Hotel gurus and those that post to forums normally don’t have a formal credit background to truly understand the nuances of note buying. In this installment, we explore 7 things that can erode your lien position when you hold a note.
Collateral and Dangers of LTV Read More »
I remember Lucy, an admin that we had at a finance company I used to work at early in my career. Lucy brushed her teeth…a lot. Every time she would drink a beverage or grab herself a quick snack, she brushed and flossed. You see, Lucy was engaged to be married…to a dentist. Teeth were the main focus in her household. That’s just the way it was. Four out of five denists recommend brushing and flossing after you eat anything…well, I’m not sure that it’s four out of five, but that’s what I’m going with for the sake of argument.
Brushing and Flossing Read More »
I really hate drug company commercials. What I hate most is the explaining I must do when a prophylactics commercial pops up in the middle of Dora the Explorer. A close second to that would have to be all the acronyms I’m expected to know. COPD, ED, IBS, ABC, XYZ…I can’t keep up. I’m not a doctor, yet everyone thinks that I should automatically know what IC stands for. Every industry has their acronyms. Unfortunately, every industry also forgets that not everyone understands what they heck people are talking about when they are used.
Acronyms, Acronyms, and More Acronyms Read More »
The saying goes, “The road to Hell is paved in good intentions.” Our society attempts to solve problems by throwing money at them and increasing government regulation. Well, money can’t buy happiness, or solutions for that matter. Neither is government ever the most efficient solution to our problems. The current economic upheaval left in the aftermath of the Covid-19 crisis has only been exacerbated by government intervention.
Chickens Coming Home to Roost? Read More »
My first job out of college was this a consumer finance company. We would make small loans to consumers at incredibly high interest rates, but I justified it as if I was actually helping people. I was a young, naïve kid and I should have known better. The interest rates we were charging sometimes approached 39%, but more important than the rate was how the interest was calculated.
The Precomputed Interest Abyss Read More »
It has been told that King Solomon charged one of his servants to find a ring that would make a happy person sad when they wore it and, if a sad person wore it, they would become happier. When the servant told the wise king that he could find no such ring, King Solomon commissioned a jeweler to inscribe a ring with the saying “This too shall pass.”
The Lesson of the Ring Read More »
I remember sitting in my office in 2006 in Downtown Tampa watching all the cranes slapping up new condo buildings like there was no tomorrow. It turned out that there really was no tomorrow as soon the market was glutted with housing without enough buyers to fill them. The story was the same all over the country. Housing inventory was through the roof.
A Shock to the System Read More »
In addition to all of the consulting work we do for smaller investors and larger investors, we have our own funds, manage the funds of other entities, and we have a real estate practice that operates on the West Coast of Florida. It’s that real estate sales practice that gives us some of the most important information. It’s a canary in a coal mine, and I don’t mean the awesome song by The Police
Canary in a Coal Mine Read More »
There is an old saying that goes “If you’ve been sitting at the poker table for more than 15 minutes and you don’t know who the patsy is, you’re the patsy.” That’s pretty harsh, but it’s true. So many note and real estate investors try to jump into the market with both feet without having a strong background in the field only to make mistakes. The problem with making mistakes with a 6-figure property is that it can be a very expensive mistake. I’ve made mistakes. I call my mistakes “tuition”…very expensive tuition.
In our last installment, we talked about what debts lenders count towards your debt service coverage ratio or your debt to income ratio. In this article, we’ll look at the other side of the equation, your income.
Banks and the Income Calculation Read More »
Most people find bank underwriting guidelines to be very confusing. When many apply for loans, they are filled with self-doubt and questions as to whether they will be approved or not. The single most important factor in determining whether a borrower qualifies for a loan is arguably not the borrower’s credit history or the collateral value. Most lenders feel the borrower’s ability to pay is the single most important factor that goes into the loan approval process. At the center of this question is the ratio of the borrowers debts in relation to their income which is called Debt to Income Ratio (or DTI) on consumer loans for Debt Service Coverage Ratio (DSCR) for commercial deals. Many, however, find the formula a mystery. Let’s demystify it by first looking at what debts are included in the calculation.
What Debts Go Into the Debt to Income Calculation? Read More »
Getting financing for your first few flips can be quite expensive. As I’ve mentioned in earlier posts, banks and federal banking regulators absolutely hate to lend to smaller real estate investors. The struggle that many newer investors have is that they are accustomed to seeing the rates that are being charged to owner-occupant home buyers. They fail to take into account the level of relative risk to a lender that a real estate investor imposes on the institution, therefore, they struggle to understand why rates for real estate investors are higher than they are for owner-occupants.
