The benefits of non conventional financing

This is a subject I find particularly interesting because it can both help a beginning investor who would otherwise not qualify for conventional financing  and serve a niche as well.  Before going any further, I should clarify that this post deals primarily with private money.  It has also become a goal of mine to purchase all future investment properties using non conventional financing.  First I would like to discuss what I see as the cons to conventional financing in the current market.

 

• Limits: You are currently capped at a maximum of ten conforming loans per person.  In addition, it gets more difficult the more homes you have.
• Skin in the game: Banks for the most part are lending on purchase price rather than FMV (fair market value). This means that even if you find a great deal, well below market, you still need to come up with some money to get a loan.  
• HVCC guidelines: These are the new(er) appraisal guidelines that all banks must use.  In short, given the state of housing in many markets, it can be difficult to even get a great deal to appraise which makes getting a loan all the more difficult.  
• Credit/Cash position:  These are obvious barriers that can and do discourage people from investing.  I am not advocating buying real estate though without having the proper reserves in place to carry both PITI payments and maintenance.  I am also of the opinion that you shouldn't be buying real estate if you can't manage your own finances but I know full well that people get into tight positions outside their control that affects their credit.  

   Private Money is the answer to all of these.  You are only limited by what you can convince others to invest, you can buy with very little out of pocket, appraisals become less of a concern, and credit becomes less relevant.  I am not here to pitch a product or direct you to a site but rather to encourage you to build your own network of private investors.     I believe that private money is the wave of the future in lending.  There are literally trillions of dollars in people's IRA's that can be used to fund your real estate investments.  The best part is that most people don't know that this money can be invested in real estate.  Even better is that the money can come from friends and family (with certain exceptions).  When you combine the above factors with the uncertainty of the stock market as well as the financial performance of the banking sector, you are setting up a win win situation.     It should be pointed out that you do need to be careful in how you go about building your network.  While I will get into more details in later posts, I will say now to keep things simple.  Start with family and friends and don't comingle different people's monies in the same investment.  Avoid advertising (word of mouth works just fine) and have a business plan prepared to show people. I don't believe you need a fifty page business plan but I do believe you need to be finely focused on your goals and be able to clearly present what you are looking to accomplish.     I hope this helps some of you and I look forward to critiques and conversing in the future.  Best of luck.