Best thing to do right now to prepare for the new REI Market?

Question

My #1 suggestion is to "GET LIQUID/STACK CASH" and be ready to make offers

#2 Get intimately familiar with Loan Assumptions/Mortgage Wraps

Alex G. · Answer

@Danny Webber Your #1 may be easier said than done for those who were caught by surprise in this crisis. Thinking out loud on the subject of stacking cash: selling properties, taking cash out mortgages on personal home and rentals, selling stocks, getting signed up with HMLs who are still lending, getting bunch of credit cards with cash advance priviliges. What other steps can you think of for getting liquid?As to #2 - I'd expand that to getting familiar with buying on seller financing in all its shapes and  forms: lease/options, pure options, contracts for deed, taking over payments on existing loans, wraps, traditional "seller carry back" financing. Even possibly partnering up with sellers thru equity sharing agreements or JV agreement (especially for fixer properties, or stalled remodeling and new construction projects).

Brian Gibbons · Answer

@Alex G.

I loved that post.

My notes from Shift! Keller Williams after the 2008 crisis:

What a seller can do to move a property in a recession

What Sellers Can DoThere are three distinct players in a real estate transaction: the seller, the buyer, and if financing is involved, the lender.When markets shift, the tide shifts as well. In a sellers' market, the seller holds most of the cards. When real estate is soft, the buyer typically has the upper hand. Lenders, with all of their resources, are constantly trying to adjust to market moves and tighten credit, loosen lending guidelines, or invent new loan programs to serve a new market.Sellers are in a unique situation because the main asset in the transaction belongs to them. Nothing happens unless the seller decides to move their property.  They own the equity in the property as well as the home itself.Sometimes the asset can also be a liability. If the current real estate market is stacked with inventory and a seller wants or needs to move a property soon, then the seller needs to be aware of every tool that's available.Occasionally interest rates are too high and sellers need to help offset those high rates. Sometimes buyers don't have enough money for a down payment or they are having problems qualifying for a loan.Sellers can help themselves by assisting buyers facing income, asset, or credit barriers. Sellers may fund different types of buydowns to lower rates, provide down payment assistance, or carry all or part of a newly created mortgage note.Too often, sellers who are trying to move a property in a slower market make the mistake of simply slashing their asking price. But with good advice from a knowledgeable real estate agent, instead of giving away their equity in a "fire sale," they can implement techniques described here and get their property sold at a fair price. When that happens, the real estate agent can win a client for life. 1.	Seller ContributionsOften misnamed "seller concessions" seller contributions are really a range of incentives or other financial offerings designed to make the deal more attractive and doable for a buyer.Seller contributions that make a deal more attractive must address market conditions while also meeting lenders' requirements and disclosure requirements.Opportunities	"	Closing cost credit reduces the cash the buyer must contribute at closing without lowering the sales price. The buyer's total financed funds will increase by that amount. But spread over the life of a mortgage, the increase pales by comparison to the thousands of dollars that don't have to be produced up front.Watch Out!	"	Certain loan programs may limit the types of closing costs a seller can pay. Lenders will set contribution guidelines limiting the dollar amount of total seller contributions to a percentage of the sales price."	Guidelines usually direct seller contributions toward one-time or "non- recurring" buyer costs (escrow fees, title insurance, discount loan points, or loan origination charges). "Recurring" costs (insurance payments, mortgage interest and property taxes for example) are normally out of bounds."	When writing purchase contracts, agents sometimes include a "repair allowance", viewed as a seller contribution toward the cost of future repairs to be made by the buyer. Allowances like this are unacceptable to lenders. Sellers may not give cash at closing. But, in addition, lenders look askance at any contract references to "needed repairs" which could affect the value of the property. 2.	Seller-Funded Permanent BuydownsHere, a seller chooses to pay to lower the buyer's mortgage interest rate. Depending on the extent of this buydown and how long the buyer owns the home and pays the mortgage, the value to the buyer can add up to a very sizeable amount of money.Opportunities	"	A seller buydown typically pays the up-front lender fee to lower the interest rate, which results in accumulating paid interest savings for the buyer as long as the buyer owns the property, or for the life of the loan. These savings could easily add up to many tens of thousands of dollars.Watch Out!	"	Buyers who own property for only a short time will not benefit as much as long term owners. For this type of buyer, seller credits toward one-time closing costs make a lot more sense for everyone."	