Why “Buy And Hold” Isn’t What it Used to Be

By: Sean Carpenter

Are you finding deals are getting tougher to close with the new restrictions banks are pushing on applicants?

Is it taking longer to get a deal done? Have you stopped looking for new projects to acquire?

The last few years have been a very difficult period in real estate history. Some markets have declined upwards of 50% in value with no light at the end of the tunnel. Not very good news if you started your “buy and hold” right before prices tanked, but will certainly work better for you now… if you’re in a position to pick properties up for a fraction of the prices they were a few years ago.

Not to mention cap rates are heading into the two digits in larger metropolitan areas. For some, this is an area of the market they have never experienced.

So what can we do to get some of these declining assets?

The banks that were lending up to 125% a few years back have either left the market or cap an acquisition at 70% loan to value. The remaining 30% is up to the investor. But raising the 30% slows down transactions and your friends in Congress have attempted to help.

In July 2008, the President signed the Housing & Economic Recovery Act (HERA), which among other things, provided $4.5B to all 50 states, some territories like Puerto Rico and the Virgin Islands, and the District of Columbia, to combat neighborhood declination by foreclosure.

These funds, known as the Neighborhood Stabilization Program, were supposed to help investors, both for and non-profits, buy and rehabilitate foreclosed buildings in order to prevent the stable households from losing too much value. In February 2009, Congress added an additional $4.5B to the program, now known as NSP II, to further carry out the NSP mission.

This is nothing new. The federal government has been investing in real estate for years, at least since HUD was conceived during the Johnson administration in 1965 as part of the Great Society initiative.

HUD allocates through the individual States and territories upwards of $20B per year to facilitate economic development and housing activities. Additionally, many states have programs of their own that can match federal funds in addition to over $5B in tax credit programs available to stimulate acquisition, rehabilitation and new construction of real estate projects.

Buying and holding certainly isn’t what it used to be, but now the government wants to help you out more than ever. You just have to know WHERE to find the money and HOW to get the funds.

Sean Carpenter is the nation’s leading expert on Government Deal Funding for Real Estate Investors and Developers and has spent the last 12 years both consulting and getting funding for his own deals. Sean will be coming all the way from Massachusetts to speak to us at our next CPIA meeting on Tuesday, March 15th.