Hey, it's been a while but I've been in the process of setting up a new blog site. This is a free blog site, which has nice features for being free, but I need the blog to do more than this site so the new site is:
http://solidbusinessloans.com/blog
This is the website of our private equity investment company, Aesir Group LLC.
This new site gives me a lot more flexibility. This new site will be updated regularly to reflect present conditions in the commercial real estate markets as well as give projections of what the future may bring. The best tool that market analysts have is their knowledge of history. Warren Buffett is the great investor that he is because of his extensive knowledge and passion for, market history.
While I can't say I'm even close to being a "Warren Buffett", I have a passion for real estate and real estate market history so I hope that, at least, some of the stuff I write will help you think about issues that you may not have considered before. Til next post, may your investing be profitable.
Saturday, March 19, 2011
Sunday, February 28, 2010
Trouble In The Real Estate Markets: Any Silver Lining In This Cloud?
It’s a no-brainer that credit in both the residential and commercial real estate markets is a bit, shall we say, tight right now and that there may not be any drastic improvement to the situation anytime soon. But how bad could it be? After all, we’re the U-S-of-fricken-A. We’re the dominant economic power in the world. Right? Maybe not. After about a week of mentally digesting what I’d been reading and hearing, I’m thinking that we may not be such an economic powerhouse anymore, like we were back in the good ol’ days when I was a kid getting beat up daily in school, and when gasoline was just 50 cents a gallon and a bottle of soda pop cost only a dime.
China is now the largest holder of U. S. debt and I don’t see this changing for many years unless we come to our senses and start taking this whole budget thing seriously. But right now, I’d like to take some time to say, “ni hao”, to my future bosses and landlords and let them know that, deep inside, I always knew that Cato could kick Inspector Clouseau’s a$$ any day of the year. I actually cheered for him, so if any of my future bosses are reading this, please remember this when you give us our Christmas bonuses, okay?
On a more serious note, our residential markets are bad enough. There are some pundits, like Freddie Mac Chief Executive, Ed Haldeman, who think that the worst is almost over in our residential housing markets. These geniuses may be in for some very unpleasant surprises soon. Haldeman, as recently as January 26 of this year, stated, “From home sales to house prices, it appears nationally we may have approached the bottom”, shortly before Fannie Mae just recently asked our government for another $15.3 billion in bailout money to keep it afloat. This from a guy who is in charge of one of our major institutions that is supposed to help stabilize the mortgage markets by expanding the secondary markets for these loans. Now I realize that one of Haldeman’s unspoken duties is to keep the public from panicking as well as keep us from pulling our money out of the banks in favor of stuffing it in our mattresses and burying it in our backyards, but it strikes me as a bit strange that a person in such an influential position could be so delusional as to ignore what is going on around him at his job every day. I’d sure like to know what Ed was smoking when he made that statement because it must have been some really good ganja.
While there may be a temporary leveling of, or even a slight rise in, the residential markets because of artificial and temporary means such as the First-Time Homebuyer Credit, I’m going to venture the guess that as soon as these programs for buying homes run out of money, this Titanic of a real estate market will probably go right back down beneath the waves of our economy for several more years. As a sign of the times, I’m now working four short sales in Florida on residential properties owned by one seller, and for two of the properties I’ve already gotten verbal agreements from the loss mitigators at the banks to discount each property by about 64% from the debt owed by the seller. I’ve never been particularly good at short sales and can only conclude that these banks are getting more motivated to let properties go for bigger discounts now rather than risk getting stuck with them by taking them back in foreclosures.
This brings us to our commercial real estate markets. The financial statuses of many commercial properties seem to be very much up in the air as loans come due and more than $1 trillion in commercial debt must be refinanced or paid off in the next few years, according to Andrew Bogdanoff, Chairman of Remington Financial Group Incorporated. I used to think that $1 billion was a lot of money but now we’re talking about trillions of dollars, not just billions anymore. I don’t even know for sure how many 0’s are in a trillion. The U. S. capital markets aren’t liquid enough to handle even half of that amount.
Although things look bleak in the commercial real estate markets, I don’t think that the commercial markets are really as in as bad a shape as this quoted “$1 trillion plus in necessary impending refinancing” makes it appear, at least not for those who didn’t get caught up in the euphoria and speculation that occurred prior to 2006. As I mentioned in a previous blog post, debt service coverage ratios, which are indicators of the ability of income properties to service their own debt, are in healthy ranges for stabilized properties throughout the country. For the most part, banks don’t want real estate, they want money. Especially for performing loans, I seriously doubt that the banks will refuse to allow the refinancing or modifications of many these commercial mortgage loans. The commercial properties in danger are most likely the ones where the owners bought them primarily on speculation in the good times or where some cataclysmic event seriously changed the properties income or characteristics, such as a fire causing enough damage to require that the tenants of an income property move out and stop paying their rent.
As with my apparently higher success rate with short sales in the residential markets, I may have an indicator showing that the banks are becoming more motivated to get rid of their commercial liabilities. In the past, I would call a bank and ask for their REO’s, i.e., their “real estate owned” properties, and would usually get a loan officer on the phone who would tell me to take two drop-dead pills and call back in the morning. But now, some of these loan officers are at least pretending to take my phone number and email address for future reference. Two banks even called me last week with commercial paper and properties to make offers on. This is very promising for those of us who want to get more into commercial real estate, whether it be by purchasing the properties or purchasing the debt on those properties.
As long as the strategy is sound, there is probably never really a bad time to invest real estate. Successful companies, such as Microsoft, CNN, and General Electric, were started in The Great Depression or a recession and they are still in business as some of the most dominant companies in the world. Likewise, recessions, or even another Great Depression, can be great times to invest in real estate, if done properly by paying close attention to the numbers and the markets.
Right now, we’re focusing mainly on residential properties with little or no equity, as well as commercial REO’s or other commercial properties that have appraisals, we don’t care how old the appraisals are, and that can be bought at wholesale prices. If it is commercial and can be bought wholesale, we have financing in place for as low as $500,000 and as high as $50 million. In case you’re curious, there is a silver lining to the cloud hanging over the real estate markets but it is just disguised in the color green, as in greenbacks. This party’s just beginning and our friends, Washington, Jefferson, and Benjamin, will all be there.
China is now the largest holder of U. S. debt and I don’t see this changing for many years unless we come to our senses and start taking this whole budget thing seriously. But right now, I’d like to take some time to say, “ni hao”, to my future bosses and landlords and let them know that, deep inside, I always knew that Cato could kick Inspector Clouseau’s a$$ any day of the year. I actually cheered for him, so if any of my future bosses are reading this, please remember this when you give us our Christmas bonuses, okay?
