You stumble across the perfect rental property, but you don’t know who owns it. So what do you do? Walk up the door and present an offer? Ask the neighbors? Or, is there a better way to do some sneaky searching that could land you the perfect off-market real estate deal? The rookies want to know, and on this Rookie Reply, we’ll get into EXACTLY how to do this, even if you’re starting without much money!

We’re back for one of our last live Rookie Reply episodes! This time, we’re touching on questions about finding off-market property information, what to include in your direct mail letters, and why a home wouldn’t qualify for a mortgage. We’ll also hit on commonly asked title questions and whether or not you can buy real estate while underwater on another mortgage. So, if you’re trying to get your next deal off-market, this is the perfect episode to listen to a few times through!

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Ashley:
This is Real Estate Rookie episode 258. So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, you’re going to Google Erie County GIS mapping system. It’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property. My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out Chad and Emily who left us a five-star review on Apple Podcast. They say, “Longtime VP listener, but I love the way the host keep it simple and actionable. If you’re just beginning and don’t need deeper understanding of the nuances in real estate, this is where to start. Using this podcast and other VP content, we have purchased an investment tri-plus last year, even during these hots market conditions and now have the lot next door in our contract with seller financing. This show really works.”
Chad and Emily, congrats to you guys on all that success, and thank you for that five-star review. And if you’re listening and haven’t yet love to say five-star review, please take just a few minutes out of your day, do that small favorite for us. The more reviews we get, the more folks we can reach, more folks we can reach, more folks we can help. Ashley Kehr, how you doing?

Ashley:
So once again, we are live in Phoenix. This is what, probably the-

Tony:
Episode 333 that we’ve done here.

Ashley:
But they’re all in different orders that we did, but for a while we’re going to be doing some live recordings. So let us know how you guys ended up liking these episodes in person. I feel like it’s a lot more fun to get to talk-

Tony:
Actually sitting here with me.

Ashley:
And actually for this episode, this is the last one we’re recording before we head to the airport. My actually flight just got delayed, so we’ll see if I actually make it home.

Tony:
I don’t know if you guys know this about Ashley, but she probably has the worst travel luck out of anyone I’ve ever, literally ever met. She went to Florida and it hurricaned in Florida when she was there last time. It’s like everywhere you go.

Ashley:
Yeah. And then I went back to New York, so Florida was a state of emergency. I went to New York, they had a big snowstorm state of emergency.

Tony:
And right now she gets a flight saying blizzard warning for her layover in Denver.

Ashley:
And that’s not even the flight that’s delayed. I’m delayed to Denver, so I’m sure if I do make it to Denver then [inaudible 00:02:35]-

Tony:
It’ll be even longer. So anyway, the lesson to take away from this is if you find yourself on a flight with Ashley, get off.

Ashley:
So we decided for our last episode here together for this one, we are actually going to have a drink. I think that probably during the episode we were talking so much we each only took one sip maybe, or two.

Tony:
[inaudible 00:02:59].

Ashley:
So if you’re listening to the show, feel free to have a drink with us.

Tony:
Well, you know it’s bad luck to cheers and not drink.

Ashley:
I’m focused on the cheers.

Tony:
[inaudible 00:03:08].

Ashley:
So Tony, what was your favorite part about being in Phoenix and the meetup?

Tony:
First, if you guys came out to the meet up, we appreciate you guys. If you missed it, please do go to the Real Estate Rookie Facebook group, we’re the BiggerPockets forums. Let us know where you guys want to see us next. We really do want to take the show on the road and meet more people from the rookie audience.
I think my favorite part of being here was hearing the stories. I met so many amazing people. I met a kid who was 19 years old already thinking about investing in real estate. Met another guy that was 20 years old already door knocking, trying to find deals. I met someone who flew all the way from Ohio. I met people who, just so many different stories and so many different achievements and so many different successes. And that’s what makes this role that we have as podcast hosts so incredibly …

Ashley:
Yeah. I mean, I’m on East coast time right now, so I was up pretty early, but I have to see the energy in that room yesterday motivated me to get to work right away this morning.

Tony:
People always tell us, they come up to us and say, “Tony, Ashley, thank you guys so much for everything you do on the podcast.” And I heard a little bit of that last night as well. And what always tell people is that, really, all we do is we answer the …

Ashley:
We facilitate it.

Tony:
Right, we facilitate the conversation, but the people that really bring the value are the guests for sharing their stories. And then really, it’s all the listeners who take those stories and turn them into action. Because we could put out this podcast, people could listen and do nothing with it and no one would really care. But it’s the fact that people are hearing these stories and doing something with it that makes all the difference. So kudos to you guys for taking action.

Ashley:
So if you guys want to find out more about meetups and events that BiggerPockets is doing, you can go to biggerpockets.com/events.

Tony:
All right, so we’ll get into the first question. Today’s question number one comes from Sam Ecmillian, and Sam, I hope I got your last name right there. But Sam’s question is, what is the best way to find the name and the number of a property owner? On the way home, I see this one home that’s been what appears to be abandoned for over a year, and I would like to get in touch with the owners to buy it. Any help is greatly appreciated. So Ashley, as you’re driving through Western New York and you see those houses that you want to buy, what steps are you taking to find those property owners?

Ashley:
This is why I don’t like to drive so that I can take action right away and actually look up the property.

Tony:
You have other people drive you.

Ashley:
Yeah, so-

Tony:
Wait, let me ask a question. Can that be a business write-off then? Say that you hire someone to drive you around-

Ashley:
Oh, definitely.

Tony:
… just so that you can look at deals.

Ashley:
Or even just so that I can do work-

Tony:
Work.

Ashley:
… in the backseat.

Tony:
Man.

Ashley:
Actually, we were talking today about how I put in a reservation for the Ford Lightning, the electric Ford. And part of the features of it was it actually had a desk tabletop that would flip out from the [inaudible 00:05:52] console. That was one of the selling points, like I can actually use it.

Tony:
So a new tax strategies unlocked here on the Rookie podcast.

Ashley:
So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, we’re going to Google Erie County GIS mapping system and it’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property.
So you’ll have the address, you’ll have the current owner, sometimes it will include the sales history of the property, what the county property taxes are, and then also a mailing address for the owner. So that’s the address that is actually on the tax record where the property taxes are mailed.
So you can get an idea of, if the mailing address shows out-of-state, it’s probably an out-of-state owner. If the property taxes aren’t mailed to that property and appears to be vacant, well then that’s kind of a dead end because if you mail the property, mail to that property, you’re not really going to get anyone if you do know that it’s vacant or maybe it’s just really distressed and it’s really not vacant. So that would be the starting point is going on there.
You could also go to the town website and pull up the property taxes. Almost all municipalities have the property taxes online that you can go and you just put in the address and it’ll pull up the property tax record showing the mailing address and the current property owner. And then there’s paid services like PropStream where you can pay $99 per month to get access to information like that. And then also Invelo is a new partner with BiggerPockets where you can pull information like that too. So if you’re a pro member that is free.

Tony:
Yeah, I’ve used the paid software a lot to source all of our off-market deals and it’s super cool. 30 seconds or less, you find the property, plug the address in, skip trace the owner and you got some contact information.

Ashley:
Do you want to talk more about skip tracing because I touched on the mailing address if you’re mailing them letters.

Tony:
Yeah, so it’s a lot of times, these property softwares, they will give you as part of your initial subscription, the property owner’s name and address. But if you want a phone number, typically you have to skip trace. And skip trace comes from, I don’t know where it comes from, but anyway, the process of skip tracing is, I don’t know what it does in the backend, but it takes this person’s information, their name, their addresses, and it looks for some kind of records online that have phone numbers associated with that person’s information. And then it spits out a phone number for that person.
Typically, you’re going to get several phone numbers and you don’t know which one is the right one. You could get up to 10 phone numbers back for one person and you got to work through each one of those 10 to find the right phone number. And sometimes you’ll call, say you’re calling for Ashley and maybe you find Ashley’s brother and, “This is not Ashley Kehr, this is …” Ashley, what’s your brother’s name?

Ashley:
Chad.

Tony:
“This is Chad Kehr. What are you calling for?”

Ashley:
Malloy.

Tony:
Oh yeah, Malloy. But anyway, sometimes you have to work through some of those dead leads. Some of the other issues that I run into sometimes with some of these paid software is that when you look up the owner, sometimes it’s an LLC, and with an LLC it doesn’t really show what an owner’s name is. Sometimes it’s a PO Box, so it’s hard to figure out where to mail that stuff.
So what I typically do when it’s an LLC or some kind of entity is I look that up on the state, the Secretary of State website. So every state has an SOS website, Secretary of State, and if you plug in that entity’s name, so 123 Main Street LLC, and then it shows who the registered agent is, sometimes a mailing address. And then there’s one step further you can take to try and find that person’s contact information.

Ashley:
And if you remember when you were a toddler and you went to somebody’s house and they didn’t have a booster seat, they give you that big old phone book to sit on as a booster seat. So you can go online these days and go to the whitepages.com and you can even search the person’s name on there too by state. So if you do get their mailing address, you might even be able to get a phone number off of the white pages too.

Tony:
Have you used that with success before, the Whitepages?

Ashley:
Yeah.

Tony:
I know that it’s around, but I’ve never actually used it, but that you’ve actually had success with it.

Ashley:
Yeah. And also another way too is if you have the person’s name, so if it’s a personal name and maybe you have their mailing address so you know that they’re from the Buffalo, New York and you go on to Facebook and search their name on Facebook too and see if anybody comes up, that it shows that Tony Robinson from Buffalo, New York, he has it in his profile, comes up, you can take that risk and message the person, “Hey, are you the owner of this property?”

Tony:
That’s like some next level type sleuthing there. Have you seen You on Netflix?

Ashley:
Yeah.

Tony:
That’s like some Joe type activity. So for all my You fans out there, you know what I’m talking about. Cool. All right, let’s jump into the next question here. So question number two today comes from Will Harrington and Will says, “For those of you who do direct mail, do you list your offer price and terms in the letter or is the goal to get them on the phone first?”
That’s a great question, Will, and I’ll kind of share what steps I take in this. So when you send direct mail, think about it almost like dating. And you like the dating analogy with partnerships, but it works well for this as well. When you date someone, when you first meet them, you don’t say, “I love you and I want to marry you.” You say, “Hi, my name is Tony, what’s your name?”
And when you’re going off market, it’s very much the same process. Two reasons that I would recommend you don’t give the offer up front. First, it could turn that person off if the offer is way too low, they might not even take the time to respond to you and maybe they would’ve taken that offer had you really built some rapport with them first and communicated the value you can provide to them and all those other things. But they just see the number first. If it’s lower than what they want, they may not even take the time to communicate with you.
And on the flip side, if your number’s super high and they respond right away and say, “Yes, take my home,” it’s probably a sign that you could have gotten it for a lower price. So I think the purpose of that direct mail is just to express your interest in purchasing that property and then it’s the phone to phone or the face-to-face or on the phone conversations where you build that relationship and provide the value to get it at the right price.

