BloodhoundBlog

There’s always something to howl about.

Author: Brian Brady (page 27 of 27)

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

January 20, 2007

Don’t Drop That Listing Price…Just Yet

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Real estate agents have consistently used pricing as the primary mechanism to sell your home. Don’t forget owner-financed terms as a selling feature. Let me give you an example of how to offer a seller-carryback (and cash it out):

You listed your home at $500,000 and it isn’t selling. You are getting nervous and your real estate agent thinks you should lower the listing price to $460,000 to attract more potential buyers. You’ve already come down $50K. Don’t drop the price… just yet! Try offering a seller-financed second mortgage at 12% for $150,000. You can sell that note as early as one day after COE (settlement). You may only get 80 cents on the dollar when you sell the note but that is only $30,000 (less than the proposed reduction). If the home was fairly priced at $500,000, it might make sense to offer terms before reducing the price.

Let’s see how this would work:

Buyer obtains a 70% first mortgage for $350,000 (that isn’t too hard to get, even with lousy credit). You offer a $150,000 second mortgage at 12% and sell it for $120,000 after closing. You net $470,000.

When you offer terms, you open the property to people with recent bankruptcies, past credit problems, and hard to verify income. Seller-carrybacks significantly expand the pool of buyers. Your real estate agent can advertise in the paper and attract many buyers who need this help.

Realtors: Customers who buy on “owner terms” are grateful and become excellent referral sources. You will also develop quite a list of buyers from your advertisements to call when your next listing is not moving.

So what’s the downside?

1- You have to have equity in your home or you’ll be bringing cash to the closing.

2- You have to employ a savvy mortgage broker (or note broker) to market that owner-financed note. The secondary market for private mortgages is not large and highly illiquid.

3-The seller may have to hold that note for a period of time (and collect 12%).

4-The buyer may eventually default on that Read more

January 19, 2007

INTERVIEW: Broker Bryant of Poinciana, FL

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

bbBryant Tutas, the most well-known author on the Active Rain Real Estate Network, was kind enough to grant me an interview. I have known Bryant since I signed up for Active Rain some six months ago. He is a serial contributor there, posting, commenting, and offering both insight and encouragement. Bryant and his wife (The Lovely Wife) are the owners of Tutas Towne Realty in Poinciana, FL. Bryant is the broker and sole practitioner while “The Lovely Wife” manages their properties.

Bryant, you were involved in commentary with Candybags, on Bloodhound Blog, some time back and followed up with a post asking “So, What Do You Do To Justify Your Commission?“. How do you think Realtors who host or comment on weblogs should prepare themselves to answer this question?

Brian, I think the question, “What do you do to justify your high commission?” is a valid question. REALTORS? need to be prepared to answer it. In this age of disintermediation, it is time for REALTORS? to really think about what it is that we do. We need to be able to communicate this to the consumer. We are paid for what we bring to the transaction and not what we do. I bring my reputation, experience, knowledge of the market, ability to be a calming force, skill at keeping folks focused on the end result, willingness to tell people what they need to hear (not what they want to hear) and my expertise at pricing properties correctly. None of these attributes can be received via the Internet. That, is what our value is. These intangibles cannot be quantified by a dollar amount.

How do you think the commentary could have been handled better here on BHB?

Candybags was rude and very hostile towards REALTORS? but he did ask a reasonable question. I prefer to try and win people like this over than to further instigate their aggression. I have learned over the years that aggression is best handled with patience and reason. I never take someone’s comments personally. There is always a reason why people act the Read more

January 12, 2007

Predatory Lending Legislation Can Prey on The Responsible

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

New Minnesota Attorney General, Lori Swanson, vows to put an end to predatory lending. She formed an 11-member task force to come up with proposals to curb the practice.

That sounds pretty good unless you don’t know how to define predatory lending. Arizona Governor, Janet Napolitano, pursued this fight back in 2000. She was Attorney General Napolitano then and proposed that Arizona adopt legislation that mirrored the North Carolina predatory lending bill. Napolitano had the good sense to listen to banking industry representatives before moving forward and was surprised with some of the things she didn’t know:

1- No “over equity loans”- VA loans are 103% value loans when a buyer purchases a home; that got cast aside as Arizona has a large military presence.
2- No negative amortization loans- three staff members had loans on their homes that were considered a violation of that guideline. They explained the usefulness of those loans as a financial planning tool.

