As a mortgage broker and real estate investor, I specialize in creating highly leveraged financing solutions for investors. These strategies often include 100% investment property mortgages.

Over the last 30 days or so I have received several emails from lenders announcing the elimination of their 100% investment property mortgages program. Many of them are now capping these programs at 90 – 95% loan-to-value (LTV).

I even received an email a few days ago from a colleague who is tracking all of the lenders that are going out of business on his website!

The explanations are always very vague like “as a result of market changes” or “as a result of challenging market conditions” but the reason why 100% investment property mortgages are disappearing (as well as the lenders that write these loans) is because these loans have a higher rate of default than any other loan type.

When banks and lenders realize losses on a loan program, that program will eventually be eliminated. And just this week I came across two deals in Denver, Colorado – both bank owned properties – that had been financed within the last two years with 100% investment property mortgages that had been foreclosed on.

One house had a loan of $230,000 made in 11/2005 and was under contract for $159,000. That is a $71,000 loss (plus expenses) for the lender.

On just one deal.

Multiply that by 100+ in 50 states and you can imagine why the lenders can’t get rid of these investment property mortgages fast enough.

What does all this mean to us as investors?

Well, it’s not a huge problem for us but it means that we have to be smarter about the way we structure our finance. And more importantly, the way we structure our offers.

We can also find alternative ways of coming up with down payments for acquisitions such as using draws from lines of credit against primary residences or other investment properties.

I think the bigger issue for us is making sure our investment goals are being met when we purchase the property instead of when we sell. By that I mean making sure you have a built in equity position to pad your profits when you flip.

You should also make sure you have purchased at a price that will allow you to cash flow that property even at below market rents. That way you won’t be in danger of losing your property no matter what program you use to acquire and finance it.

My guess is that the investors who lost their properties to foreclosure overpaid without regard to cash flow. And unless you are prepared to pony up hundreds of dollars a month to supplement mortgages, then this method will doom you to failure every single time.

There is one more thing we can do to protect our investments and cash flow. If you haven't already, I strongly encourage you to look through your loan documents on any rentals (or your primary residence) and see when your adjustable rate investment property mortgages (ARM) will change. That means that the fixed rate period is over and now you are subject to the current index plus your margin.

I personally have an ARM investment property mortgage on a rental that is going to go up 3% beginning with my June payment unless I refinance it before then.  My rate will go from 6.9% to 9.9%. I think you know what that will do to my cash flow on that particular property.

So, please do this as soon as possible and do not put off refinancing even if it is 6 months or a year away since the requirements (read credit score requirements and LTV maximums) are getting tighter especially for us stated income (self employed) borrowers.

The business of real estate investing is exciting and lucrative. But it must be managed proactively and monitored closely to maximize profits.