A Financing Conundrum
June 3, 2008 – 5:22 pm“Banks only loan you money if you don’t need money”. Ever hear that old axiom? That has actually been a truism for lots of years. In this market however, banks not only don’t want to loan you money if you do need it, they aren’t so fussy about loaning it to you even if you don’t need it.
Actually there is a little bit of a twist to that statement. The bigger you are, the tougher it is to get money. That is, if you buy a billion dollar project, or several projects to make up that billion, you probably will have a heck of a time getting the financing to complete the purchase.
Why you ask? Why is because nobody seems to know how to evaluate the safety of a loan. All of a sudden the major lenders in the United States, especially Wall Street, no longer believe that they actually can tell a good loan from a can of beans. This is a strange world we live in when the supposedly best and brightest don’t have any faith in their own reasoning abilities.
Now the real twist comes. Remember those people who needed a loan but the banks looked down on them? Well, suddenly they are the only ones who can get financing. If you need to borrow $250 mil. for a project on main and main with solid gold tenants you can’t. However, if you need to borrow $2.5million for a nice little shopping center in some suburban setting loaded with mom an pop tenants, you can.
Strange as it may seem, the smaller investor, the guy next door, can actually buy real estate more readily than that major institutional investor. The catch is, and there is usually a catch, this borrower, who is now the apple of many a banks eye, is very often afraid to buy because it may be the wrong time in the market. If this investor does not wake up he may miss some pretty terrific interest rates on loans that will ensure cash flow for many a year to come.
Local bankers are waiting with outstretched arms for the missing investor.
Tags: Add new tag, borrowing on real estate, buying real estate, investors, local bankers, real estate financing, terrific interest rates
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