On a more serious note, our residential markets are bad enough. There are some pundits, like Freddie Mac Chief Executive, Ed Haldeman, who think that the worst is almost over in our residential housing markets. These geniuses may be in for some very unpleasant surprises soon. Haldeman, as recently as January 26 of this year, stated, “From home sales to house prices, it appears nationally we may have approached the bottom”, shortly before Fannie Mae just recently asked our government for another $15.3 billion in bailout money to keep it afloat. This from a guy who is in charge of one of our major institutions that is supposed to help stabilize the mortgage markets by expanding the secondary markets for these loans. Now I realize that one of Haldeman’s unspoken duties is to keep the public from panicking as well as keep us from pulling our money out of the banks in favor of stuffing it in our mattresses and burying it in our backyards, but it strikes me as a bit strange that a person in such an influential position could be so delusional as to ignore what is going on around him at his job every day. I’d sure like to know what Ed was smoking when he made that statement because it must have been some really good ganja.
While there may be a temporary leveling of, or even a slight rise in, the residential markets because of artificial and temporary means such as the First-Time Homebuyer Credit, I’m going to venture the guess that as soon as these programs for buying homes run out of money, this Titanic of a real estate market will probably go right back down beneath the waves of our economy for several more years. As a sign of the times, I’m now working four short sales in Florida on residential properties owned by one seller, and for two of the properties I’ve already gotten verbal agreements from the loss mitigators at the banks to discount each property by about 64% from the debt owed by the seller. I’ve never been particularly good at short sales and can only conclude that these banks are getting more motivated to let properties go for bigger discounts now rather than risk getting stuck with them by taking them back in foreclosures.
This brings us to our commercial real estate markets. The financial statuses of many commercial properties seem to be very much up in the air as loans come due and more than $1 trillion in commercial debt must be refinanced or paid off in the next few years, according to Andrew Bogdanoff, Chairman of Remington Financial Group Incorporated. I used to think that $1 billion was a lot of money but now we’re talking about trillions of dollars, not just billions anymore. I don’t even know for sure how many 0’s are in a trillion. The U. S. capital markets aren’t liquid enough to handle even half of that amount.
Although things look bleak in the commercial real estate markets, I don’t think that the commercial markets are really as in as bad a shape as this quoted “$1 trillion plus in necessary impending refinancing” makes it appear, at least not for those who didn’t get caught up in the euphoria and speculation that occurred prior to 2006. As I mentioned in a previous blog post, debt service coverage ratios, which are indicators of the ability of income properties to service their own debt, are in healthy ranges for stabilized properties throughout the country. For the most part, banks don’t want real estate, they want money. Especially for performing loans, I seriously doubt that the banks will refuse to allow the refinancing or modifications of many these commercial mortgage loans. The commercial properties in danger are most likely the ones where the owners bought them primarily on speculation in the good times or where some cataclysmic event seriously changed the properties income or characteristics, such as a fire causing enough damage to require that the tenants of an income property move out and stop paying their rent.
As with my apparently higher success rate with short sales in the residential markets, I may have an indicator showing that the banks are becoming more motivated to get rid of their commercial liabilities. In the past, I would call a bank and ask for their REO’s, i.e., their “real estate owned” properties, and would usually get a loan officer on the phone who would tell me to take two drop-dead pills and call back in the morning. But now, some of these loan officers are at least pretending to take my phone number and email address for future reference. Two banks even called me last week with commercial paper and properties to make offers on. This is very promising for those of us who want to get more into commercial real estate, whether it be by purchasing the properties or purchasing the debt on those properties.
As long as the strategy is sound, there is probably never really a bad time to invest real estate. Successful companies, such as Microsoft, CNN, and General Electric, were started in The Great Depression or a recession and they are still in business as some of the most dominant companies in the world. Likewise, recessions, or even another Great Depression, can be great times to invest in real estate, if done properly by paying close attention to the numbers and the markets.
Right now, we’re focusing mainly on residential properties with little or no equity, as well as commercial REO’s or other commercial properties that have appraisals, we don’t care how old the appraisals are, and that can be bought at wholesale prices. If it is commercial and can be bought wholesale, we have financing in place for as low as $500,000 and as high as $50 million. In case you’re curious, there is a silver lining to the cloud hanging over the real estate markets but it is just disguised in the color green, as in greenbacks. This party’s just beginning and our friends, Washington, Jefferson, and Benjamin, will all be there.
Sunday, February 21, 2010
“Junk” Financing For Real Estate And Business: History Always Repeats Itself
The Spanish philosopher and author, George Santayana, once said, “Those who cannot remember the past are condemned to repeat it.”
Apparently, we haven’t remembered much from the past, especially in real estate and business finance. If you review market history, you'll see the same things occur over and over again, just under different disguises. It’s laughable whenever some real estate or business “guru” makes a statement saying that his or her boot camp, home study course, or other products and services will teach us how to take advantage of these “never-before-seen” conditions and “Why Never Before in History Has There Been a Better Time to Buy Real Estate”, or other such nonsense (disclaimer: I don’t know whether the writer of this linked article is a scam artist or not, I only know that I sure wouldn’t trust him without some extra-careful due diligence on his background). These statements are typically made by people who only want to make a quick sale and who don’t care to cultivate long-term client relationships. These people are not true, ethical practitioners in our industry. They will surely make a few sales just from the sheer numbers of eyeballs they get to read their bold statements, but the information from these kinds of people will most likely be outdated crap that doesn’t work anymore, if it ever did.
I firmly believe that history repeats itself so if I ever make a statement saying that “this is the best time” or “this is the worst time” for anything, I always follow this up with a time frame such as “…in our generation” or “…in the last xxx years”. This being said, it may be unwise to ever say that there is a “best” or “worst” time for anything involving financing, even with a time frame on it. For example, there are now courses, boot camps, and seminars popping up out of the woodwork that teach people how to tap into private-equity financing and private lenders to fund real estate deals now that conventional bank financing is more difficult to obtain than it was several years ago. The organizers and presenters of these events claim that “this is the best time ever to obtain private funds and give your investors high rates of return” since people are supposedly tired of the anemic returns presently paid by bank Certificates of Deposit (CD’s) and money markets.
One such organization that seeks to capitalize on the private funding fad, Cash Flow Depot, even has an online seminar completely devoted to teaching ways to obtain private-equity financing now. One of the presenters claims that people who have 1031 Exchange funds are the most motivated to lend money to you since they are under a time deadline to get this money into other real estate investments and that she will teach you how to get this money to fund your deals. She is correct in that people who have 1031Exchange money are motivated by deadlines but I don’t really think she is in the business of real estate and raising capital anymore, if she ever was, since it is a real hassle to use 1031 Exchange money to fund your deals. If she really is in the business of raising private funds for real estate deals, she would know this well enough to not just blindly use this as the main selling point for her products and services. One of my mentors who I am in a joint venture deal with now, Dave Lindahl, will no longer use 1031 Exchange money to fund his apartment deals because of the hassles associated with it. As you might imagine, I have a great deal of respect for Lindahl and don’t hesitate recommending him to anyone who wants to learn about the apartment investing business. I also have another mentor in Atlanta, Georgia who teaches me to invest in commercial real estate but I am reluctant to mention his name without first getting his permission since he is a very private person.
