All Forum Posts by: Joffrey Long

Samantha,

That's a big, huge, "it depends."

It would depend on so many things, your other income, your other assets, your financial needs, your tolerance for risk, how hard you're willing to work now and later, your age, your family needs, i.e. kids, aging parents, bla bla, what you're otherwise investing in, your experience in investments, your plans for the next 5, 10 or 15 years, and on and on and on.

I will say that for anyone, it's hard to get it exactly right.

This means that for most people, you will err to the conservative (not enough leverage) or err to the aggresive. (high leverage)

For many years, I erred to the agressive, and had related losses. About 20 years ago, or so, I changed, and since then I stopped erring to the agressive and started to err to the conservative.

I've never really had the perfect amount of leverage that I could handle. Having had some more leverage than I've had during the past 20 years would generally would have advanced me further.

The darn problem is that real estate has downturns. This one that just happened was my 3rd, and it's the first one that didn't burn me good. And then there could be personal downturns, loss of other income, somebody gets real sick, and if you're highly leveraged it doesn't help during those either.

Bottom line, accept that you probably won't get it perfect.

If you err to the agressive, it can be quite bad.

If you err to the conservative, all you lose is "potential gains" that you never really had to pay for or work for.

Feel smarter already? Hope this all helps. Ok, I'm off to the gym to work off some of this "prosperity."

Joffrey

Thanks, Samantha.

I guess I should tie together my "two lives" here, speaking out of one side of my mouth as an investor and the other as a lender. I'll clarify that as a hard money lender, I do encourage people to use leverage to buy investment property. Carefully, though.

I frequently sell my hard money by selling the investor on using hard money to buy, then working to pay off the debt as quickly as possible.

Joffrey Long

John,

Right on! There's a leak, they don't "bother" you, and you wind up with $25,000 or here in Calif. $200,000 in mold repairs due to years of moisture and a personal injury suit - not covered by insurance.

Oh yeah, call me, please, Mr. Tenant!!!!

Plus, after years of being bothered by tenant calls, I realized that tenant calls are an OPPORTUNITY, to build a more solid loyal relationship with my housing customer and like the cable provider who won't let you cancel your service, KEEP THE CUSTOMER!!!!!!!!!

Matt,

My big change, as a housing provider was when I realized that the "big picture" for me, was to maximize service and value, and then get the highest rents, and retain tenants for the longest period of time.

I'll grumble a little, paint over the kid's crayon markings and even wash or replace the carpeting. But frankly, I'm too busy trying to figure out how to maximize rents and reduce turnover to spend too much time trying how to ding them for crayon markings.

Not to say your pursuit is without value.

Like standing in front of a mirror naked, schedule E of your tax return tells all. My schedule E tells me that tenant turnover, not crayon markings, makes my numbers bad instead of good.

Hopefully those reading this will figure it out faster than I did. It took me about 17 years of landlording to learn this - but you never saw me post that I'm a fast learner.

Joffrey Long, C.G.A.L.*

*Certified Grumpy Aging Landlord

Bill G.,

Correction of your correction. I only offered formulas for calculating annual (simple) interest, NOT the APR. I made only a general comment on the APR, and did not offer any formulas or calculations for it.

He wasn't asking about a consumer loan, and I believe his question was about actual simple interest cost, not APR, although he (most likely incorrectly, and not meaning to) used that term.

Thanks,

Joffrey

Welcome to BP, John.

Being in Riverside is a great advantage - amazing deals there and not as many competing investors.

I'm in San Fernando Valley and work LA, Orange and Riverside Counties with my lending and investing.

Joffrey Long

A "good" credit repair company?

Credit cannot be repaired.

There are only two things that can be done to cause a credit report to improve:

1) the removal of legitimate errors, which you can do yourself, or perhaps, some assistance from a third party could help.

2) actually engaging in a practice of managing debt so that the credit is truly better.

That said, there are some odd factors that can improve credit, all which you can get from many simple books on credit repair, or free from the internet.

Those that claim that they "know 359 laws that creditors must follow, and for $800 they will force those creditors to remove negative items from credit," may not really pan out that way.

There's a book out there, written by Philip X. Tirone called "7 Steps to 720," which I think is the "standard" for self-credit repair. But there are many, many other resources, so find what you think is best.
(Disclosure: Mr. Tirone once bought me coffee at a Starbucks in Brentwood, Calif.)

Also, my advice (from my perspective as a lender and as a property seller) is be very careful about those who need a credit profile other than the one they currently have in order to transact with you. I'd be inclined to give them my card and tell them to call when THEY have "fixed up" their credit.

Although they all have a compelling and dramatic story as to why it's "really not their fault," that their credit is a disaster, I've wasted a lot of time and money during the 90's when I used to fall for this. And I've helped many people with their credit, as I know how to improve credit, and been repaid by their dealing with someone else.

If they're on the right track, they'll clean it up on their own, and you'll be happy to sell the next rehab to them when they qualify.

