Cash is King in a World of Mortgage Meltdowns

Mortgage lenders and banks are offloading many of their properties for pennies on the dollar. So, if you have cash to spare, this may be the time to go shopping for deals.

With the current mortgage crisis in full swing, it's becoming more and more difficult for buyers to get mortgages. The result of this is slower housing growth, and fewer home sales. However, if you have cash in hand, this may just be the best time to go shopping.

In the current market, it's not unusual to see whole subdivisions unoccupied. In some, builders have stopped construction completely and are hoping to sell what they've already put into the land. While most mortgage lenders are getting more and more leery about lending to home buyers, for cash purchases, it's possible to get outstanding deals.

“People who have cash positions now are going to do very well,” according to Mike Norvell of Developers Capital Realty. With the unavailability of credit lines for construction and purchases, if you have cash in hand, it's easy to find deals for pennies on the dollar. This brings to mind the massive sell-offs of the 1980s, where million-dollar homes in good neighborhoods could be had for only a quarter of their total value.

Mortgage companies who wrote bad loans are seeking to bail themselves out of their holes, many by “bundling” groups of properties and offering “bulk discounts” to cash investors. If you walk into a mortgage company that has been hit relatively hard in the past few months, you can offer them cash and more often than not, they'll take it. Banks and mortgage lenders aren't designed to be in the real estate business, and they're not terribly adept at it.

As a result, they see the solution right in front of them. Sell off foreclosed and distressed properties, before the bank has to claim them as a loss. The best part about the whole process is that you can make excellent, value-conscious purchases, without building debt. That makes your balance sheet look much better, and it's easier to ride out lower home prices until the market turns around if you're not making monthly payments to a mortgage company.