Teaching just anyone to raise private-equity financing is dangerous. In 2008, one such anyone in one of my target markets, Augusta, Georgia, raised millions of dollars in private funding from other people to fund her deals and she ended up losing over 40 houses to foreclosure as well as about $3.7 million of this private money, which included retirement money (think “Bernie Madoff”).
Back in the 1980’s, also known as The Roaring 80’s, there was a similar surge in private-equity financing that was pioneered by Michael Milken. Milken, also known as “The Junk Bond King”, did prison time for securities fraud and racketeering, but I think he actually did the business and real estate worlds a favor by taking the age-old concept of private funding to a new level and making it much more widely available to companies that couldn’t otherwise obtain the necessary financing to grow or even get started in the first place. Back then, such financing was more commonly known as junk bond financing, i.e., financing that paid its investors much higher rates of return in exchange for them being able to tolerate the much higher risks usually associated with lending to relatively unproven business and real estate ventures. Nowadays we use terms like “hedge fund”, “joint venture partnerships”, and “private-equity financing” to describe this kind of funding but it's just the same thing 30 years later using different names. It’s still considered to be “junk” financing. If you have any doubts as to whether or not we are seeing a repeat of 1980's-type financing, the January/February 2010 issue of CFO magazine points out that companies issued record amounts of junk bonds in the last three quarters of 2009.
I don’t like the term “junk” to describe high-yield financing for projects that carry supposedly “higher-than-typical” risk. In the right hands and under the right circumstances, these kinds of investments can have minimal risks but give the same high returns on investment often associated with “junk” investments. For example, there is a highly-specialized type of funding called “transactional funding” where you borrow funds for no more than 24 hours to flip a property and then return it with an enormous rate of return to the lender. For 24 hours of use, this return often ranges from 1% to 5% or higher, which equals annualized rates of return ranging from 365% to 1825% or higher, depending on the amount of “interest” paid for this 1-day use of the funds. The way this investment is protected is that the investor borrowing the funds must have an end buyer to whom to flip the deal immediately or else the funds never get released from escrow and the lender just gets the money back. Minimal risk with enormous returns…what a concept! This may still be labeled as “junk” financing but I’ll gladly lend on these terms any day of the year and anywhere in the country as long as the person to whom I’m lending this money is responsible enough to know how to use it.
For some reason, just because a blue chip company is large, publicly traded, and has a history of stable earnings, this company is perceived to carry lower risk to its investors than other companies and ventures. This may be true in the stock markets but, unless I have absolutely no interest in following the markets, I‘d prefer having as much control over my investments as possible without relying on some stock broker or other money manager to make decisions that affect my financial future while getting paid whether or not they do well with my money. Let’s not forget about companies that were once classified as “blue chip” companies, such as Enron and General Motors, that went bankrupt and lost hundreds of millions of investor dollars. Direct involvement with real estate is my preferred vehicle for growing my investments. Putting my money into the stock markets and hoping that it goes up in value leaves my finances too much in the hands of people who I don’t know or trust. I have learned, by reading and by personal experience, that the people running the deals are much more important than the deals themselves. If you have any deal to consider, even a seemingly great one, but an idiot is running it, stay away from it or pay the price to go to an expensive “seminar” to learn why you should have avoided it (one of my previous posts tells a little about how I almost got ripped off $160,000 by the smooth-talking developer of the failed Wesley Arms condo conversion in Augusta, Georgia).
Although I’ve posted about some creative ways to finance real estate and business ventures, it’s arrogant for me to claim these ideas as my own since they existed long before I even existed as an embryo. I only remind others that there are alternative ways to obtain financing when more conventional funds are difficult to obtain. But, in accordance with original intent of this post, I emphasize that the cyclical nature of the markets will continue to determine the best kinds of financing and deals to use as they disappear and reappear with amazing regularity with the passage of time. Perhaps the best way to prepare for investing in future markets is to become an objective and diligent student of market history and ignore those who hype things to the extreme.
Apparently, we haven’t remembered much from the past, especially in real estate and business finance. If you review market history, you'll see the same things occur over and over again, just under different disguises. It’s laughable whenever some real estate or business “guru” makes a statement saying that his or her boot camp, home study course, or other products and services will teach us how to take advantage of these “never-before-seen” conditions and “Why Never Before in History Has There Been a Better Time to Buy Real Estate”, or other such nonsense (disclaimer: I don’t know whether the writer of this linked article is a scam artist or not, I only know that I sure wouldn’t trust him without some extra-careful due diligence on his background). These statements are typically made by people who only want to make a quick sale and who don’t care to cultivate long-term client relationships. These people are not true, ethical practitioners in our industry. They will surely make a few sales just from the sheer numbers of eyeballs they get to read their bold statements, but the information from these kinds of people will most likely be outdated crap that doesn’t work anymore, if it ever did.
I firmly believe that history repeats itself so if I ever make a statement saying that “this is the best time” or “this is the worst time” for anything, I always follow this up with a time frame such as “…in our generation” or “…in the last xxx years”. This being said, it may be unwise to ever say that there is a “best” or “worst” time for anything involving financing, even with a time frame on it. For example, there are now courses, boot camps, and seminars popping up out of the woodwork that teach people how to tap into private-equity financing and private lenders to fund real estate deals now that conventional bank financing is more difficult to obtain than it was several years ago. The organizers and presenters of these events claim that “this is the best time ever to obtain private funds and give your investors high rates of return” since people are supposedly tired of the anemic returns presently paid by bank Certificates of Deposit (CD’s) and money markets.
One such organization that seeks to capitalize on the private funding fad, Cash Flow Depot, even has an online seminar completely devoted to teaching ways to obtain private-equity financing now. One of the presenters claims that people who have 1031 Exchange funds are the most motivated to lend money to you since they are under a time deadline to get this money into other real estate investments and that she will teach you how to get this money to fund your deals. She is correct in that people who have 1031Exchange money are motivated by deadlines but I don’t really think she is in the business of real estate and raising capital anymore, if she ever was, since it is a real hassle to use 1031 Exchange money to fund your deals. If she really is in the business of raising private funds for real estate deals, she would know this well enough to not just blindly use this as the main selling point for her products and services. One of my mentors who I am in a joint venture deal with now, Dave Lindahl, will no longer use 1031 Exchange money to fund his apartment deals because of the hassles associated with it. As you might imagine, I have a great deal of respect for Lindahl and don’t hesitate recommending him to anyone who wants to learn about the apartment investing business. I also have another mentor in Atlanta, Georgia who teaches me to invest in commercial real estate but I am reluctant to mention his name without first getting his permission since he is a very private person.
Teaching just anyone to raise private-equity financing is dangerous. In 2008, one such anyone in one of my target markets, Augusta, Georgia, raised millions of dollars in private funding from other people to fund her deals and she ended up losing over 40 houses to foreclosure as well as about $3.7 million of this private money, which included retirement money (think “Bernie Madoff”).