Ashley:
The person that I want to refer you guys to is Nate Robbins. So on Instagram he’s N8, the number eight, Robins, and I have him onto every bootcamp session I do to talk about direct mail and cold calling.
So what he does is I agree, not putting the terms because you haven’t even seen the inside of the property yet most likely. So you don’t actually know what you can really offer the person, but when he actually sends out the letter and then maybe they call him or he’s just doing a cold call or door knocking, he likes to let the person know. And within the first 30 seconds, the reason for the call is, because there’s that kind of you’re getting a call from somebody unknown or you’re calling someone and letting them know, “I’m interested in purchasing your property.” And then that’s where you kind of lead into, “Let’s discuss more about it.”
And he tries to get as much information as he can and if they ask for an offer, “Well, what do you want me to sell it for? What are you going to pay for it? What’s your purchase price, what’s your offer?” And he goes on to say, “To give you a fair, reasonable price, I would really need to come and see the property. I don’t want to waste your time by giving you some number that I’m throwing out without actually seeing the property itself. I’m available to tomorrow, I can come out to the property, I can take a look at it and I can give you an exact number instead of a ballpark number as to what I would offer for.”
And really explains that it’s to the seller’s benefit that they’re going to take him through the property and show him instead of him just throwing out some random number because he is letting them know it wouldn’t be a number he could commit to without seeing the property anyways. So what would be the point?

Tony:
Yeah, that’s a great point. And there really is a framework you can apply to direct to seller conversations. And Nate Robbins is a great resource. Brit Daniels, he’s got a bunch of free stuff on YouTube where he breaks down his scripts with folks. Another guy by the name of Max Maxwell who’s also been on, I think on one of the BP podcasts before. He’s got a great kind of framework around how he speaks to people. So do a little YouTube university, you guys can find some great resources on how to communicate with those people when you got them on the phone.

Ashley:
Our next question is from Iva Forton. “Newbie here, what are the reasons a house wouldn’t qualify for a mortgage?”

Tony:
That’s a great question. Have you ever applied for a loan and it not gotten approved because of the condition of the home?

Ashley:
No.

Tony:
I haven’t either. But I think it’s because I have purchased homes that I think have been in pretty terrible shape.

Ashley:
You didn’t try to get the loan.

Tony:
I didn’t try to get a traditional loan. We went with private money are hard money. So I don’t know. What would your advice be to Iva?

Ashley:
So part of the reasons is that it’s inhabitable. So especially if you’re going for an FHA loan or maybe even a BA loan where it’s meant to be your primary residence and they want you living in the property pretty quickly after closing. So they will actually go through and FHA does their own inspection. This is separate than you hiring an inspector, they’re mostly going through to making sure that the property is habitable, all the mechanics are functioning, that it’s also up to code.
So I remember when my cousin bought a house with an FHA loan, they had to have handrails installed on the stairway because it wasn’t up to code without those handrails, and they couldn’t close on their FHA loan until that was done on the property. So there’s things like that.
But then if you’re going the conventional route where there is no FHA inspection, it’s more flexible, but also the bank may not go onto the property if it doesn’t have running water, things like that. Bank sometimes will require that you have a well and a septic inspection. So if those are not operating, that needs to be corrected. But that can get pretty expensive too to do.

Tony:
Yeah, and what we talked about so far is the physical nature of the home, but it’s also the nature of the contract you have. So another reason that a home wouldn’t qualify for a mortgage is if the amount that you have it under contract for is higher than what the property’s actually appraised for.
So say you’re trying to buy a house for half a million bucks, but the bank only thinks it’s worth 400,000, they’re not going to give you a loan for that $500,000. They’re going to give you a loan for the $400,000 and now you as a borrower are responsible for that $100,000 difference. So that’s the only other scenario I can really think of outside of the condition.

Ashley:
Actually, that made me think of one more, and it would be if you cannot get title insurance on the property. So a bank will not give you a loan on a property if they can’t get title insurance. And that’s basically saying when the title company went and did the title work to show that yes, the person’s selling it is the owner and you are now the buyer going on title and there’s no liens, there’s no judgments, nobody else owns it, you’re getting title insurance in case they made a mistake so that you’re able to, the insurance will pay out, you can pay off your loan and pay damages from having this corrected or you lose the house to the person was actually the owner, but the bank will not lend on it if you can’t get that title insurance. So I’ve come up with this in two circumstances.
One was a campground where it was actually sold at the county auction for back taxes. The bank actually that had the mortgage on it is the one who bought it from the county at the sales auction. During that time period, there was no title insurance put on the property to show those two transactions. So it going from the owner that defaulted to the county and then the sale from the county to the bank.
So a title insurance would not put title insurance onto that property for so many years, like a time period had to pass. And if nobody claimed ownership or called out an issue in the title, then they would go ahead and reinstate that. But that means that there was no bank that was going to lend on it, and that’s coming up with cash to hold that property in cash until it was bank financing.
The second time I ran into it as a lake property where they had a separate parcel that was included into the sale, but the separate parcel was actually where the driveway was, so it needed to be included with that house. The Lake Association had actually sold that piece of property to the current owners.
Well, it had actually been an abandoned piece of property and we couldn’t get title insurance on it because there was no record of any previous owner. And later on we actually did some digging and the sellers actually found a letter of abandonment. So with that letter then we were able to get title insurance, but if there wasn’t that letter then we wouldn’t be able to get title insurance and the bank wasn’t going to finance at that point.

Tony:
We should probably bring a title insurance expert onto the show.

Ashley:
Yeah, that’d be really cool.

Tony:
Just to talk about the purpose of title insurance, different claims that people have filed because title insurance for a lot of us is just something, like a box we check when we’re closing that your lenders typically make you get, but it’s not something that I think a lot of people understand in detail around what is it actually for? When can I use it? And what are the risks of not having title insurance?

Ashley:
Yeah, I actually did, last spring it was, I did a hard money loan and the closing was actually at the attorney’s office of the hard money lender and there was some issues with the title work there and they actually had a title attorney at the closing who was trying to figure out the situation. But it was a three-hour-long closing and we ended up not even figuring it out.
It was a Friday and we ended up having to wait until Monday to close. But we sat there and we literally just picked this title attorney’s brain going after all these scenarios and things and it was really interesting. I did ask him if he would like to come on the podcast and stuff. He’s like, “I do so many speaking events and things like that.” Here I am thinking here’s an opportunity, come, get some more clients, come to the podcast. He’s like, “Oh, I do so many speaking engagements, I’m really kind of burnt out.” I’m like, “Oh, okay.”

Tony:
You win some, you lose some. All right, so our next question here comes from Nathaniel Munier and Nathaniel’s question is, I have the opportunity to purchase four single family rentals from my wife’s relatives. They’re very upfront and honest about the houses. Would you do a title search on each of these properties or save the $1,000? This will save me some out-of-pocket costs, but it would be the property I’ve purchased without a title search. We kind of just touched on this, right?

Ashley:
Yeah, I would say no because they could not even know of the issue.

Tony:
Just because they think it’s clean doesn’t mean there wasn’t something happened before they owned. So I don’t think we need to spend too much time on this one because …

Ashley:
And usually it’s typically the seller that is paying for the title work because usually they should have the title search already or the abstract of title and give it to the title company and then it gets sent to your attorney and then you’re updating it from there.

Tony:
I think we pay for our title work.

Ashley:
Well, I think it’s split because it goes on both sides of it, but you can usually have the seller cover all of it, but there’s work that needs to be done on both ends. So there was actually a property I was selling that somehow we misplaced the title of abstract, the title search, so we had to pay for a new title search. So I’m thinking at the cost of that, that they probably don’t have the title search anymore, that being that it would cost $1,000 because usually it’s not that much to just update a title.

Tony:
And I was going to say, I’m not even sure what we pay for our title reports because it’s just something that’s rolled into our closing costs. So if you ask me what we pay, I can’t even tell you.

Ashley:
Yeah, my attorney, we usually pay around $1,200 per closing and she fronts the closing costs of doing the title work. So I know that she’s not making only $200 on it. So another thing that goes along with the title insurance is a survey. Sometimes a seller will ask you to accept the survey that they have.
So I actually just closed on a property last year where I accepted a survey from 1986. It was my attorney talked to the surveyors who had done it. The property was still went and staked out where the survey lines were and we accepted it as is. But that is something to also be cautious of if lot lines have changed and the survey has been different.
So there’s also been properties where we went to … the seller went to go have it surveyed and issues came up from the last time they had it surveyed until now, and they had to resolve those issues with the neighboring property owner before we could actually close onto the property. So that’s another thing to not skimp on if you’re not sure of the whole picture of the parcel.

Tony:
Yeah, I mean, I think for me, just the spirit of the question I think is what are some ways I can save money, but I think if you are making this several hundred thousand dollars investment into a property, spending that extra $1,000 to protect yourself is so worth that small investment because imagine if there was an issue with the title or the survey or whatever it was, that’s going to come back and potentially cost you way more headache, more cost and more time than the [inaudible 00:23:48] cost a thousand bucks or so.

Ashley:
And do people actually go and not do the title search? They must be just doing a quick claim deed and then updating the title, not actually going back and doing the title search.

Tony:
I’ve never not had a title report run, so I’m not even sure what the process is if you don’t. I literally couldn’t even tell you.

Ashley:
Yeah, because you’ll still have to pay a fee to have the title updated to show that you are now the deed, hold the deed on the property. Another thing to add on to that too is so within the last couple years, the market’s really hot. People are waiving inspections, everything like that, and you couldn’t have any kind of contingency on a property. But now that is kind of changing and also with this example where it’s your family, so I doubt that you’re competing against a ton of other buyers too.
So I think it would be perfectly acceptable to ask for these things. And even for anyone listening, if you’re putting in offers, now is not the time to skip an inspection. You’re at an advantage now that you can put an inspection into your property and it’s not going to be completely out of the bidding process, I guess.

Tony:
Yeah, I think in the last few years to be competitive, a lot of people were doing that, but for our rookies, I think it is a slippery slope because if you get into a property, there are some things this family, they might not even know that something’s wrong with the property. When’s the last time they scoped the sewer line or they check the HVAC or if there’s a septic tank, did they have the septic tank inspected? There’s so many things that are kind of behind closed doors that you can’t see unless you open up and do an inspection.

