Yesterday probably added 100 grey hairs to my head and reduced my life expectancy by a few years. Just a completely stressful day on all accounts. It's bad enough Wednesdays are my busiest days at work, but I was trying to call my loan broker and his partner, trying to figure out what my wife wanted to do about the prospective houses, trying to keep my RE agent informed of what was happening, and trying to keep my sanity all along. It's no wonder newbies give up ... it's a lot of hard work, and I haven't even gotten a house under contract yet! :-)
Here's what happened ...
Loan Brokers
Sent broker email first thing in the morning. Got a response back later saying he's still working with his partner in getting me 100% financing, and it may be "another day or two." Not good, since three of the four properties get out of the "Lottery Round" the following day. Call him back and tell him to get me something TODAY. He sends me an email a little later with a prequal letter for 100% financing - FINALLY! The rates are piss-poor, but with my high DTI, it didn't surprise me. Doesn;t matter anyway as my plans are to turn right around and refi at 80%LTV. Sent email to broker asking him if my plan of getting the 100% loan and refi'ing at 80%LTV will work with my credit, DTI, etc. He asks me to call his partner directly as he may not be relaying my information correctly. By this time, it's mid-afternoon. I try calling and calling, but only get the guy's voicemail, so I leave a message. I also send him an urgent email, as I want to understand my options before making any offers. By the time I leave work, I still haven't received an answer. Great.
RE Agent
I give my agent heads-up on the four properties I'm interested in bidding. I also tell her that I'm trying to tie up some loose ends as far as financing goes, but I'll keep her informed. I ask her questions about the "Lottery Round" HUD instituted on several of these properties, and she says once that period is over and the properties are still available, anyone can bid on them. That explains why I needed to get the financing in order as the "Lottery Round" ended at 11:59pm on Wednesday. When I finally get the 100% financing prequal letter from my broker, I call my agent and tell her I have the letter, and will just need to get the $1k cashier's check, and we can meet in the late afternoon. After talking numbers over with my wife (I'll talk about that next), I call the agent back and ask if she could meet me at 4pm to get the paperwork signed, etc. She agrees. Whew! I leave work at 3:30pm, stop by my credit union to get the cashier's check, and meet her at 4pm, sign a few papers, give her the check (which she photocopied and returned to me), and am headed home by 4:20pm. While signing paperwork, we were talking and she explains that HUD agents AND their families cannot bid on HUD foreclosures. She says she didn't realize this when she became a HUD authorized agent, and it's the main reason she doesn't want to do HUD's anymore (along with buyer's not getting their financing straight and HUD dragging their feet with closings).
Wife
Sometimes I feel I'm taking two steps forward and three steps back with my wife regarding REI. I've tried explaining to her the different things I'm doing as far as acquiring properties and exit strategies. Either I don't communicate well, or I just need to sit down for an hour or two and start all over. For example, last night we were talking about House #1, and she asks if the houses I bid on would cashflow $300+/mo like House #1. I told her that House #1 doesn't cashflow $300+/mo as we need to pay property taxes at the end of the year and insurance premium once a year. All that figures into the monthly cashflow, too. For some reason this doesn't click. She just sees us paying $760/mo for the loan and getting a $1,100 check from the renters each month and figures that's the cashflow. :-( We also just paid $3,300 for property taxes in January and $750 for insurance in March, so that $340/mo positive cashflow is suddenly reduced to $2.50/mo. And that's not even considering maintenance (thank goodness there hasn't been a need for it yet), vacancy loss (again, not a concern yet, but will be), and management fees (we do our own management). If all that was added into the equation, we'd be negative an easy $200 or more each month. I doubt even the depreciation and other tax benefits would bring it above water, either. So trying to get her to understand why I submit offers the amount I do is hard to say the least. ALL of the properties I bid on would be cashflow negative from the get-go, but there is more to life than positive cashflow. I also told her we have over $40k in equity in House #1 already and that figure is growing each month thanks to market appreciation and the renters paying our debt down. Now imagine getting another house like that, and then another, and another. Another thing I'm having trouble getting her to realize is that we need to separate REI from our personal lives. IOW, we need to act like House #1 is a business. Get it deeded into an LLC. Set up a bank account solely for the LLC. Any profits/losses are a concern of the LLC and not us, personally. Right now, I believe she not only sees the $300+/mo phantom cashlow as actual cashflow, but also sees it as personal income. I got a lot of work ahead of me. :-(
Update: I just checked the HUD processor's web site for my area, and my outstanding offer was reviewed and promptly rejected by HUD. I kind of figured it would be as it is only 70% of the list price, and HUD theoretically has a floor limit of around 80% of list.
4 comments:
Another update ...
I noticed NONE of the houses that were in the "Lottery Round" were available anymore. Usually, the HUD processor's web site will give a brief history of bids on properties, but these showed nothing. All that changed was the status from "Available" to "Off Market". I called my RE agent and she said that means someone got them in the lottery, and they were no longer available. All that stress for nothing. WHAH! ;-P
Hey Steve,
I can sense your frustration man. I read your blog everytime you have a new post, and I can relate the challenges of having to work with other so-called professionals that don't act like professionals.
I live in California, and after the slowdown at the end of last year, and the shift in the marketplace due to higher interest rates checking prices, I have sat back and watched the ongoings. I have recently "jumped" back in, but still feeling my way around and learning new things along the way. What I do lack is a desire to continue to learn more ways to turn a house / profit in R.E.
I read Trisha#1's latest post yesterday, and that was encouraging as well as eye opening. I too let fear and lack of knowledge creep into my mind.
Don't give up Steve! Maybe let your wife read up on some other R.E. strategies to help both of you... and surely do get that house under an LLC! There are plenty of books in the library / bookstore on how to do this for little $$...just some suggestions :)
Hi Steve,
I can feel your frustration coming through my screen, with good reason! What part of your re-fi strategy is so complicated that your mortgage broker feels he cannot relay the details properly to his partner? What you want to do is something they should be able to give a go, no-go to very easily. They should have the guidelines and qualifications for their most common loan programs memorized. Maybe take that and the fact that the partner didn't call you back as a sign to move on to someone more interested in your business.
There are a lot of professionals in the real estate business right now who are not hungry. It's often hard to get calls returned or important work done on time because they just have so much business, they're overwhelmed and don't need you. If you're going to need quick responses to loan scenarios, I would look for a broker that understands your strategy and is willing to act quick when you need answers.
BTW I just posted a re-fi strategy that you may find interesting. It may also help turn those phantom cash flows into real ones for your wife's benefit :) See www.thelandlordblog.com
ed - Thanks for the encouragement and suggestions. The one thing I'm finding out in this business is that unless you're a big player with deep pockets, you're just another person. Not saying that you don't get ANY attention, but you just aren't a high priority. I can actually empathize.
anesia - Thanks as well. I knew (and used) the last two tips, but hadn't heard about the first one. Not sure if it can be done in my state or not, but I'll definately keep it in mind!
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