Investment Property Mortgages

Investment Property Mortgages - Foreclosures 'R' Us

by Emil Emilov

If you've been involved in real estate investing for any length of time, chances are you have tried to obtain 100% investment property mortgages. If you have made the effort recently, you know that these 100% loans are becoming increasingly difficult, if not impossible to find. The reason is simple- these 100% investment property mortgages default at a much higher rate than most other types of mortgage, and the end result is often foreclosure.

This puts many investors in the unenviable position of 'motivated seller' and forces them to look for creative ways to unload their property, in many cases even phoning other investor's 'We Buy Houses' hotlines. These circumstances give rise to a vicious circle of investors, feeding off one another, giving the entire industry a black eye in the process.

These scenarios are being played out in cities across America (and also Australia), and investment property mortgages, particularly 100% loans, are taking a bad hit. Lenders are eliminating these products from their portfolio of services in droves, and investors are scrambling to find alternate sources of funds.

One such source is Private Money. Another, the self-directed IRA, allows investors to use their own retirement funds for real estate investments. Investment property mortgages and creative loans from sources other than institutional lenders and mortgage brokers are increasing at a record pace.

But are these alternatives to investment property mortgages a good idea?

If used wisely, they can be, but there may be a wiser way of looking at the situation. First, we need to examine the question of why investors would need investment property mortgages for 100% of the appraised value of the property in the first place. The only real answer to that question is that too many investors have been overpaying for their properties.

The real estate bubble, and rapidly rising property values, caused a buying frenzy by investors in many areas of the country. This rush spilled over, even into areas where there was no true bubble. Now that the bubble has burst in most areas, investors are feeling the pinch. The old tactic of buying at market value and letting the fast-rising market build in your profit no longer works... in many cases it NEVER worked.

The ONLY way to guarantee profit, and avoid the meltdown that comes with over-paying, is to buy value. The investor must do his or her homework and buy for well under market value. Then he will have no need for 100% investment property mortgages. When you routinely buy your properties for 80% of market or less, obtaining investment property mortgages becomes much less problematic. You have a greater selection of loan products to choose from, and qualifying is much less stringent.

The moral of the story? Buy value, and do your homework.