3- No prepayment penalties- It was quickly realized that prepayment penalties reduce the overall costs of the loan and encouraged responsible home ownership by encouraging homeowners to view real estate as a long-term investment

4- No balloon payments- balloon payments can reduce the overall cost to the consumer and are now extendable with a good payment history.

This sounds like I’m an apologist for my industry; I’m not. There are some despicable originators in my industry who have taken advantage of consumers by:

1- “Steering” them in to more expensive first liens when refinancing for as little as $5,000 cash when a less-expensive second mortgage would have solved the problem.
2- Engaging in the practice of “flipping” loans through serial refinance transactions.
3- Encouraging borrowers to borrow more money they can afford.
4- Making loans to borrowers whom have not demonstrated an ability to repay the loan.

I wonder if legislation is really the answer to these problems facing our industry. I have repeatedly claimed that legislated loan guidelines stifle creative loan products that encourage homeownership and penalizes the 96% of the consumers who benefit from these loans. Borrowers make poor decisions, often against the advice of an originator. Prepayment penalties, negative amortization loans, Read more

January 7, 2007

HARD MONEY: Life as a Legal Loan Shark

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Loan broking in the private mortgage marketplace can be the most rewarding sector of the lending. I have helped families who faced foreclosure due to unforeseen negative events. I’ve watched a businesswoman land a huge contract because she could access quick capital. I’ve beamed with pride as a property investor turned around a dilapidated multi-family complex and provided quality housing for 20 families.

None of these positive events came to fruition with out the loan shark. The “loan shark” is a pejorative term accorded to participants in this industry. The loan broker charges relatively high points or fees and the private investor (or lender) charges high rates. I offer you an explanation for the expensive terms these loans offer:

1- This market is diminutive when compared to the amount of capital available in the secondary mortgage markets. The loan broker has a finite amount of capital available to him because these loans are held for investment by the private lender and not securitized. The economic principle of scarcity of supply applies in this market. A loan broker who specializes in this market may only have five to ten million dollars available each year to lend. Origination fees of 3% to 6% are not uncommon because of the scarcity of capital.

2- The private mortgage lender has many other investment options available to her. Investing in a mortgage-backed securities pool, guaranteed by a government agency (like a Ginnie Mae pass-through security) is going to yield approximately 6% in today’s environment. There is no risk of default to that investor because an agency of the US Government guarantees those loans . If we start with 6% as a baseline (and zero default rate), it becomes apparent why yields of 10-14% are not uncommon for the risk the private lender takes (default rate for private mortgage loans can be as high as 8-10%). Default brings unwanted complications for the private mortgage investor: temporary loss of income, legal action, and eventual disposal of the collateral.

Responsibility in the underwriting of these loans becomes more important because a loan broker is dealing with an individual investor’s nest egg, not an Read more

January 6, 2007

Lessons from the Epicenter

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I am biased towards Phoenix. I should be. I lived in the Valley of the Sun for twelve years. I was married in St. Mary’s Basilica, celebrated that conjugal union at Heritage Square, and watch my daughter come into this world at St. Joseph’s Hospital. I’ve lent money on mansions in Mesa and mobile homes in Marana. I’ve dined at Durant’s and drank beer at the Downside Risk.

I love living and working San Diego but have bias towards Phoenix. Bias nothwithstanding…
Phoenix is the epicenter of Real Estate 2.0. That’s fancy term for interaction between the consumer and real estate professionals. It gives the consumer a chance to get to know you (the principle of transparency) and get valuable information about communites (the principle of local content).

Phoenix is the epicenter of Real Estate 2.0. Bloodhound Blog is here. The Phoenix Real Estate Guy is here. Phoenix Arizona Real Estate Blog is here. Boatloads of Bubbleheads are here. Today, I was here with 20 other front-line evangelists discussing the Gospel according to Google. Here are the lessons we learned.

