgage offered an option to renew for an additional 2 years after 2 points are paid if extension is required. Since the total investment and carry was $41,500 minus the down payment for the purchase, the net investment was approximately $31,500 in the property. Once sold the note was for $57,000 almost double the net investment of $31,500. The interest only mortgage was at 6% which turns into a true yield of over 10.5% based on net the investment and provides a 61.4% capital gain when the mortgage is paid off or sold.
The buyer was thrilled because they have an interest only mortgage payment of $285 per month, which is extremely affordable, compared to the previous mortgage they had of $200,000 and a monthly payment of $1,074 per month. For the investor the mortgage would pay $3,420 interest per year until payoff. On a net investment of $31,500 (after the down payment of $10,000) the annualized return until payoff would be 10.85%. At payoff or sale of the mortgages the investor would realize a profit of $25,500 which is a gain of over 61.4% of initial investment and 80.9% profit from the net investment from the sale and mortgage closing.
In this example, the buyer drops his cost of housing from over $1,000 per month to under $300 per month which is very affordable even if they have reduced incomes from the job opportunities available today. They will also have pride of ownership, maintain the property better than a renter and in most cases improve the property. This also helps communities turn the corner and will improve the blight and problems unoccupied homes have on a community. Within a 3-7 year period the new owners will qualify again for traditional financing and will refinance the property and pay the mortgage off.
The investor’s will make over 10% cash flow until the mortgage is paid off or sold and over 60% gain on the back end at take out. We have seen private financing rates upwards of 8% which would only improve the cash flow until payoff.
Purchasing properties that have been foreclosed, rehabilitating them, and providing financing to prospective buyers is necessary, profitable and will improve the quality of neighborhood life in communities plagued with foreclosure activity. Typical private financing borrowers are self employed individuals that can no longer obtain no income verification loans, investors that cannot find financing, and borrowers that have gone through a short sale, foreclosure or bankruptcy filings. All of these borrowers are finding it difficult to obtain traditional financing and our candidates to purchase properties through our owner financing model.
Objective:
Acquire bank owned properties for cash, renovate residences, and provide owner financing to acquire them. There are millions of buyers that are not currently eligible for mortgage financing that were and still could be solid homeowners if the new mortgage expense was reasonable. Construction Lending intends to provides Institutional and individual investors and opportunity to participate in acquisition, rehabilitation and sale of distressed homes by providing private financing opportunities for buyers.