Posts Tagged ‘Real Estate’

Can most people still refinance? The Good, The Bad and The Ugly!

November 25, 2007

The Good news is that there are plenty of good professional loan officers and plenty of good borrowers to help, contrary to what is depicted in yesterdays Wall Street Journal Article titled “Refinancing May Be Harder to Enjoy- While Rates are Down, Lenders Tighten Rules; Savings Prove Slender” and other doom and gloom articles that are bombarding us all.

Sure! Of course the pendulum always swings too far but not far enough for the good borrower…well maybe, it depends. Is it on the way back to the middle? Will there be stability or normalcy for the good borrower?

The conundrum is a good borrower, avoiding a bad loan officer and a good loan officer managing (not avoiding) a bad borrower.

More good news is there are not many products left out there for the bad loan officer to slam people into what they can’t afford. Don’t get me wrong; unfortunately, we have had our fair share of bad loan officers! Fortunately, most will never find a way to make a living as a professional loan officer and have resorted to their roots. Regretfully, it didn’t happen sooner.

Professional (derived from the word to “profess.” As one would “profess” their faith or in this case as one would profess to a career) Loan Officers sell what is in the best interests of their client period! The correct mortgage market finds a balance or price for their knowledge and professionalism between their supply and demand as long as it is still a win-win.

I know that we have been talking energy here on the last few posts but without energy we won’t be able to do what we are about to do!

Success is real simple:

If the right group of Loan Officers, in the right model, market effectively and efficiently in order to get in front of the right group of borrowers and at the same time manage the bad borrowers through short sale and debt settlement then viability is achieved.

If you know anything at all about the mortgage business…the only viable way to operate as a borrower, professional loan officer, broker, or small mortgage banker is as a federally chartered bank.

  • Financial Security – Your loan will fund
  • National Charter in all 50 states – Ability to help borrowers all across the country.
  • Regulation – The OTS or OCC eliminates most “bad loan officers” and provides for uniform compliance
  • Competitive pricing – In-house product line with flexibility to broker.

The minute most mortgage bankers fund a loan on their warehouse line, at a cost of LIBOR plus 2 or 2.5, they are in most cases losing arbitrage. If they can’t sell the loan they are stuck with nothing to do other then to sell it at a loss on the scratch and dent market or write a check for it.

As a federal depository bank with a FHLB [fla-ub] line cost of funds are usually at fed funds rate plus a .25. Currently 4.75. The FHLB system was developed as a stable source of funds for residential mortgages during The Great Depression. Will it be IF The Next Great Depression occurs?

AND if you are a Realtor and know anything about the Real Estate business…the only viable way to operate is to focus in on high-end0 homebuyers and investors. I love the way fear and scarcity work, its almost as if people eat themselves. Everyone wants to unload and no one wants to buy…and if you think about it isn’t that is the perfect time to invest? (When there is blood in the streets!) I recently saw an interview with Donald Trump and he talked about that very thing. I think it was on Larry King.

The bad is that while housing may seem grim, I would guess that around 25% of the total mortgages made are Subprime and ALT-A.

The trillion dollar question is out of that 25% that eventually reset, how many have enough cash, equity, knowledge or income to be able to refinance or hang on for the ride? AND will that number carry over to the 75%? Will the job market be our savor or is it just a crazy eight between the two?

The ugly news is maybe it will end up looking like the scene from Back to the future II.

“Great Scott!” Will all of the “bad loan officers” be like Biff and work at Biffco?

Robert Prechter and Harry Dent Jr have been talking about the next great depression for years. Will this be it? Listen to Mr. Harry Dent. I would highly recommend signing up for his monthly newsletter or reading his most recent book The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010 Mr. HS Dent has successfully predicted the late 1980’s and 2000 and puts them all together scientifically through historic cycles.

No matter the market, depression or not, there will always be folks out there raising their hands for help.

I truly believe, the one who will have all the success, is the one who can find them the best and has the right model to deliver the best! Will you focus on the 75% and manage the 25%?

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Why should you purchase real estate investment property? -Especially now.

September 26, 2007

If you were to investment $50,000 in the stock market today and somehow, someway you were to make a 10% return per year, every year, for 7 years you would end up with $97,435.

You would pretty much double your investment!

However if you were to invest $50,000 in a $200,000 single family residence (SFR) investment property you could create some Velocity.

Last thing I want to do here is another plan A or plan B example or worse… “Brother A invested in the stock market while broker B invested in real estate”

-20% down ($40,000) + $10,000 for closing costs and reserves. (It’s always good to have 3-6 months in reserves set aside in a “wealth coordination account”)

-$160,000 loan amount @ 5.5% fixed for 5years interest only (i/o) = $733/mo i/o

plus…

T -Taxes
I -Insurance (plus HOA if applicable)
M -Management (Get a good property manager, last thing you want to do is have a new part time job! It usually runs about 8% of the gross rental income)
M -Maintenance
U -Utilities (I would recommend the tenant pay)
R -Repairs (A great trick I learned long ago is make the tenant pay the first $100 of any repair. That way they take care of the property and you are not dealing with the bs)

*Make sure the monthly rent at least covers the monthly payment. We are looking for break-even or positive Cashflow. Remember all we need is “OPM” (other peoples money) paying for our appreciating assets.

*Make sure you find a motivated seller that will give you the ideal deal.

Inside our primary residence one could argue that our dollar does only one job (benefit) and that is Mortgage Interest Deduction.

One could also argue that the equity is not safe in the home…and that it needs to be separated into a safe, secure, liquid environment that can do more jobs.

What if a Hurricane Katrina happens in your area?

Earthquake, Flood, Tsunami, Terrorist attack, or you are unable to make your payments or restructure your debt?

(Remember the banks love to lend you money when you don’t need it and hate to when you do)

Your insurance doesn’t pay? You seek refuge in Houston and your equity line checkbook is frozen?

You and your neighbor both go into foreclosure…you have little equity (but a tons of cash in a credit-proof environment) and your neighbor has his home almost paid off…who is the lender going to more willing to work with?

By the way…you don’t ever want to cash-out your house on a payment you can’t afford or up to high. It is always good to leave some wiggle room in case you need to sell.

The best place online to run your value is Zillow (was inaccurate but getting much better).

Outside your home your dollar can do many different jobs all at once. Called “The multiplier effect”

The idea here is to identify under performing or under utilized assets and get them into production. Called “The Velocity Of Money”

You must get your individual MACRO economy moving!

The first benefit or job we can get out of our dollar by investing in real estate is APPRECIATION.

I have included a few historical graphs for your viewing pleasure…

Second benefit or job is DEPRECIATION which could be the most powerful tax advantage of all.

Third benefit or job is the additional tax advantages or expenses you can WRITE OFF.

(I am certainly NOT nor claim to be a tax professional so please consult your own.)

Then what if you were to turbo charge your dollar and borrow back out your initial down payment or investment and buy another property?

Maybe it takes 2yrs, maybe it takes 4?

Is it possible to build a real estate portfolio of $4MM+ within 7-10yrs with a one time investment of $50,000?

Is it possible to create equity of $500,000+ within 7-10yrs with a once time investment of $50,000?

Is the end game a 1031 exchange into a triple NET or something much greater?

Create a technology become Bill Gates, create a real estate portfolio become Donald Trump, create a life insurance portfolio become Warren Buffett, do 2 of the 3 have virtually limitless leverage and abundance!

Disclaimer: Real Estate is an investment and can go up or down. These illustrations are for example purposes only and are not forward looking statements

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