Back in the 1980’s, also known as The Roaring 80’s, there was a similar surge in private-equity financing that was pioneered by Michael Milken. Milken, also known as “The Junk Bond King”, did prison time for securities fraud and racketeering, but I think he actually did the business and real estate worlds a favor by taking the age-old concept of private funding to a new level and making it much more widely available to companies that couldn’t otherwise obtain the necessary financing to grow or even get started in the first place. Back then, such financing was more commonly known as junk bond financing, i.e., financing that paid its investors much higher rates of return in exchange for them being able to tolerate the much higher risks usually associated with lending to relatively unproven business and real estate ventures. Nowadays we use terms like “hedge fund”, “joint venture partnerships”, and “private-equity financing” to describe this kind of funding but it's just the same thing 30 years later using different names. It’s still considered to be “junk” financing. If you have any doubts as to whether or not we are seeing a repeat of 1980's-type financing, the January/February 2010 issue of CFO magazine points out that companies issued record amounts of junk bonds in the last three quarters of 2009.
I don’t like the term “junk” to describe high-yield financing for projects that carry supposedly “higher-than-typical” risk. In the right hands and under the right circumstances, these kinds of investments can have minimal risks but give the same high returns on investment often associated with “junk” investments. For example, there is a highly-specialized type of funding called “transactional funding” where you borrow funds for no more than 24 hours to flip a property and then return it with an enormous rate of return to the lender. For 24 hours of use, this return often ranges from 1% to 5% or higher, which equals annualized rates of return ranging from 365% to 1825% or higher, depending on the amount of “interest” paid for this 1-day use of the funds. The way this investment is protected is that the investor borrowing the funds must have an end buyer to whom to flip the deal immediately or else the funds never get released from escrow and the lender just gets the money back. Minimal risk with enormous returns…what a concept! This may still be labeled as “junk” financing but I’ll gladly lend on these terms any day of the year and anywhere in the country as long as the person to whom I’m lending this money is responsible enough to know how to use it.
For some reason, just because a blue chip company is large, publicly traded, and has a history of stable earnings, this company is perceived to carry lower risk to its investors than other companies and ventures. This may be true in the stock markets but, unless I have absolutely no interest in following the markets, I‘d prefer having as much control over my investments as possible without relying on some stock broker or other money manager to make decisions that affect my financial future while getting paid whether or not they do well with my money. Let’s not forget about companies that were once classified as “blue chip” companies, such as Enron and General Motors, that went bankrupt and lost hundreds of millions of investor dollars. Direct involvement with real estate is my preferred vehicle for growing my investments. Putting my money into the stock markets and hoping that it goes up in value leaves my finances too much in the hands of people who I don’t know or trust. I have learned, by reading and by personal experience, that the people running the deals are much more important than the deals themselves. If you have any deal to consider, even a seemingly great one, but an idiot is running it, stay away from it or pay the price to go to an expensive “seminar” to learn why you should have avoided it (one of my previous posts tells a little about how I almost got ripped off $160,000 by the smooth-talking developer of the failed Wesley Arms condo conversion in Augusta, Georgia).
Although I’ve posted about some creative ways to finance real estate and business ventures, it’s arrogant for me to claim these ideas as my own since they existed long before I even existed as an embryo. I only remind others that there are alternative ways to obtain financing when more conventional funds are difficult to obtain. But, in accordance with original intent of this post, I emphasize that the cyclical nature of the markets will continue to determine the best kinds of financing and deals to use as they disappear and reappear with amazing regularity with the passage of time. Perhaps the best way to prepare for investing in future markets is to become an objective and diligent student of market history and ignore those who hype things to the extreme.
Friday, February 19, 2010
The Future Of Commercial Real Estate: Big Bust Or Big Opportunity?
While many people seem to think that residential real estate has hit its low point in the market cycle, there is plenty of publicity these days about how the worst is yet to come in commercial real estate. I believe that our country is in so much debt right now that both residential and commercial real estate are going to get much worse for those who bought them poorly before 2006.
The present upswing in the residential markets has been artificially induced by temporary incentives such as the First-Time Homebuyer Credit . However, human nature being what it is, once our government runs out of money for these incentives and puts an end to them, the residential housing market will go right back down and probably descend to depths even lower than it’s ever been before in the baby boomer generation. Given that we are in hock up to our ears to other countries that invested in our real estate, we all better start learning to speak Chinese if we’re going to end up working for these foreign investors and start renting from them after they buy the real estate we lose to foreclosure.
From a February 17, 2010 article in Builder magazine, an “expert” states, “With the decline in activity following the original expiration of the housing tax credit firmly behind us, we believe this data continues to support our view that housing demand continues to stabilize if not slowly reemerge” (ref. Michael Rehaut, a housing analyst with J.P. Morgan). I find Rehaut’s statement to be hilarious, like when former U. S. President Herbert Hoover boldly stated, “Prosperity is just around the corner”, right before The Great Depression when the only things just around the corner were people selling pencils and apples after losing their jobs.
As pessimistic as I am on the near-future prospects of our residential markets, I believe that our commercial real estate markets are in for a real blood bath soon. As a whole, New York City has been the economic center for the U. S. ever since the institution of our modern financial system. NYC still remains home to Wall Street, the biggest casino in the world, where fortunes are made and lost almost daily. Given the commercial credit markets and information leaked via that great equalizer, the Internet, it came as no big surprise when lenders began foreclosure proceedings last Tuesday on the $3-billion Peter Cooper Village/Stuyvesant Town , a joint venture led by Tishman Speyer Properties and Blackrock Realty that was acquired for $5.4 billion in 2006 (great timing, guys!).
On a much smaller scale, one of my mentors, Scott Lane, who is Director of Education of our local Real Estate Investors Association, the Capitol City Real Estate Investors, warned me in late 2005 that the residential mortgage brokers in our REIA were complaining that a lot of their loan programs were being eliminated. Despite Scott’s warning, I still foolishly bought some properties with those now-defunct loan programs as part of my exit strategies and now I’m sitting on a few extra houses I wish I didn’t have. The gist of this story is if small-time investors like people in our REIA knew that this problem in the credit markets was coming before it actually became a problem starting in 2006, how could the big guys like Tishman Speyer Properties and Blackrock Realty miss the mark with this given all their resources to perform due diligence? I may be wrong, but I’m guessing that pride kept them from killing the project before it got to this point. When you’re as big as them and you commit to a project, maybe their only choice was to proceed despite those early warning signs in the markets since losing face by backing out would have been worse to their investors and bond holders.
Almost all the news I see regarding commercial real estate has a pessimistic outlook. The Congressional Oversight Panel has warned that a wave of commercial real estate loan failures could threaten America's already-weakened financial system over the next few years. From a recent MarketWatch reference, “The panel, chaired by Harvard law professor Elizabeth Warren, says it remains "deeply concerned" that commercial loan losses could jeopardize the stability of many banks, particularly the nation's mid-size and smaller banks.”