If your seller is considering this approach, make sure you check the fine print of the lender's loan lock provisions. Be sure your seller's money is truly paying down the loan rate as opposed to paying other lender charges to the buyer. Similarly, rate buydown dollars from your seller should never be confused with charges like lender loan origination fees. 3.	Seller-Funded Temporary BuydownsBuydowns can also be structured to adjust the buyer-paid interest rate for a limited number of years. This can be very attractive in the short term to rate-focused buyers.Opportunities	"	This type of program, of course, only works with fixed rate mortgages, but it can cover the first two, three or four years or more of the buyer's loan. This allows your seller to reduce the buyer's ongoing loan cost (monthly payment) considerably."	For buyers who are "just barely qualifying" this could afford excellent breathing room for them in the early stages of home ownership. This approach by your seller can actually help a buyer to be qualified by their lender in the first place!Watch Out!	"	Temporary buydowns are just that-temporary! When the buydown period ends, payments will increase for the borrower. Disclosure is critically important."	If the buyer is using a lender you don't know and regularly work with, be sure to check all the details of the proposed buydown and compare it to ones 4.	Owner FinancingA willing seller may be able to keep their selling price intact by offering financing to a buyer.Opportunities	"	This may be the right choice for a seller who needs to sell as soon as possible for the best possible price. This strategy expands the potential market for buyers to those who might not qualify with a lender for any number of reasons relating to their credit, verifiable income, or other issues."	The seller creates an 'investment" that can produce an annuity with a very good rate of return for many years.Watch Out!	"	The seller needs to become very well educated on how to qualify a potential buyer (how to get credit, income, debt ratio, and other accurate personal historical data on the buyer-and how to verify that data)."	The seller needs legal advice to review contract documents, as well as title and escrow services to conduct a title search and closing."	Buyers attracted to seller financing may have income sources including part- time work, bonus income, royalty income, dividend and interest income from investments, or they may be newly self employed."	A seller who finances needs to get a substantial down payment and ensure that the property is adequately insured by the buyer and that initial property taxes are pre paid and a tax payment plan is established."	If the buyer stops paying, the seller will have to proceed like a bank or other lender and foreclose on the buyer. 5.	Contract for DeedA contract for deed agreement to purchase is similar to a seller-financed purchase. The major difference is that the deed to the property is not conveyed until the purchase price is paid in full. The property being transferred in this arrangement must be owned free and clear by the seller.Opportunities	"	This approach lends itself well to selling properties that may be difficult to compare due to unique construction, number of bedrooms, etc."	Terms are at the discretion of buyer and seller. Contract for deed is often used to allow the buyer to move in while they are preparing to qualify for a conventional loan (to pay off the contract for deed terms)."	The seller is provided with immediate income."	For buyers, this can be a way to move into a property they intend to own while avoiding renting from the owner."	The owner can often command a higher monthly payment under these terms than they could in a rental arrangement.Watch Out!	"	The contract for deed may be seen as a last resort for a seller who really wants to cash out their equity quickly."	There may be local legal restrictions on these arrangements, including restrictions on "repossessing" the property."	The seller should definitely consult an attorney. Ownership does NOT transfer at signing, so it should be easier (than in foreclosure) to take back the property if the buyer stops paying. 6.	Seller SecondsThis is a mortgage issued by the seller to the buyer that is placed in a subordinate or second position to an existing first mortgage from a conventional lender.Opportunities	"	A seller second can be a great incentive to buyers. It can help them purchase by putting down less cash-leveraging their assets."	Second mortgages typically carry a higher interest rate than first mortgages, an advantage for the seller over other investment options."	A seller second can open new opportunities for buyers in markets where conventional lenders are tightening their loan to value guidelines and buyers need a way to close the resulting financing gap. Lenders who want to limit their exposure may agree to a "Combined Loan to Value" guideline that supports a seller second."	Seller seconds may help buyers reduce their conventional loan needs below the PMI (private mortgage insurance) level, saving significant dollars per month."	Seller seconds can also help in larger purchases, reducing the amount buyers would need to borrow conventionally, bringing their remaining loan requirement within reduced rate "jumbo" loan territory.Watch Out!	"	Some conventional loans prohibit secondary financing."	Second loans not disclosed to conventional lenders are illegal."	Sellers granting a second loan must file a lien on the property. 7.	