Ashley:
Or one thing may be okay to you or be okay to your father-in-law but not be okay to you like, “Oh yeah, every year I got to go in there and jiggle this thing.”

Tony:
It’s fine. It’s no big deal.

Ashley:
Yeah, no worries. The hot water tank, it maybe starts making noise, just give it a couple kicks.

Tony:
Everything’s good.

Ashley:
Because I think it’s way better to just go ahead with the inspection now and just be honest with them too and say, “You know what? I completely understand your honesty, but I would still like to do an inspection on all these things in case there’s things you guys don’t know about the property.” So if they’re rental properties and maybe it’s a septic or a sewer and you want to do a sewer scope is to, one of the tenants could’ve shoved something down there and it’s about to crack the pipe or something like that.

Tony:
Or even sometimes little things change in the code and what’s safe 30 years ago might not be safe today. We have a property where it was something about the wall in between the garage, the wall in between your home and the garage, there wasn’t enough fire protection in that wall. So it’s like there’s certain little things that pop up that you never know unless you actually do that inspection.
All right, so our next question comes from Emily P and Emily’s question is, does anyone know that if the housing market crashes, if you can buy a house for investment purposes if your primary residence is underwater? If I’m still making payments, but suddenly it’s value dropped by $200,000 and I owe more than it’s worth. So this is a great question, Emily, and just to paint a picture for the rookies in case that wasn’t clear.
What Emily’s question is, is say you have a primary residence that you bought for $500,000, that’s the amount of the mortgage that you have on that property. Your loan balance is $500,000, because the market shifts, say your appraised value to what your property would sell for today goes from 500,000 down to 200,000. Some big difference. So now you’re underwater on that property.
Emily’s question is, does the fact that I have negative equity, the loan balance on my house is higher than what the appraised value is, will that stop me from buying an investment property? The short answer is no, it shouldn’t. Typically when you’re going to apply for a new loan, what they are looking at to approve you for that mortgage is your debt to income ratio and your credit score. They want to know what is your profile as a borrower. As long as you are current on your mortgage, and as long as your credit score is still strong, you have the ability to get approved for that new mortgage with your debt to income ratio, typically they’re going to approve you for that loan.
What they won’t look at, and I don’t think you’ve ever had this happen before either, when you apply for a home, typically they are not going to go back and appraise all of the other properties that you own to make sure that they’re underwater or not underwater.

Ashley:
Yeah. The only reason they would do an appraisal on your primary residence is if you’re going to use that house as collateral for the loan. So if you’re getting a line of credit or refinancing your mortgage, or maybe you’re doing a portfolio loan where you’re including a rental property in your primary residence, but if you are not using that property as collateral, they’ll never go and ask.
And if they do ask what the value of that house is, you can tell them, I purchased the property for $500,000 in 2021 or whatever it is, and give them the purchase price of that property. Plus maybe if you did any improvements on it to show the value of the property.

Tony:
Yeah, I’m trying to think if there’s any risks associated with that happening where your primary residence goes underwater and as long as you’re like on long-term fixed debt and you have the ability to keep making those payments, I mean, hopefully eventually your house value’s going to rebound. Maybe the only time you get in trouble is if you’re on some kind of like adjustable rate mortgage or some kind of short term debt where the payment is one number today, but a year from now it’s going to adjust up to some higher number. Now you’ve got a mortgage that was 2,000, now it’s 5,000 or some other crazy high number, and now you don’t have the ability to carry both of those mortgages.

Ashley:
And that could happen even if your property has appreciated value, where that happens, where your payment changes, if you are on a variable, you switch to a variable interest rate. But the problem here is if you are underwater and you can’t afford what that new mortgage payment is, you can’t go and sell that property very easily without probably putting some money into the deal to pay it off or taking a big loss on it too.
Thank you guys so much for listening. I’m Ashley, @wealthfromrentals. And he’s Tony, @TonyJRobinson, and we will see you guys for the next episode.

 

??????????????????????????????????????????????????????????????????????????????????????????

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


Mortgage lender and digital financial services company Guaranteed Rate hopes to court builders and borrowers with its newly launched programs — Lock ‘N’ Sell rate lock program and forward commitments – by helping the borrowers secure lower mortgage rates.

The rate lock program allows builders to lock in a current rate for up to 120 days on individual homes. This is done in advance of having a buyer in order to protect payments from going up in the current rate environment, Guaranteed Rate said in an announcement about the launch. 

The Lock ‘n’ Roll program is eligible for conventional and government fixed-rate loans, with the lock period being a minimum of 60 days, according to its website. The loan program can’t be extended, relocked or renegotiated until after the lender receives a fully executed sales contract and is only eligible for up to 30 days of extension. 

The program was launched “to take the guesswork out” for customers and curb concern about changes in the market affecting their ability to afford a home before construction is complete, Jim Colella, the national builder program manager of Guaranteed Rate, said.

Alternatively, builders with a larger number of houses can take advantage of forward commitments — which enable builders to reserve between $3 million and $20 million in blocks of mortgage loans at lower-than-market interest rates for up to 150 days, the Chicago-based lender said. 

Instead of reducing the price of the house, borrowers can take on a lower monthly mortgage payment by lowering the rate, Guaranteed Rate said. 

“By maintaining initial asking prices, builders can help keep current values in the neighborhood and ensure appraised values for buyers,” the company said in a statement. 

With 466 branches across the country, the lender has more than 1,910 active loan officers, according to mortgage data platform Modex. Guaranteed Rate originated $34.38 billion in volume in 2022, down 56% from the previous year’s production of $78.13 billion. About 71.2% of its transactions came from purchases and refis accounted for 27.1% in 2022. 

While rates have been on a declining trend after peaking in October, they are still higher than the 3% levels from 2021. Despite the decline in home price growth and projections of rates dropping, affordability challenges are expected to continue to weigh on buyers. 

In return, mortgage companies have been betting on programs that lower mortgage rates to unlock buyers on the sidelines. 

Products such as builder- or lender-funded temporary rate buydowns and ‘buy now and refinance later’ programs that waive closing costs or appraisal fees have been picking up steam against the backdrop of a higher rate environment. 



Source link


The past few years in the housing industry have been nothing short of unprecedented. In 2020 and 2021, many homeowners refinanced, locking in historically low 30-year fixed rate mortgages.

And now, with the impact of inflation and looming economic uncertainty, home equity lines of credit (HELOCs) are an increasingly popular choice for those who are considering tapping into their home’s rising equity while protecting their existing, low mortgage rates. 

HELOCs have continued to set the stage as flexible, helpful products that provide quick access to financing for a multitude of uses including home renovations, debt consolidations or emergency purchases.  

Extended renovations call for extended financing 

As rising mortgage rates combined with historically high home prices continue to curb enthusiasm for those who want to purchase, many homeowners are thinking outside the box, finding ways to spruce up and add value to their current homes through renovations, even amid current labor and supply chain shortages.

TD Bank’s HELOC Trend Watch survey found that 43% of homeowners who are planning to renovate intend to use a HELOC or home equity loan to finance the project. Additionally, 65% of the total respondents are currently planning or have plans to renovate their homes within the next two years.  

As labor and supply chain shortages also extend the timelines and budgets of projects, homeowners are favoring flexible financing options. HELOCs allow homeowners to draw funds from their credit lines when they need them and typically offer lower rates than other fixed loan mortgage products and many unsecured consumer lending options. So, they stand out as offerings that can provide the flexibility and convenience consumers need when completing home projects where costs can fluctuate. 

Of those who plan to renovate, TD Bank’s survey also found that 78% plan to move forward with their renovations regardless of potentially longer wait times due to labor and supply chain shortages. 

The road ahead for homeowners in 2023 

An Urban Institute Housing Finance Policy Center report found that in the first five months of 2022, nearly $101 billion in HELOC funds and $38 billion in closed-end home-equity loans were originated in the U.S. With the Federal Reserve planning more rate hikes to combat inflation in 2023 — albeit at a slower pace — and with first mortgage rates remaining higher, home equity originations will continue to gain popularity.  

Homeowners have an opportunity in this market to better navigate and secure their financial goals, and HELOCs and home equity loans should be top of mind as a viable financing option to do that. 

There is risk involved as HELOCs are tied to the prime rate and can continue to rise. Further, everyone’s financial risk appetite and financial standing are different. So, it’s imperative to speak with a lender. They can advise borrowers on how they can optimize these products to fit their unique personal financial situations.

Whether homeowners are considering renovations, consolidating debt, or paying for education costs, lenders can help borrowers understand how HELOCs and home equity loans can enhance the ability to meet financial goals and power their financing needs.  

Steve Kaminski is head of U.S. Residential Lending at TD Bank.



Source link


Let’s first state the facts regarding our country’s wonderful week in labor data.

Job openings are over 11,000,000.

Jobless claims are under 200,000.

The unemployment rate in America is 3.4%.

When we look at the history of U.S. economics, this week is one for the record books.

As someone who professed early in the Covid-19 recovery that we would see 10,000,000 job openings — and the labor dynamics are much different now than what we saw in 2008 — it’s Van Gogh art week when I see all the data lines so positive this week. To have job openings this high, and jobless claims this low, with a 3.4% unemployment rate, it makes me smile like no other.

Now, on to the jobs report, which had some good news on the inflation front.

January jobs report

“Total nonfarm payroll employment rose by 517,000 in January, and the unemployment rate changed little at 3.4 percent, the U.S. Bureau of Labor Statistics reported today,” according to according to data released Friday by the Bureau of Labor Statistics. “Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting workers’ return from a strike.”

If the jobs report came in lower than anticipated, bond yields would have most likely fallen, as wage growth is cooling off. The 10-year yield shot higher after the jobs report, even though wage growth is cooling down, which is what the Fed wants to see, as bond traders took the excellent data and sold off bonds.

However, I love the trend of the growth rate of inflation falling — and that the labor market is still solid. And, as I have discussed for some time, we have struggled to break below 3.42% and head lower.

So far, we are just trending around these levels. Mortgage rates did break under 6% yesterday for the first time in a while, only to retrace 0.20% basis points higher from 5.99% to 6.19%.

This is a breakdown of the jobs created this month. I would only put a little weight on any one single job report, and things will return to the average growth trend. However, it’s a solid report on most sectors of the economy.

I do expect us to get back to trend growth, and over time, job growth will slow, as the slowdown in population growth limits us to a degree. We have to remember that getting all the jobs back lost to Covid-19 is one thing, but there is the make-up demand in labor needed, which was time lost due to the brief recession.

Here’s a breakdown of the unemployment rate tied to the education level for those age 25 and older.

