All Forum Posts by: Tom Goans

I am reminded of what my father has continually repeated my entire life, there are more buyers for Chevys than Caddies. He also would remind me to do many small investments as appose to fewer large ones. The reason was I would be less hurt if one or two small investments failed. Plus, there were easier to fix.

Years ago, I got involved in buying older manufactured homes in mobile home parks. It takes very little investment money, and the rental pool is huge.

For example, I owned 20 homes in the same park. My investment was roughly $2500 per home. I owned the homes free and clear. Each home rented for $550 monthly. Do the math. A very fast return on my capital and a fantastic return on the investment with very low risk.

The homes were 3-bedroom 2-bath. I based the rent on what the rent would be for a low to moderate 1-bedroom apartment. This set up my marketing to be directed to pull apartment renters into my properties. Most of the time, a home would be vacant for 1 week or less. As soon as the Thrifty Nickel hit the stands, the home would be rented in a day or two.

Perhaps this will give you an idea of a low-cost investment for your portfolio.

Matt,

I have been a lender since the 1960s. My grandfather and father taught me to have conversations with the potential borrower and learn what makes them tick and the plans they have. What are their hobbies and aspirations? Personally, I look to see how new the automobile(s) is, if they are wearing designer clothes, and if they wear jewelry. Today, I include the type of cell phone they own. Credit reports and loan applications do not do this ... at my last check.

I am not aware of any mainstream lenders making any determination or factoring in the rising cost of living or cost of real estate ownership. The big-ticket items are insurance and taxes. How many properties have deferred maintenance?

A simple answer as to why most people default on their loans is money. They do not make enough to handle all of the burdens. They have been too extended from the moment they signed the papers.

The cause of many defaults rests on the lenders themselves. Here is an example why I say this. I had a large family buying a home from me. The husband was a truck driver. Nearly every year, he would be laid off for 2-3 months during the winter. Instead of me foreclosing, I let them skip paying me those months. No big deal for me. They do not get title to the property until the loan and all the interest is paid in full. If I had foreclosed, it would have taken months, cost me a lot of money and time, and what would I have accomplished in the end. Nothing. By the way, this family now owns their home Free and Clear. Everyone wins.

Mark,

One of the skeletons in the closet is the studies the past several years and even recent studies that indicate household and personal income buying power is equal of that of a decade alone. Buying power is not keeping up with present-day inflation. Plus, many personal and household budgets are disregarding the huge increases in cost of living on the horizon.

Another skeleton is a couple of months ago; the US government released a report showing the number of people in the workforce is equal to that of 1992.

How many people are now working for less than they were in 2006? How many more will be during the next 5 years?

You are absolutely correct, there are many players. I have seen many old, established developers and builders make the same mistake. Many time, greed are the blinders they wear. They have no concern for the community they are developing.

I could not tell you how many times a real estate agent claimed the property was "cheap", going to appreciate, and was a terrific buy.

Presently, the studies I am reading are suggesting the largest sector of present-day real estate buyers have been for more than a year and remains investors. The studies are conducted all over the U.S.

As for hedge funds, keep in mind many of them lost their shirts by holding real estate securites and properties that within a few days was worth a fraction of their original investment.

No.

I have provided the purchase financing for the properties I owned and sold since the 1960s. Many I have sold for NO DOWN. These loans are just as sound, if not more so.

I never obtain a credit report, never ask the borrower (or tenant) to fill out an application, and yet, my loan portfolio goes with a delinquency or default for many years. My father has the same experience as did my grandfather.

I can have an email conversation with you and can tell if you are going to be a good payer or not, including rent.

Let me give you an example. In November, one of my borrowers sent an email stating the IRS sezied their bank account and that they had no money to make a payment. I asked if they still had an interest in buying. The answer was yes. I asked if I restructure the loan to have weekly payment (when they got paid) would help. They said yes. So, this is what I did. They have been early with their payments ever since. Most lenders would have gone through the huge expense of foreclosure, had huge costs with continued holding costs, an unpredictable history ... and here I am making deposits and the borrower is happy as can be. Everyone wins.

The old system of lending has a huge list of flaws. The new one with the larger down payment does not address the skeletons in the closet that are the real reason why many people default. Most importantly, mainstream lenders continue to allow people to become over-extended the moment they sign the paperwork and buy properties that may not actually be worth the loan amount, much less the purchase price.

Your question would be extremely difficult to address with knowing your entire financial picture, especially your future plans.

You should really ask this question to a financial planner or CPA. It will be well worth the cost. In fact, the cost could be paid for instantly should you make a wrong move.

Sturcturing should consider the present day tax burden, but also include future tax burden, retirement, and heirs.

Some believe a Trust is a better method for financial planning. Land trusts is talked about a lot.

Are you aware many who have accumulated large amounts of money use trusts? You have probably heard of children trusts.

There are way to many considerations to pose this critical issue to a blog, in my opinion.

I have financed properties I owned and sold since the 1960s. Additionally, I have bought and sold a huge number of real estate securities over the years. Jon is correct, many times somewhere in the security documents will be a clause allowing to to obtain a credit report. If not, there are ways to play dirty, but I don't recommend this. A content borrower is a good payer.

To expand the scope, have you had a conversation with a financial advisor concerning selling the loan and what it would mean to your finances? At the very least would be taxes. There may be better ways for you to work with this income stream. After all, it is an income stream that you can borrow against or pass on to your heirs.

As a note buyer, the value of a property as suggested by an appraisal or similar method does not mean much to me. There are a lot of lenders with rooms full of thick folders containing appraisals on properties the banks now own. This is why most note buyers discount the amount they will pay so greatly. They are factoring in the possibility they will own the property some day.

Your $420,000 loan would probably bring only about $200,000 if you sell it. You can sell an income stream a year at a time and suffer much less loss.

I predict another bubble that will include the residential rental market. One occurs every decade. This coming one may be a bit harder to survive. It all depends upon your financial position in the property and market. If you are able to out compete your competitors is a huge factor. If your property is more desirable is another huge factor.

If I may offer an idea should this be a rental property, years ago I stopped doing a typical lease and converted to a Lease with Option to Buy. This was an excellent move with countless advantages for numerous reasons.

No, this property has been around since the 1980s. It is on the south side off of the Circle/Lake exit adjacent to I-25.

You brought up another excellent example of hype. I believe the hotel you are thinking of is the Raddison on the north side of town. The contractor is now the proud owner of that unfinished property. The company has been unsuccessfully trying to sell it for several years.

About a half mile east of that property, a developer I personally know lost that 158-acre property. It was sold at auction in March and has been sitting idle since 2008. She was planning a huge multi-use development that included retail, offices, and condos. This development wiped her out. She lost everything and all the properties she owned and had built in her lifetime, including her personal residence.

A good lesson learned by those who study the circumstances.