Financing Buys Better Deals… NOT!

by Tim Krulia – Private Money Blueprint CFO

As part of our quest here at PMBP to give you the single best resource on the financial aspects of growing your real estate investing business (aka, we help people find private money quickly, easily, and abundantly)… here’s an article I found that reinforces the concept that cash is king, even in a buyer’s market.

Hey there my friends, this week’s spotlighted article is titled, “Homebuyers Finding that Cash Really is King; Even in Buyers’ Market, Many Can’t Close Deals as Investors Snap Up Homes.”  The later half of this week’s article is a tangent of comments made by the author in the article. If you’re into studying unemployment, you may dig this hard core.

If this article doesn’t edify the fact that private money is a smarter route to take for an investor to acquire real estate than traditional methods, than I don’t know what does. Check this stat out from the article!

“Across the country, some 22 percent of all previously owned homes sold in December were purchased entirely with cash, up from 16 percent a year earlier.”

I guess this is no real news to the Private Money Blueprint family because we know that cash is absolutely king in the real estate world. I guess there’s just more people that are getting wise to the facts and using cash instead of banks. The author of the article hits the nail on the head mentioning that buying with cash gets investors better deals vs. financing because it doesn’t require a bank’s approval & its way faster and easier!

Here’s where I’m going to run off on a tangent and jump on my soap box a bit. There was mention in the article of an underlying issue brewing from the contents of this article. The author notes in the article that as inventory of homes for sale drops, it’s harder to get good deals unless you are a cash buyer.

What About The Drop In Inventory?

Duh, cash is king, we know, but what about the drop in inventory?

I think we’re going to start seeing inventory decrease more and more in 2010, but not as much for the author’s reasons (holding up foreclosures for hopeful mortgage modifications). Instead, I think we’ll have the job market to blame as it rebounds (finally).

Keith Hall, Commissioner of the Bureau of Labor Statistics on Friday, February 5, 2010 announced before the Joint Economic Committee (US Congress) that, “The unemployment rate declined from 10.0 to 9.7 percent in January“.

I think that if our government plays it right, we may have just come off our unemployment peak for this recession! What do you think?

Unemployment Stats…

Check out this Unemployment Rate chart from the Bureau of Labor Statistics.

I know it’s too early to tell and all, but I like what I’m seeing. The government is starting to really get it right in my perspective!

Did you listen to the emphasis on job creation in the State of the Union speech the other day? How about the possible $5,000 tax credit given to employers for each new employee they higher up to $1/2 Million per company that’s on the table in Washington?

It goes without saying that if you’ve been reading my columns I am a staunch believer that job creation and lowering the unemployment rate is the #1 driver that’s going to get our economy back to solid ground.

Finally, we’re looking to set aside something like $33 billion for job creation as a stimulus instead of giving $800+ billion to the banks last year (who aren’t as important to us private money guys anyway). If the government can get this stimulus passed and others follow, I’m excited for my optimistic educated guess of unemployment recovery in our midst to turn into reality.

Where this all looks like it’s leading is a potential uplift in the real estate markets… a slow one… but potential uplift.  However, a huge factor in moving properties on the market is the availability of financing for the end buyer (which banks are still very tight with their money)… but when you have the cash (not necessarily your own… but funds from private lenders) available to buy properties today you’re ahead of the game and can capitolize on the best deals, the quickest, with the most profit spreads.

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