  • Less than a high school diploma: 4.5% (previously 5.0%)
  • High school graduate and no college: 3.7%
  • Some college or associate degree: 2.9%
  • Bachelor’s degree or higher: 2.0%

Traditionally, those with less than a high education have the highest unemployment rates during a recession and expansion. I always stress that a tight labor market is a good thing, and we want low unemployment rates for every group — not just college graduates.


Wage growth cooling down

On the labor front, there was some excellent news this week for those looking for lower rates. Both the employment cost index and the average hourly wage growth data in today’s job report showed a cooling down in these data lines. 

If these two data lines were booming higher, the bond market might have a different take on the economy. However, we don’t see the wage spiral that many people feared.

The noticeable downward trend on wages in today’s jobs report is a big reason why the 10-year yield is not above 4.25% and mortgage rates are near 8%. The bond market knew the wage spiral premise wasn’t happening.

Some believe that wages would spiral out of control toward the end of 2022 — and that the only way to cool down wage growth is to destroy the economy and create higher unemployment. Sorry, Charlie. That isn’t happening. Wage growth is cooling off with a tighter labor market.

The Federal Reserve has made it key to try to cool down wage growth because people making more money is a bad thing for inflation. They believe the best way to do this is to create more pain, as they say, in the economy.

I am not a big fan of this premise, and what happens in a pandemic typically doesn’t stay years after we are done with the pandemic. The labor market is fine. Wage growth slows, even with high job openings, low jobless claims, and 3.4% unemployment.  You don’t need to crash the economy to bring inflation down after a global pandemic.

A solid report and week

While I don’t believe we are starting a new trend of 500,000+ job gains per month, today’s job report surprised many, myself included. I am a big labor market guy who tells people we will have 10,000,000 job openings in this recovery, and we are at 11,000,000 this month. I was shocked at how large this print was.

We do have two to three reports that come in light, and a few reports that beat estimates, but this is a Godzilla beat. I caution people at this expansion stage to follow jobless claims data, which is still under 200,000. I don’t even have my labor Fed pivot until the four-week moving average hits 323,000, and our 4-week moving average is 191,750.

The labor market is fine, and wage growth is slowing down, so we don’t need to create a recession to bring down inflation. We just need more time and supply. The best way to deal with inflation is always with supply because demand destruction tends to hit future supply production.



Source link


This article is part of our 2022 – 2023 Housing Market Update series. After the series wraps, join us on February 6 for the HW+ Virtual 2023 Housing Market Update. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the data for this year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.

We might only be a few weeks into 2023, but these first weeks have been rich with informative data. We’re already starting to see signals for what the market will look like this spring and beyond.

Mortgage Rates

In January, rates were hovering in the 6% range. Inflation and CPI have been leading to lower overall interest rates — specifically mortgage rates. Last fall, when mortgage rates first jumped over 7% we could see dramatic and immediate slowdown in buyer demand. Throughout January, as rates have drifted down closer to 6%, buyer activity has picked up quickly. 

Our data shows that mortgage rates are going to be key this year. If economic conditions cause rates to jump over 7%, expect buyers to sit on the sidelines, allowing active inventory to build and time to sell a home to climb. On the other hand, if rates slide under 6%, we can already see that buyers are eager.

If you are working with first-time homebuyers or low-income borrowers, remind them of the abundance of programs available that reduce rates or support smaller down payments. Programs like these are great opportunities for first-time buyers to break into the market, even when mortgage rates are higher. 

Inventory

In late January, there were 465,000 single family homes on the market, all across the country. That is 36% fewer properties for sale than the numbers we had prior to the pandemic, but still much higher than the inventory we had in early 2022.

We’re not seeing any indication that there will be a surge of new inventory anytime soon. Home sellers are listing very few homes right now, probably because they have very cheap mortgages, and any new home they move into will have significantly higher payments. As a result, inventory declined with few new listings and a surprising number of buyers. In 2023, inventory will likely be back to following the traditional, seasonal pattern that we were all used to prior to the pandemic, though the market will still have tighter supply than in those days.

Unlike the patterns we saw during the COVID-19 pandemic when homes were listed for sale and sold almost immediately, most homes listed for sale today will remain on the market for at least a few weeks. We can see evidence of multiple offers on homes in January, but these are coming in at around the asking price, rather than the over-bidding wars we saw during the pandemic.

I expect inventory to start climbing in earnest in February, peaking for the year in the late summer and ending 2023 with fewer than 700,000 homes on the market. Even though the patterns are more normal, inventory is still tight and will remain more restricted than some buyers might be hoping for. 

Pricing

In late January, the median price of single family homes in the U.S. was $414,900. This is slightly higher than the median from this point in 2022. But the pricing trend we are most interested in right now is the median price of new listings each week. 

The median price of new listings is currently $379,900. In 2022, the new listing price was skyrocketing each week as sellers knew that buyers were bidding on everything very quickly. This January, demand is certainly weaker, but the data shows that supply is sufficiently tight and demand sufficiently strong to keep a floor on home prices. This indicator of price stability is a change from the very cold market of the third and fourth quarters of 2022, when demand was so weak, the price of the new listings was falling each week.  

We can use levels of price reductions as a leading indicator of future sales prices. Currently, 33.9% of properties on the market have taken price reductions in 2023, and this number is dropping. While this is a bit higher than the usual 30% in typical years, it’s way lower than the 43% we saw in December. This is one data point illustrating a bit of a surprising turnaround in buyer demand.

From the data we’ve collected near the end of January, we can already see that home prices have stopped the pullback we saw in the second half of 2022. Unless mortgage rates spike above 7% consistently in the next few months, it seems unlikely that home prices will drop substantially in 2023 as some market prognosticators have written. We simply have too few sellers to satisfy the current demand levels.

On the other hand, there’s no indication in the data that home prices will climb substantially either. We see some home buyer demand, but we also see that buyers will stop abruptly as rates rise and affordability weakens. This is why we expect home prices in 2023 to finish the year in a similar space as the end of 2022. 

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com



Source link


San Antonio, Texas-headquartered USAA eliminated 130 positions in the real estate lending group amid projections that the mortgage industry will shrink in 2023.

The layoffs at USAA Federal Savings Bank represent about 1.6% of the total bank workforce, Bradley Russell, USAA’s corporate spokesperson, confirmed. 

“In order to continue exceptional service to our members, we sometimes make hard business decisions to ensure we are adapting to our members’ needs and changes in the marketplace,” Russell said in an e-mailed response. “Sometimes that means investing more heavily in growth areas and scaling back or stopping work in others.”

Origination volume for USAA Federal Savings Bank dropped 39% in 2022, declining to $5.17 billion from $8.47 in 2021, mortgage data platform Modex showed. While refis consisted of 56.7% of the total volume in 2021, its origination shifted toward purchase mortgages, which accounted for 73.1% of last year’s production.

The bank has 197 active loan officers and 12 branches across the country. 

The company is offering impacted employees “a full suite of benefits, services, and tools to help with the transition, including a paid transition period and career workshops,” according to Russell.

The firm said it often finds positions elsewhere at USAA for those affected and encourages the impacted employees to apply for roles within its bank, property and casualty insurance group, and life insurance company. 

The bank held at least two rounds of layoffs in 2022, according to San Antonio Express-News. The outlet reported 90 positions were eliminated in March amid projections of a decline in origination volume.

In August, the bank issued pink slips to an undisclosed number of employees in human resources, client advising, information technology, according to the outlet.

USAA, founded in 1922 by a group of military officials, provides insurance, banking, investment and retirement services and products to military members, veterans and qualifying family members.

It has offices in seven U.S. cities and three overseas locations, with about 38,000 employees across the world. 



Source link


The labor market started off in 2023 with a bang, which could mean trouble for the housing market as the Federal Reserve continues to try and bring inflation under control this year.

Total nonfarm payroll employment rose by 517,000 jobs from December to January, according to data released Friday by the Bureau of Labor Statistics. In comparison, the job market gained an average of 401,000 jobs per month in 2022.

“The pace of job growth had been trending down over the past six months, but January broke that trend,” Mike Fratantoni, the Mortgage Bankers Association’s SVP, said in a statement.Recent data on unemployment insurance claims have indicated a stronger job market than the string of layoff announcements from the technology and financial sectors would suggest.”

Unemployment changed little from the month prior, with 5.7 million people unemployed for an unemployment rate of 3.4%. Overall, the unemployment rate has shown little net movement since early 2022.

“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data,” Fratantoni said. “We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”

However, the good news for the Fed is that wage growth has slowed.

Yearly growth in average hourly earnings for service employees has declined from a peak of 6.1% in March 2022 to 4.5% in January 2023,” Odeta Kushi, First American’s deputy chief economist, said in a statement.“

The employment-cost index (ECI), a more comprehensive measure of wage changes, confirms the deceleration. According to the ECI, service-sector wage growth has slowed from 8% in the second quarter of 2022 to 6.9% in the fourth quarter. Further reduction in wage growth is the key to getting the Fed to pause its interest rate hikes. There is hope that as consumers pull back on spending, more wages will continue to decelerate.”

The construction sector added 25,000 jobs in January thanks to a big uptick in the number of specialty trade contractors (up 21,900 jobs). However, 16,500 of those specialty trade contractors are employed in the nonresidential sector. In addition, non-residential building construction added 4,100 jobs, compared to just 100 jobs in residential construction

“Residential building construction employment is up 3.5% year over year, and non-residential increased 4.9%. Residential building construction employment is now up 11.6% compared with pre-pandemic levels, while non-residential building construction employment just surpassed pre-pandemic levels this month,” Kushi said. “Residential building construction employment was little changed from December. The slowdown in single-family homebuilding may be putting some downward pressure on residential building job gains, and there is likely more of that to come.”

The real estate and rental and leasing services sector also experienced jobs growth in January, adding 4,100 jobs, with real estate adding 8,800 jobs and rental and leasing services losing 4,500.

In February 2020, a combined 300,000 were employed in “real estate credit” and as mortgage and nonmortgage loan brokers. As of November, there were roughly 354,800 people in those jobs, suggesting that the industry still has a large number of cuts to make in the coming months as the housing market slows to a crawl.

According to the latest BLS statistics, mortgage banking companies cut 2,500 jobs in December. Mortgage brokerages, meanwhile, shed about 800 jobs in December.

The lion’s share of the job growth in January came from gains in the leisure and hospitality sector (up 128,000 jobs), the professional and business services sector (up 82,000 jobs), and the health care sector (up 58,000 jobs).

But while the threat of further rate hikes still looms, industry analysts feel the strong jobs report is good news for the housing market.

“The upbeat jobs report provides more positive signals for the already rebounding housing market. The strong labor market will encourage the Federal Reserve to continue hiking rates this year which could stall the downward trend in mortgage rates. Buyers have been enticed back into the market as rates have dropped over the past few weeks,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement.