So, should we be worried? Only if you bought properties like those experts at Tishman Speyer Properties before 2007. I sense a lot of opportunity in the midst of the gloom-and-doom chaos and that a whole new generation of multi-billionaires will emerge from this mess. The nouveau riche will be those bold enough to ignore negative media hype and take action to grab the equity and cash flow left behind by those left in the dust from the foreclosures and other distress. Cash is king now and if you know where to find it, then you will be part of his majesty's royal court. In my previous post, I illustrate only one way to get cash for opportunities such as this and profit from it, but it does require a very different mindset to implement strategies such as this since this is a market that has never been seen before in our lifetime.
Despite the very real possibility of an abundance of commercial loan defaults, I believe that the commercial real estate market is healthy for those who used common sense and sound investing principles up to and throughout this market downturn. As a case-in-point, stabilized commercial income properties still have healthy debt-service-coverage-ratios (DSCRs). From Dan Yeh’s commercial mortgage metrics blog post on February 18, 2010 in The Scotsman Guide, the table below shows average DSCRs for all commercial Loan Posts in 2009, segmented by major property type and region:
For multifamily income properties, lenders typically require that the DSCR be at least 1.25 nowadays. As long as a property is stabilized, the Average DSCR table shown above indicates that there is plenty of margin for error given the average DSCRs for their respective regions in the country. It appears that any distress was mainly caused by investors who depended more on appreciation rather than on sound value investing principles. There is nothing wrong with the properties themselves, but rather with the ways they were purchased and then financed. The solution appears to lie within the financing. Here, I make a key point that my mentors taught me: The money in real estate has always been in the financing, not in the actual real estate. If you can fix the financing on a distressed property, then you can solve the problem with that property.
Especially in times like now, fortune favors the bold. I think that this is the best time in our lives to grab as much of the gold as possible that the real estate gods have thrown in our paths.
The present upswing in the residential markets has been artificially induced by temporary incentives such as the First-Time Homebuyer Credit . However, human nature being what it is, once our government runs out of money for these incentives and puts an end to them, the residential housing market will go right back down and probably descend to depths even lower than it’s ever been before in the baby boomer generation. Given that we are in hock up to our ears to other countries that invested in our real estate, we all better start learning to speak Chinese if we’re going to end up working for these foreign investors and start renting from them after they buy the real estate we lose to foreclosure.
From a February 17, 2010 article in Builder magazine, an “expert” states, “With the decline in activity following the original expiration of the housing tax credit firmly behind us, we believe this data continues to support our view that housing demand continues to stabilize if not slowly reemerge” (ref. Michael Rehaut, a housing analyst with J.P. Morgan). I find Rehaut’s statement to be hilarious, like when former U. S. President Herbert Hoover boldly stated, “Prosperity is just around the corner”, right before The Great Depression when the only things just around the corner were people selling pencils and apples after losing their jobs.
As pessimistic as I am on the near-future prospects of our residential markets, I believe that our commercial real estate markets are in for a real blood bath soon. As a whole, New York City has been the economic center for the U. S. ever since the institution of our modern financial system. NYC still remains home to Wall Street, the biggest casino in the world, where fortunes are made and lost almost daily. Given the commercial credit markets and information leaked via that great equalizer, the Internet, it came as no big surprise when lenders began foreclosure proceedings last Tuesday on the $3-billion Peter Cooper Village/Stuyvesant Town , a joint venture led by Tishman Speyer Properties and Blackrock Realty that was acquired for $5.4 billion in 2006 (great timing, guys!).
On a much smaller scale, one of my mentors, Scott Lane, who is Director of Education of our local Real Estate Investors Association, the Capitol City Real Estate Investors, warned me in late 2005 that the residential mortgage brokers in our REIA were complaining that a lot of their loan programs were being eliminated. Despite Scott’s warning, I still foolishly bought some properties with those now-defunct loan programs as part of my exit strategies and now I’m sitting on a few extra houses I wish I didn’t have. The gist of this story is if small-time investors like people in our REIA knew that this problem in the credit markets was coming before it actually became a problem starting in 2006, how could the big guys like Tishman Speyer Properties and Blackrock Realty miss the mark with this given all their resources to perform due diligence? I may be wrong, but I’m guessing that pride kept them from killing the project before it got to this point. When you’re as big as them and you commit to a project, maybe their only choice was to proceed despite those early warning signs in the markets since losing face by backing out would have been worse to their investors and bond holders.
Almost all the news I see regarding commercial real estate has a pessimistic outlook. The Congressional Oversight Panel has warned that a wave of commercial real estate loan failures could threaten America's already-weakened financial system over the next few years. From a recent MarketWatch reference, “The panel, chaired by Harvard law professor Elizabeth Warren, says it remains "deeply concerned" that commercial loan losses could jeopardize the stability of many banks, particularly the nation's mid-size and smaller banks.”
So, should we be worried? Only if you bought properties like those experts at Tishman Speyer Properties before 2007. I sense a lot of opportunity in the midst of the gloom-and-doom chaos and that a whole new generation of multi-billionaires will emerge from this mess. The nouveau riche will be those bold enough to ignore negative media hype and take action to grab the equity and cash flow left behind by those left in the dust from the foreclosures and other distress. Cash is king now and if you know where to find it, then you will be part of his majesty's royal court. In my previous post, I illustrate only one way to get cash for opportunities such as this and profit from it, but it does require a very different mindset to implement strategies such as this since this is a market that has never been seen before in our lifetime.
Despite the very real possibility of an abundance of commercial loan defaults, I believe that the commercial real estate market is healthy for those who used common sense and sound investing principles up to and throughout this market downturn. As a case-in-point, stabilized commercial income properties still have healthy debt-service-coverage-ratios (DSCRs). From Dan Yeh’s commercial mortgage metrics blog post on February 18, 2010 in The Scotsman Guide, the table below shows average DSCRs for all commercial Loan Posts in 2009, segmented by major property type and region:
For multifamily income properties, lenders typically require that the DSCR be at least 1.25 nowadays. As long as a property is stabilized, the Average DSCR table shown above indicates that there is plenty of margin for error given the average DSCRs for their respective regions in the country. It appears that any distress was mainly caused by investors who depended more on appreciation rather than on sound value investing principles. There is nothing wrong with the properties themselves, but rather with the ways they were purchased and then financed. The solution appears to lie within the financing. Here, I make a key point that my mentors taught me: The money in real estate has always been in the financing, not in the actual real estate. If you can fix the financing on a distressed property, then you can solve the problem with that property.
Especially in times like now, fortune favors the bold. I think that this is the best time in our lives to grab as much of the gold as possible that the real estate gods have thrown in our paths.
Monday, February 15, 2010
Taking Advantage Of Bad Commercial Debt For Huge Profits
Last week, one of my mentors told me of a deal he was working with someone. Here is a brief description and the numbers:
► Hotel for sale by a bank that took it back in foreclosure that appraised for $21 million.
► Lender willing to lend on this at 60% of the appraised value, i.e., $12.6 million.
► My mentor buys it with a partner for $10 million from a bank’s REO inventory, then they sell the hotel to an investor for $12.6 million and they split the difference and pocket about $1.3 million each.
