NOW, a safe way to NOT lose money in real estate!!!

May 22, 2009 - PRLog -- If you are like me, you have taken a literal BATH on your real estate holdings in the past 18 months and have probably sworn never to buy dirt again.  Yet the late night TV gurus are hawking all the "get rich fast with no money down" schemes to sell you the same records and tapes they were selling 2 years ago.  I have a garage full of these books and CD's and I can tell you they are not all crap, but they all represent huge elements of risks.  Today, they say, you cannot lose because the market is at the bottom and prices cannot go any lower.   Well, if I was 25 again and had $50K I wasn't using for groceries, I might be tempted to take another chance, but I'm not and I don't.

But I have discovered a nearly fool proof way to make good solid gains in real estate without taking RISKS.  

BECOME THE BANK.    

In years past, bank stock was considered the "gold standard" in investments. That was back when banks used to require 20-30% down payment and proof of employment and proof of your ability to pay back the loan. Home mortgage defaults were few and far between. Once those standards were relaxed, all bets were off.  Many folks bought homes in the last 5-10 years with no money down, no proof of income, no proof of credit history and no employment record. (To make matters worse, because prices were increasing at such a rate, many banks offered to loan 10 - 20% MORE than the home was worth.) It was cheaper to buy than it was to rent.  

If the home owner had nothing invested in the home, ie, "no skin in the game", when times got a little tough, there was no incentive to stick it out.  Many, many folks just walked away from their homes and allowed them to go into foreclosure. Sure, they took a credit hit for a few years, but many walked away improving their net worth by tens of thousands of dollars. Money they didn't have to repay to the bank on a home that was suddenly worth much less than they had paid. Once that started, prices began to fall rather than continue the perpetual appreciation of the last hundred years.  Thus was born the "sub-prime meltdown".

The banks brought it on themselves, with a lot of encouragement from the federal government, when they ceased to require substantial down payments.  Now there are some investors who take the risks of ownership on their shoulders and allow Private Lenders to become the BANK, just like Countrywide and the rest, except they never borrow more than 50-60% of the value of the home.  This is easy for them to do with the glut of foreclosed homes on the market, many banks are eager to sell their bank owned homes (REO's) at 40-50% of market value.  

So let's say a real estate investor buys a REO for 40% of market value and spends another 10% to repair it, he has 50 cents invested for every dollar in value of the home.  If he borrows all of the money, the loan is said to be at 50% Loan To Value (LTV). A Private Mortgage Investor can BECOME THE BANK and loan that money to the real estate investor at a guaranteed, high interest rate and be secure, protected against any market decline of less than 50%.

In the last year, the real estate market has declined in value somewhere around 20% depending on the region.  In this scenario, the mortgage investor with a $50,000 mortgage on a $100,000 home (50%LTV)  would still have security valued at $80,000.  While the hapless real estate investor would have seen his equity decrease by 40%, the mortgage investor is still protected by a 60% cushion and has earned a significant interest rate guaranteed by the mortgage.

Where do you find the money? That paultry remnant of a 401K would still probably be enough to finance a modest home purchase....and it would earn a guaranteed, fixed rate of return for 3-5 years.  That's another great part about this kind of investment.  YOU ARE THE BANK and can dictate (with-in limits) the terms that work for you.

Why would an investor pay me more interest that he would a bank?  Because banks take 6-8 weeks to complete a mortgage.  An investor using Private Mortgage Investors can close in a few days and can negotiate much better deals with the banks. Banks selling their REO's want to deal NOW and will often take considerably less money for a "cash" deal than if financing is a contigency.

How much money does it take??  Some Private Mortgage Investors do deals as low as $5000 while others may go up to $200,000 to $300,000.  Larger loans will usually demand higher interest rates and more flexible terms.  

It is a win-win deal for both the real estate investor and the private mortgage investor.  The investor who takes ownership has a higher potential gain but a much higer risk of significant loss.  The mortgage investor sits in a pretty safe position with minimal downside risk and significant gain potential.

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We are professional home buyers concentrating in the East suburbs of Atlanta. We frequently use pension funds and private investors to buy homes, paying above normal interest rates and offering very secure, safe mortgages as security. None of our investors has ever lost a dime. http://www.hiderinvestmentgroup.com