“But while rates are important, what matters most for buyers and sellers is the state of the economy, generally, and the stability of their own economic situations, in particular. So far, the economic outlook has been relatively sanguine. Recession concerns are generally coupled with predictions of a shallow downturn without significant job losses. Today’s employment report suggests we should be prepared for a busy spring housing market as growing confidence encourages prospective buyers to get back into the market,” Sturtevant said.



Source link


The Federal Reserve Chairman Jerome Powell maintained a hawkish tone during his speech at a press conference on Wednesday afternoon — but it wasn’t hawkish enough to keep optimism from spreading across the markets as mortgage rates dropped closer to 6%. 

“Inflation remains well above our longer-run goal of 2% over the 12 months ending in December: total PCE prices rose 5%; excluding the volatile food and energy categories, prices rose 4.4%,” Powell told journalists. 

“While recent developments are encouraging, we need substantially more evidence to be confident that inflation is on a sustained downward path,” he added. 

According to Powell, Fed officials have decided to shift the rate hikes to a slower pace to better assess the economy’s progress. On Wednesday, the Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points to the 4.50%-4.75% range. However, the Committee also anticipates that ongoing increases in the target range will be appropriate to bring inflation back to 2%. 

All the markets heard, though, is that a disinflation process is in progress — or, in other words, inflation growth is slower. When the closing bell rang on Wednesday, the S&P 500 was up 1.05% and the tech-heavy Nasdaq rose 2% compared to the previous close. The yield curve also dropped, with the 10-year Treasury note down 13 basis points to 3.39%. 

In turn, mortgage rates started a free fall. The latest Freddie Mac index measured the 30-year fixed-rate mortgage at 6.09% as of Thursday, down four basis points compared to the previous week. The rate was even lower at Mortgage News Daily, at 6.04% on Thursday, down 13 basis points from the previous closing. 

“Mortgage rates inched down again, with the 30-year fixed-rate down nearly a full point from November, when it peaked at just over 7%,” Sam Khater, Freddie Mac’s chief economist, said in a statement. 

“According to Freddie Mac research, the 100 basis points reduction in mortgage rates since November can allow as many as 3 million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” he added. 

Is the market overreacting? 

The bond market clearly disagrees with Powell’s aggressive talk, according to Logan Mohtashami, lead analyst for HousingWire

“The market is correct, as the inflation growth rate has been falling, and the Core PCE looks like it will have a 3% handle by the end of the year,” Mohtashami said. “Powell and the Fed have been talking tough for months now, but the growth rate of inflation has been falling, even when the labor market has stayed firm.”

Mohtashami expects that spreads between the 10-year Treasury note and the 30-year fixed-rate mortgages will get even better, and mortgage rates will fall to the 5% level soon. 

At Goldman Sachs, the team of analysts said that February’s FOMC meeting sent a message that the disinflationary process is now underway. 

However, there is more work to do as the Committee left unchanged the sentence in its statement that says that “ongoing” rate hikes will be appropriate, “a modest hawkish surprise to our expectation that it would tone down this language,” the analysts wrote. 

Goldman Sachs’s team forecasts two more 25 basis points hikes to the federal funds rate in March and May. According to Sachs, “the FOMC aims to avoid recession but keep growth below trend in order to further soften labor market conditions, consistent with our forecast.”



Source link


The “Rookie to Real Estate Investor in 90 Days” series is back, and we’re checking in with three mentees as they go from newbies to high-net-worth through real estate! Our mentees have been busy over the past couple of weeks, so Ashley and Tony dropped in on them to see how their rental property progress was going. They touch on how to make a lowball offer, pushing past the fear of getting an offer accepted, where to find motivated sellers, short-term rental markets, and seller financing Q&As.

First up, Brandon joins us as the newest real estate rookie on the show. He’s yet to get his first deal done and is still looking to buy a property, but he’s finding that the price isn’t matching his profits. Ashley and Tony walk Brandon through how to make a lowball offer and why you should always submit a price that works for your numbers. Next, Lawrence shares how he’s been on the hunt for a seller-financed deal and is looking into new ways to find motivated sellers more likely to sell at a discount or with flexible terms.

Finally, we hear from Melanie, who had a bit of property panic as she searched for more short-term rental markets to add to her list. After some research, she’s settled on a solid one and is currently looking for properties to make offers on. Her only question is how and why she should go for seller financing. Ashley and Tony give her all the details you’d need before going into a direct deal with the seller.

Ashley:
This is Real Estate Rookie Episode 257.

Tony :
Something else to think about, Lawrence, as you’re submitting some of these offers is to give the sellers different options. For example, we’re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you’re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it’s a slightly higher purchase price, it still works out better for you because the down payment’s going to be smaller.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony :
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out a very special person from the Rookie audience. This person goes by the username, The Handyman 317, and Handyman left us a five-star review on Apple Podcasts that says, “Thank you!” With the big exclamation mark. “Definitely one of my favorite weekly podcasts. I’m a contractor and I set a goal to start investing in 2023 for myself after listening to your podcast. Well, listening to your podcast weekly, I gained my confidence and already finished a flip and bought a duplex to hold on all in 2022. I appreciate the service you guys provide, and thank you so much for helping me reach my goals. So much free knowledge on this show.”
Handyman 317, kudos to you for listening and taking advice and taking action, man. That’s the biggest piece. So, if you guys haven’t yet left us an honest rating or review, please do. The more views we get, the more people we can help. The more people we can help, the more stories we get like Handyman 317. Ashley Kehr, what’s up? How are you?

Ashley:
Good. I got two closings today that I’m excited about. I’m selling a property.

Tony :
Busy day.

Ashley:
And then I’m actually using the proceeds to pay off another property.

Tony :
Isn’t that how it goes?

Ashley:
Yeah, I like to keep a couple free and clear, so just transferring some money over. And then I’m actually closing on a refinance for the A-frame property I remodeled.

Tony :
Let’s talk about that just really quickly. You got the refi, right? Refis have dried up tremendously, almost no one’s doing a refi right now. Can you share what’s the reason behind this refinance and why you have to do it right now?

Ashley:
Yeah, and actually the process has been so fast, I can’t believe it compared to trying to refinance the last two years-

Tony :
Last year, yeah.

Ashley:
… when lenders had to bend over lots of people wanting to refinance. But yeah, so I had purchased the property with hard money and my hard money isn’t due for, I think two more months, maybe. I rehabbed it, I used cash to actually rehab the property and now I want to pull my cash back out and we’re going to pay off the hard money lender today. We’re going to refinance with a small local bank. Then we’re just going to have our fixed trade. It’s going to be over 20 years amortized and fixed rate for five years.

Tony :
Yeah, that’s awesome.

Ashley:
And it’s at a 7.4% interest rate.

Tony :
That was my next question, which isn’t terrible, right?

Ashley:
No, no.

Tony :
I’ve seen definitely worse than that. Cool. I’m excited. A-frame’s almost done. That’s like the last step for everything, right?

Ashley:
It’s done. It’s done. Yeah.

Tony :
Yeah, that’s everything.

Ashley:
Yeah, it’s done. Yeah.

Tony :
Cool. Well, there you go. Well, we got a good show for you today. We got our mentees coming back on, so you guys get to hear a quick update from Brandon, Lawrence and Melanie and each one of them is kind of in a different phase and we dig into what each person is struggling with. Brandon, I think, and we talk about this a little bit, the biggest thing holding him back is just fear. And he kind of led into that by just saying he’s fearful of what could happen if he does keep moving forward with this. You get to hear us break that piece down. Lawrence was a man on a mission the last couple of weeks. He did a whole bunch of stuff, so we get to hear what Lawrence was up to you. But Lawrence was a little stuck on how to structure some of these offers that he’s putting out to folks, so we kind of walked through that. And then Melanie, she had a bit of a panic attack with her investing situation, so we break through-

Ashley:
She’s very relatable to me.

Tony :
Yeah, totally, right? And she talks through how she had a freakout moment and how she walked herself off the ledge and how she’s now moving forward with some confidence, and Ash and I give some advice on what we feel she should be doing as well. Each person kind of in a different situation, but hopefully each one of these stories helps our Rookie listeners know that there are other people going through the same things that they’re going through as well.

Ashley:
And if you guys haven’t already, please hype up our mentees in the Real Estate Rookie Facebook group because they’re out here sharing it all with you guys. And sometimes that’s hard to do, especially as a new investor, very unsure is admitting what you don’t know and how you’re feeling about investing. Make sure you guys are hying them up and give them tons of encouragement as we go along for the next 90 days. Brandon, welcome back to the Real Estate Rookie Podcast. How have you been?

Brandon:
Good. Good to be back while braving the cold up here.

Ashley:
Why don’t you tell us a little bit about what you’ve been up to since you were last on.

Brandon:
Since last time, I’ve definitely gotten more narrowed down on the buy box and analyzing properties. Went and walked through a lot more houses, just adding more consistency and just seeing what’s out there for the price points I’ve been looking and just getting more of a feel for what’s been out there, looking at everything that’s new to market.

Ashley:
Did you put together an offer on any of those properties you analyzed or looked at?

Brandon:
No written offers yet. Been working on one that I walked through and just wasn’t really interested at the price point and condition of the property. But they’ve actually been emailing back just wanting us to offer anything or whatever we’re thinking, because it sounds like it’s sitting still and put feedback’s been about the same as mine was.

Tony :
One call out Brandon. You said that not interested at the price point and the condition, but what that lets us understand is that there probably is a price point at that condition where that property makes sense for you. And I think that the challenge from Ashley and I is figure out what that price point is and regardless of what they’re asking, just submit the offer at that price point.
There was a property that I actually just got under contract less than 24 hours ago. I had initially submitted my offer and it was significantly below asking, and the buyers didn’t even counter, they just flat out said no. Then they came back to me last week and said, “Hey, Tony, will you meet us in the middle?” And I said, “No.” Then they came back to me less than 24 hours ago and said, “Okay, fine, we’ll accept your offer.”
So that’s kind of where we’re at in the cycle right now is that as the buyer, even if you’re asking prices significantly lower than what they’re asking for, and obviously this is going to vary by the market, but a lot of times if there’s not enough interest, especially if the condition of the property is not super turnkey, it gives you more leverage as the buyer. So I would say submit that offer, whatever price makes sense for you. Even if they say no today, there’s a chance that that property’s still on the market 14, 30, 45 days from now, now they’re going to come back to you and say, “Hey, Brandon, your offer looks a whole lot better now.”

Brandon:
Nailed it.

Ashley:
What are some other things that you think are holding you back from getting the next deal?