► End result: My mentor and his partner on the deal each get $1.3 million, the end buyer of the hotel gets a hotel that appraised for $21 million for only $12.6 million.
The key to this strategy is that the lender is willing to lend based on the appraised value, not the lesser of the appraised value or the purchase price. This lender is a true LTV (Loan-To-Value) lender, not a LTC (Loan-To-Cost) lender. If you search for them, you’ll find lenders who call themselves LTV lenders but they are really LTC lenders so if you decide to implement this strategy, be sure you find a true LTV lender.
So, are these deals really out there? Well, unless it’s just media hype, there may be a tidal wave of defaults on CMBS (commercial mortgage-backed securities) soon. The trends seem to show that commercial mortgage loan defaults are increasing at an alarming rate so the pressure will be on the banks and the government to relieve this pressure by dumping the inventory of both commercial REO’s (real estate owned) and paper at huge discounts. According to a February 10, 2010 article written by Mark Heschmeyer of the CoStar Group, “CMBS loan liquidations were averaging about $108 million a month in 2008 and last year the average jumped $182 million with November's totaling hitting $255 million and December's ballooning to $585 million, according to CMBS bond rating agency Realpoint. Loans were being liquidated at losses near 66%.”
Combining LTV lenders with the mounting pile of bad commercial mortgage debt is a very viable strategy that takes advantage of the misfortune of others to become wealthy yourself. If you are squeamish and this technique makes you feel too much like a vulture to put into action, keep in mind that this wealth has to go somewhere, so why not to you and me? From my science and engineering studies wayyyyyyy back in the Stone Ages, there is a law upon which all modern-day physical and chemical principles are built called The Law of Conservation of Energy . In a nutshell, this law states that energy is neither created nor destroyed in a closed system but merely changes from one form to another.
Wealth is much like energy in that it is neither created nor destroyed but just moves from place to place. On a purely physical level, it is a zero-sum game where one person must lose wealth for another to gain it. This is very different from value which can be created and destroyed since value is a subjective concept whereas wealth is an objective one. Therefore, it is possible to actually give someone value while taking their wealth, which is what preforeclosure investors do by buying houses from sellers on short sales, i.e., for less than the loan balances, and taking the equity in their homes in exchange for giving the sellers peace of mind by negotiating off potential deficiency charges and other liens.
The above now being stated, we are now looking to add this strategy as follows:
► Apartment complexes anywhere in the continental United States, as long as they are not in war zones, that appraise for $4.2 million or more that we can buy at 60% or less of the appraised value.
► We don’t care how old the appraisal is as long as we can get a formal appraisal.
► We propose a profit share with anyone who brings us a deal as described above that we end up closing on.
So what are you waiting for? What are WE waiting for??? It’s time to stop reading and time to start taking your share of the wealth that was left behind by others.
Friday, February 12, 2010
Why Are Real Estate Markets "Overvalued" Or "Undervalued"?
As I went to my computer to get some work done, I couldn't help but notice a story on Yahoo News about "America's Most Overvalued Cities" as it pertains to residential real estate. One of the highlights of this "objective" article was a ranking of supposedly overvalued housing markets and by how much they are/were overvalued, both now and back in 2006 when the real estate markets first started to soften at the start of this present recession, as given by:
This is just another case of some know-it-all, self-appointed committee made up of people who must have some latent need for attention and for feelings of importance by trying to let us know how essential their opinions are to the real estate economy and our country's financial health. Back in January 2006, these same geniuses decided that Naples, Florida was the most overvalued metro area then. From the subject news article: "That finding so rankled the Naples Chamber of Commerce and area real estate agents that they hired economists to dispute the evaluation, according to Richard DeKaser, the real estate consultant who engineered the report for National City."
I skimmed this article more for amusement than anything. I put forth to you, the reader, that the powers-that-be who determined that the aforementioned markets are overvalued have no idea what they are talking about and should be completely ignored on the basis that they are just self-proclaimed captains of a ship of fools who believe their drivel. To support my assertions, let's examine what actually determines property "value" in both residential, and commercial, real estate markets.
There are three main factors that real estate appraisers use to determine "value" of any real property: 1.) cost of replacement, 2.) income generated by the property, and 3.) recent comparable sales of similar properties. Each factor has its use, depending on why this valuation is needed. For example, insurance companies typically use replacement values since, in the event of partial or complete destruction, they are charged with the responsibility of paying for part of, or all, costs to repair or replace damaged properties. In the eyes of an income investor who wants a good return on his/her invested money, the income generated by a property will probably be most appropriate. For an owner-occupant who wishes to reside in a house, recent comparable sales are usually the most relevant for valuation of the property. Early in my real estate investing career, I only considered price when I tried to place a value on a property and completely forgot to account for the time factor, which happens to be just as important as price when determining property value. Now, when I try to place a value on a property, I ask myself two things: At what price will the property sell? and How long will take to sell at that price?
Despite what appraisers, real estate agents, or other self-proclaimed experts may say, property value is determined by only one thing: how much someone is willing, and able, to pay for that property. For example, if you buy a dog house at Lowe's or Home Depot, you can get a perfectly good one for about $63 plus tax. But if there is a neighborhood where I know this same kind of dog house will sell quickly for $20,000 and someone in that neighborhood offers to sell me his/hers for $10,000, you can bet that I'll gladly borrow $10,000 from a hard money lender, or some other loan shark, and buy that sucker to flip for a quick profit...and I sure wouldn't need some property valuation committee to let me know if those dog houses are overvalued or not. The key to flipping dog houses in that neighborhood is that I must know at what price I can quickly resell those dog houses, I can't just roll dice or rely on someone else to tell me this rather crucial piece of information.
Short of being able to read minds, residential house values for owner-occupants are often best determined by recent comparable sales of similar houses in the area. While I'm not a big fan of real estate author, John T. Reed, because he is very narrow-minded in his views of creative real estate and not open to out-of-the-box thinking, I do have some of his materials and his fundamental knowledge of finances, however unimaginative, seems to be solid at the most basic levels. In at least one of his publications, Reed states that there is no such thing as a seller's market since it is ultimately the buyers who determine what they will pay to buy a property, if they even decide to buy it at all. I agree with Reed on this one. As real estate entrepreneurs, it is up to us to determine what our markets will bear. In other words, we don't dictate the markets, we merely serve them. It took me several expensive lessons by purchasing the wrong properties at too-high prices to finally pound this simple concept into my thick skull.
I've lost count of how many times I've heard a Realtor tell me, "But you should pay full asking price for this house! It's worth much more than that!", to which I smile at the Realtor and silently write him/her off as an idiot who is only concerned about getting paid a commission rather than serving the public as their local Realtor Boards claim that they have the high ethical obligation to do so just because they are "Realtors" and not only real estate agents. Now, when I look to purchase a property for resale, I try to determine a price and property type that will give me the largest pool of buyers to whom I can resell it. I call this "looking for the straw in the haystack, not the needle."
