As some of you may know, I’ve been a Hard Money Lender in Charlotte North Carolina. Needless to say, we were running along fairly well in our local real estate markets till Wachovia Bank imploded at the end of September, 2008. Sure we were slowing down in 2007 & 2008. However, our markets were still healthy to take good investment risks for (merchandising) flipping, wholesaling, and/or rehab to retailing homes. Most of the those over leveraged and/or those with dysfunctional business plans failed then. As a result of this downturn, I’ve been forced to foreclose on acquaintances, friends, and business associates as payments fail to materialize.  Not only has this been a financially challanging time -it’s also been an emotional and psychological extreme.  Until this article, I’ve been hesitant to make any mention of the challenges in my lending portfolio based on fear (at many levels); however, I’ve come to realize that I’ve got a blog focused on real estate investing and my views. To accurately achieve reality, I must discuss what effects my operations as well -yet I will certainly use discretion as any professional would do.

2009 was an extremely challenging year as a lot of my foreclosures were retail homes with values of $190K+. The key to retail home inventory is getting them off the books and sold as one cannot make them cash flow in our local real estate market. A few rentals that came back were either sold off (some with owner financing) or put into my rental portfolio. Funding new loans just has not been attractive as the potential borrower hasn’t procured a property at a valuation I deemed worthy of the risk. It just doesn’t make sense to set people up for failure or even my own. I feel that part of my job is not to set someone up for failure even if they don’t see it! Of coarse, this doesn’t do well in creating relationships in the short term.

Well here we are at the start of 2010 and I’ve got  clients whom are dodging me. I know they are dodging me. Denial is a horrible position to set yourself up in!!! If I were to ask them their procedures for dealing with Non-Paying Tenants what do you think I would hear?   I’ve left every out to attempt to keep communication open and to work out win/win results. Here again, I find that by giving any leeway it only costs me more. So as a result, I’m reminded that I must follow my business plan (just as one would do with landlording and/or merchandising). I suspect that I’ll be taking back more homes over the coming months. Sadly this is how I’m getting more homes in my portfolio during our challenging economic environment. Truthfully, I don’t want anymore rentals or even retail rehabs. I set my system and business plan up to be a lender. A lender that educates and helps real estate investors become successful and ultimately not even have the need of a hard money lender. The market has changed and as a result so must I….

So as a continuation to my article “2010: My Outlook On the Year Ahead…“, you see that I will be taking in more property -unfortunately in a way that doesn’t make me happy. Having a loan portfolio filled with some uncertainly increases the risks of purchasing new property both from a rental and merchandising standpoint. Very Frustrating.

As I alluded to in other articles the fear and challenges to investing in real estate in Charlotte, NC is creating great opportunities for those that are able to look through the static. It will be interesting to see the reaction as I market properties that I’ve taken back -even with owner financing. I suspect it will be a challenge and am planning to land bank these into my rental portfolio. Remember what I call rentals!!! In my opinion they are long term retirement packages and not a vehicle one can derive a living from unless one is operating on very high income to debt ratios (translation: low debt/high cash flow).

So how does one make money in the short term? Good question. I’ve had numerous conversations with contractors, developers, lenders and real estate investors across the nation and am constantly reminded that every market is different depending on what stage of the real estate cycle and employment issues one’s market is in. So even though most markets across the country are feeling the effects of our downturn, every market is in a different stage of a cycle where opportunities exist for some and not others. Hope that made sense!?! Locally, it is very challenging to wholesale real estate in Charlotte, NC without deep discounts resulting in wholesalers seeing a deep squeeze in their operating margins. Charlotte North Carolina’s hottest real estate market is the rehab to retail targeted at the entry level home buyer in the $90k to $225k price range. The greatest threat to creating a business model targeted to that!?! Our government may not extend the home buyer tax credit that expires this spring/summer and/or the declining support in keeping home interest rates low by purchasing mortgage back bonds. Did you know our government is essentially purchasing 90+% of the mortgage bond market over the past year? Pretty scary. Personally, I don’t think the government has choice in continued mortgage purchases and even the tax credit. Our entire national economic recovery (and potential further deterioration) really does hinge on the stabilization of the real estate markets. Until this occurs the uncertainty is incredible.