Brandon:
I guess biggest thing is just I haven’t been writing offers on stuff. I need to sit down and work backwards from what it needs and find that purchase price to offer on, even if it’s well off what they’re asking and not be worried about just ticking them off, I guess.

Tony :
Ashley, let me ask you a question, Ash. Have you ever submitted an offer that was so low that the seller said, “I don’t care what your next offer is, I don’t ever want to hear from you again?”

Ashley:
No, I’ve never had that bad. It was more of just no response, that you didn’t say, “My seller isn’t going to even acknowledge that offer.”

Tony :
But had you come back with a different offer, they probably would’ve acknowledged it, right?

Ashley:
Yeah. Oh yeah.

Tony :
Yeah. Maybe it’s happened somewhere, but I’ve never personally met an investor who said, “You know what, Tony, my first offer was so low and I offended the seller so much, they refused to listen to any other offer that I had after that first one.” I think a lot of new investors have this fear around pissing off the seller and them being offended and all these other things, but at the end of the day, if you give them a number that makes sense, they’re going to look at it. Don’t try and make that decision for the seller. I think the bigger thing for you, Brandon, is to do the numbers, figure out what works for you, and then put the onus on the seller to decide if they should be offended or not from there.

Ashley:
There’s so many times people make those lowball offers where they work, the seller accepts it and it’s like, oh my gosh, I didn’t expect that, but yay, they accepted my offer. You never know the reason for somebody selling and money may not be a reason at all, or maybe they don’t understand what the value of their house is or it’s just convenience to sell it to the first person that puts an offer in. Keep putting together offers and submitting them. And then if you’re putting in an inspection period, it’s giving you that second chance to go through the property and make sure your number’s correct too.

Tony :
Yeah, I think one last piece of advice, and this is, again, something that’s happened with me on a deal that we’re working on right now. We’re trying to buy some land to build our primary residence. We want land. Land is super limited where I live in California, super, super rare. And I’ve been talking with the agent who listed the land and same as you, he was like, “Oh, the seller doesn’t want to entertain that offer.” But I kind of got the feeling that the agent wasn’t even presenting my offer to the actual owner.
So what I did is I looked up the land, I traced owner’s contact information. I called them myself last week and said, “Hey, my name’s Tony. I’ve submitted a couple offers. Has your agent even shared my name with you?” The seller was like, “I don’t know. It doesn’t sound super familiar.” So what I’m gathering is that my offer was so low it didn’t quite fit with the agent’s needs, but I talked to the actual owner of the property and now he and I have a very open dialogue and he’s actually open to the offer that I presented. So, if you do feel that you’re getting a little bit of that, sometimes you might have to circumvent the agent to talk right to the owner.

Ashley:
And then, Brandon, when you’re looking at a property too, think about other ways that that property could generate income where maybe you can increase your offer a little bit. If it has a garage unit, can you charge an additional amount of rent for the garage? Maybe if there’s a huge parking lot, can you charge somebody to park their RV or their boat there over the winter? Things like that. Try and find different ways to increase the income or maybe if you’re looking at a property that’s going to have multiple residents in it is having a coin-operated washer and dryer in the basement or somewhere on the property, too, and make some income off of that too. Try and think of different ways to generate income off the property.

Brandon:
Okay.

Tony :
Brandon, one last question for you, man. When you think about submitting those offers, is it more so fear around what the seller’s response might be like? Is it that you’re analyzing a bunch of deals, but you’re just afraid to submit the offers because you don’t want to upset the seller? Or is it that you feel like you’re not analyzing enough deals to begin with? Which one of those issues do you think is a big one for you right now?

Brandon:
I do think it is out of fear of rejection, like you had said, or it getting accepted and then wondering what it didn’t account for type of thing. Or even having multiple offers that aren’t high probabilities and having both of those accepted.

Tony :
All right. Let’s break down both of those. Let’s break down both of those. Your first one was, what happens if they accept my offer, but there are things that it didn’t account for? Just walk through, what do you think you would actually do in that situation? Say that someone accepts one of your offers and now you’re in escrow, you’re during your due diligence period. What steps can you take to make sure that those unknowns get accounted for somehow?

Brandon:
I guess biggest things would be roofing inspectors and contractors to look over things and make sure the numbers I was estimating or planning for are at least close.

Ashley:
One thing you can do is put in a longer due diligence period, so a longer inspection period and ask for multiple times to have access to the property. Instead of having one inspector come in, if you want actual contractors to come in and bid it out, if you don’t think you’re going to be able to get them all right there at the property, same day, same time, then extend out in your contract, in your initial offer, put in a longer period of time and ask to have access as needed to the property, maybe with 24 hours notice if there’s tenants in place, or even the homeowner living there.
That way you can schedule out, okay, over the next two weeks, have the roofing guy coming this way to give me an estimate. I have these other contractors coming in to give me estimates on Thursday and go through a process like that. Then you’re going to get those hardball estimates. And just before you bring the contractors in, when you’re scheduling them, ask them, too, what their turnaround time is on an estimate to make sure that they’re going to get you the information back, too, before that due diligence period is up too. And you probably have a lot of contacts from your business too, from your work.

Brandon:
Yeah, like-

Ashley:
You probably run into a lot of other vendors.

Brandon:
Yeah, that’s numbers that I’m 100% sure, because I did them.

Ashley:
But even, too, do you run into other contractors on jobs or things like that or even your employer, he probably knows other people in different specialty skills, too, that he could connect you with.

Brandon:
Yeah, I’ve made decent friends in basically all the big trades.

Ashley:
That’s a huge advantage.

Brandon:
But not so much cabinets or a contractor overall.

Tony :
Yeah. And then, Brandon, the second thing you mentioned was what happens if you get two properties, two offers accepted? And it’s a reasonable concern to have because I think when you haven’t done your first deal, the idea of getting two at one time is like, oh my god, what am I going to do with that? But just say you were in that situation, what options do you think you’d have?

Brandon:
Trying to come up with the money a different way, see if seller financing is an option for them at all. Because the summer when I did a couple offers, but I would always wait to hear and then with how last summer was the other properties I was interested in were already gone before I heard back on the first one.

Tony :
So if you’re ever in a situation where you have two properties under contract or two offers accepted, first thing is that I would try and do whatever I can to close on both of those deals. I would try and look for a partner. Your idea of the creative finance is another great solution. But say for whatever reason you realize you can’t take both deals down, all you have to do is look at which one of those two deals you like more and then walk away from the other one. If you have a property that’s under contract or that you submitted an offer on a property and it comes back, as long as you’re not submitting your EMD and kind of kicking off the escrow and title process, you can still walk away from that deal. So, don’t feel like you’re automatically obligated to closing that deal. Most sellers, I think would understand like, “Hey, sorry, I had another offer that came in that was accepted.” And I think they would understand that is a legitimate reason to not move forward with that purchase. Don’t be too concerned about that piece.

Brandon:
Okay.

Ashley:
Tony, what do you think that Brandon’s next step should be? Do you think we should have him write some more offers, kind of get over that hurdle?

Tony :
Yeah, I want to see one lowball offer submitted by Brandon between today and the next time we speak.

Ashley:
Okay. And work in that inspection period, if that’s going to make you feel more comfortable. But I think that there’s some kind of fear holding you back and I mean, it’s completely legitimate like, what if I don’t run the numbers correctly or what if I don’t account for something? But that’s why you’re going to have your due diligence period to really break down everything and make sure that that’s the right number for you. And, of course, you can’t protect against everything, so make sure that you have whatever you’re offering on, it’s still going to leave you some reserves even after going in and doing some rehab if necessary too.

Brandon:
Okay.

Ashley:
Think you can handle that, Brandon?

Brandon:
Absolutely.

Ashley:
Okay. Well, thanks so much and we’ll see you in a couple weeks.

Brandon:
Yeah, appreciate it again.

Ashley:
Lawrence, welcome back to the show. Can you tell us what you’ve been up to the last couple weeks?

Lawrence:
Yeah, of course. I was able to do my homework, which consisted of watching those two amazing episodes with Pace Morby. I was able to get a good introduction to creative financing with subject two in seller financing. I’m more of leaning towards seller financing, because right now sellers still have a good amount of equity in their properties, especially in this area. Pace associated seller financing with gain, what does the seller want to gain since he or she may already have the equity in the property?
My biggest hurdle is not falling into analysis paralysis just because I do like to research different concepts. I have started to go onto the MLS listings for rentals and what I’ve started to do is that any rental that has been listed for over 30 days, I am trying to find the owners of those properties. I feel as though two things are happening in that situation. It’s either a landlord who is tired of being a landlord or they are not local to the area and they’ve handed over their property to a property management company that’s either not doing what they’re supposed to be doing or they may be overpricing a property.
I was playing Inspector Gadget and I was able to find one seller because there are a few right now that’s on market. It’s not a ton of aging rental properties on the market and I had to dig, because it was listed with a realty company and so I had to go to the county’s website and find the seller. Anyway, I got the seller’s phone number and email. I reached out to him and he said that he’s on vacation, so to try to get back to him in the middle of January. So I’m like, okay, well, at least I was able to contact him, and then he also lets me know that he’s on vacation and he has a property that’s listed for over 30 days. He may be inclined to selling the property because he’s not worrying about it cash flowing right then and there.
Another thing that I did was I reached out to a previous owner of a property that’s down the street from one of my rentals. He is about to rehab a property and he usually will either turn that rehab into a rental or he will sell it to a retail buyer. I reached out to him and say, “Hey, I’m interested in getting another property with doing seller financing. Would it be something you’re interested in doing?” He said that he would give back to me. So I’m like, okay, I’m tired of the, “I’ll get back to you right now,” that’s promising. I went back to the MLS.
I did find a new listing that hit the market that’s listed for seller financing. I contacted the realtor. However, I’m not too keen about the terms. Right now that particular property, they want 10% interest, 20% down payment, a minimum hold of three years, and a payment penalty that has not been decided. Because I normally buy single family homes, not owner occupied, I usually put down about 15% and then when you add in the closing cost, it kind of goes up to 20%. So I am going to revisit to see if I can maybe do an alternative offer. I’d rather not put 20% down on that particular property. If it still cash flows with the 10% interest, I don’t mind, and I don’t mind the three-year hold because I am into the long term.
But from my homework with Pace, he prefers not to put down more than 7% on properties that are seller finance. And one of his biggest things that he’s keen on would be to always cash flow. That has been what I’ve been up to. Again, I’m doing my research, but I want to continue to take action. My biggest next step, my biggest means would be to have a living document, a Google Document where I have a sheet for aging rentals that are over 30 days. There, I listed a sheet for properties that are on the MLS listed for sale for over 30 days. And I am just going to have to put the work in to contact those sellers and see what I can make happen.

