How is the government shutdown affecting real estate investing?
Those investors who buy and then resell, or flip, properties to retail buyers are the most affected because the shutdown is playing havoc with the loan origination process. And when buyers can’t get their loans funded, deals don’t close and real estate investors can run into cash flow problems.
In most cases, payday for a real estate investor is the day of closing. But when closings get postponed (or canceled), it’s stressful and challenging if that investor is stretched thin financially (which, over the years, I have found many are).
Loan Verifications – On Hold
The government shutdown is preventing mortgage underwriters to complete two major loan verifications: verification of tax transcripts and social security number verifications.
Smart mortgage originators planned ahead and got those verifications done in preparation for a potential shutdown. However, for those who didn’t plan ahead and for all new loans going into underwriting, prospective borrowers are at a standstill until the IRS and Social Security Administrations open their doors.
And in some cases, such as with USDA loans, even if the tax transcript and social security number verifications were completed before the shutdown, since the local USDA office is closed, their is no final approval so those files are literally sitting at the closing company on hold.
Exclude FHA/VA Borrower Offers?
In some situations, real estate investors selling their properties to retail buyers may get several offers (this is happening to my students in many parts of the U.S. right now).
Should investors avoid FHA/VA borrower offers because of the government shutdown? It actually doesn’t matter because whether conventional or FHA/VA, the two loan verifications are required, so investors don’t benefit by excluding FHA/VA borrowers.
An Opportunity? For Some…
As the Rothchilds were credited with stating, “When the streets of Paris bleed, we buy.” In other words, when the general public is in panic mode, usually real estate investing opportunities abound. And it’s usually in these times that cash is king.
For cash-rich real estate investors, there may be situations where a wholesaler (or normal seller) may need a deal to close really badly because they desperately need that money from the sale, and the buyer hasn’t closed because the loan hasn’t gone through. The cash-is-king investor may be able to step in and buy the deal since the current buyer can’t perform.
This happened on a deal yesterday. The buyer was supposed to close on Friday, he couldn’t perform, and by Tuesday he had lost the deal to another investor who was more than happy to scoop up the deal.
If you are active and in the real estate investing game, when crazy things happen (like the federal government closing their doors), you are in the best position to jump on the opportunities that are created.
Another example of this is when hedge funds began buying up everything they could get their hands on several months ago. If you already had real estate deals in your pipeline to sell, you were already in the right place at the right time. But just as fast as they came in and purchased, they disappeared.
What’s the Long-Term Affect?
What are the long term affects of this shutdown? It would be difficult to speculate, so let’s just hope they open their doors soon!
That’s just a small slice of how this government shutdown is affecting real estate investors. How else? I look forward to hearing your comments below: