Expert Opinion

Creative Purchasing in a Down Market

Deanna Hemberger has noticed an interesting shift in the way sellers consider their real estate assets. “In a soft economy, the primary concern of property owners is not asset appreciation. With foreclosures at a record high, the primary focus is to maintain equity and minimize negative exposure,” explains Hemberger, a broker and retail specialist with Bentley Commercial. This position requires a bit more creativity when building wealth opportunities through real estate transactions.

Traditional lenders such as banks have been greatly impacted by new Federal regulations and record de-faults. Hemberger says Purchase Money Mortgages—where the property owner holds the mortgage and acts as the lender – have proven to be an excellent alternative.

“It benefits the buyer as an added lending option,” she points out. Additionally, the transaction can minimize the impact on their debt ratio and maximize their leverage. “It allows buyers to broaden their purchasing power short term, particularly when establishing their financial profile.” With owner financing, buyers can maximize use of available cash for up-fit and operating expenses by making several initial payments instead of one large down payment and a hefty mortgage.

For sellers, a Purchase Money Mortgage is equally beneficial. Sale of a property often means a lump sum gain, Hemberger notes. The savings market today yields between
1.5 and 3 percent across the board. By financing the deal short term, sellers hold a note that can yield higher returns than a savings account. The seller minimizes their risk on the property and reduces liabilities, such as taxes and insurance, as those are transferred to the buyer.

In uncertain times, Hemberger says it is critical to think beyond the traditional methods when organizing deals. “Creative purchasing is a strategic approach which considers both the goals of the buyer and seller and creates mutually, advantageous transactions.”