Raising cash during good times is not hard; there are lots of opportunities and plenty of economic activity. Doing the same during downturns and recessions is another story. Omer Barnes notes from his extensive real estate experience, however, it’s in these dips that some of the best real estate deals can be had, buying prime property at a discount only to then see it appreciate double digits when times change and become good again. The trick is in having sufficient cash for the necessary down payment, which has only become harder and stricter since the 2009 Recession and its homebuying bubble. Long gone are the days of interest-only home-buying finance. Instead, downpayments or “skin in the game” are required at minimum levels to avoid the rampant defaults of the previous decade.
The traditional means of generating sufficient cash for a home purchase tends to be a bank, Omer Barnes agrees, but he also argues those institutions are seeing the same economy and want to protect their exposure. As a result, banks will provide home loans but typically raise interest rates and demand higher downpayment amounts for loans approved during bad times.
Alternatively, one could use their own assets and savings, liquidated, to create a downpayment, but that’s usually not very available as most folks tend to find themselves cash-tight during a downturn. So, some creativity is needed.
Peer-to-peer or crowdlending may very well offer an option, Omer Barnes suggests. The mechanism for this tool is provided by the Internet as an environment and thousands of other investors working together to share their risk lending to a borrower. Many times, these tools are willing to take on higher risk levels than banks, which means they are probably more viable for lenders during downturns than the same. While peer-to-peer lending pools won’t likely work for a full purchase, they can easily handle what’s needed for a sufficient downpayment that makes a bank comfortable to provide the rest.
Cash isn’t readily available when an economy becomes challenging, but it can still be raised. Omer Barnes notes thinking outside the box and being creative tend to make the difference, especially now with another recession expected in 2023.
Another option Omer Barnes finds effective is earning additional income. If one has the time, a second job or source of income can generate liability-free income quickly. As long as one keeps their spending in check with the primary income earned, everything else earned can be free and clear to put towards a house purchase in a few months. Since the extra job income is real cash, it avoids more debt and provides access to ready real estate equity when the home is bought.
Leveraging owned property can also be a means for generating quick cash. However, Omer Barnes warns, the risk here is that the owned property oftentimes has to be used as collateral to compensate for the lender’s risk if the loan is not paid back timely. Assets that work in this regard include high value property like jewelry, vehicles, stocks, precious metals, and similar.