I remember reading that quote in Kellar's "The Millionaire Real Estate Investor" (a book I highly recommend to both novice and seasoned RE investors alike). As we are seeing with many homeowners today, people never really stop to consider the price of the money, but only the price of the property. Unfortunately, BOTH are crucial when buying a piece of property. For example, looking at two similar homes with one priced at $100,000 and the other at $120,000, one would instantly be attracted to the cheaper price. But then what happens is people don't fully research and look into the FINANCING of the home, and choose something that may, in fact, turn out the same or WORSE if they had chosen a different financing route with the higher priced home.
For example, if they chose the $100,000 home, but jumped on a 30yr fixed @8%, their payments would be $667/mo. Yet if they bought the $120,000 home, and did their homework by calling around, they may be able to find a 7/1 ARM @6% with monthly payments of only $600/mo. In 7 years (or even earlier), depending on their situation, they could refinance or sell the home. The difference in the amount they spent on the loan in those seven years would have been ($667-$600)x12x7= $5,628. Of course, many factors come into play when financing the property such as future goals, current/future budget, etc. The key, though, is to UNDERSTAND what it is you WANT beforehand so you are not wasting money each month on bad financing.
I'm mentioning all this because I have been diligently calling lending institutions in those areas out-of-state where I have been looking for properties. What I am finding out is that programs, terms, rates, etc. vary GREATLY. I've often heard that one of the best avenues for getting the premier programs are through local banks. However, the several I called had RIDICULOUS programs for investors (and some wouldn't even touch them). Here is a sample of some of the programs:
* Only loan 65% LTV for investment properties. No fixed rate terms - only ARM's, starting at 9.75%.
* No programs at all for investment properties. This happened with two banks I called. They were VERY small, so I guess they only catered to "traditional" buyers.
* Investment programs for local properties, ONLY. For example, one bank I called said they only lend to buyers in that specific county, regardless if it was a "traditional" homebuyer or investor.
* Several different programs for investors. Unfortunately, the rates almost floored me: 3/1 ARM @9.75%, 5/1 ARM @10.25%, and 10yr fixed @11.25%. Ouch!
After talking with numerous lending institutions, I FINALLY opted for one that seemed to have everything I wanted - has a variety of programs for investors, can lend on proeprties state-wide, and has reasonable rates. The loan officer told me they have a "special" program now for investors that will most likely last for another month or two. It's a 10/1 ARM @7%!!! He said closing costs would only be $695, too!!! Without realizing it, I blurted out "You're kidding me?" I told him I've been calling many other institutions and was being quoted insane programs. He said the 7% requires I put down 20%, and it jumps up 0.5% otherwise. I told him I would definately try to get the ball rolling on the properties I was currently looking at for those terms!
So, it definately PAYS (pun intended) to do some research in finding the price of the money!
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17 comments:
Hey Steve,
I thought you were the no money down/owner finance guy..Surprised to hear your considering putting down %20.. Whats the price of the properties? Were the cf figures you quoted me last week based off of %100 financing or 20 percent down?
Who said I WAS going to put (any of my own) money down? ;-)
Well spell it out then? Also you didnt answer ere the cf figures you quoted me last week based off of %100 financing or 20 percent down?
Well spell it out then?
In due time.
Also you didnt answer ere the cf figures you quoted me last week based off of %100 financing or 20 percent down?
20% down using MY money for the d/p. Not sure if I includd ROI figures as well, but they were based off the same assumption.
Well Ill be back to congratulate you when it goes down. You atleast used real world expenses included with your %20 down & had cg cf $100 a month per unit, unlike your blog butty Shaun whos about to have some "passive" losses on those rapidly appreciating Tulsa properties...
Give thanks that you didnt fall for the Tulsa hype.
Stay patient & you will make way better yields...
Not sure of Shaun's final numbers in the deal, so I can't comment. I just know at that time, I couldn't qualify for any reasonable amount of financing and hope to cash flow on the deals.
Wow, good research skills, Steve! I'd love to find a lender like that here, too! Most of the banks around here won't lend more than 75% on investment prop's. And, some of them start their rates at 9.25%. Plus, it seems like they change their minds constantly. One year, they'll be great for investors--the next they won't--then, they'll be great for investors again. I lose track!
Steve, I give you credit for allowing all comments, good and bad, and letting it all hang out.
The way that Shaun scrubs his comments is ridiculous.