How Lenders Make Money Read More »
Entering into a new partnership is exciting. Your head is dancing with the possibilities that the new venture could bring. You must, however, protect yourself. There are so many sayings that fit so well in this particular situation. I’m reminded of two saying that I use a great deal.
Good Fences Build Good Neighbors Read More »
Borrowing money to complete a flip allows us poor people to get into the real estate game. If you aren’t careful, however, the time value of money when using hard money will eat up any profits that you hoped to make on a project.
Rehab Costs, Hard Money, and Time Read More »
When I was a child, our next-door neighbor, Ann, had already lived a long and full life. Born at the tail end of the 1800s, Ann had seen it all in her lifetime. She had lived through the roaring 20s, the Great Depression, both World Wars, and so many other points in history. We always thought it was odd how frugal she was. She made popcorn balls for Halloween and she folded and saved her used aluminum foil. To us at the time it was odd, but she remembered times when she had nothing and had to conserve.
New Free State of the Real Estate Industry Webinars Read More »
If you are in a real estate-related business, you undoubtedly work with contracts and agreements in your business. Although we are taught to read everything carefully before you sign a contract, most people simply gloss over the highlights before signing. If you are part of the minority that actually reads everything that they sign, they you have probably encountered a term called “Force Majeure” buried somewhere in the legalese.
Yamamoto famously had serious concerns over plunging Japan into a war with the US. He thought very little of America’s naval leadership, but he understood America’s industrial capacity should it get backed into a corner. Although there are no records of him ever saying this, he is often quoted as saying “I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve” after the bombing of Pearl Harbor in 1941.
The Sleeping Giant Read More »
Fear is rampant all over the globe over the Covid 19 Virus, commonly known as The Corona Virus. The unprecedented steps that have been taken by not only governments but also the private sector have most feeling angst over the state of the economy. Many are asking about the short and long-term impacts of the Covid 19 Virus response on the real estate sector. Although there are many concerns, there is also tremendous opportunity for homebuyers and investors alike.
The Corona Virus Impact on Real Estate Markets Read More »
Levers and pulleys have been used in construction since before the ancient Egyptians built the Pyramids. They allow force to be multiplied so that, if enough levers are used, a person can move a large, heavy stone. The ancient Greek mathematician Archimedes famously stated “Give me a lever long enough and a fulcrum on which to place it and I can move the world.” Similarly, borrowing, or using leverage as it’s known in the industry, can help multiply your investment efforts as well as your returns, but it also can have dire consequences to your portfolio if things go wrong.
Archimedes Was Right Read More »
Everyone knows that elephants are grey in color. That’s just common sense. If I asked a third grader to color in a picture of an elephant, they are probably going to reach for a grey color, but have you ever seen a white elephant? They would certainly be unusual. They are different and stand out from the crowd. In our society, being different is a good thing…except when it comes to real estate investment. White elephants aren’t something that can be easily valued.
Being told “no” by a bank when you have non-W2 income for less than 2 years is a common story. Unfortunately, banks have to set up a stringent credit policy and adhere to it in order to keep federal and state regulators off of their back. That policy is going to be universal, but there are ways around it.
Cosigners, Co-Makers, and Hypothecation Read More »
In real estate investing, blankets aren’t something that keeps you warm. When an investor owns several properties, a lender might give them one loan and use several or all of their properties as collateral. When the mortgage/deed of trust “blankets” all of the properties, that is known as a “Blanket Mortgage/Deed of Trust.”
What About Blankets? Read More »
Taking out a loan against your primary residence could benefit your tax situation in a couple of ways, but you should talk with your tax advisor. Full disclosure…although my degree was in accounting 30 years ago, I have never practiced as an accountant. Be sure to talk with your tax advisor for what I am about to tell you.
Investing and Taxes Read More »
Not all deeds are the same. When property is transferred, the language in each deed will provide certain warranties from the seller. It’s important to understand the types of deeds that are out there as you might not be getting the protections that you deserve with some deeds. In this article, we are going to discuss three common types of deeds and what they generally cover.
Not All Deeds are Created the Same Read More »
A prequalification letter from a lender isn’t worth the paper that its printed on. I know that sounds harsh, but it’s true. When you list that property for sale and you are trying to determine which offer you should choose, it’s not all about price. Close-ability is also a huge consideration. Can and will the prospective buyer actually sign the closing documents? Will their lender actually approve the deal?
The Prequalification Predicament Read More »
