Changing with the Times

At the beginning of the year most people only considered a deal if it was at 65% loan to value (LTV) including repairs. As the year continued 70% LTV was acceptable and then 75% LTV. Today, there are investors buying properties as high as 80% LTV. The real estate market has changed and will continue to do so. In some neighborhoods new sales are driving ARV up daily. Do not get left behind using old numbers. If you have not changed, now is the time.

If you are still shopping for deals at 65% LTV or even 70% LTV in some places, it is safe to say you may not be doing as many deals as you once did. Most deals that are still at these numbers are in less desirable areas. Investors and wholesalers that run across a deal at these percentages usually contracted the property directly with the owner and had no competition. How do I know this? I lost a few deals to the competition before realizing it was time for a change. Others were already offering at the 75%-80% LTV as I was still at 70%. If you run the numbers, the 5% difference is not that much but to a homeowner it can make a huge difference. It is true, there will always be an investor/wholesaler willing to accept a smaller return, come up with an aggressive ARV and/or cut corners on the rehab budget to get a deal done but at the end of the day at least the percentages are on par. In my opinion, if they have to manipulate the numbers to call it a “deal” they can have it. Chances are you will be able to contract and perform on your contract after the original buyer did not.

Changing your percentages is easy. All you have to do is punch a few different numbers on your calculator and you are done. The question is, is your business and/or market area ready for the change. What good is it if you have properties under contract at 75% LTV if your investors are not going to buy them or your lender will not lend on them. Contact your buyers list and inquire about their last purchase. DO NOT ask if they will buy at 75%!! When have you ever met a buyer that will agree to pay more for anything? However, by asking them the numbers on their last few deals you can calculate if they have increased their LTV. You should be doing this regularly anyways but this is just another reason to continue open communication with your buyer. Most of the lenders have not increased their lending but they are a great source of information. Lenders can let you know if the buyers in the area are willing to bring the additional 5%-10% of the difference to closing to get deals closed. They can let you know where investors are willing to pay a premium due to a hyper market in that city. Of course they benefit when you do find a deal in that area, sell it to one of their borrowers and they fund the transaction. If you are a newbie and have not yet built a buyers list or have a list of lenders, visit your local REIA and ask the people closing deals what your area is selling at in today’s market.

Real estate changes as often as daily. From interest rates to construction prices there are tons of variables that affect the real estate market. As an active real estate investor you want to always know what is happening in your area. By making it your job to know about the new city projects, school district changes, tax changes, and other impacting changes in your area, you can act sooner and that can lead to increased profits.