Falling real estate prices may have you thinking it's a great time to apply the Golden Rule of wealth creation -- buy low, sell high.
It's always good advice, but deceptively simple because it assumes you have money available to snap up under-priced assets.
Today, prospective real estate buyers are faced with the opposite problem they had a few years ago. Then, credit was easily obtained but bargain-priced properties were scarce. Now, deals abound, but debt is hard to secure.
Of course, not everyone's having trouble. A borrower with excellent credit, high income, few debts, and a large down payment typically has little trouble getting a loan. Applicants who don't meet those criteria, however, are finding they need creative strategies to secure loans in today's credit-constrained environment.
If you're interested in profiting from the down market -- either as an owner-occupant or investor -- the following five tips may make it easier to finance your next property.
Sure, there are good buys out there. But do you have the money to snap them up?
1. Scrutinize personal resources: Take an orderly approach. See how much you can borrow right now. Are there assets you can sell (a car, a boat, that old baseball card collection) that would boost your down payment? Can you tap equity from another property? Could friends and family members help with the financing or co-sign a loan? If so, keep in mind that there are ways to formalize these agreements -- such as through Virgin Money USA, which sets up payment schedules and interest rates -- and thus lessen the risk of strained friendships and familial relations down the road.
2. Get down to business: Considering the challenges most people face financing just a first or second home, how do serial investors keep getting loans? A big part of their success stems from presenting banks with a compelling business case for why an investment will succeed. "The lender wants to know that you've got a viable deal on the books that will make sense over a long period of time," says Frank Gallinelli, founder of RealData, a real estate software company, and author of several investment books. For investment properties, prospective buyers need to demonstrate that the cash flow from the building -- the rent minus mortgage, tax and maintenance costs -- will cover the costs of ownership over many years, says Gallinelli. Even buyers who intend to live in the home would be well-advised to consider cash flow should they plan to resell or rent the property in the future.