The "Money" Box

Let’s talk about one more thing in The Box; let’s talk about lending. I call
it the “Money Box”. Here’s another thing that people don’t understand,
and it’s a true fact everywhere: The Money Box is made up of lots of
different traditional and non-traditional lending institutions, such as banks,
seller financing, private money, and people’s own money. The Money Box
provides us with an understanding of types of lending institutions that
thrive in a given market. Knowing that information can tell you what’s
going on in the market and how to structure your strategy.
For example, we are currently in a credit crisis (2008). Thus, the banks’
guidelines have become extremely stringent and they have scaled back
their lending practices. According to the Money Box, since the banks are
scaling back, another institution within The Box will step up and make
money available. Seller financing, for instance, may become more
available, or private money; or buyers may bring a larger amount of money
for the down payment. You need to understand that there are never holes
in The Box; someone or some institution will always be there to make
money available. The market always wants to meet equilibrium.
To give you an example of this, in the 1980’s, seller financing was very
popular. Why? Some people needed to get rid of their homes. Interest rates
were too high for buyers and it was difficult for them to qualify, so seller
financing came in and filled the gap. In a credit crisis like the one now
(2008), the banks have scaled back their creative loan programs. Hence,
other people and/or institutions are filling in the gaps and providing money
to borrowers. In a credit crisis, seller financing and private money are
usually the first entities to lend money. Personal cash usually takes a little
longer to come in.
As far as strategy goes, the Money Box helps you determine that if banks
are being tight, and you don’t want to bring in personal cash, you ought to
look at seller financing or private money. There’s always a way to get
financing in any market; it doesn’t matter what the market is doing. If
banks are taking the vast majority, then use banks because their interest
rates may be more attractive than other financing options. And if banks are
scaling back, use other financing means.