Ashley:
Lawrence, you’ve been busy. This is great. The first thing I want to say is those terms on the seller financing, I mean, a bank’s terms right now are going to be better than that. You’ll give less than 10%.

Lawrence:
Exactly. And it just hit the market. And I mean, it is turnkey ready. What I understand from their property is that it was a flip that won’t sell right now. Because the very first thing that the realtor said was, “Hey, we have different terms for a retail buyer and an investor.” And so I was like, “Okay, well, what’s the terms for the investor?” And those were the terms, and I just was like, mhm.

Ashley:
I think maybe what they’re going after is probably somebody who has bad credit potentially and can’t go to get the bank financing. Because that’s actually my one business partner. When he bought his first house probably eight years ago, maybe 10 years ago, I don’t even know, he bought it from an investor who basically bought houses and seller financed them to people who had bad credit and would charge them… He paid a 10% interest rate and then when he built his credit back up, he went and refinanced out of that loan.

Lawrence:
Exactly. Now that’s why I probably will have another conversation. Right now I’ve worked hard where I’m not in that situation, I’m not going to mention my lender’s information because this is not sponsored, but I can easily be underwritten by almost any lender. All of my properties cash flow, I have a low debt to income ratio, I have great credit, so I want something that’s going to beat bank terms. I’m not going to put down more than 15% if I can go to a lender and do that with about a 8% loan. I definitely would have to get something very competitive if it’s going to be sellar financing.

Ashley:
Yeah, I think you even said it yourself is to go back and put in an offer with different terms. It’s not going to hurt anything, especially if they tried to sell it already, it hasn’t sold. I would put in lower than what the bank would be able to offer you. Even go with Pace’s advice and just do 7% down. I mean, they’re going to hold onto your offer. So if they don’t get anybody else, I mean, you may be their only option.

Tony :
But I think one of the reassuring things, Lawrence, is that you’ve already found a seller who is at least open to that idea. So there’s some proof of concept there that this path you’re going down could end up working for you. It’s just, okay, now how do we get the right terms? You said you’ve been looking at the rentals that have been aging. Have you looked at all at properties that were listed for sell, but that didn’t sell? So like on PropStream there’s like a failed listing filter that you can look at. Have you explored those at all?

Lawrence:
That’s my next list that I’m building, per se, that I’m going to be looking at. I started with the rentals first, but yes. So like I said, I’m going to have that living Google Drive Document or something of that nature where I have one sheet that lists all of the aging rentals and then another sheet that will list all of the aging properties for sale. And I do have another realtor that I’ve reached out to, and I’ve pretty much told that realtor if she’s able to bring me a seller finance deal that I would pay her commission on it.

Tony :
Because I think that bucket of owners, they might be even more open to the idea of seller financing because they just tried to sell the property and they potentially did it unsuccessfully, so they might have a little bit more motivation to go out and do that. Second question for you, Lawrence, are you looking just in the same market that you’ve been investing in or are you open to maybe more remote markets as well?

Lawrence:
Right now, I would say that my risk tolerance is more of where I’m local to, especially because I am a self-managing landlord, so my properties right now are within a mile of each other. That definitely cuts down on maintenance where I can have one local roofer and one local plumber to be able to get there and then me towards prospects and lease them out. As of right now, I want to do at least probably five to seven deals where it’s really local. This would be my fourth deal, hopefully, by the end of this mentorship program. Right now I’m wanting to stay local to my area, kind of dominate and monopolize this area.

Tony :
I love that approach. Yeah. I think maybe just looking at some of those fail listings through PropStream or you can go on Zillow or wherever and manually pull that, but that would probably open you up to a few more owners that might be open to seller financing.

Ashley:
There’s also the website landwatch.com. Have you heard of that, Lawrence? Pace uses it a lot too, and there is over 12,000 listings right now that already say that they’ll do seller financing on LandWatch.

Lawrence:
Wow. Awesome.

Ashley:
So, that’s a great resource starting point too.

Lawrence:
Great, thank you.

Ashley:
Okay, so what do you think is the next step for you?

Lawrence:
The next step would be, like I said, I will reach out to that realtor to see if they would be inclined to a different offer. And if I have to do a mailing campaign-

Ashley:
I think don’t even ask. I think just put it together.

Lawrence:
Just put it together.

Ashley:
Just put it together.

Lawrence:
Okay.

Ashley:
Because the agent can say, “Oh, no, I don’t think they’ll go for that.” But once you’re given the offer, the agent is ethically responsible to, even though Tony had told us a little situation where he didn’t think his offer is getting to the seller, but most agents have a moral responsibility to submit your offer to the seller. So, I think if you ask beforehand if they’re open for an offer, you’re asking the agent what they think and they’re giving the response, not all the time, but this way your offer is getting right in front of the sellers and they’re making the decision.

Lawrence:
Great. So I will submit an offer to them and then I build my list and, like I said, if have to do a… I like to try to find their phone number or email and call them, but if I have to do a mailer campaign, I will. And I will also follow up with those two other landlords who said that they possibly may be interested in selling one of their properties.

Ashley:
One thing just to remember, too, is that even if they say no or you get no response now, months down the road, they could come back to you. I sent mailers out a year ago and I just got a call in… So it was December, I think everybody got them December 23rd of 2021. And this past October, I got a phone call again from somebody who said he got the mailer in December, he was ready to sell now. It just goes to show that people will hold onto your mailers too.

Lawrence:
I definitely like that concept because I’m a huge advocate of networking. Just because it’s a, “not right now,” it doesn’t mean it’s going to be a never end because this area has been monopolized by just a handful of landlords. I’ve started to build a really good name where I’ve worked with two different sellers where I’ve put together off-market deals myself. And so now these local title companies and inspection people are like, “Lawrence, that kid knows what he’s doing. If he says he going to do it, it’s not a matter of if, but when.”

Tony :
I love that. And just something else to think about, Lawrence, as you’re submitting some of these offers, and this is something Ashley talks about a lot as well, is to give the sellers different options. For example, we’re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you’re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it’s a slightly higher purchase price, it still works out better for you because the down payment’s going to be smaller. So just play around with different options. Don’t feel like you only have to give them one when you do submit those offers.

Lawrence:
Awesome. I greatly appreciate the feedback.

Ashley:
Well, Lawrence, thanks so much for coming back on with us. We always love having you on and just your energy and it motivates us to keep going and keeps us excited. So, we appreciate that.

Lawrence:
Thank you. I can’t stop. Won’t stop.

Tony :
There you go.

Ashley:
Yeah, awesome. We love to hear that. We’ll check back in with you in a couple weeks.

Lawrence:
Awesome.

Ashley:
Melanie, welcome back to the show. Thank you for coming on again. Can you let everybody know what you’ve been up to the last couple weeks?

Melanie:
Sure. Yeah, thanks so much for having me back. Good to see you guys. It’s definitely been an eventful couple of weeks I would say since we last chatted. I was really looking a lot at Florida and deep diving into just a very specific area and really had my heart set on that. But following our discussion, my homework was to look at some other areas, do some exploration of other locations, and then also to submit some offers. I would say that I jumped into looking at other locations pretty immediately. I thought just like, okay, what else am I somewhat familiar with? What do I know about, to Tony’s earlier recommendation, some of the tourism draws or some of the reasons people would come to an area?
And so I started looking in St. Louis and Kansas City because I felt like those might be areas that might be not the first location you would think of, but also had some potential. Pretty much right off the bat I could see that there were places in my price range, but I was getting a little bit more freaked out about occupancy, just seeing that almost 90% of the Airbnbs I was looking at had zero bookings for anywhere from two to three upwards of six months out. And so I was just kind of doing a little questioning of, okay, is this the market? Is this the particular area? Is it that the draw to these areas is just slower right now?
So I started to get a little bit of cold feet and I started to think, okay, I’m exploring a couple areas, I can definitely look into a few more, but am I really going the right route here right now with an STR? And randomly I had this opportunity pop up in Denver and it was like a multi-family that just had all of these shiny things about it that I was so excited about. I kind of went down that rabbit hole a little bit and I won’t get too sidetracked, but ultimately I wanted to refocus and recenter myself. And so I went back to looking at some other locations and on the forums actually I found a realtor that was talking about some unincorporated areas in Savannah and it just looked really appealing to me.
And so I started poking around a lot and found some things about Savannah I really liked and some beautiful properties and a really great price point. I’ve chased that a little bit more. I’m working with an agent, he’s sending me some listings. I got pre-approved for hopefully a 10% down, but 10, 15 or 20% down payment. Basically I feel really excited about Savannah. I feel like there’s a lot of opportunity. I started making a spreadsheet just with all of these locations and really starting to run analyses on all of these different properties that were popping up. I feel like there have been some viable options in Savannah and now my challenge is to make that offer, make that first offer, which was your recommendation, Ashley. My only hesitancy has been making sure I’m prude, making sure I have a lender, and just getting a little more comfortable with that analysis.
But in general, I had this full panic of, okay, I’m going in the wrong direction, and I kind of just slowed down and reevaluated a little bit and I feel like I’m back on track and have a good feeling about this particular area.

Ashley:
Melanie, that’s great. I’m glad that you have refocused yourself and you’ve even narrowed down a market now that you really want to focus on. I actually have two questions for Tony that were kind of brought up with what you were talking about. And I’m curious as to, Tony, what have you seen for lead times as far as bookings on properties? Because I know I’ve seen on Instagram people post that they’re still getting bookings, but they’re not booking three months out. They’re maybe booking three weeks out or things like that. So, Tony, I’m interested to hear that. Then also, Tony, what’s your take on the Savannah market? Do you know anything about it as a short-term rental?

Tony :
Yeah, two really good questions, Ash. Yes, booking lead times for us across the portfolio have been significantly lower than they were in 2021. This time last year in 2021, we got Christmas booked out by the end of September. This time, Christmas was booking out a few weeks ago. I think the habits of travelers have shifted between last year and this year. Across the board you are seeing more last-minute bookings. I don’t think I would be super concerned if I’m looking at a calendar for a market and I see that 30, 60 days out, there’s still a bunch of gaps in the calendar.
What I would look for is data to show, okay, how are those listings pacing over the last 365 days? What does their pricing look like over the next 365 days? And use that data to help me determine whether or not it’s a viable option. What does their occupancy look like over the last 30 days? Because looking back 30 days might give you a better understanding than if you look forward 30 days. Things to consider.
To answer your second question, Ashley, about Savannah, I actually don’t know anything about Savannah. The only market I’ve really looked at in Georgia was Blue Ridge, and we did that not even as a super deep dive. But, Melanie, it sounds like you found some things there that you feel will draw folks in and that the price points make sense for you. Is that what I’m hearing?

Melanie:
Yeah, that was a major factor, for sure.

