The long absence is finally over. After a grueling finals week and graduation, a two week vacation, a move to New York City, and a failed real estate deal, I am back with the pack. Based on the great content that I have seen coming from the site, I can assume my absence has gone unnoticed. In order to come back with a bang, I thought I would share a quick life lesson about real estate. The lesson: Real estate is a people business, so it is important to do what you say you will do, and maybe more, but certainly never less.
Here is a quick example. My latest deal to buy two apartment complexes in Greensboro ended in utter failure because one person simply did not do what they said they would do. Before considering this deal, I wanted to be sure there would be enough financing in place to make it happen. While I could have really stretched, begged, and borrowed to get all of the 20% that I needed for the down payment, my trusted mortgage broker recommended I partner with a local investor. He assured me that he could find me a suitable partner within the 30 day due diligence period, so I proceeded with the deal.
To make a long story short, no partner ever materialized and I was forced to bow out of the deal shortly before the end of the due diligence period. Given my upfront nature, I had already informed all parties that this deal hinged on me finding a suitable partner, which over a group dinner my mortgage broker ensured everyone would happen fairly quickly. Fairly quickly, turned into days, then a month and still a partner had yet to emerge.
In the end the mortgage broker’s reputation was trashed after this deal. My agent, who does a lot of great commercial work in the area, has decided not to work with the mortgage broker again. Additionally, the seller’s broker has also black listed this broker, and I think it is obvious that it will be a cold day in a very hot place before I work with him again. The seller, who is also a local investor looking to upgrade, will be steering clear of this broker as well. Furthermore, any investor we know looking in this area will be referred elsewhere.
The tough thing about this situation is that the broker was well intended and really wanted to be aggressive about getting the business. His brokerage is fairly new, but has been very successful due to the boom years of 2004 and 2005. As the mortgage market takes a turn, he like many other brokers are making more and more promises that are very hard to deliver on. From the looks of mortgage rates, this situation will only get worse before it gets better.
Investors need to be on the lookout more now, than ever for bad mortgage promises and mortgage switches. This also happened to me on a recent deal. I was promised and signed an agreement for a 10 year fixed rate with a 30 year amortization. I got another agreement right before the end of the due diligence period for a 10 year adjustable with a 30 year amortization at a higher rate! Fortunately I had locked in the other rate and was very vigilant and vocal about this situation.
Getting caught off guard by a mortgage can cost thousands of dollars. I recommend locking in financing before the end of the due diligence period and working with someone known and trusted. Now is not the time to go for the lowest fee mortgage (there really never is a time for that); but rather, go with a strong well respected broker because of the volatility of the market.
Jeff Brown says:
Welcome back Mr. Cook!
There’s nothing like a fresh lesson in your chosen field to fire you up. Grandma used to call lessons costing someone an opportunity or money, ‘tuition’. It’s hard to relate to that until you’ve paid some yourself. Welcome to the club.
And by the way, years of experience don’t exempt you from the occasional tuition payment. 🙂
June 18, 2007 — 8:56 am
Brian Brady says:
“Master” Cook:
Congratulations on the Master’s. That’s quite an accomplishment!
I agree that the mortgage broker’s recommendation to the investor was well-intentioned. Still, knowing when to NOT help is sometimes as useful as knowing when to offer assistance. I’ve learned that the hard way.
June 18, 2007 — 9:02 am
B.R. says:
Eggs in one basket come to mind- why would you hinge everything on a mortgage broker? Seems to me that many sides of this deal could have come together with resources to get it done. In saying that, I digress- I’ve done it too as we all have, promising more than can be delivered normally comes from the heart in the right place, but sometimes heart just isn’t enough. Promise less and exceed all expectations and you’re the hero.
June 18, 2007 — 2:08 pm