With real estate values continuing their nosedive to astounding new lows, the one thing that prevents investors from taking advantage of the great buying opportunities is the scarcity of money.
Despite their federal bailout, banks still aren’t ready to open up the cash tap.
Most borrowers won’t meet the more severe regulations imposed by Fannie Mae and Freddie Mac.
Home equity loans, with all their complex paperwork and extra costs have lost their appeal. Plus, with today’s deflated values, these loans aren’t an option for most home owners.
Investors don’t want to secure private funds if it means paying 10-12 up front points or high interest rates.
Even wealthy individuals who want to leverage what they have can’t get loans, despite their cash reserves.
So how can investors get financing for real estate when it’s as elusive as Big Foot?
Stock or security collateralized loans. This new financing option is rapidly gaining popularity. It lets borrowers receive up to 85% loan-to-value of their publicly traded stocks, mutual funds and CD’s, and up to 95% LTV against T-bills and a small selection of municipal bonds.
Part of their appeal is that the process for obtaining these loans is surprisingly simple. No credit checks are done. There are no FICO scores, and the real estate being purchased with the loan proceeds does not even need to be appraised.
The client’s securities are the sole determinant of the loan he is offered. Now, the borrower will still have to furnish certain documentation to prove he can service the debt, but this documentation will have NO impact whatsoever on the loan quote or the characteristics of the loan he is offered (e.g., interest rates).
Best of all, borrowers don’t have to liquidate any of their holdings, a real plus since values right now are at record lows. They simply use their stocks or securities as collateral, even as those holdings continue to grow!
While most people seek these loans to purchase real estate, they also can be used for almost any other purpose, from paying for college to financing an overseas trip, a new business or even a yacht. Again, if the borrower has stocks or securities, they most likely can be tapped for money right now.
These loans even work for people who want to purchase homes but won’t qualify for traditional financing, either because they lack cash for a down payment, have poor credit, don’t have a job or have past foreclosures or bankruptcies in their past.
Borrowers can obtain stock or security collateralized loans ranging from $100,000 to $200 million. Currently, interest rates start at 4.35%, interest only. Terms are typically 1-7 years.
At the end of the term, a balloon payment of the loan’s balance is due. The borrower then can do any of the following: a) refinance the loan, b) sell the stocks pledged as collateral to repay the loan, or c) walk away from the shares pledged as collateral. No matter which option is chosen, there is no recourse, and the loan is considered paid off.
In today’s tight-credit economy, stock or security collateralized loans offer a viable alternative and are certainly an option worth considering for anyone seeking money to invest in real estate or for any other major purchase.
If you would like to know more about stock-secured loans, Condo Hotel Center can provide you with additional information (no cost, no obligation, of course). Contact Joel Greene at Joel@CondoHotelCenter.com.
Nothing in this article should be construed as legal, tax, or investment advice. Please consult a licensed professional in your state or residence for advice on these matters.
Joel Greene is a FL licensed real estate broker since 1986. For 16 years, he specialized in the sale of hotels and motels in FL. For the past six years, however, Joel has become one of the nation's leading authorities about condo hotels worldwide with accumulated sales of over $95 million in the past few years. Joel has been interviewed for many articles on the subject, and he has served as guest lecturer to real estate and hospitality classes at Florida International University. Now, due to this current real estate market and recognizing the public’s need for financing, Joel has reinvented himself again; this time as a stock and security loan expert. Joel graduated in 1986 from the University of Florida.