Time is now to explore profit opportunities - evaluation of opportunities in real estate market - More Mid-Year Review & Forecast - Column

Today's real estate environment presents many profit opportunities for savvy real estate inventors. Not only are financial institutions now willing to consider loans for real estate with a good cash flow, high occupancy, a good leasing history and experienced ownership, many opportunities exist to purchase properties form banks at substantial discounts or negotiate discounts on existing loans.

The current regulator classification of loans has created incentives for banks to negotiate with borrowers. Once a loan has been writted down by the regulators or classified, the banks want the loan paid off. We've helped numerous clients negotiate discounts on loans--often as high as 50 percent--by finding a new bank to put up the money to pay off the original bank.

If a borrower has a loan with a bank, it is definitely worth inquiring if they are willing to accept a discount if the loan is paid off. It's especially wise to explore these options if the lender has other problems, though these opporunities are not solely limited to lenders with problems.

There are also many opportunities to buy properties from banks. Although anyone can bid on a foreclosed property when a bank finally is ready to begin marketing, the best acquisition opportunities are available before the bank forecloses. Investors who are aware of a problem property before the bank forecloses should begin working with the institution during the procees of taking ownership.

Not only does the bank save money by disposing of the property before the acquisition is completed, it is often willing to share the money it saves in carrying costs with the purchaser in the form of a reduced price. A successful offer can include purchase money financing from the bank, if the proposed purchase money financing is properly underwritten and presented to the bank.

The structuring of financing that the institution selling is being asked to provide must satisfy the credit criteria, which requires intimate knowledge of each institution's underwriting criteria. Buyers must be extremely knowledgeable because the task of selling assets at financial institutions has become very compartmentalized.

While banks have a policy of making REO information available to the public, in reality, a potential buyer must dig for information because there is no longer a single source. The bank officer who is responsible for finding the buyer often does not know the criteria for underwriting and financing,

There are now many opportunities for buyers to receive discounts for prepayment because banks want to avoid having a loan "criticized" by examiners or want to a loan that been criticized off the books As the volume of real estate problems increases, commercial banks, savings banks and life insurance companies, which have real estate problems that are just beginning to surface, will become even more compartmentalized to deal with enlarging real estate owned portfolios.

We can expect these opportunities to be available for the next several years. However, there is no time like the present for real estate owners and investors to think about ways to prof it in today's real estate environment.

COPYRIGHT 1993 Hagedorn Publication
COPYRIGHT 2004 Gale Group