Ashley:
Let’s go through some of those items. What are the things that you looked at in the market that you think are big draws that will bring people in?

Melanie:
I mean, obviously it’s by the coast. There’s a lot of people that are drawn to those islands like Tybee Island and a few others. There’s also an Air Force base. There’s a small college that’s, I guess small, it’s got 13,000 students, but well known in the area. I believe it’s a school of art and technology. I want to say the initials are S-C-A-D or something. SCAD or SCAT. And then also the historic district is a huge draw.
I will say that in looking at some of that data, there are properties that are still like 50% or 39% occupancy. I don’t think it’s necessarily 84 or 90% occupancy, which, of course, the higher the occupancy, the better. But they were still, at least the data I was looking at with Rabbu, they were still generating, for example, $3,300 in revenue on a $1,900 month mortgage or something. And I’m trying to be exceptionally conservative with my numbers and factor in property management because I will be out of state and that lower occupancy. I hope that answered your question.

Tony :
Yeah, it does. And I think that’s all good data to look at. I would also use a website like either PriceLabs or AirDNA. I think they give you a little bit more granular data than a Rabbu does. I haven’t spent much time on Rabbu, but I know AirDNA and PriceLabs are super catered towards the short-term rental industry and you get a ton of data when you look at those things. It sounds like you’re happy with that market. Have you looked into the policies of Savannah? Is it easy to get a short-term rental permit? Do you even have to get a permit? What does that whole process look like?

Melanie:
Yeah, so in Savannah proper, there’s a lot more restrictions, but in the unincorporated Chatham County, which is kind of just on the perimeter, it’s much easier. And a lot of the property management companies help you go through that process. They are tightening some restrictions, but there’s still a lot of opportunity. There’s still permits available.

Tony :
And I ask that question because the fact that there are tight restrictions, isn’t necessarily a bad thing. If anything, it almost protects the people that are willing to jump through those hoops and get those permits because not everyone’s going to be willing to do that. So if you are one of those hosts who have one of those harder to get permits, it almost helps because it keeps in, not a hard cap, but almost like a soft cap or an artificial cap on the supply of short-term rentals, which again, if you’re one of those that are operating it, it actually helps you. Have you submitted any offers yet in Savannah?

Melanie:
I haven’t, no. I’ve just been trying to analyze four to five properties over the last couple of days. I did explore some opportunities to do seller financing. It was kind of similar to Lawrence’s terms that he mentioned where the seller was offering a 7% interest rate and 20% down. I was kind of thinking I’d rather just get a loan from a bank. So, no, that’s definitely my next action item is to submit a couple of offers and I’m willing and ready to submit those lowball offers. I think I just wanted to make sure the analysis fit. I sent over a couple examples of my analysis to my agent who’s closed about 30 STRs this year, just to see like, these are my numbers. Do these look like your numbers? Should I be more conservative? Do you have any recommendations? I feel like I’m at that point where I’m ready to start making a couple of offers.

Ashley:
Melanie, you had put a question for us, too, in our group Slack channel about seller financing. Did you want to talk a little bit about that?

Melanie:
Yeah, thanks for mentioning that.

Ashley:
Yeah. One was about how the payments work. Okay, you got the deal under contract, it closed on it. Your attorney has put together an agreement and to kind of start from there is that your attorney will do your closing documents that you would usually have, but will also do a promissory note that goes along with the contract. And that’s where it’ll state that you owe the seller of the property X amount of dollars, and then the terms of the agreement, like what’s the interest rate, what’s the amortization schedule, what’s your monthly payment, things like that and how the repayment period works. What were some of the questions you had about that?

Melanie:
Yeah. I’ve never had a promissory note, and so I think I just was wondering what that actually looks like in practice. Do you have buyers who slowly stop paying? How is that managed and monitored? It seems so unofficial in some ways. And I just wondered… For my long-term rental, they just send me a check once a month. And so I assume it’s as simple as that. But I feel like without that formal entity of a bank or a lender, it just seems a little less easy to monitor. So kind of curious in your experiences, what that actually did look like month over month and if there were ever any issues with it.

Ashley:
I’ve done it both ways. I’ve done it where I was doing the seller financing and somebody was paying me, and then I’ve also paid somebody for seller financing. In both times it was a check sent out. I had it set up as autopay, so my check would go out on the first of the month to them. And then the same with the person that was paying me, they had it on autopay where it was just set up to go. Just like you would pay a mortgage payment, you’re just sending them a check, you’re maybe doing an ACH directly into their bank account. And that’s when I do seller financing offers. I do add that piece in there that’ll be direct deposited into their bank account on this date every single month. It’s just kind of hopefully something a little extra that they’ll appreciate to accept my offer.
But then say they don’t pay, and then that’s where it’s your responsibility to contact your attorney, most likely the one that drew up the promissory note. And that’s where you would go through the foreclosure process just as a bank would. The bank would use their attorney to go through that same formal process. The actual process of that depends on each state. Like New York State, you could pretty much pay for two years before they actually kick you out of your house for a foreclosure. Texas, I think it’s a way shorter time period where it’s so much easier to get people out. And that’s why a lot of investors do offer seller financing or do land leases and things like that because it’s so much easier to get people out, take the house back, and then go ahead and do seller financing again.

Melanie:
And have you ever had to go through that foreclosure process yourself?

Ashley:
No, I haven’t. I haven’t had to, which is a good thing.

Tony :
Yeah. Fingers crossed it stays that way.

Ashley:
Yeah. Any other questions about that, Melanie?

Melanie:
Actually, I guess, yes, one other thing. In a lot of seller financing deals, I feel like the biggest appeal is probably a lower down payment. And so when you see still a 20% down payment, if the interest rate is dramatically lower than what banks are lending at currently, then it’s green lights all the way. But I think I’m curious if there’s other things about a seller finance deal that I’m not considering that may get more appealing and more interesting.

Ashley:
One thing that I think of offhand is convenience. Just like having to go through a bank, it may be more of a, it’s a longer process. You have to put more paperwork in, you have to fill out more forms, all these things. So there’s the convenience method of it that doing seller financing, you really don’t have to do any of that. The formal application, things like that, doing seller financing. Another thing, too, is like you said, the down payment, but also the interest rate. If the person’s just going to have that money sitting in their bank account, well, instead of having the money from the sale sit in their bank account and make 1% interest off of it, instead they’re going to charge you 4% interest, which is still way better than the 7% interest you could get at the bank today is paying that 4% interest, but you’re both making out. In that example, you’re both making more than what you would if you went to the bank and they just put that money into their bank account. So, that’s another thing to consider too.
Then a big advantage for the seller is the tax advantages. The fact that instead of them taking a lump sum when they sell the property, now they’re taxable income is being spread out over the course of the loan. Instead of getting… Say, they sell property for $100,000, well, their tax bracket just increased because now they’re have a higher income based off of selling that investment property. Where they do seller financing, they’ve only made so much off of you in year one out of 20 years, the loan is amortized. It keeps them into that lower tax bracket and they’ll owe less taxes. So that’s a big advantage as to why a lot of people do the seller financing. One thing I always do is hint to ask sellers that they’re willing to do seller financing. They say no right away, I just say, “Oh, okay. I just didn’t know if your EPA had mentioned the tax benefits of it.” Then that kind of puts a little buzz in their ear.

Tony :
Yeah, and I think the other big thing, too, is that you can really create an offer that speaks to what’s important to that seller. For example, maybe the seller is just most concerned with getting the absolute highest purchase price, but maybe the property won’t appraise for the price that they’re looking for. But if you’re doing a seller financing position, they’re the ones that are on the hook for the property. So if they want to sell it for more than what it’s worth, that’s only working out in their favor. Whereas if you’re going with a traditional bank, if the seller wanted half a million bucks, but the property’s only worth 300,000, it’s not going to fly that way. So I think there’s more flexibility to listen to what is important to that seller and then give them an offer that really speaks to what’s motivating them.

Melanie:
Okay. The last thing I was going to say was it seems like if cash is the thing that the seller wants more than anything, that becomes like a seller financing deal killer because they want to cash out and walk away. And ultimately you’re only going to pay your down payment and then a payment over time with interest. That was kind of a learning with the multi-family I looked at this last couple weeks. But thank you so much for talking a little bit about that. That’s really helpful for me.

Ashley:
Yeah. And thank you so much for coming on again with us this week, and we look forward to talking to you again in a couple weeks.

Melanie:
Thank you.
(singing)

??????????????????????????????????????????????????????????????????????????????????????

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


Michigan-based lender United Wholesale Mortgage (UWM) has introduced a construction-to-permanent loan that covers the cost of building a home and then converts to a permanent mortgage once construction is complete.

Starting February 1, UWM’s one-time close construction loans will be available on eligible 15- and 30-year fixed conventional loans and 7- and 10-year adjustable-rate mortgages (ARMs), the firm said Wednesday. 

The loan will cover an 11-month maximum build period with a one-month modification. It is available for investment, primary and second home purchases as well as rate/term refinances. 

“The streamlined process and certainty One-Time Close New Construction loans offer is unmatched and will set brokers up to be the hero with builders, real estate agents and contractors, and get their borrowers in their dream home,” Mat Ishbia, president and CEO of UWM, said in a statement. 

This type of loan only has one set of closing costs to pay, reducing the borrower’s overall fees. It also has one interest rate with an automatic modification if the market improves once construction is complete, along with one down payment, one full credit report to order and one approval, according to the firm. 

UWM will enable all involved parties to communicate information throughout the approval process, providing checklists for the project and builder approvals.

Once the loan is closed, UWM claims it will handle the rest of the process by staying in direct communication with the builder on subsequent draws, as well as subsequent inspections, to confirm the project is on pace.

The loan product is the latest offering from UWM, which has been ramping up its efforts to increase market share in a margin-compressing environment. 

UWM – which took the origination crown from competitor Rocket Mortgage in the third quarter thanks to its aggressive pricing strategy – also took another big step recently to reduce prices in 2023.

The lender is offering a maximum of 40 basis points per loan to its brokers, with a total access to 125 bps, to gain market share.

While mortgage attorneys said the “Control your Price” initiative doesn’t appear to clearly cross the legal line, they raised compliance concerns — including rules that govern loan officers’ compensation; fair lending; and unfair, deceptive and abusive acts. These areas of compliance fall under the umbrella of regulators such as the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Housing and Urban Development (HUD), according to lawyers.

UWM’s deputy general counsel and chief compliance officer said there are “no unique regulatory risks with this program.”

UWM, which originated $33.5 billion in the third quarter, launched 2-1 and 1-0 temporary buydowns before expanding it to jumbo loans and recently announced a flat fee of $37.35 for credit reports



Source link