GL, Steve. And you have balls for trying to invest in WV.
- Actually, I did have to scrub a few comments in the past that went a little overboard, and I came very close to setting up comments to be moderated before publishing, so I do have my limits. ;-)
Ill second what C said,
you dont take the easy way out by only allowing comments that cheer a obviously poor investment choice like your blog butty shaun... Constructive critizism is good & it might save you from making a choice especially if you blog about it.. Shaun must obviously be mesmorized by Trisha to keep buying one shabby investment after another. However I will give a shout out to Trisha because she knows how to work it & keep it moving...
I have to scrub some comments, too, when they border on--or, surpass--the ridiculous. I had one flamer tell me to go back to the kitchen and cook for my husband and kids and get out of the man's world. I figured it was a 13 year old kid looking for a reaction. I won't post that stuff.
Um, thanks, Starsky? What a backhanded compliment that was!
Does Starsky have a blog or even invest at all? Does anyone know? Not trying to offend, Starsky-- just interested.
Hey Trisha!
Nice to meet you & yes it was a genuine compliment. Your a go getter & seem to have excellent persuasive & promotional skills.. I like that about you. We both enjoy visiting Las Vegas so its all good.
No i dont have a blog, thought about doing one, but dont have the time yet.
Do I invest? well yes i sure do.. Ive read some of the rich dad books and learned to move money from E to B to the I quadrant.. Something i think most should do before jumping into real estate but thats IMHO. Leveraging 12k for a measly 200 month cf doesnt do anything for me, especially when I can start a business with $500 & enjoy %1000 yields infinite return to invest in properties without using my w-2 salary. Which from what i read, those books champion that approach.
Hi, Starsky!
It's nice to meet you, too! I have to admit, I've seen you post on other blogs and had to wonder about you...which is why I asked if you invest. It's hard to tell sometimes when people are critiquing because they actually know and have been there, or whether they just want to be a big shot in other people's eyes. The blogosphere is full of egos--including mine sometimes when it escapes from under the stairs. Do you know what I mean?
I think you should write a blog! Absolutely!
You've inspired me to write about something on my own blog. Come on by later!
Just wanted to drop a note here to say I rarely delete comments from my blog. They ARE moderated however and the only ones I delete are ones that are obvious spam for links to other sites, and the majority of stuff Starsky / Anonymous posts. It's painfully obvious that "Starsky" and some of the "Anonymous" comments I receive are left by the same people - same sentence structure, same misspellings, etc. In fact, "Starsky" didn't exist until I disallowed anonymous posting to my blog. After I while, I turned it back on and the "Starsky" comments disappeared and the "Anonymous" comments reappeared. Either way, when I feel he makes a valid point, I post the comment. My blog is meant to be educational, not confrontational. For instance, look at the topic of maintenance reserves. He refuses to accept the fact that he and I have a difference of opinion on this and he must have posted about 15 comments asking why I don't increase my reserves. Asked and answered! Move on! Add in his use of pejorative terms like "butty" and I think you'll understand why I prefer to delete comments that read as if a twelve year old wrote them. THAT is why I don't post his comments most the time. I have no problem with criticism - Doug O has criticized several things I've done. It just has to be constructive and it helps if it comes from someone I respect.
Steve - sorry for hijacking the comments here. This will be all I say on the matter.
Hey whats up Shaun,
I appreciate you breaking out the grammer police on me, Ill make sure that I will take my time when i type.. However a spade is a spade, that Tulsa rental you loved so much is/was a poor choice.. Nothing personal, Just business. IMHO.
I find it funny that people that blog and put most of their business on front street have such thin skin when it comes to criticism?
Steve, Keep on doing what your doing, keep plugging away. Im pulling for you & your success.
Shaun - I hear you. I had an anonymous person leaving some rather colorful "suggestions" a while back, which forced me to at least require a blogger/Gmail account in order to post. Everyone has their limits and when someone starts in with 4-letter words, I've definately reached mine. I also hate spam and people who only post to parrot their own wares. Haven't had any of these in a whie, thank goodness.
Starsky - I have to admit you came across a little coarse at first, but I passed it off to constructive criticism (which are both hard to discern via bits on a screen). I appreciate your input, especially if it helps me on the path to financial success.
One day I'm hoping everyone on these blogs can meet in person once a year to get to the "human" experience of who we are talking to. Let's all get along and prosper together!!!
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