For the previously-mentioned "experts" to proclaim that certain markets are overvalued or undervalued is complete arrogance on their part. If people in those markets are willing and able to pay those prices, then those are the fair market values of those properties, pure and simple. They aren't overpriced or underpriced, they are priced just right for those particular buyers. How hard is that?
Commercial real estate tends to be a bit more objective than residential real estate since income, improving a property to its highest and best use, and recent comparable sales all become co-mingled into a cloud that seems to spit out a single fair market value for that property. Add to the mix that there is the very real possibility that there could be a mass default of commercial mortgage loans soon, and we have commercial real estate that is headed for bargain-basement prices for those astute enough to figure out how to maximize their values once they buy them up. In chaos, there is profit. As the great investor, Warren Buffett, said, "...be fearful when others are greedy and greedy when others are fearful."
Each person has a price in mind, and ability, to pay for a certain piece of real estate. This is what determines fair market value, not a group of patronizing expert wannabes. The bottom line is to do your best to know what your markets will bear and keep your finger on the pulse of those markets as they change. I can only believe that these valuation "experts" spout their opinions just to feel important, and newswriters publish this sensationalized garbage just to sell copy. After all, nobody would buy a news article that tells us that everything is fine and dandy. Controversy is what sells, not normalcy. Don't believe the media hype. Use your common sense, and get the proper training and tools to do your jobs as real estate professionals and entrepreneurs.
Metro area Median price % overvalued '10 % overvalued '06 Atlantic City, N.J. $232,100 30.2% 59% Wenatchee, Wash. $240,900 28.9% 13% Ocean City, N.J. $294,800 26.6% 47% Longview, Wash. $184,700 22.3% 24% Honolulu, Hawaii $605,300 21.9% 31% Asheville, N.C. $172,900 21.8% 24% Portland, Ore. $267,600 20.8% 35% Bellingham, Wash. $280,200 20.0% 43% Corvallis, Ore. $266,400 18.9% 14% Salem, Ore. $201,000 18.2% 25%
This is just another case of some know-it-all, self-appointed committee made up of people who must have some latent need for attention and for feelings of importance by trying to let us know how essential their opinions are to the real estate economy and our country's financial health. Back in January 2006, these same geniuses decided that Naples, Florida was the most overvalued metro area then. From the subject news article: "That finding so rankled the Naples Chamber of Commerce and area real estate agents that they hired economists to dispute the evaluation, according to Richard DeKaser, the real estate consultant who engineered the report for National City."
I skimmed this article more for amusement than anything. I put forth to you, the reader, that the powers-that-be who determined that the aforementioned markets are overvalued have no idea what they are talking about and should be completely ignored on the basis that they are just self-proclaimed captains of a ship of fools who believe their drivel. To support my assertions, let's examine what actually determines property "value" in both residential, and commercial, real estate markets.
There are three main factors that real estate appraisers use to determine "value" of any real property: 1.) cost of replacement, 2.) income generated by the property, and 3.) recent comparable sales of similar properties. Each factor has its use, depending on why this valuation is needed. For example, insurance companies typically use replacement values since, in the event of partial or complete destruction, they are charged with the responsibility of paying for part of, or all, costs to repair or replace damaged properties. In the eyes of an income investor who wants a good return on his/her invested money, the income generated by a property will probably be most appropriate. For an owner-occupant who wishes to reside in a house, recent comparable sales are usually the most relevant for valuation of the property. Early in my real estate investing career, I only considered price when I tried to place a value on a property and completely forgot to account for the time factor, which happens to be just as important as price when determining property value. Now, when I try to place a value on a property, I ask myself two things: At what price will the property sell? and How long will take to sell at that price?
Despite what appraisers, real estate agents, or other self-proclaimed experts may say, property value is determined by only one thing: how much someone is willing, and able, to pay for that property. For example, if you buy a dog house at Lowe's or Home Depot, you can get a perfectly good one for about $63 plus tax. But if there is a neighborhood where I know this same kind of dog house will sell quickly for $20,000 and someone in that neighborhood offers to sell me his/hers for $10,000, you can bet that I'll gladly borrow $10,000 from a hard money lender, or some other loan shark, and buy that sucker to flip for a quick profit...and I sure wouldn't need some property valuation committee to let me know if those dog houses are overvalued or not. The key to flipping dog houses in that neighborhood is that I must know at what price I can quickly resell those dog houses, I can't just roll dice or rely on someone else to tell me this rather crucial piece of information.
Short of being able to read minds, residential house values for owner-occupants are often best determined by recent comparable sales of similar houses in the area. While I'm not a big fan of real estate author, John T. Reed, because he is very narrow-minded in his views of creative real estate and not open to out-of-the-box thinking, I do have some of his materials and his fundamental knowledge of finances, however unimaginative, seems to be solid at the most basic levels. In at least one of his publications, Reed states that there is no such thing as a seller's market since it is ultimately the buyers who determine what they will pay to buy a property, if they even decide to buy it at all. I agree with Reed on this one. As real estate entrepreneurs, it is up to us to determine what our markets will bear. In other words, we don't dictate the markets, we merely serve them. It took me several expensive lessons by purchasing the wrong properties at too-high prices to finally pound this simple concept into my thick skull.
I've lost count of how many times I've heard a Realtor tell me, "But you should pay full asking price for this house! It's worth much more than that!", to which I smile at the Realtor and silently write him/her off as an idiot who is only concerned about getting paid a commission rather than serving the public as their local Realtor Boards claim that they have the high ethical obligation to do so just because they are "Realtors" and not only real estate agents. Now, when I look to purchase a property for resale, I try to determine a price and property type that will give me the largest pool of buyers to whom I can resell it. I call this "looking for the straw in the haystack, not the needle."
For the previously-mentioned "experts" to proclaim that certain markets are overvalued or undervalued is complete arrogance on their part. If people in those markets are willing and able to pay those prices, then those are the fair market values of those properties, pure and simple. They aren't overpriced or underpriced, they are priced just right for those particular buyers. How hard is that?
Commercial real estate tends to be a bit more objective than residential real estate since income, improving a property to its highest and best use, and recent comparable sales all become co-mingled into a cloud that seems to spit out a single fair market value for that property. Add to the mix that there is the very real possibility that there could be a mass default of commercial mortgage loans soon, and we have commercial real estate that is headed for bargain-basement prices for those astute enough to figure out how to maximize their values once they buy them up. In chaos, there is profit. As the great investor, Warren Buffett, said, "...be fearful when others are greedy and greedy when others are fearful."
Each person has a price in mind, and ability, to pay for a certain piece of real estate. This is what determines fair market value, not a group of patronizing expert wannabes. The bottom line is to do your best to know what your markets will bear and keep your finger on the pulse of those markets as they change. I can only believe that these valuation "experts" spout their opinions just to feel important, and newswriters publish this sensationalized garbage just to sell copy. After all, nobody would buy a news article that tells us that everything is fine and dandy. Controversy is what sells, not normalcy. Don't believe the media hype. Use your common sense, and get the proper training and tools to do your jobs as real estate professionals and entrepreneurs.