Just the rants of a cranky old lender/investor, hope it's of some help,

joffrey long

Samantha,

Here are some thoughts from a guy who has invested in residential rental properties over 35 years, done quite well, but has near-collapsed twice (decades ago) under too much debt.

Real estate leveraging always has the seductive pull of being able to do more, more, more if you use leverage. Leverage can be great, but too much can be your undoing.

Best recommendation I can give: Talk to some old-timers in your area who have invested for a few decades and will admit to having messed up a time or two with leverage. Then, evaluate the info. you gather and set your own "investment policy" as to how much leverage you will use.

I can also tell you my perspective as a lender. I've met a number of people who wound up, after years of investing, being well-off and teling me that having a number of properties paid for was the key to their success.

I've yet to meet a wealthy person who said that having a lot of leverage was the key to their success. (They may exist, but I have not met them.)

Hope that helps.

Joffrey Long

Wow!

Powerful comments, some hard words, but great thread! (IMHO)

As far as what's wrong with the hard money industry, I'm partly responsible. (For California)

No, I'm not a ripoff lender, but I am the Education Chair for the largest (well, for that matter, the only) statewide trade association (in Calif.) for hard money lenders. (CaliforniaMortgageAssociation.com)

So, as rehabbers and investors become an increasingly important part of our borrower base, I'm very interested in the comments of investors, rehabbers and the general BP poster/readership as to how we can improve our perception in the marketplace.

Keeping in mind that we're just CALIFORNIA, we can still learn from the comments of Bill G., (who is not in Calif.) and the others who were kind enough to share.

Obviously, being a trade association, we consider ourselves the "white hat" guys and already believe we are doing things correctly, but we know even our practices can be greatly improved.

Here's what I got so far from this post, as far as what the investing/rehabbing world wants from us:

1) Transparency, an honest quote up front, that you can close with

2) REASONABLE pricing, the hml can make money, but not an excessive or unreasonable amount

3) Having upfront rules, so borrowers know what requirements have to be met, etc.

4) Clear policies on credit scores and qualifying

Comment: Although some hmls, like me, give little and in some cases, no consideration to credit scores, some do raise money from investors who set credit score minimums.

My opinion is hmls should have whatever policy they feel is best for credit scores, but disclose it up front, and clearly from the start.

Again, thank you all for helping me do my job. As Education Chair, we're resonsible for three or four major, two-day seminars on laws, practices, responsibilities and business models for hmls. There are many different types of lenders, borrowers and situations, so a resource like this really helps me.

Please keep the comments coming.

Joffrey Long
Granada Hills, CA

P.S. My comments here are my own as a practitioner, and my statemtents or questions are not made as a representative of, or on behalf of the Caliornia Mortgage Association (CMA). (although I hold a position in that organization) CMA has not reviewed, endorsed or participated in this post.

Dennis,
You've got several questions here, some without enough information to really answer.

First, if they tell you a 12% APR,* that information alone does not tell you enough to tell you what the monthly payment is, unless this is a credit line where you only have to pay interest every month. (interest only payments)

If it is "interest only" and it is 12%, then Josh is right, you just figure loan balance X 12%, then divide that number by 12. (months)

Example, you owe 20,000.

20,000 X 12% = 2,400 annual interest.

Divide 2400 by 12 and it's 200 per month.

Second, your question "if I pay it in 6 months it will be even less."

The truth is, this is most likely a simple interest loan (check again with Mr. Banker), that means that interest is always computed in the most simple manner, by just charging you interest, at the agreed upon rate, on the amount you owe, for the time you owe it.

If it is simple interest, then if you borrow the same 20,000 for six months, you would still pay 12%, but it would be $200 a month interest (at 12%) for six months, or a dollar total cost of 1,200.

The interest rate normally doesn't change based on how long you have the money. Don't confuse paying a half a year's interest ($1,200) with paying less than 12%. You're paying 12%, for the period of time you have the money. It's simply calculated and charged (at 12%) for a shorter period of time (6 months).

You asked that it be explained in detail, so I hope this isn't toooo detailed, but I'm going to give you the calculator punches on a simple 4-function calculator:

(amount borrowed) X (interest rate) = (annual interest**)

(annual interest**) divided by (12) = (monthly interest)

(monthly interest) times (number of months you owe the money) = total dollars of interest paid

**annual interest expressed as a dollar figure for total one year's interest at that rate

*APR: I think you might just want to think in terms of the interest rate, instead of saying APR (annual percentage rate) as the APR is a combined rate that includes the interest rate being charged, and all other "finance charges" such as up front lender fees, prepaid interest, etc.

The APR is required under TILA, the Truth in Lending Act, and only applies to consumer loans, so would not apply to a business loan, but your business banker might just be in the habit of using that term anyway.
Dennis, are you still awake? Ok, hope this helps.
Joffrey Long

This is much more valuable than "wastebook."

And, I've lost 9 pounds, since I don't see all those food pictures every time I log in!

Welcome, Ben. I compliment you on getting an early start investing. You'll be able to figure this out before you run out of energy - that's important. A lot of guys - by the time they really learn it, their batteries have run down.........or out.