Ok…, after that great plethora of gloom, I am happy to report that I funded a rehab to retail deal earlier this week. So who says business isn’t getting done!?! It’s doable -you just have to find doable deals and the money will follow. Say its not.., and I say your deal is not (hint: that means you need the price and/or terms to be even better). Please note that with the uncertainty in the markets you may have a deal at time but no takers -the key is if multiple deals do not move; then your pricing (purchasing) model in the business plan needs adjustment. Remember niches out there exist -the greatest challenge will be creating a volume of deals to achieve your cash flow goals (needs and/or wants) without taking undue risks. Hopefully, our Charlotte, North Carolina market will extend into the stabalization stage to help further wholesale margins (which is the basis for a healing market). I’ve also noticed a lot of investors (as I) have been looking for additional cash flow streams. I’ve gotten into property management in Charlotte, NC; however, I’m not certain that is my main direction for the moment. If that changes, you will know. Over the past 2 years I’ve noticed both “gurus” and investors seeking MLM’s, business opportunities, and other ventures (such as property management) to supplement income lost during our real estate depression. Anyone that knows me knows that I’m not a big fan of MLM’s. That being said if it works for you that’s great. Be hesitant to part with precious funds (ie: your money) for any get rich methods of real estate day trading, buying real estate in your underwear at your desk, easy pyramids, and/or trading in options, currencies, and even stock as the quick answer to wealth. Not saying that you won’t unlock the key with any certain tool -just weigh the odds of opportunity versus the cost of the keys. Everything requires work.We all have different levels of capital, experience, and/or time. The lack of one component only means that you’ll make up for that deficit with another component. Don’t let those component obstacles stop you. Focus on what tools you have. Find your direction and conviction. Just do it!!!

If you’ve read between the lines, I’ve not found my direction with certainty -yet. I’ve certainly have had the time over the past 2 years and have racked my brains for countless hours seeking the answer. Here is what I do have. I’ve set up a system to hone into that which I’m seeking (so it’s only a matter of time and patience assuming I work the system). This may mean that I obtain another cash flow vehicle outside of real estate. Fundamentally this is attractive (as a generalization) due to diversification. It pains me to consider that; one the other hand, I welcome change on some level realizing that I will always be investing in real estate. Practicing what I preach, I’ve been paying down debt too. Even seeking new loan arrangements that help seek my goals. Remember that growth comes from many components such as cash flow (revenue), appreciation (what’s that?-i know bad joke), and even debt reduction through principal payments. We are in a period were a great growth component will be in debt reduction with fixed returns. I would be hesitant to pay down fixed loans especially if they are termed out beyond 15+ years. I would focus on high interest rate, balloon, and nervous private investor loans. Remember, if your paying more money down (additional principal payments) on a 8% interest rate loan that your return is slightly higher than that 8% as the compounding occurs. Looking back at other pullbacks I’ve experienced, I found that I focused on paying down debt at a faster rate then required and thus, created what I call Reverse Growth  -that made me stronger to spring ahead when the new direction was discovered.

I truly believe that the other key in real estate is Owner Financing. Remember there are many components to that term. Price, interest rate, duration of loan, and the payment are all variable. Keep the blinders off to see an opportunity. As an example a high price can be offset by a low interest rate (and vice-versa). I know an investor who has bought a few owner financed deals with a zero percent (yes, I said 0%) interest rate. I had a hard time believing it myself -but its true. If I told you that I even bought a zero percent interest rate loan from him would you believe it! It’s true. He achieved his goal and made money. Correspondingly I achieved my goal too. That is a whole other topic (and thus) article. The key is that if your looking to acquire additional properties and having a hard time obtaining financing -then a form of owner/private financing will be a key to your success.

So there it is….

Be careful, be aware. The odds of easily finding a consistent profitable direction will be much greater than in this part of the cycle then any other phase. Seek to diversify and don’t overlook growth by retrenching from debt reduction (whether it be from unanticipated sales and/or increased payments on debt). Continue to take the blinders off in obtaining financing. Be patient and most importantly as I am slowing learning -enjoy the journey of life regardless of the challenges.

P.S. I want to thank my friend sean the founder/owner of for pushing me to seek new directions. His guidance in looking at the internet, blogging, and to continue to educate has been appreciated as its created the push in creating this site, my articles, and even a cathartic healing as I face the challenges before me.

Written by Tyler McCracken

Local Real Estate Investor & Hard Money Lender in Charlotte, NC - Read Bio at our "About Us" page on the top right of this page.