December 30, 2006

Real Estate: The Big Ballers’ Crap Shoot

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

My hands were sweaty as I nervously darted my eyes around the craps table . I was the pariah because I was “betting on the don’t line”. This particular strategy can be extraordinarily frustrating when a table gets hot. It requires a bettor to double up his stake each time he is incorrect. It takes incredible faith in the mathematical probability of a negative result.

“Seven Out!” yelled the croupier.

Victory, while inevitable, doesn’t really feel that sweet. I risked $2500 to win five bucks. I proved my strategy to the reckless gamblers betting the other way. I yelped exuberantly, not for my intellectual superiority, but in relief that my bet, the family vacation money, hadn’t disappeared. While I was yelping, the players at my table were pocketing pink and black chips and cheering raucously. Confused, I learned that they were collecting chips every time those dice hit various numbers on the way to making ten straight points .

Now craps may seem like a poor analogy to the real estate market. It really isn’t. I know that craps, a loaded game of chance, always favors the house no matter what strategy you employ. Real estate is a loaded game of chance; the best thing about it is that it is loaded in the owner’s favor. The “MySpace Generation” and the immigrant population are entering the housing market in the next 10 years. The demographics are astoundingly favorable, especially for the sunbelt states.

I think all the bubbleheads and doom pundits should yelp. You were absolutely correct this year. 2006, perhaps part of 2007, will be the year (s) of the bubbleheads. Gloat! Wipe your brow with confidence in your marked intelligence. I commend you for your prowess. You had to be correct one of these years; you had mathematics on your side.

Take a look around. Your neighbor sold that rental property in Anaheim and lost $30,000. So why, like the gamblers betting on the come line, is he Read more

December 26, 2006

A Realtor’s Guide to Alien Lenders

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website
“First you get the money, then you get the power, then you get the ….”

-Tony Montana in the movie, Scarface

The professional Realtor has always helped a would be homebuyer by referring her to a credible financing source. That paradigm has shifted much in the past few years as lenders have positioned themselves as the first stop on the home buying highway. Our marketing message has basically been the aforementioned Tony Montana quote. That message has caused a new phenomenon for Realtors that I call “Alien Mortgage Originators”. The point of my post here is to temper the xenophobia that exists in Realtors’ hearts when dealing with Alien Mortgage Originators. These five tips will help Realtors identify which Alien Originators are credible and which are just a voice on the phone looking to scalp your buyer.

1- The first question to ask an Alien Originator is one you hear down South a lot. “Just who are your people?” Southerners, wary of carpetbaggers, find that question an effective way of finding common bonds. The internet is an inexpensive way to let Alien Originators broadcast who “our people” are so google them. Maybe the connection is a college tie, an old job, an old hometown, etc. When you ask me that question, it humanizes both you and me. Now… we both cheer for the Arizona Cardinals, or both dated Julie from Joliet, or both went to Big East colleges. It’s not much to both cheer for the Arizona Cardinals but I’m less likely to let you down knowing that small fact about you.

2- The second question would be to ask for referrals, preferably from Realtors within your town or franchise. Why the Realtor rather than the client? Realtors have inside intelligence about originators that a client wouldn’t. I love when I’m funding a purchase with a Keller Williams agent because I know so many of them. I understand their Belief System and can recite it for them. I know “their” rules. An Alien Originator wants to show off his stuff to a new Realtor relationship. If the Alien Originator has no common referral sources for Read more

Newer posts »

Inventing Real Estate 2.0

Welcome to BloodhoundBlog, the national real estate industry marketing and technology weblog written by, for and about real estate professionals. Better yet, welcome to the wired world of real estate. We are busily inventing Real Estate 2.0 – technology, marketing, service and salesmanship. Like all Bloodhounds, we are smart, frisky and fiercely independent. We've built a spot on the earth – beloved over all – where each one of us can be who we are, no matter who that might be. We are committed to an idea of excellence that will flush the bums, the con-men and the crybabies out of the real estate industry. If you yearn to have your failures excused, your moral lapses absolved or your boo-boos kissed, seek elsewhere. But if you are sick to death of mediocrity – welcome home. Read all about us, subscribe to our feed and steel yourself for the hunt. We work hard, we play hard, we learn everything we can – and we bow to no one.

Media Contacts