Lease with Option and Lease PurchaseA lease with option to purchase is an agreement that the leasing party can buy (or not buy) the property at lease end for an agreed price. In a lease purchase agreement, the leasing party commits to purchasing the property immediately at lease end.Opportunities	"	In a lease purchase situation, the owner agrees to apply a portion of the monthly rent payment toward either the buyer's down payment or closing costs at time of purchase."	Lease purchase agreements can be a way for sellers to find a buyer, acquiring both a buyer commitment for the future as well as rental income now, to defray monthly obligations."	A seller's offer of lease purchase can also attract a buyer who wants the property but needs a little additional time to complete loan qualification and does not want to or cannot make an immediate down payment.Watch Out!	"	Terms of payment in a lease purchase should conform to local rental data for comparable homes. The amount paid monthly to be set aside for down payment of closing costs should be in excess of the going rental rate. If not, the lender arranging the mortgage at lease end may not accept the set aside funds. Instead, the lender will disqualify the funds by declaring them a "gift" from the seller to the buyer."	Lease purchase documents should be drawn up with legal counsel to address eventualities such as the buyer not qualifying to purchase at lease end or a market value decline impacting the agreed purchase price and lender's terms. 8.	Selling to RelativesSelling to relatives is no different, in theory, than any other transaction. In reality, this is often not the case and the differences can be both positive and potentially negative, especially where lenders are concerned.Opportunities	"	Selling to relatives can be a good option if the seller is having trouble moving the property or if they desire to keep the property in the family."	If the property is owned outright, there are few challenges, but if a conventional loan is needed to complete the deal, it can get tricky.Watch Out!	"	Creating conditions where a lender is convinced that this is an "Arm's Length Transaction" may be challenging. In other words, conventional lending happens in an environment where each party is acting in their own interest, not the interest of the other."	The lender will want to see a sales price based on appraised value. The desire to provide a great price for a family member can get in the way of establishing a loan on appraised value. This is especially true if the purchasing relative has little or no down payment."	Family members may "gift" equity in a transaction to reduce the amount of mortgage money required. The lender must still be satisfied about appropriate value to protect their loan. Additionally, gifts have tax consequences and IRS guidelines govern gift amounts. 9.	Seller-Assisted Down PaymentsNonprofit groups formed in recent years offer down payment money to certain buyers. The payment is linked to a contribution to the nonprofit by the seller, but the pathway is not hurdle-free. Assisted down payments may be barred in certain situations.Opportunities	"	This can be a potentially simple and attractive way to secure a buyer who is otherwise qualified but struggling to find down payment money."	The nonprofit provision becomes part of the purchase contract."	The nonprofit receives the contributed amount, plus a processing fee, from the seller and sends the funds directly to closing as a credit to the buyer. The funds do not go directly to the buyer.Watch Out!	"	Sellers may be tempted to increase the price of their property to pay for the down payment assist. But this can overvalue the home and block the conventional loan."	Seller assists of this kind need to conform to seller concession or contribution guidelines set by lenders (see chapter 1)."	The down payment assistance industry is facing legal challenges by the US Department of Housing and Urban Development (HUD). The industry expects fine tuning of these programs will result. A few of the nonprofits involved are also being investigated by the IRS. Stay tuned. 10.	Wrap Around MortgagesSo-called "wrap" mortgages are loans that are wrapped around the original mortgage on a property. The original loan is not satisfied directly at closing-the "wrap" loan is dedicated to paying on the original loan.In effect, the buyer is using the "wrap" loan to make payments to the seller, who in turn continues paying on his original loan while deeding the property to the buyer. For this to happen, the original lender must agree to waive the "due on sale" provision in the original loan.Opportunities	"	This can be an alternative when seller financing won't work because of the seller's loan on the property."	The original lender may grant permission for a "wrap" to be created."	Also, the buyer may qualify to assume the original loan.Watch Out!	"	Getting permission to "wrap" from lenders is not easy."	The fact that transferrable or assumable mortgages have fallen out of favor has not helped. The VA, for example, stopped issuing them in the late 1980s."	Assumable loans that exist today may carry buyer qualifying language."	There is a temptation for buyers and sellers to create undisclosed wrap agreements. However, lenders may commission ongoing research of title records looking for undisclosed liens. If discovered, the original lender can foreclose on the seller and the buyer would lose everything, including their down payment.

excerpt Shift by Gary Keller, et al circa 2009