Oct
26
10 Properties + Stated Income = Denied
October 26, 2007 | Leave a Comment
I’m working on a loan for one of my best clients right now. It is a cash out refinance on a 4-unit in Denver. The loan-to-value is only 75% and they are stated income (self-employed)borrowers with great credit. The borrowers have 10 financed properties on their credit report. We ran the loan through Desktop Underwriter, got an approval and sent it in to the lender.
The underwriter called today and said that even though we have an approval from Fannie Mae to do the loan, they are DENYING it because they have more than 5 financed properties. This is huge and really not fair. for us or the borrower. This is a lender making an arbitrary decision not to do a loan even though the agencies love the loan.
They countered with a full doc offer meaning they will do the loan of they can document their income, but my borrower shows no income each year on his taxes and does not pay himself through his corporation.
Investor Insights
1. If you have more than 5 properties financed and are a stated income borrower, start to refinance these properties in the name of an LLC immediately to get them off your credit report. You need to be below 75% LTV.
2. Rethink your taxes. If you are self-employed, start showing some income so that you can go full doc.
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Oct
4
A Guide to 2008 Real Estate Profits
October 4, 2007 | Leave a Comment
By Barron Thomas
In the past few weeks, over $200 Million in commercial real estate deals have closed in Phoenix, Arizona. For a nation that supposedly is in “crisis,” and a city with one of the highest foreclosure rates, that’s a pretty good month. How are these deals getting done when everything we read says the sky’s falling?
Here’s how:
Let me explain this with an anecdotal story from a walk through a top Phoenix commercial brokerage office in the past few weeks. As I passed through rows of cubicles, I was shocked to see a large number of brokers talking to each other about how slow things were and “nothing’s happening.” Just as I turned the corner of a long row of cubicles, or “workspaces” as they are now called, I couldn’t help but notice a twenty-something broker with a large Mercedes brochure tacked to his wall. A sweet, vivacious young administrative assistant was eagerly making hand-gestures towards him and enthusiastically trying to get the young man’s attention. “Mr. X is on line 26 and he says he’s signed the offer and is faxing it back, and the plumbing contractor for McDowell is holding on line 21, and the Chandler guy says he will go at $5 a foot, all cash!” The young broker nodded to her, gave a silent “high-5″ to her, but stayed focused on his call, winding it up with “I’ll bring the contract and see you in 45 minutes”.
Why was the youngest guy in the room the busiest?
I was intrigued enough to stop and watch. I noticed there were no New York Times, no CNN, and no Wall Street Journals relating the latest batch of bad news anywhere in his cubicle. There was just a Mercedes brochure, a focused young man who was busy making calls and cementing willing buyers and willing sellers together. Just a kid fantasizing about his dream car, but making the real world steps (lots and lots of phone calls) to make it a reality.
What’s the point of this? First, in any economy, in most U.S. cities, and in the Phoenix market specifically, there has never been a time when something wasn’t being bought or sold. Sure, the sub-prime situation is a mess and some bank in France can’t price its portfolio of cats-and-dogs, investment bankers can’t raise capital for crazy deals, and the people living ridiculously beyond their means can’t buy a million-dollar home anymore, but the real world is still ticking.
Those that recognize this fact, and act upon it, will be booking the profits in 2008.
WE’RE BACK TO THE FUNDAMENTALS of real estate and investing for 2008:
First, profitable real estate investing requires effort. The big-league profits are still out there for the investor and the salesperson, but it’s back to searching for deals, to pouring over stacks of possibilities, and to talking with lots of sellers to find the seller, the location, and the price that “work” for the 2008 buyer and tenant expectations of price.
The job is to find the sellers that truly want to complete a transaction and understand that yesterday’s prices are gone.
Second, remember that Phoenix was recently ranked as the #1 Job Market in America. Jobs are jobs. Those people don’t care about the sub-prime craziness. A paycheck is a paycheck. People will be coming here and businesses and employees will need more space.
In most cities across America, people and real estate are thankfully never static. Businesses move in, move out, expand, or close shop. In each step of this continuous process, real estate needs change and profit opportunities are created in every town.
Third: Location. Are you buying into the path of real growth or into an over-built situation that can take years to lease? Either one is okay, just clearly know up-front the answer and be prepared financially.
Fourth: Price: 2008 profits will lie in deals that make economic sense to a buyer or tenant. Are the rents covering amortization and interest expense? Is there a clear, immediate use for the property? If not, is it priced where it can be held until the demand reaches the building? Do you have enough cash to carry your purchase until it can be sold or fully leased? Does the deal make sense when everyone will be paying a lot more in debt service?
Higher-priced debt?
Deals can still happen with higher-priced debt. The impact must be absorbed somewhere, and it’s generally in the price of the property because rents, labor, construction and development costs, and tomorrow’s price of money are pretty much fixed. In many cases, the chief variable on whether something will ultimately work can only come from the price of the property. If the demand exists, even with higher interest rates, deals won’t disappear, they will just have to re-price. Many owners that have held property for more than five years are still able to profitably sell at today’s prices.
These are a few of the fundamentals that will drive 2008 profits.
Deals are waiting to be done.
Money hasn’t evaporated. It has sobered up. It’s not taking fanciful gambles on long-shots. It wants 2008-era returns for the perceived risk. Does your deal fit this requirement? If it doesn’t, it must be re-priced or you should maybe move on to something else.
The commissions and profits on the $200 million in recent Phoenix transactions buy a lot of private-school tuition, trips to Italy, new swimming pools and new Mercedes for the participants.
What are you doing right now?
Are you finding the motivated sellers? The willing buyers? Tenants ready to get a better space? Landlords that are easier to deal with?
Black or silver? Convertible or hardtop?
Start dialing! Get new clients. Go see existing clients. Bring people together. Buy, sell, or get space leased. Skip the bad news. Find opportunities that work with today’s numbers.
Big profits and your new Mercedes are waiting for you.
Barron Thomas is a real estate agent in Scottsdale, Arizona and Los Angeles.
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