Access Wealth Strategies

Do trillions of dollars of failed loans and losses lead to great lending times?

With the recent collapse of the credit markets, the economy, real estate prices, and the stock market, lenders around the world will take massive losses on their loan portfolios. Large lenders such as Washington Mututal, Indymac, and related entities have already failed.

The write downs on collateral and loan values could make most (if not all) lenders insolvent. So doesn’t it seem strange then that lending on real estate assets could deliver both a high yield AND safety (low risk)?

As strange as it sounds, hard money lenders are well positioned in this market cycle to generate the highest income with the most security. Let’s look at why.

Why Are Hard Money Lenders Needed In Today’s Market

In today’s market with a huge inventory of distressed properties such as foreclosed homes and even commercial real estate, investors and “flippers” are buying these properties at a huge discount.

There’s only one problem: These distressed deals usually require a quick close (sometimes as little as 1 day at a trustee sale auction).

Most traditional lenders would not be much help in these scenarios – not that they are willing or able to lend money on real estate purchases these days. Even if they were, it would take too long (45-60 days) and require perfect credit from the borrower.

Of course, deep-pocket buyers could pay all cash to buy the distressed properties all day long if they wanted. But what if they want to buy but don’t have enough cash of their own? Or, they do have the cash to buy one property but want to buy multiple properties at the same time?

For some experienced flippers, the number of properties they can buy at one time can make a huge difference in their bottom line profit.

Enter the hard money lender, who can fund deals quickly and is willing to overlook the borrower’s less than stellar personal credit, as long as the property meets their deal criteria.

Typical Hard Money Loan Terms

• Short term: 6 to 18 months
• Application or due diligence fee around $500 to $1000
• Origination points 0% to 5%
• Interest rates 10% to 18%
• Prepayment fee (if the loan is paid off earlier than expected)
• Recorded first trust deed (lender has first lien on the property)
• LTV of 60% to 80%

Why would hard money lenders fund deals that traditional lenders reject? We’ll discuss the 2 main reasons in Part 2. Meanwhile, please add your comments and questions below.

True investors want to purchase an asset at a discount to today’s fair market value.  In the past, this was a big challenge for real estate investors.  However, now that we are in a real estate recession, investors can finally purchase houses for significantly less than “today’s retail price.”  One method to do this is at the court house steps through a trustee sale auction.

Watch the video below from my favorite realtor, Jim Klinge (aka Jim the Realtor).

Apparently Jon Mann, San Diego real estate professional investor, purchased this home yesterday.  As Jim says Jon has been “on fire” buying 20 to 40 homes a month “just making a killing.”

Note: We’re doing something similar in the Phoenix market with our friends.  It’s (finally) an exciting time to invest in real estate!

One recession-resistant industry we found is dentistry.

Here’s a link to some recent news coverage, with a brief video on the dental industry: Dentists Buck Recession

Another recent article “Study: Dentists chew on tidy profit” highlights dentistry as the most profitable industry in 2008:

Topping the list, according to a ranking of the nation’s most profitable industries in 2008 by Sageworks Inc., are private dental clinics. Dental offices enjoyed an average 17 percent profit margin over the past 12 months, according to Sageworks’ study of 1,600 industry sectors based on data compiled from accounting firms.

Full disclosure: we have ownership interests in multiple dental centers.

In this recessionary environment where the housing market has fallen for 3 years in a row and the stock market has fallen over 30% this year alone, you may be wondering:

What industries can I invest in that may be recession resistant and maybe even thrive in a recession?

One such recession resistant business we have come across is in the dental industry.

Why will the dental industry remain profitable in relation to the larger economy?

1. The failure rate for new dentists is less than 1% nationally. Through up or down markets the basic economics of the industry remain stable.
2. There is a limit on the number of new dentists graduating each year from dental schools, and yet more dentists retire from the industry than new ones entering.
3. The demand for dental services increases every year due to demographic trends and health awareness.
4. The net result is that the number of dentists per capita will continue to decline for the foreseeable future
5. A wide variety of dental services are available today in addition to the traditional cleaning, cavity filling, and root canals. For example:

• Teeth whitening such as Zoom!
• Adult braces such as Invisalign
• Veneers such as Lumineers
• Cosmetic dentistry in general

Of course, discovering the right industry is just the beginning of finding a great investment. You also want to align yourself with competent and trust-worthy management team who can create good systems and offer high-quality products or services, make sure your timing is right, and there’s enough profit to justify the risk. Above all, the investment has to further your personal goals in life. We tend to like investments that create passive residual income that grows over time.

Contact us if you want to learn more about alternative investments that are not correlated to stock market gyrations and housing market downturns.