HUD Attempts to Eliminate Seller Financing (Feedback Deadline is February 16, 2010!!!)
This is a scary rule that would be very damaging to all real estate professionals if it becomes law. I strongly urge that we all go to the indicated website to leave a comment requesting rule changes as described below. THE DEADLINE TO SUBMIT COMMENTS IS FEBRUARY 16, 2010 (THIS COMING TUESDAY!). Let's not let this one pass or we will all pay the price for complacency!
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HUD Issues Problematic Rules Interpreting SAFE Mortgage Licensing ACT
HUD has proposed to eliminate ALL seller financing unless the seller lives in the home or becomes a licensed mortgage originator. The proposed HUD Rules interpreting the federal SAFE mortgage act can be viewed at www.regulations.gov . Use the search parameter "HUD" and the keyword "safe". Please review and comment regarding the impact of this broad interpretation of the law.
"In addition to establishing HUD's responsibilities under the SAFE Act, through this rule, HUD proposes to clarify or interpret certain statutory provisions that pertain to the scope of the SAFE Act licensing requirements, and other requirements that pertain to the implementation, oversight, and enforcement responsibilities of the States. HUD solicits comment on the proposed clarifications and on the regulations proposed to be codified."
History:
As you may recall, we lobbied hard last year to maintain the right for individuals to make up to five seller financed transactions per year before being subject to mortgage originator licensing, etc... However, that law was passed subject to the Department of Housing and Urban Development's (HUD) approval of the law as "compliant" with the intention of the federal law. If any state does not have a compliant law, the SAFE act allows HUD to implement licensing for the state. HUD has since issued proposed rules. In a nutshell, seller financing would no longer be allowed for non-owner occupied homes.
How YOU can help:
We learned about the publishing of the rules very late in the process... and the deadline for comment is upon us on February 16 (THIS COMING TUESDAY!!!). However, we desperately need for thousands of REIA members across the country to go on record with HUD on this issue. We will be working to try to affect this law in other legislative ways, but cannot hope to gain traction unless our members have clearly communicated that they are opposed to this portion of the rules. This is your chance to be counted on this issue.
PLEASE SUBMIT YOUR COMMENTS TO HUD! We have less than one week to flood this system with comments.
Follow these simple steps:
CLICK HERE TO AVOID HAVING TO DO THE FIRST 5 STEPS BELOW AND GO DIRECTLY TO THE COMMENTS SUBMISSION SECTION!
1. Logon to www.regulations.gov .You will see two white boxes for searching
2. On the left box labeled "Document Type", pull the menu down and select "proposed rules"
3. On the right box labeled "Enter keyword or ID", enter "safe mortgage". Then, press search
4. Locate the blue search result "FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ...." To read the rules, click on this title. You will be taken to another page. You will see "views". You can click on PDF file or another symbol which will show you the rule document online.
5. On the right of the screen, click on "submit comment"
CLICK HERE TO AVOID HAVING TO DO THE FIRST 5 STEPS ABOVE AND GO DIRECTLY TO THE COMMENTS SUBMISSION SECTION!
6. Complete the form providing required information and your comments and then submit
What do you say?
Say what you feel, but say it politely! The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own. Some ideas from others:
· bank loans are not available on some types of properties
· the tight lending climate has made bank financing "out of reach" for many
· seller financing is an "age old" tradition based on private property rights
· these rules would prohibit even partial seller financing - i.e. a "seller second"
· according to HUD's "Residential Finance Survey" in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
· an estimated 6 million Americans own a property other than their own primary residence
· an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
· 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
· approximately 5% of homes in US are for sale or for lease... seller financing may be key to liquidating this inventory
The continued success of our industry as we know it is threatened by these proposed regulatory changes. Please do not hesitate to follow the steps above and make your voice heard.
---
HUD Issues Problematic Rules Interpreting SAFE Mortgage Licensing ACT
HUD has proposed to eliminate ALL seller financing unless the seller lives in the home or becomes a licensed mortgage originator. The proposed HUD Rules interpreting the federal SAFE mortgage act can be viewed at www.regulations.gov . Use the search parameter "HUD" and the keyword "safe". Please review and comment regarding the impact of this broad interpretation of the law.
"In addition to establishing HUD's responsibilities under the SAFE Act, through this rule, HUD proposes to clarify or interpret certain statutory provisions that pertain to the scope of the SAFE Act licensing requirements, and other requirements that pertain to the implementation, oversight, and enforcement responsibilities of the States. HUD solicits comment on the proposed clarifications and on the regulations proposed to be codified."
History:
As you may recall, we lobbied hard last year to maintain the right for individuals to make up to five seller financed transactions per year before being subject to mortgage originator licensing, etc... However, that law was passed subject to the Department of Housing and Urban Development's (HUD) approval of the law as "compliant" with the intention of the federal law. If any state does not have a compliant law, the SAFE act allows HUD to implement licensing for the state. HUD has since issued proposed rules. In a nutshell, seller financing would no longer be allowed for non-owner occupied homes.
How YOU can help:
We learned about the publishing of the rules very late in the process... and the deadline for comment is upon us on February 16 (THIS COMING TUESDAY!!!). However, we desperately need for thousands of REIA members across the country to go on record with HUD on this issue. We will be working to try to affect this law in other legislative ways, but cannot hope to gain traction unless our members have clearly communicated that they are opposed to this portion of the rules. This is your chance to be counted on this issue.
PLEASE SUBMIT YOUR COMMENTS TO HUD! We have less than one week to flood this system with comments.
Follow these simple steps:
CLICK HERE TO AVOID HAVING TO DO THE FIRST 5 STEPS BELOW AND GO DIRECTLY TO THE COMMENTS SUBMISSION SECTION!
1. Logon to www.regulations.gov .You will see two white boxes for searching
2. On the left box labeled "Document Type", pull the menu down and select "proposed rules"
3. On the right box labeled "Enter keyword or ID", enter "safe mortgage". Then, press search
4. Locate the blue search result "FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ...." To read the rules, click on this title. You will be taken to another page. You will see "views". You can click on PDF file or another symbol which will show you the rule document online.
5. On the right of the screen, click on "submit comment"
CLICK HERE TO AVOID HAVING TO DO THE FIRST 5 STEPS ABOVE AND GO DIRECTLY TO THE COMMENTS SUBMISSION SECTION!
6. Complete the form providing required information and your comments and then submit
What do you say?
Say what you feel, but say it politely! The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own. Some ideas from others:
· bank loans are not available on some types of properties
· the tight lending climate has made bank financing "out of reach" for many
· seller financing is an "age old" tradition based on private property rights
· these rules would prohibit even partial seller financing - i.e. a "seller second"
· according to HUD's "Residential Finance Survey" in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
· an estimated 6 million Americans own a property other than their own primary residence
· an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
· 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
· approximately 5% of homes in US are for sale or for lease... seller financing may be key to liquidating this inventory
The continued success of our industry as we know it is threatened by these proposed regulatory changes. Please do not hesitate to follow the steps above and make your voice heard.
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