Find the Best Financing in a Bad Economy

For several years it was easy to find 100% financing of investment property. Just go to a bank and get an 80/20 no doc loan. You didn't need great credit, you didn't need cash and the investment didn't have to make sense,but the credit crisis of 2008 forced the banks to pull back from their loose lending practices. Now most require 25% down payments when you are trying to buy rental property - if you can get a loan at all. Many would be investors seem locked out of the market at a time when foreclosures are creating many buying opportunities.

Cash is king in the bad economic time. Those with the cash are going to get the best deals. Period. But you can still buy investment rental property even if you don't have a lot of cash.

One of the best actions you can take is to develop a good relationship with a small local bank. It was the big banks that were the most out of control. Many small local banks kept their heads on during the buildup of the real estate bubble and are in a good shape to loan money.

There are several alternatives to banks. The most obvious is seller financing. Now this won't work if the owner is a bank, but is a great way to find a win-win solution to the problems that sellers are having unloading their houses. And generally, a seller is not going to look too closely at where you are getting a down payment from.

If you have a good relationship with a local bank that knows local property values you also might be able to use the seller to carry the down payment as a second mortgage. The big banks are more likely to want you to have some "skin in the game".

If you are buying a property that needs a lot of rehab, the best option might be a hard money loan. Although hard money lenders now run credit checks, if you have some experience in real estate you can find this type of lender. If you are going to flip property and can get a deal that will sell quickly after making repairs, the higher fees and interest rates won't be a big impediment to using a hard money lender. A hard money lender will lend you money for the purchase and renovations.

These are people that have either lots of cash or a self-directed IRA. With a self-directed IRA an investor can be a bank for you.

He or she might be willing to lend you the money and give you a share in the property in exchange for a portion of the ownership.