The Changing Face of Investment Financing

I have strep throat today, so instead of spreading my pestilence in client meetings, I decided to do some tedious market research to pass the time.

After doing some MLS history (not to be confused with genealogy) work, I have discovered some nuggets of market wisdom. Here is today's very revealing chart:


Sometimes when I do this research, I come up with information that isn't very exciting or helpful. But, what I discovered today is fascinating because it shows a tectonic shift in they way business is getting done.

This chart shows duplex-triplex-fourplex sales and what percentage in a given year were accomplished with specific types of financing. Our initial impression is that conventional financing has fallen off a cliff. This is no surprise to investors out there. Lenders are requiring 30% down payments to purchase these types of property. If you are a "stated-income" guy like me, they require 100% down. Underwriters are scrutinizing everything except borrower blood-type.

I have often talked about how seller financing will fill the void. This chart shows that after being almost non-existent for the last 8 years, its starting to take hold in a big way in the market place. However, the most intriguing part of this chart is the FHA financing. As a percentage of sales, there is also a tremendous surge in people buying duplexes and fourplexes to LIVE in. This is an aspect of the market that I have given little thought but clearly should be paying more attention to. This is an exploitable market niche.

To shift gears, here is a chart that shows the implications of lender tightening:



Its a good thing that its impossible to sell NEGATIVE homes. I didn't want to change the scale on the graph to show negative numbers. Keep in mind that 2009 is YTD. I anticipate probably 50 or so sales this year. For Q1 2009 we are only at 8.

What these charts demonstrate is that there are ways to get things done if you want to buy or sell investment property. Business IS getting done and there are ways to get it done. You just need to be prepared to adapt to the marketplace in order to do so. I believe seller financing will continue to surge in its percentage of market volume. Be sure to see Lessons In Seller Financing for a breakdown of how this useful tool works and how it can benefit you.